2nd Mar 2005 12:00
12 noon GMT 7am EDT Strong 2004 performance: Positive outlook for 2005 Basingstoke, UK - March 2, 2005 - Shire Pharmaceuticals Group plc (LSE: SHP,NASDAQ: SHPGY, TSX: SHQ) announces results for the twelve months to December31, 2004.Full Year Unaudited 2004 Results Highlights Restated US GAAP 2004 (1) $M 2003 Growth $M Total revenues 1,363.2 1,211.6 +13% Operating income 446.4 419.6 +6% Income from continuing operations before income taxes and equity in earnings/ 459.9 406.3 +13% (losses) of equity method investees and discontinued operations Income from continuing operations 333.3 297.9 +12% Net income 269.0 276.1 -3% Diluted Earnings Per Ordinary Share: Continuing operations 65.9c 58.4c +13% Discontinued operations (12.6c) (4.2c) _______ _______ 53.3c 54.2c -2% Diluted Earnings Per American Depositary Share (ADS): Continuing operations 197.6c 175.2c +13% Discontinued operations (37.7c) (12.6c) _______ _______ 159.9c 162.6c -2% Diluted Earnings Per Share (EPS) from Non GAAP GAAP(3) continuing operations: (2) Per ordinary share 70.6c 58.4c +21% Per ADS 211.8c 175.2c +21% The 2004 non GAAP EPS excludes 2004 reorganization costs and the gain on sale of an investment Note: Average exchange rates for 2004 and 2003 were $1.83: ‚£1.00 and $1.64: ‚£1.00 respectively. 1. The results for 2003 have been restated to reflect the disposal of the vaccines business, accounted for as a discontinued operation in accordance with generally accepted accounting principles in the United States of America (US GAAP). In accordance with US GAAP guidelines, 2003 figures from revenues down to income from continuing operations exclude the results of the vaccines business, while 2003 net income and earnings per share include the results of the vaccines business. 2. This is a non GAAP financial measure for 2004. Management believes that the presentation of this non GAAP financial measure provides useful information to investors regarding Shire's underlying performance as the costs associated with the reorganization and the gain from sale of an investment are not part of the Company's ongoing operations. A reconciliation of this non GAAP financial measure to the most directly comparable US GAAP financial measure can be found on page 23. 3. The 2003 GAAP EPS includes the strategic initiative costs of the closure of Lead Optimization and certain properties. Matthew Emmens, Chief Executive Officer, said:"We have delivered on all our strategic and financial objectives for 2004.During 2004, we received six new drug approvals in Europe and in the US - a100% success rate and a record for the Company. We advanced our new strategythrough the divestment of the vaccines business, the out-licensing of non-corecompounds and the establishment of new therapeutic area teams. We havesuccessfully undertaken a significant restructuring and have materially reducedour number of operational sites in North America, substantially improving ouroperational efficiency. ADDERALL XR‚® became the most prescribed treatment forAttention Deficit Hyperactivity Disorder (ADHD) in the US and we signed acollaborative agreement with New River Pharmaceuticals to commercialize anexciting new Phase 3 ADHD compound.Our achievements in 2004 ensure that Shire is in good shape moving into 2005.This year, we are excited to be launching FOSRENOL‚® and EQUETROTM in the US andXAGRID‚® and FOSRENOL in Europe and anticipate three additional projects beingregistered for approval. We are particularly pleased with the early sales ofFOSRENOL in the US. The improved focus of the Group means we are well equippedto search for further projects and products that fit our model. Our outlook for2005 is positive and our longer-term position remains promising as our pipelinecontinues to advance."2004 Financial and Product Highlights * Revenues up 13% to $1,363.2 million, compared with 2003. * Royalties up 13% to $230.4 million, compared with 2003. * Income from continuing operations improved 12% over 2003. EPS from continuing activities grew 21% based on a non GAAP measure for 2004 excluding 2004 reorganization costs and gain on sale of an investment, in line with the Company's previously published guidance. * Second interim dividend of 2 pence, equivalent to 3.85 US cents per ordinary share (11.55 cents per ADS), making a total for the year of 3 pence, equivalent to 5.67 cents per ordinary share (17.02 cents per ADS). No dividends were paid in prior years. * ADDERALL XR: reached 25% share of the total US ADHD market in December 2004 making it the first treatment of choice in the US. Sales increased by 28% to $606.7 million compared with 2003. * ADDERALL XR Adult: United States Food and Drug Administration (FDA) approval received in August 2004, US launch commenced. * ADDERALL XR: six months additional market exclusivity granted by the FDA through to April 2005. * ADDERALL XR: in February 2005, Health Canada announced the suspension of sales of ADDERALL XR in Canada. The FDA subsequently issued a statement in which it advised that