Shire Pharmaceuticals Group plcinvestors.shire.com/~/media/Files/S/Shire-IR/.../archive/ar31121997.p… · salesforce with Athena co-promoting to neurologists in the first two years,

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Shire Pharmaceuticals Group plc

East Anton Andover

Hampshire SP10 5RG England

Telephone +44 1264 333455

Facsimile +44 1264 333460


Financial statementsSix months ended 31 December 1997

Financial statements – Six m

onths ended 31 Decem

ber 1997

Contents

1 Chairman’s statement

2 Chief Executive’s review

6 Profile of Shire Richwood Inc.

8 Board of Directors

9 Five year review

10 Report of the Directors

13 Report of the Remuneration Committee

20 Corporate governance statement

21 Statement of Directors’ responsibilities

22 Report of the auditors

23 Consolidated profit and loss account

23 Consolidated statement of total recognised gains and losses

24 Consolidated balance sheets

25 Company balance sheets

26 Consolidated cash flow statement

27 Notes to the financial statements

58 General shareholders’information

Notice of Annual General Meeting

Designed and produced by

The Design Department Limited.

Cover photography by

Lewis Mulatero and

Science Photo Library.

Printed by Ventura Litho.

Cautionary statement

Statements included herein which are not historical facts are forward looking statements. The forward looking

statements involve a number of risks and uncertainties and are subject to change at any time. In the event

such risks or uncertainties materialise, the Company’s results could be materially affected. The risks and uncer-

tainties include, but are not limited to, dependence on sales of Adderall, fluctuations in future financial results

and currency exchange rates, product liability claims and the lack of adequate insurance, satisfactory results

of clinical trials, government regulation and approvals, reliance on third parties, competition and dependence

on new products.

On 1 April 1998 the Shire shares (in the form of American

Depositary Shares) were listed on the NASDAQ Exchange

in the United States. Most companies with a dual listing

have the calendar year as their financial year. We have

decided, therefore, to change Shire’s financial year end

to 31 December. The attached audited financial state-

ments are for a shortened accounting period for the six

months ended 31 December 1997.

The interim unaudited results for the six months ended

31 December 1997 were announced on 6 February 1998

and sent to shareholders on 12 February. We have taken

the opportunity in this document to include information

on events, in addition to the US listing, that have taken

place since the earlier interim report. First let me reiterate

here the progress Shire made in the six months ended 31

December:

• In August, Shire merged with Richwood

Pharmaceutical Company, Inc., a fast growing inte-

grated pharmaceutical company based in Kentucky,

USA. The company has been renamed Shire

Richwood Inc. (SRI). SRI’s focus on products for the

treatment of Attention Deficit Hyperactivity

Disorder (ADHD) complements Shire’s CNS exper-

tise and, importantly for the future, provides Shire

with a marketing platform for its development

product pipeline in the US market.

• The approval by the FDA in September of Carbatrol

for epilepsy demonstrated the value of the earlier

acquisition of Shire Laboratories Inc. This was

followed in December by the repurchase of the

worldwide rights to Carbatrol from Athena

Neurosciences Inc. Shire Richwood will now market

Carbatrol in the US.

• In September, highly encouraging results from the

first Phase III study on Reminyl in Alzheimer’s

disease were announced which demonstrated both

the safety and efficacy of the product.

Shire Pharmaceuticals Group plc 1

With the UK-based sales and marketing operation

continuing to grow at a multiple of the UK industry

average, Shire Richwood exceeding our expectations at

the time of merger and good progress being made with

all its principal development products, the six month

period proved to be very positive for the Shire Group.

Following the recommendations of the Greenbury and

Hempel committees, the Board, on the advice of the

Remuneration Committee, has decided to seek share-

holder approval at the AGM for a Long Term Incentive

Plan (LTIP) for certain senior executives. You will find

enclosed with these financial statements a summary of

the rules governing the proposed LTIP including per-

formance criteria.