after consultation with the Canadian authorities regarding the basis for their action, it did not feel that any immediate changes were warranted in the FDA labeling or approved use of ADDERALL XR based on its preliminary understanding of Health Canada's analyses of adverse event reports and the FDA's own knowledge and assessment of those reports. * FOSRENOL: FDA approval received in October 2004 and shipments commenced in the US in December 2004. First sales in January 2005 captured 3.3% of total new prescriptions in the US phosphate binder market for the treatment of end stage renal disease (ESRD). * FOSRENOL: received approval in Sweden during 2004. European launches planned for 2005. * XAGRID: EU approval received in November 2004; launch commenced January 2005 and will be phased throughout 2005. * PENTASA‚® 500 mg: FDA approval received in July 2004 and launched in the US in September 2004. * EQUETRO: FDA approval received in December 2004; launch planned for first half of 2005. 2004 and recent strategic achievements * Collaborative agreement signed in January 2005 with New River Pharmaceuticals Inc. (New River) for the global commercialization of NRP104, a Phase III compound, for the treatment of ADHD and other potential indications. * Completion of the sale of the vaccines business to ID Biomedical Corporation (IDB) in September 2004 for proceeds of $120 million ($60 million in cash and $60 million in IDB subscription receipts); the subscription receipts were redeemed by IDB for $60 million in cash in January 2005. * SPD754 (HIV compound): global research, development and marketing rights (except US and Canada) out-licensed to Avexa Ltd in January 2005. TROXATYL‚® (oncology compound): global research, development and marketing rights out-licensed to Structural GenomiX in July 2004. 2005 Financial OutlookShire's business continues to perform strongly. Revenue growth for 2005 isexpected to be in the high single-digit to low double-digit range. Revenue andearnings growth for 2005 is anticipated to be in line with our expectations,subject to consumer sentiment in the US ADHD market following Health Canada'ssuspension of ADDERALL XR.The guidance for the full year set out above takes into account certain phasingissues affecting both revenues and costs that Shire currently expects willimpact first quarter 2005 earnings. These issues are summarized as follows: * ADDERALL XR sales are expected to be flat compared to Q1 2004 as a result of: (i) US wholesaler de-stocking, following a price rise in December 2004, and the negotiation of new "fee for service" wholesaler agreements in the US during Q1 2005 (which should lead to less volatility in pipeline inventories between future quarters); and (ii) reduced product sales in Canada following Health Canada's suspension of the product. Canadian sales of Adderall XR for Q1 2005 were forecasted to be US$3.1 million before this suspension. * Following the very good progress of the late stage pipeline over the last twelve months and the expectation of three project filings in 2005, R&D costs in Q1 are expected to be in the high teens as a percent of revenues compared to the very low level of spend experienced in Q1 2004 of 12% of revenues. Over the course of the full year the percentage increase in R&D costs is expected to be broadly in line with expected percentage growth in revenues. * SG&A expenses in Q1 2005 are expected to increase by approximately $20 to $30 million compared to Q4 2004, reflecting the costs associated with four product launches in the first half of 2005. The expected growth in new product sales from Q2 onwards will increasingly absorb these costs, which are expected to moderate over the course of the full year. The financial outlook for the full year and the Q1 2005 guidance stated aboveboth exclude the accounting impact of the upfront cash payment of $50 millionto New River in Q1 2005.Use of CashIn respect of the six months to December 31, 2004, the Board has resolved topay a second interim dividend of 2 pence, equivalent to 3.85 US cents perordinary share.Dividend payments will be made in Pounds Sterling to Ordinary Shareholders, USDollars to ADS holders and Canadian Dollars to Exchangeable Shareholders. Adividend of 2 pence per ordinary share, 11.55 US cents per ADS and 14.33Canadian cents per Exchangeable Share respectively will be paid, based onexchange rates taken on or immediately before the date of the Board resolutionto pay the dividend. The dividend will be paid on April 14, 2005 to personswhose names appear on the register of members of the Company (or to personsregistered as holders of Exchangeable Shares in Shire Acquisition Inc.) at theclose of business on March 18, 2005.Shire intends to pursue a progressive dividend policy. Any growth willtypically come through increasing the second interim payment for each financialyear.Shire intends to use its retained cash reserves primarily to fund theacquisition of projects and products either in the form of in-licensing dealsor company acquisitions.New Accounting StandardsShire will be required to adopt new accounting standards under both US GAAP andIFRS during 2005.US GAAP and FAS 123RShire's primary basis of financial reporting is US GAAP. By the third quarterof 2005 Shire, in conjunction with many other US GAAP reporting companies, isrequired to have adopted FAS 123R in respect of share option accounting. Thisaccounting standard applies a fair value methodology in quantifying theaccounting charge associated with the grant of share based compensation toemployees.Shire has previously disclosed in its Annual Report on Form 10-K for 2003 filedwith the SEC the charge that would have resulted from the full adoption of afair value methodology under FAS 123. The application of this methodology wouldhave resulted in a pre-tax, non-cash charge of $32 million for 2003, $24million for 2002 and $32 million for 2001.Based on the expectation that similar levels of share option-based compensationwill be granted to employees in 2005, it is anticipated that the 2005 annualFAS 123R charge for Shire will not be fundamentally different from the FAS 123disclosures made in the three years to December 31, 2003. The accounting periodfor the year to December 31, 2004 will be restated for comparative purposes.IFRSShire also files statutory accounts in the United Kingdom based on UK GAAP.With effect from January 1, 2005 International Financial Reporting Standards(IFRS) are being adopted in the UK. The accounting period for the year toDecember 31, 2004 will be restated for comparative purposes. For Shire,material changes from the numbers reported under UK GAAP prior to the adoptionof IFRS are expected to include changes to share option accounting, thecessation of goodwill amortization and the reassessment of acquisition goodwilland intangibles.Further material changes may come to light during our IFRS implementationprocess. However it is not expected that adjustments in respect of definedbenefit pension schemes and financial derivative transactions will have asignificant impact on Shire; Shire only makes limited use of financialderivatives and, other than a residual SERP scheme (net asset value of $3million), Shire only makes contributions to defined contribution pensionschemes.In addition to filing annual statutory accounts prepared under IFRS, Shire willissue half yearly and annual IFRS financial information in addition to thequarterly and annual US GAAP results announcements. - Ends - For further information please contact:Investor Relations Clƒ©a Rosenfeld (Rest Of the World) +44 1256 894 160 Brian Piper (US and Canada) +1 484 595 8252 Media Jessica Mann (Rest Of the World) +44 1256 894 280 Matthew Cabrey (US) +1 484 595 8248 Notes to editorsShire Pharmaceuticals Group plcShire Pharmaceuticals Group plc (Shire) is a global pharmaceutical company witha strategic focus on meeting the needs of the specialist physician andcurrently focuses on developing projects and marketing products in the areas ofcentral nervous system (CNS), gastrointestinal (GI), and renal diseases. Shirehas operations in the world's key pharmaceutical markets (US, Canada, UK,France, Italy, Spain and Germany) as well as a specialist drug delivery unit inthe US.For further information on Shire, please visit the Company's website: www.shire.comTHE "SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACTOF 1995Statements included herein that are not historical facts are forward-lookingstatements. Such forward-looking statements involve a number of risks anduncertainties and are subject to change at any time. In the event such risks oruncertainties materialize, Shire's results could be materially affected. Therisks and uncertainties include, but are not limited to, risks associated withthe inherent uncertainty of pharmaceutical research, product development,manufacturing and commercialization, the impact of competitive products,including, but not limited to, the impact of those on Shire's Attention Deficit& Hyperactivity Disorder (ADHD) franchise, patents, including but not limitedto, legal challenges relating to Shire's ADHD franchise, government regulationand approval, including but not limited to Health Canada's suspension ofADDERALL XR sales in Canada and the expected product approval dates ofMETHYPATCH‚® (methylphenidate), SPD503 (ADHD), SPD 476 (Ulcerative Colitis) andNRP104 (ADHD), including its scheduling classification by the Drug EnforcementAgency in the United States, Shire's ability to secure new products fordevelopment and other risks and uncertainties detailed from time to time inShire's filings with the Securities and Exchange Commission, including itsAnnual Report on Form 10-K for the fiscal year ended December 31, 2003.The following are trademarks of Shire or companies within the Shire Group,which are the subject of trademark registrations in certain territoriesADDERALL XR‚® (mixed amphetamine salts)AGRYLIN‚® (anagrelide hydrochloride)CARBATROL‚® (carbamazepine)EQUETROTM (carbamazepine)FOSRENOL‚® (lanthanum