In January 1998 we announced changes to the roles and

responsibilities of certain Board members. First, Dr

James Murray has assumed the role of Business

Development Director and, although he will remain

with the Group, he will not be offering himself for re-

election at the forthcoming AGM. I should like to thank

Dr Murray for his contribution to Shire and wish him

success in his new role. Secondly, Roger Griggs, the

founder of Richwood, has resigned his executive posi-

tions but will remain a non-executive director. Similarly

I look forward to Roger Griggs’ continued valuable

counsel in his new role. Finally, Rod Bransgrove will not

stand for re-election at the forthcoming AGM. I would

like to acknowledge his contribution and thank him for

his advice and counsel during Shire’s extensive growth

in the last few years.

Dr Henry Simon

Chairman

Chairman’s statement

“The six month periodproved to be very positivefor the Shire Group.”

Dr Henry Simon

Chairman

2 Shire Pharmaceuticals Group plc

Chief Executive’s review

In the six months ended 31 December 1997 Shire

again achieved notable milestones including the

merger with Shire Richwood Inc. (SRI), the approval

by the FDA of Carbatrol and subsequent renegotiation

of the Carbatrol deal with Athena Neurosciences Inc.

Acquisition of Richwood

On 22 August 1997 the merger with SRI was com-

pleted. Based in Florence, Kentucky, USA, this company

is an integrated specialty pharmaceutical company that

manufactures, markets and distributes prescription

and OTC products throughout the US. Its principal

products are Adderall and DextroStat, both for the

treatment of ADHD. Under the terms of the merger,

Shire paid a total consideration of $186 million,

including $146 million in the form of 39,488,482

new ordinary shares, $15 million in cash and options

over 5,631,800 ordinary shares with a value of $25

million. SRI provides Shire with direct access to the

US, the largest pharmaceutical market in the world,

and should enable us to enhance returns for share-

holders by marketing more of our development

products ourselves, rather than out-licensing them to

third parties. A profile of Shire Richwood is set out

on pages 6 and 7 of these financial statements.

Pending litigation

In the US, numerous cases have been brought

against several manufacturers and distributors of

phentermine, fenfluramine and dexfenfluramine.

SRI, a distributor and a former manufacturer of

phentermine with a market share of less than one per

cent, has been cited in approximately 260 of these

Rolf Stahel

Chief Executive

cases. It has been alleged in five cases that SRI’s

product has been used by the plaintiff. The Directors

intend to defend vigorously all claims made against

the Group.

Marketed products

Sales and marketing

Sales of products by our UK-based sales and mar-

keting operation, covering the UK, Ireland and 12

export territories, were £7.4 million (1996: £4.4

million), an increase of 71 per cent. On a like-for-like

basis, excluding products in-licensed since 31

December 1996, product sales increased by 23 per

cent. This compares to a total UK prescription

product market growth of eight per cent. Shire con-

tinues to hold the leading position in the UK

prescription calcium market with a market share of

approximately 66 per cent (1996: 59 per cent).

In April 1998 Shire was appointed exclusive dis-

tributor in the UK and Ireland for Hyalgan, an

osteoarthritis treatment, by Fidia s.p.a.

“Shire again achieved notablemilestones including the merger with Shire Richwoodand the approval by the FDA of Carbatrol.”

Adderall & Dextrostat:

prescriptions and

market share

Prescriptions 000’s

Market share %

Source: Adapted from IMS data

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb

000’s

200

160

120

80

40

0

14

12

10

8

6

4

2

0

%

1997 1998


approved or currently under assessment should

provide increasing revenues in the future.

Products under development

The six months ended 31 December 1997 saw

significant progress in all Shire’s major projects:

Treatments for CNS disorders

Carbatrol for epilepsy

Carbatrol is a twice a day sprinkle capsule formula-

tion of carbamazepine developed by Shire

Laboratories Inc. The FDA approved the product in

September 1997 for marketing in the US. Carbatrol

had originally been out-licensed to Athena

Sales of products by SRI in the period 22 August 1997

to 31 December 1997 were $22.2 million compared

with $7.5 million in the corresponding period of the

prior year, representing growth of almost 200 per

cent. Adderall and DextroStat accounted for more

than 90 per cent of total SRI sales. Adderall’s share

of total ADHD prescriptions in the US increased

from 7.5 per cent in August 1997 to 10.6 per cent in

December 1997.