carbonate)TROXATYL‚® (troxacitabine)XAGRID‚® (anagrelide hydrochloride)The following are trademarks of third parties3TC‚® (trademark of GlaxoSmithKline (GSK))PENTASA‚® (trademark of Ferring AS)REMINYL‚® (trademark of Johnson & Johnson)ZEFFIX‚® (trademark of GSK)AMARYL‚® (trademark of Sanofi Aventis)OVERVIEW OF US GAAP FINANCIAL RESULTS 1. Introduction Revenues from continuing operations for the year to December 31, 2004 increasedby 13% to $1,363.2 million (2003: $1,211.6 million).Diluted EPS from continuing operations increased by 13% to 65.9 cents, or 197.6cents per ADS. On a non GAAP basis, diluted EPS from continuing operations was70.6 cents per ordinary share, or 211.8 cents per ADS for 2004, an increase of21% compared to diluted GAAP EPS from continuing operations for 2003. The nonGAAP basis for 2004 excludes the impact of the $48.5 million cost associatedwith the reorganization and the $14.8 million gain on the sale of the portfolioinvestment.The business continues to generate a significant amount of cash with $520.7million generated from operations (2003: $379.1 million).Cash and cash equivalents, restricted cash and short term investments atDecember 31, 2004 totaled $1,457.5 million (December 31, 2003 $1,414.0million). During the year to December 31, 2004 the Company redeemed $370.1million of its convertible loan notes (2003: $29.8 million). After deduction ofborrowings, the Company's net cash position (cash and cash equivalents,restricted cash and marketable securities less current and long-term debt)totaled $1,457.4 million at December 31, 2004 (December 31, 2003: $1,037.7million). Shire intends to use its retained cash reserves primarily to fund theacquisition of projects and products either in the form of in-licensing dealsor company acquisitions. 2. Product sales For the year to December 31, 2004 product sales increased by 11% to $1,112.5million (2003: $1,004.3 million) and represented 82% of total revenues (2003:83%).Product Highlights Sales Sales** US Rx1 Product $M Growth Growth US Market Share1 ADDERALL XR 606.7 28% 21% 25% AGRYLIN 152.5 15% 6% 28% PENTASA 115.0 16% 2% 18% CARBATROL 54.3 4% 11% 46% 1 IMS Prescription Data - Product specific at December 31, 2004**Compared to 2003ADDERALL XR for the treatment of ADHDSales of ADDERALL XR for the year to December 31, 2004 were $606.7 million, anincrease of 28% compared to the prior year (2003: $474.5 million).US prescription growth was up 21% over the same period, due primarily to a 17%increase in the total US ADHD market and an increase in ADDERALL XR's marketshare. ADDERALL XR had a 25% share of the total US ADHD market in December 2004(December 2003: 23%) making it the leading brand in the US ADHD market at theend of 2004.The difference between sales growth and prescription growth is due to theimpact of price increases in November 2003, June 2004 and December 2004 whichhave been partially offset by higher sales deductions and allowances (primarilyMedicaid rebates and promotional activities).On February 9, 2005, Shire announced that Health Canada had suspended sales ofADDERALL XR in Canada where sales in 2004 amounted to $7.8 million. Followingthe Health Canada announcement, the FDA issued a statement in which it advisedthat after consultation with the Canadian authorities regarding the basis fortheir action, it did not feel that any immediate changes were warranted in theFDA labeling or approved use of ADDERALL XR in the US based on its preliminaryunderstanding of Health Canada's analyses of adverse event reports and theFDA's own knowledge and assessment of those reports. Although Shire iscomplying with Health Canada's suspension request, the Company stronglydisagrees with the conclusions drawn by Health Canada and has lodged an appeal.As previously announced, litigation proceedings relating to our ADDERALL XRpatents are in progress. Shire remains committed to protecting its patentsrelating to ADDERALL XR. Further information may be found in our filings withthe US Securities and Exchange Commission, including our Annual Report on Form10-K for the year to December 31, 2003 and/or our most recent quarterly reporton Form 10-Q for the period to September 30, 2004.AGRYLIN/XAGRID for the treatment of thrombocythemiaWorldwide sales of AGRYLIN/XAGRID for the year to December 31, 2004 were $152.5million, an increase of 15% compared to the prior year (2003: $132.5 million).US sales were up 13% primarily due to increased prescription volumes (up 6%compared to 2003) and the effect of price increases in April and November 2003.AGRYLIN had a 28% share of the total US AGRYLIN, hydrea and generic hydroxyureaprescription market in December 2004, compared to 27% in December 2003.AGRYLIN's pediatric exclusivity expired in September 2004 in the US. Shirecontinues to anticipate the launch of generic versions of AGRYLIN but nogeneric products have come to market to date. Shire filed a Citizens' Petitionwith the FDA in August 2004.International sales (all sales outside of the US) reported in US dollars wereup 20%, due to strong