LicensingShire has developed two ranges of oral HRT prod-

ucts, the ClimaRange and the BetaRange. Sales of

product to licensees and royalties on licensees’ sales

in the six months were £0.5 million and £0.3 million

respectively. Five products from the ClimaRange

were launched in September 1997 by Novartis in

Germany. The combination of recent product

launches by licensees and potential future launches

arising from the 60 regulatory submissions that are

Neurosciences Inc. but, in December 1997, follow-

ing the merger with SRI, the agreement was

renegotiated and Shire reacquired the worldwide

rights to Carbatrol, inventories and certain plant

and equipment for a total consideration of $25

million. Carbatrol was launched in the US in April

1998. The product will be marketed through SRI’s

salesforce with Athena co-promoting to neurologists

in the first two years, providing increased coverage

in the critical post launch phase. Further studies will

be undertaken.

Reminyl (galantamine) for Alzheimer’s disease

In September 1997 Shire announced preliminary

results of its Phase III pan-European trial in over 70

centres and 550 patients. The initial analysis shows

highly significant improvements in cognition as mea-

sured by the Alzheimer’s Disease Assessment Scale

(ADAS-Cog), the standard measure of efficacy recog-

nised by regulatory authorities. The study also shows

significant improvements in secondary efficacy mea-

surements such as a global rating scale and an

activities of daily living scale. We believe these results

combined with our Phase II results powerfully illus-

trate the efficacy and safety profile of Reminyl in the

treatment of patients with Alzheimer’s disease.

Galantamine for Chronic Fatigue Syndrome

Shire initiated a Phase II study to include 300

patients whose primary end point is a change in

fatigue as measured by Clinician’s Global Impression

of Change. A second Phase II study in 70 patients is

designed to establish the efficacy and tolerability of

galantamine in fibromyalgia.

For patient

convenience, Carbatrol

capsules may be

opened and the

contents sprinkled

on food.

90 91 92 93 94 95 96 97

Perc

enta

ge m

arke

t sh

are

70

60

50

40

30

20

10

0

Calcium sales UK

Shire’s initiatives arenow driving the growthof the UK prescriptioncalcium market.

Sanofi

Sandoz

Shire

Source: BPI month cash sales


Treatments for metabolic bone diseases

Lambda (lanthanum carbonate) for

hyperphosphataemia

Occurring in patients with chronic renal failure, hyper-

phosphataemia can result in renal osteodystrophy, a

painful condition with similarities to osteoporosis.

A Phase II study in 62 patients is ongoing in the UK.

An additional Phase II study in 150 patients was

initiated in the US in March 1998. A clinical research

organisation in Japan has now been selected to under-

take the Japanese development programme. This

approach could, we believe, ultimately yield greater

economic returns for Shire in this important market.

Oral HRT

The majority of products in the ClimaRange and

BetaRange of oral HRT products have completed the

development phase and dossiers are in preparation,

are under assessment by various regulatory author-

ities, or have been approved. TriClimactol and

TriBeta, the long-cycle oestrogen/progestogen

sequential combinations for each range, are pro-

AMPA antagonists

On 5 February 1998 Shire in-licensed from

NeuroSearch A/S a series of AMPA antagonists for

disorders of the CNS including the acute treatment

of stroke. Primary focus will be on the development

of the lead compound SPD502. The terms of the

agreement include issuing 434,530 shares, a cash

payment and various milestone payments for the

first indication and a further payment for each sub-

sequent indication. Royalties on sales will also be

due. SPD502 is currently in early preclinical devel-

opment.

AMPA antagonists

Following a strokeglutamate is releasedcausing damage to thenerve cells in the brain.In animal models AMPA antagonistsblock this release ofglutamate leading toneuroprotection.

gressing through Phase III clinical trials. The three

strengths of oestrogen, IP1162, IP1163 and IP1164,

which are being developed for the US market, have

completed Phase I clinical trials and Abbreviated

New Drug Application (ANDA) submissions are

being prepared.

Drug delivery products

Nifedipine XR

Using our EnSoTrol drug delivery technology, we

are aiming to demonstrate bioequivalence to

Procardia XL, without infringing the patents cover-

ing its formulation, and seek FDA approval under an

ANDA. The project is currently in Phase I. If suc-

cessful, we intend to appoint a licensee.

Glipizide for Type II diabetes

This project will only be initiated following positive

results in Phase I for Nifedipine XR.