growth in Canada and Europe (where AGRYLIN was sold on anamed patient basis) and, because these sales revenues are earned in currenciesother than US dollars, the benefit of favorable translation effects. Salesoutside the US for the year to December 31, 2004 were $46.8 million (2003:$38.9 million).AGRYLIN gained EU approval in November 2004 and trades under the name XAGRID.The product will have up to 10 years market exclusivity in accordance withcurrent orphan medicinal product legislation in the EU.PENTASA for the treatment of ulcerative colitisSales of PENTASA for the year to December 31, 2004 were $115.0 million, anincrease of 16% compared to the prior year (2003: $99.3 million).US prescription volumes increased 2% over the same period, in line with theoral mesalamine/olsalazine market growth.The difference between sales growth and prescription growth is due to priceincreases in April and November 2003, and September 2004 and a moderate levelof wholesaler stocking in 2004, primarily due to the launch of the 500mgformulation.PENTASA had an 18% share of the total US oral mesalamine/olsalazineprescription market in December 2004, unchanged from December 2003.CARBATROL for the treatment of epilepsySales of CARBATROL for the year to December 31, 2004 were $54.3 million, anincrease of 4% compared to prior year (2003: $52.4 million).US prescription volumes were up 11% due to the impact of renewed promotionalefforts and despite an overall decline in the carbamazepine market of 5%.The difference between the sales growth and prescription growth is due to priceincreases in 2003 and August 2004 being more than offset by higher salesdeductions.CARBATROL had a 46% share of the total US extended release carbamazepineprescription market in 2004 (2003: 43%).Patent litigation proceedings relating to CARBATROL are in progress. Furtherinformation may be found in our filings with the US Securities and ExchangeCommission, including our Annual Report on Form 10-K for the year to December31, 2003 and/or our most recent quarterly report on Form 10-Q for the period toSeptember 30, 2004. 3. Royalties Royalty revenue increased 13% to $230.4 million for the year to December 31,2004 (2003: $203.6 million) as a result of both strong sales growth andpositive foreign exchange movements.Royalty HighlightsProduct Royalties to Royalty** Worldwide in-market sales by Shire Growth licensee2 in 2004 $M % $M 3TC 155.8 +8%1 1,184 ZEFFIX 27.4 +11%1 240 Other 47.2 +37% n/a 1 The impact of foreign exchange movements has contributed +3% to the reportedgrowth2 GSK** Compared with 20033TCRoyalties from 3TC for the year to December 31, 2004 were $155.8 million, anincrease of 8% compared to 2003 ($144.6 million). This was primarily due tocontinued sales growth in all markets. The sales increase includes the positiveeffect of foreign exchange translation in the year.Shire receives 3TC royalties from GSK on worldwide sales, with the exception ofCanada where a commercialization partnership with GSK exists. GSK's worldwidesales of 3TC, for the year to December 31, 2004 were $1,184 million, anincrease of 8% compared to the prior year (2003: $1,099 million).ZEFFIXRoyalties from ZEFFIX for the year to December 31, 2004 were $27.4 million, anincrease of 11% compared to 2003 ($24.7 million). The product continues to showgrowth in the UK, the US, China and Japan. The sales increase includes thepositive effect of foreign exchange translation in the year.Shire receives ZEFFIX royalties from GSK on worldwide sales, with the exceptionof Canada where a commercialization partnership with GSK exists. GSK'sworldwide sales of ZEFFIX, for the year to 31 December 2004 were $240 million,an increase of 12% compared to prior year (2003: $214 million).OTHEROther royalties are primarily in respect of REMINYL, a product marketedworldwide by Johnson & Johnson (J&J), with the exception of the United Kingdomand the Republic of Ireland where Shire acquired the exclusive marketing rightsin March 2004. Sales of REMINYL, for the symptomatic treatment of mild tomoderately severe dementia of the Alzheimer's type, are growing well in theAlzheimer's market.J&J continues to work on the implementation of an FDA requested name change forREMINYL in the US. The request results from dispensing errors in the US causedby confusion between REMINYL and the drug AMARYL‚® (glimepiride), a treatment ofType 2 diabetes mellitus. J&J is conducting market research for a new name inthe US. Shire is unaware of any dispensing errors outside of the US.Shire and J&J are in ongoing discussions with the European regulatoryauthorities in relation to their assessment of the data for REMINYL frominvestigational studies in mild cognitive impairment. 