Hyacne for acne

Hyacne is a formulation of an established antibiotic

using the topical drug delivery technology in-licensed

from the Hyal Corporation. A Phase III study involv-

ing 375 patients in the UK is in progress. If

successful, the delivery technology may be used with

other active principles.

Product portfolio review

The recent acquisitions of SLI and SRI have resulted

in the need for a review of Shire’s product portfolio

with a view to focusing the Group’s efforts on those

products that are likely to represent the greatest

opportunities for the Group.

Research and development expenditure

Galantamine AD 41%Overheads

22%

Other 15%

Carbatrol 10%

Galantamine CFS 4%

Lambda 8%

Funded 53%

Unfunded 47%

AMPA antagonist Excess glutamate

Excess Ca2+ Influx

Cell insultIschaemiaTrauma etc

AMPAReceptor

NMDAReceptor

Na+

K+ K+

Na+Ca2+ Ca2+

Na+


Marketed products

In the UK we intend to divest minor, non-strategic

products in order to focus our attention on five key

brands. In the US we propose to divest the Indianapolis

operation, including 35 non-strategic products, allow-

ing SRI to concentrate its marketing efforts on CNS

disorders, in particular ADHD and epilepsy.

Development products

In line with our managed risk strategy we have

looked to balance projects in different phases of

development, combining this with appropriate in-

were sold on behalf of a number of selling share-

holders. A total of 6,761,085 ADSs, each representing

three ordinary shares, were sold in the US tranche.

These ADSs are listed on the NASDAQ market

under the symbol “SHPGY”. Dealings in new ordi-

nary shares commenced on 1 April 1998.

Following the acquisitions of SLI and SRI, over half

of the Group’s sales and approximately 45 per cent

of shareholders are now in the US. The offering pro-

vides a liquid market in the US and allowed an

orderly exit for certain former shareholders of

Richwood and Pharmavene, the majority of which

were venture capitalists. In addition, the gross pro-

ceeds to Shire of approximately £20.6 million ($34.5

million) will be available for further acquisitions of

companies, products and development projects.

Financial summary

The Group recorded a profit before tax in the six

months of £2.5 million (1996: £0.1 million loss) on

turnover of £28.6 million (1996: £9.9 million). SRI

contributed a profit before tax of £7.5 million on

turnover of £13.5 million since acquisition. Due to

a tax charge of £2.8 million incurred by SRI during

the period which could not otherwise be offset, the

Group recorded a loss per share of 0.3p (1996: 0.2p

loss). In January 1998, the US operations were reor-

ganised with a view to reducing the overall future US

tax liability.

In October 1997 Athena paid Shire an $8 million

milestone which, following the renegotiation of the

Carbatrol deal, has not been recognised as income

but netted against the cost of the intangible asset.

Cash at bank at 31 December 1997 was £10.3

million, after paying $10 million deferred consider-

ation to former shareholders of Pharmavene Inc.

Overall, another successful six months for Shire and

I look forward to the next six months with confi-

dence. I would like to thank Shire employees for

their dedication and hard work.

Rolf Stahel

Chief Executive

and out-licensing. As part of this we have identified

some indications within our core strategic focus

of CNS and MBD for which we are actively seeking

in-licensing opportunities. The agreement with

NeuroSearch, allowing Shire patent rights to a series

of AMPA antagonists is the first example of this

strategy. In support of SRI’s ADHD strategy we

intend to initiate, in the short term, up to three

ADHD projects. We have decided to discontinue

two projects: DHE CD and Acyclovir CD. Licensees

will be sought for Selegiline CR for the treatment of

cocaine craving and Parkinson’s disease; BChE for

the treatment of cocaine overdose and post surgical

apnoea; and Calcitonin CD for the treatment of

osteoporosis. Shire will undertake no further devel-

opment work on these projects unless funded by

third parties. The remaining projects will continue as

previously described.

Global offering and US listing

In April 1998 Shire completed an offering of

24,217,255 ordinary shares. Six million of these

were new shares issued by Shire and 18,217,255

Revenue analysis July – December 1997

MBD/FemaleHealthcare 24%Other 17%

CNS 59% ContinentalEurope 19%

US 55%

UK 26%

Revenue by product category Revenue by region


Profile of Shire Richwood Inc.