4. Financial details Cost of product salesFor the year to December 31, 2004 our cost of product sales amounted to 13% ofproduct sales (2003: 14%). The decrease can be attributed to the change inproduct mix, with a greater proportion of sales coming from higher marginproducts.Research and development (R&D)R&D expenditure increased from $187.7 million in 2003 to $196.3 million in2004, with savings from the closure of the Canada-based lead optimizationbusiness in 2003 partially re-invested to fund late stage Phase III trials.Shire's pipeline is now well advanced with four projects in late stagedevelopment or registration. In addition, five projects were approved duringthe second half of 2004. Expressed as a percentage of total revenues, R&Dexpenditure was 14% for the year to December 31, 2004 (2003: 15%). Shire hashistorically invested between 17-20% of revenues in R&D. With the refocusing ofthe project pipeline this year and the successful out-licensing of certainproducts, this percentage fell in 2004. Shire anticipates that the level of R&Dspend will be approximately 15% (excluding the impact of payments relating toNRP104) going forward.Selling, general and administrative (SG&A)SG&A expenses increased from $371.8 million in 2003 to $458.1 million in 2004,an increase of 23%. This is primarily due to an increase in marketing expensesrelated to new product launches including FOSRENOL, XAGRID and ADDERALL XR(adult). As a percentage of product sales, these expenses were 41% (2003: 37%).In addition, the Company has recruited, during Q4 of 2004, a sales force ofaround 85 people exclusively to promote FOSRENOL.Depreciation and amortizationThe depreciation charge for the year to December 31, 2004 was $19.8 million(2003: $11.5 million). The increase was primarily due to a shortening of theuseful economic lives on certain property, plant and equipment as a result ofthe US site rationalization. Amortization charges were $52.2 million for theyear to December 31, 2004 (2003: $53.9 million). Included within theamortization charge for 2004 are $13.5 million of intangible asset write-downs(2003: $27.5 million).Reorganization costsDuring the year to December 31, 2004 $48.5 million of reorganization costs wererecorded relating to the US site consolidation. The costs related to employeeseverance ($20.0 million), relocation ($13.8 million) and other costsassociated with the reorganization ($14.7 million).Strategic initiatives in 2003During the year to December 31, 2003 the Company recorded $13.2 million ofcosts in connection with the closure of the Lead Optimization division. Thesecosts were primarily for employee severance ($6.4 million) and the write-off oftangible fixed assets ($6.0 million). In addition, the Company made thedecision to close certain properties; a write-down of $10.7 million was made torecord the assets at fair value.Interest income and expenseFor the year to December 31, 2004 the Company received interest income of $21.9million (2003: $16.9 million). This increase was primarily due to risinginterest rates in the US. Interest expense increased from $9.5 million in 2003to $12.3 million in 2004. This increase is due to the write-off of costscapitalized at the time the convertible loan notes were issued, offset by adecrease in interest expense in Q4. These costs were being amortized over thelife of the notes and were written-off following the redemption of $370.1million of the loan notes during 2004.Other income/(expense), netFor the year to December 31, 2004 other income totaled $3.8 million (2003:expense of $20.6 million). The income in 2004 is primarily due to the $14.8million realized gain on the sale of a portfolio investment and $4.1 millionother investment income earned. This income was offset by the write-down ofcertain portfolio investments ($15.5 million). In 2003 the expense primarilyrelated to the write-down of certain portfolio investments.TaxationThe effective tax rate on continuing operations for the year to December 31,2004 was 28% (2003: 26%). As of December 31, 2004 the Company had deferred taxassets net of valuation allowances of $78.1 million (December 31, 2003 $63.1million).Equity in earnings/(losses) of equity method investeesShire's share of equity method investees' earnings was $2.5 million for theyear to December 31, 2004 (2003: $1.1 million loss). This primarily related to$4.4 million received for our 50% share of earnings on the antiviralcommercialization partnership with GSK in Canada (2003: $3.5 million). This wasoffset by Shire's share of losses incurred in other investments. Included inthe figure to December 31, 2003 was a loss of $4.6 million representing our 50%share of the losses of Qualia Computing Inc. The Company disposed of itsinvestment in Qualia Computing Inc. in December 2003.Discontinued operationsThe Company completed the disposal of its vaccines business to IDB on September9, 2004. The vaccines business impacted net income with losses of $20.1 millionfor the year to December 31, 2004 (2003: $21.9 million). In addition to theoperating loss of the vaccines business for the year to December 31, 2004, is aloss on the disposal of the vaccines business of $44.2 million, recognized inQ2 2004, resulting principally from the write down of a $70 million loan toIDB. IDB was required to reimburse Shire in full for the net cost of operatingthe