The company

Shire Richwood Inc. (SRI) is an integrated specialty

pharmaceutical company that manufactures, markets

and distributes prescription pharmaceuticals and

OTC products throughout the US. It is based in the

Greater Cincinnati area of Northern Kentucky, USA

with manufacturing facilities in Valley Stream, New

York and Indianapolis, Indiana. The company, which

was formerly known as Richwood Pharmaceutical

Company, Inc. was founded in 1990 and merged with

Shire on 22 August 1997. A total of 190 people are

employed by SRI including a sales force of 90. This

is comprised of eight field managers and 74 field rep-

resentatives supported by seven in-house telephone

sales representatives and a manager. Promotional

efforts are targeted primarily on selected CNS

market segments, in particular treatments for

Attention Deficit Hyperactivity Disorder (ADHD).

order. According to IMS America the ADHD market

was worth $540 million in 1997, an 18 per cent

increase on the previous year.

Shire’s approved ADHD products, Adderall and

DextroStat, are branded Schedule II psychostimu-

lants. In the month of December 1997 Adderall and

DextroStat had a combined US prescription market

share of 12.8 per cent (December 1996: 4.9 per

cent). DextroStat is a branded generic formulation of

dextroamphetamine. Adderall is a unique combina-

tion of four amphetamine salts. It is believed that

Key markets and products

ADHD is a heterogeneous CNS disorder of unknown

aetiology and is characterised by varying degrees of

inattention, impulsivity and hyperactivity. Although

primarily considered to be a childhood disorder, it is

increasingly being recognised as continuing through

adolescence and into adulthood. ADHD is typically

diagnosed in the US using the American Psychiatric

Association’s Diagnostic and Statistical Manual of

Mental Disorders (DSM-IV) which lists criteria for

determining inattention, impulsiveness and hyper-

activity. It is estimated that between three and five

per cent of children in the US suffer from this dis-

Shire Richwood’s

principal products are

for the treatment of

ADHD in children. this combination of salts confers certain advantages

on Adderall when compared with its major com-

petitors; in particular it is generally administered

in fewer daily doses, obviating the need for a dose

at school.

In April 1998, Carbatrol was launched in the US

market. Carbatrol is an extended release formulation

of carbamazepine, an existing approved compound

for the treatment of epilepsy. Epilepsy affects approx-

imately 2.5 million people in the US and carbamazepine

accounts for approximately 20 per cent of US pre-

scriptions written. Carbatrol is designed to improve

patient compliance by delivering steady blood levels

of drug over 24 hours when taken twice daily. It

can be administered as a capsule or sprinkled on

food and can be taken with or without meals.

Carbatrol was developed by Shire Laboratories Inc.

using its proprietary multi-pellet technology,

Microtrol. The product is patented by the company

in the US and is the subject of pending patent appli-

cations elsewhere.

Mean carbamazepine

levels following

multiple dosing in

epileptic patients

Tegretol 4 x daily

Carbatrol 2 x daily

Note: Tablets and capsules

represent a range of dosesPl

asm

a co

ncen

trat

ion

(mg/

ml) 12

10

8

6

4

2

0

Time (hours)0 4 8 12 16 20 24


SRI has 35 other products in various product cate-

gories, which accounted for around four per cent of

total sales in the six months ended 31 December

1997. It is proposed that these products will be

divested to allow the company to concentrate its

marketing efforts on CNS disorders, in particular

ADHD and epilepsy.

Manufacturing and distribution

SRI manufactures and packages its Schedule II drugs

at its 9,700 square foot facility in Valley Stream,

New York. This facility was acquired from Rexar

Pharmacal Corp. in January 1994 and has since been

renovated. All other products are either manufac-

tured and/or packaged at the company’s 17,000

square foot plant at Indianapolis, Indiana or by third

party contract manufacturers. Shire intends to divest

the Indianapolis operation possibly together with

the products manufactured there.

the Company. The President and Chief Executive

Officer is William A Nuerge. He has 20 years

experience in pharmaceutical operations and man-

agement including serving as General Manager and

Vice President of Operations for Lafayette Pharma-

ceuticals Inc. Stefan Antonsson is Vice President of

Marketing having previously served as Director of

Marketing for Forest Laboratories Inc. He started his

pharmaceutical career with Pharmacia in 1984 as

a sales representative. Victor L Vaughn is Vice

President of Sales and has over 17 years experience

The 13,200 square foot distribution centre, which

includes a large vault to house Schedule II products,

is located in Florence, Kentucky. From this site,

Shire’s ADHD products are distributed to nearly all

the wholesale distribution centres and the three

major warehousing pharmacy chains that stock

Schedule II drugs in the US, providing access to

nearly all pharmacies in the US.

Senior management

SRI was founded by Roger Griggs who now serves

as a Non-Executive Director on the Board of Shire

and acts as a Business Development Consultant to

in the healthcare industry. Prior to joining SRI he was

ultimately responsible for the training and develop-

ment of the field management group for SmithKline

Beecham in the US. Robert A Falconer, the Vice

President of Technical Operations, has over 22 years

experience in the healthcare industry. Prior to joining

Richwood, he was principal of his own healthcare

consulting firm and has held positions in quality

assurance, regulatory affairs and general manage-

ment. Kevin T Anderson, a licenced attorney and

certified public accountant, serves as the Director of

Legal and Professional Affairs. Prior to joining SRI

Mr Anderson was a manager with Ernst & Young,

LLP and was engaged in the private practice of law.

Daniel F Summe is Corporate Controller. His 12

years combined public and private accounting expe-

rience includes working at Restorative Health

Associates, Inc.

Members of the 1997

President’s Club and

their guests.

Membership of this

club is awarded to the

top achievers at SRI.

SRI manufactures and

packages Adderall and

DextroStat at its Valley

Stream facility.


Dr Henry Simon Tekn. lic. (PhD)*

Non-Executive Director and Chairman

Dr Simon has been Non-Executive Chairman of the

Group since November 1987. He was a partner of

Schroder Venture Advisers and remains Chairman of

Schroder Ventures Life Sciences Advisers Limited.

Prior to joining Schroder Ventures he was President

of Technicon Corporation. Dr Simon is Non-Exec-

utive Chairman of Mitel Corporation and Leica

Microsystems GmbH. He is also a Non-Executive

Director of LaserVision Centres Inc. Dr Simon is

Chairman of the Audit Committee.

Rolf Stahel,

Chief Executive

Mr Stahel joined the Group in March 1994 as Chief

Executive from Wellcome plc where he worked for

27 years. From April 1990 until February 1994, he

served as Director of Group Marketing reporting to

the Chief Executive. He attended the 97th Advanced

Managers Program at Harvard Business School.

Dr James Murray MB MRCS DRCOG DFFM MRCGP FFPM

Business Development Director

Dr Murray was appointed Business Development

Director on 1 February 1998. He has served as

Scientific Director of the Company since July 1990

and assisted in the formation of the Group. From

1975 until joining the Group, Dr Murray served in

senior scientific and strategic planning roles with

Royal Gist-Brocades in the Netherlands.

Stephen Stamp BA(Econ) ACA

Group Finance Director

Mr Stamp joined the Group in April 1994 as Group

Finance Director. Prior to joining the Group, he was

an Assistant Director, Corporate Finance at Lazard

Brothers & Co., Limited having previously spent

four years at KPMG Peat Marwick.

* Member of the Audit Committee and Remuneration Committee

† Member of the Remuneration Committee

Rod Bransgrove,*

Non-Executive Director

Mr Bransgrove has served as a Non-Executive

Director of the Company since September 1995. Mr

Bransgrove held various roles in sales and marketing

for Schering AG, including, ultimately, the position

of General Manager, Pharmaceutical Business Unit,

for the UK pharmaceutical division. Mr Bransgrove

founded Shire Pharmaceutical Contracts Limited.

Dr James Cavanaugh PhD†


Dr Cavanaugh joined the Board on 24 March 1997

following the acquisition of Shire Laboratories where

he had been a Board member since 1988. Dr

Cavanaugh is President of HealthCare Ventures LLC

having previously been President of SmithKline &

French Laboratories US Inc. and of Allergan Inter-

national Inc. He also served as adviser on health

matters at The White House under Presidents Nixon

and Ford.

Roger Griggs BA MS


Mr Griggs is the founder and formerly President

and Chief Executive Officer of Richwood. On 1

February 1998 he resigned his executive positions

with the Shire Group. From 1981 to 1988 he served

in a variety of capacities at Lederle Laboratories

before joining Russ Pharmaceuticals Company as

National Director for Institutional Sales.