vaccines business from June 30, 2004; consequently the cost of operatingthe vaccines business from July 1, 2004 to September 9, 2004 has beenreimbursed by IDB.The transaction was treated as a discontinued operation in the results to June30, 2004. In accordance with US GAAP disclosure requirements for discontinuedoperations, the 2003 and 2002 results have been restated. The results of thediscontinued operation have been removed from all periods on a line-by-linebasis from product sales revenue to income from continuing operations. The netloss from the discontinued operation, together with the loss on disposalrecognized in Q2 2004, are shown as separate line items.5. R&D reviewShire had a very successful year in R&D. The sustained efforts and clear focusof Shire's personnel over a number of years culminated in the receipt of sixregulatory approvals in Europe and the US: * FOSRENOL (US) * FOSRENOL (Sweden) * EQUETRO (US) * XAGRID (EU) * ADDERALL XR adult (US) * PENTASA 500mg (US) Shire has exited discovery research and vaccines to focus its resources onlater stage and lower risk projects. During 2004, Shire completed the sale ofits vaccines business to IDB and out-licensed two of its non-core projects,SPD754 (HIV) and TROXATYL (oncology).By the end of 2005, Shire expects to make regulatory filings for SPD503 (ADHD),METHYPATCH (MTS) (ADHD) and SPD476 (ulcerative colitis). NRP104 (ADHD) andSPD465 (ADHD) are expected to be filed for US registration in early 2006.R&D Highlights by Therapeutic Area:Central Nervous System * NRP104: Agreement signed on January 31, 2005 with New River for the global commercialization of NRP104, a Phase 3 d-amphetamine prodrug for the treatment of ADHD. Shire could exercise rights to further indications on this product. * EQUETRO (previously described as SPD417 and Bipotrol): received FDA approval for the treatment of Bipolar Disorder, within the 10-month action date window. * SPD465: Phase 2 is ongoing with Phase 3 having commenced in January 2005. * SPD503: A second Phase 3 study for this development programme is due to complete early 2005 with the US regulatory submission planned for the second half of 2005. * METHYPATCH (MTS): resubmission remains on track for mid 2005. Gastro-Intestinal * PENTASA: FDA approval for 500mg dosage strength received. * SPD476: Enrolment into two pivotal Phase 3 studies completed. Filing date targeted for the second half of 2005. * SPD480: Input to the design of the SPD480 development program to be sought from regulators during the year. General Products * FOSRENOL: The US launch is now well underway and European launches are planned in 2005. * XAGRID: launched in January 2005 in the UK, Germany and France. Further European launches will be phased throughout 2005. * AGRYLIN: Citizens' Petition filed with the FDA in August 2004. * TROXATYL: out-licensed to Structural GenomiX in July 2004. * SPD754: out-licensed to Avexa Ltd, January 2005. Unaudited US GAAP Results for the year to December 31, 2004Consolidated Balance Sheets Restated December 31, December 31, 2004 2003 $'000 $'000 _____________ ____________ ASSETS Current assets: Cash and cash equivalents 1,111,477 1,063,362 Restricted cash 21,627 46,474 Short-term investments 324,411 304,129 Accounts receivable, net 222,546 194,583 Inventories 41,230 43,128 Deferred tax asset 70,387 64,532 Prepaid expenses and other current assets 137,271 47,403 ___________ ___________ Current assets from continuing operations 1,928,949 1,763,611 Current assets from discontinued operations - 24,096 ___________ ___________ Total current assets 1,928,949 1,787,707 Investments 63,267 72,975 Property, plant and equipment, net 131,351 94,495 Goodwill, net 235,396 221,231 Other intangible assets, net 309,297 307,882 Deferred tax asset 7,724 - Other non-current assets 38,895 22,420 ___________ ___________ Long-term assets from continuing operations 785,930 719,003 Long-term assets from discontinued - 72,070operations ___________ ___________ Total assets 2,714,879 2,578,780 ___________ ___________ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current installments of long-term debt - 290 Accounts payable and accrued expenses 311,231 205,779 Loan facility 43,162 - Other current liabilities 77,558 37,127 _______ _______ Total current liabilities from continuing 431,951 243,196operations Current liabilities from discontinued - 10,479operations ___________ ____________ Total current liabilities 431,951 253,675 Long-term debt, excluding current 116 376,017instalments Deferred tax liability - 1,400 Other non-current liabilities 32,159 23,783 ___________ ____________ Long-term liabilities from continuing 32,275 401,200operations Long-term liabilities from discontinued - 779operations ___________ ___________ Total liabilities 464,226 655,654 ___________ ___________Unaudited US GAAP Results for the year to December 31, 2004Consolidated Balance Sheets (continued) Restated December 31, December 31, 2004 2003 $'000 $'000 _____________ ____________ Shareholders' equity: Ordinary