Dr Barry Price BSc PhD*


Dr Price joined the board on 24 January 1996 and

has spent 28 years with Glaxo holding a succession

of key executive positions within Glaxo Group

Research. He is a Non-Executive Director of Chiro-

science Group plc. Dr Price is Chairman of the

Remuneration Committee.

Board of Directors


Five year review

6 months 6 months 15 months

ended ended Year ended Year ended Year ended ended

31 December 31 December 30 June 30 June 30 June 30 June

1997 1996 1997 1996 1995 1994

(Unaudited) (Restated) (Restated) (Restated)

£’000 £’000 £’000 £’000 £’000 £’000

Profit and loss

Product sales 21,412 6,016 13,307 8,962 5,750 5,466

Licensing and development fees 6,625 3,592 9,031 11,706 210 1,972

Royalties 568 271 734 375 142 27

Turnover 28,605 9,879 23,072 21,043 6,102 7,465

Operating profit/(loss) 2,230 (751) (1,399) 2,569 (6,127) (2,349)

Profit/(loss) before tax 2,452 (105) (146) 2,722 (7,197) (2,244)

(Loss)/profit after tax (380) (105) (146) 2,555 (7,200) (2,190)

(Loss)/earnings per share – ordinary (0.3)p (0.2)p (0.2)p 5.8p (39.4)p (12.0)p

Cash flow

Net cash inflow/(outflow)

from operating activities 8,565 186 (3,686) (1,977) (4,166) (2,471)

Net cash inflow/(outflow)

before investing activities 7,332 832 (2,524) (1,584) (4,330) (2,371)

Capital expenditure (net) (1,024) (207) (973) (51) (63) (241)

Consideration for acquisitions (12,544) – (16,457) (309) – –

Net cash flow before financing (6,236) 625 (19,954) (1,944) (4,393) (2,612)

10 per cent secured loan notes – – – – 4,314 –

Share capital (net) (409) (79) 11,404 25,301 1,370 3,362

Cash placed on deposit 14,111 4,445 5,949 (20,060) – –

Increase/(decrease) in cash in the year 7,466 4,991 (2,601) 3,297 1,291 750

Balance sheet

Fixed assets 11,950 1,252 3,436 578 447 503

Cash and current investments 10,283 25,971 16,875 25,425 2,068 2,907

10 per cent secured loan notes – – – – (5,212) –

Other net current (liabilities)/assets (12,293) 619 (6,366) 1,893 2,589 (1,589)

Provisions for liabilities and charges – (2,750) – (2,750) (3,750) –

Net assets 9,940 25,092 13,945 25,146 (3,858) 1,821


Report of the Directors

The Directors present their report on the affairs of the Group and the Company together with the auditedfinancial statements for the period ended 31 December 1997.

Change of accounting reference dateThe accounting reference date of the Company has been changed to 31 December following the listing ofAmerican Depositary Shares on the NASDAQ Exchange in line with other dual listed companies. These auditedfinancial statements are therefore in respect of a shortened accounting period, being the six months ended 31December 1997.

Results and dividendsThe profit on ordinary activities before taxation of the Group was £2.5 million (year to 30 June 1997: £0.1million loss). Movements in reserves are set out in note 21 to the financial statements. The Directors do notrecommend the payment of a dividend.

Principal activitiesThe principal activities of the Group comprise the marketing, licensing and development of prescriptionmedicines. The Group focuses on the prevention and treatment of osteoporosis and other metabolic bonediseases and the treatment of selected disorders of the central nervous system, particularly Alzheimer’s diseaseand attention deficit hyperactivity disorder (“ADHD”).

Business reviewA review of the Group’s business during the financial period and likely future developments is set out in theChairman’s Statement and the Chief Executive’s Review on pages 1 to 5.

Authorised and called-up share capitalDetails of the authorised and called-up share capital of the Company as at 31 December 1997 and the changesduring the period are set out in note 20 to the financial statements.

Research and developmentThe Group incurred research and development costs of £11.7 million (year to 30 June 1997: £10.8 million) inthe financial period which have been charged to the profit and loss account in accordance with the Group’saccounting policy.