shares of 5p par value; 800,000,000 40,064 39,521shares authorized; and 484,916,034 shares issued and outstanding (2003: 477,894,726) Exchangeable shares; 4,226,476 shares issued 195,830 270,667and outstanding (2003: 5,839,559) Treasury stock (264) - Additional paid-in capital 1,072,407 983,356 Accumulated other comprehensive income 131,939 79,007 Retained earnings 810,677 550,575 ___________ ___________ Total shareholders' equity 2,250,653 1,923,126 ___________ ___________ Total liabilities and shareholders' equity 2,714,879 2,578,780 ___________ ___________The results for December 31, 2003 have been restated to reflect the disposal ofthe vaccines business that has been accounted for as a discontinued operation.Unaudited US GAAP Results for the year to December 31, 2004Consolidated Statements of Operations Restated Restated Year to December 31, 2004 2003 2002 $'000 $'000 $'000 _____________ _____________ ____________ Total revenues 1,363,207 1,211,570 1,023,250 Cost of revenues (141,909) (143,160) (120,435) ___________ _____________ ____________ Gross profit 1,221,298 1,068,410 902,815 Operating expenses (774,856) (648,823) (553,856) _____________ ____________ ____________ Operating income 446,442 419,587 348,959 _____________ ____________ ____________ Interest income 21,901 16,856 19,536 Interest expense (12,294) (9,451) (9,169) Other income/(expense), net 3,845 (20,645) (12,499) _____________ ____________ ___________ Total other income/(expense), net 13,452 (13,240) (2,132) _____________ ____________ ___________ Income from continuing operations 459,894 406,347 346,827before income taxes, equity in earnings/(losses) of equity method investees and discontinued operations Income taxes (129,103) (107,353) (88,350) Equity in earnings/(losses) of equity 2,508 (1,057) 1,668method investees ____________ ____________ ____________ Income from continuing operations 333,299 297,937 260,145 Loss from discontinued operations (20,135) (21,886) (11,659)(net of income tax expense of $nil, $nil and $3,588 respectively) (Loss)/gain on disposition of (44,157) - 2,083discontinued operations (net of income tax expense of $nil, $nil and $1,224 respectively) ____________ ____________ ____________ Net income 269,007 276,051 250,569 ____________ ____________ ____________ Earnings per share: Basic Continuing operations 67.2c 59.8c 51.9c Discontinued operations (4.1c) (4.4c) (2.3c) (Loss)/gain on disposition of (8.9c) - 0.4cdiscontinued operations __________ __________ __________ Net income 54.2c 55.4c 50.0c __________ __________ __________ Diluted Continuing operations 65.9c 58.4c 50.8c Discontinued operations (4.0c) (4.2c) (2.2c) (Loss)/gain on disposition of (8.6c) - 0.4c discontinued operations __________ __________ __________ Net income 53.3c 54.2c 49.0c __________ __________ __________ Weighted average number of shares: Basic 496,306,604 498,212,826 500,687,594 Diluted 511,267,432 518,967,395 522,418,246 _________________ _________________ _________________The results for the years to December 31, 2003 and 2002 have been restated toreflect the disposal of the vaccines business in 2004 and the disposal of theOTC business in 2002, that have been accounted for as discontinued operations.Unaudited US GAAP Results for the year to December 31, 2004Consolidated Statements of Cash Flows Restated Restated Year to December 31, 2004 2003 2002 $'000 $'000 $'000 _____________ ____________ ____________ CASH FLOWS FROM OPERATING ACTIVITIES: Net income from continuing 333,299 297,937 260,145operations Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization: 61,253 38,192 33,093 Increase/(decrease) in provision 50,746 20,357 (3,436)for sales reductions Stock option compensation 216 (24) (166) Movement in deferred taxes (14,979) (22,193) (9,904) Equity in (earnings)/losses of (2,508) 1,057 (1,668)equity of method investees Investments (552) 15,616 7,686 Movements in long term assets 14,601 44,035 20,153 Other - 1,468 - Changes in operating assets and liabilities, net of acquisitions: (Increase)/decrease in accounts (28,066) (45,408) 70,588receivable Decrease/(increase) in inventory 2,185 6,261 (3,924) Decrease/(increase) in prepayments 2,509 (11,765) 11,666and other current assets Increase in property plant and - 12,470 -equipment held for sale Decrease in other assets 13,520 291 3,618 Increase/(decrease) in accounts 76,793 (890) (14,635)and notes payable and other liabilities Increase/(decrease) in deferred 6,151 19,372 (11,394)revenue Dividends received from 5,493 2,289 -investments ___________ ___________ ___________ Net cash provided by operating 520,661 379,065 361,822activities ___________ ___________ ___________Unaudited US GAAP Results for the year to December 31, 2004Consolidated Statements of Cash Flows (continued) Restated Restated Year to December 31, 2004 2003 2002 $'000 $'000 $'000 __________ __________ ___________ CASH FLOWS FROM INVESTING ACTIVITIES: Net (increase)/decrease in (20,282) 11,997 407,653short-term investments Movements in restricted cRelated Shares:
Shire