DirectorsThe Directors who served during the period were as follows:

Dr H Simon ChairmanR Stahel Chief ExecutiveR G BransgroveDr J H CavanaughDr J R MurrayDr B J PriceS A StampR D Griggs (appointed 22 August 1997)

Biographical details of the Directors are set out on page 8.

Directors’ interestsDetails of the current Directors’ interests in the share capital of the Company, as shown in the registermaintained in accordance with Section 325 of the Companies Act 1985, together with details of the shareoptions granted to them are disclosed in the Report of the Remuneration Committee on pages 13 to 20 of thefinancial statements.

Re-electionIn accordance with the Articles of Association, Mr R G Bransgrove and Dr J R Murray retire by rotation. Neither


Mr Bransgrove nor Dr Murray offer themselves for re-election.

Interests in material contractsExcept as disclosed on pages 13 to 15, no Director had any material interest in any contract with the Group duringthe period under review.

Directors’ and officers’ liability insuranceIn the period under review, the Company and the Group maintained an insurance policy for its Directors andOfficers in respect of liabilities arising out of any act, error or omission whilst acting in their capacity as Directorsor Officers.

Substantial shareholdingsAs at 8 May 1998, the Company has been notified, in accordance with Sections 198 to 208 of the CompaniesAct 1985, of the following substantial interests in its issued share capital:

Number of

ordinary shares Percentage

Funds advised by HealthCare Ventures LLC (i) 12,244,810 8.8

AXA-UAP S.A. (ii) 7,092,786 5.1

Essex Venture Partners LP Fund II 6,178,246 4.4

Apex Investment Fund LP (iii) 5,227,510 3.7

R D Griggs 4,241,149 3.0

Notes:(i) Shares held by various Healthcare Partners Limited Partnerships.(ii) AXA-UAP S.A.’s interest includes 842,674 shares registered to AXA Equity & Law Life Assurance Society

Plc, 6,235,252 shares registered to MSS Nominees Limited, 1,400 shares registered to Smith & WilliamsonNominees Ltd and 13,460 shares registered to Sunpen Nominees Limited.

(iii) Includes the interests of Apex Investment Fund I and Apex Investment Fund II of 693,279 and 4,534,231shares respectively.

In addition to the above, the Company has been notified that as at 8 May 1998 Morgan Guaranty TrustCompany of New York held 20,886,840 shares (representing 15.0 per cent of the total share capital) in itscapacity as the Depositary of the Company’s ADR facility.

Charitable and political donationsThe Group made no contributions to political organisations and contributions of £3,400 (year to 30 June 1997:£1,600) to charitable organisations.

Payment of creditorsIt is the Group’s policy to agree terms with its suppliers, making sure the supplier is aware of those terms, andto abide by them. As at 31 December 1997, there were 58 trade creditor days outstanding.

Close company statusThe Company is not a close company within the provisions of the Income and Corporation Taxes Act 1988.

Post balance sheet eventOn 1 April 1998 the Group completed an international offering, issuing 6,000,000 shares for gross proceeds of$34.5 million.

Corporate governanceThe Company has, throughout the period, operated in compliance with the Code of Best Practice set out inthe Report of the Committee on the Financial Aspects of Corporate Governance (“the Code”). A statementby the Directors on internal financial controls and going concern can be found on page 20. The auditors, Arthur


Andersen, have reviewed the Directors’ statement on the Company’s compliance with the Code of BestPractice, insofar as it relates to the paragraphs of the Code which the London Stock Exchange has specified fortheir review, and their report appears on page 22.

The Company has, throughout the period, also complied with Section A of the best practice provisions inrelation to Remuneration Committees. A statement of the Company’s policy on executive remuneration is setout in the Report of the Remuneration Committee. Details of the membership of the Audit and RemunerationCommittees of the Board are shown against the individual Directors’ names on page 8.

Annual General MeetingThe Annual General Meeting will take place at the offices of Panmure Gordon & Co. Ltd, New Broad StreetHouse, 35 New Broad Street, London EC2M 1NH at 10.00 am on 30 June 1998.

Details of the business to be considered at the Annual General Meeting are set out in the Notice conveningthe Annual General Meeting enclosed with these financial statements. The Special business to be considered atthe meeting is as follows:

• to approve the introduction of a Long Term Incentive Plan;

• to increase the Company’s authorised share capital;

• to authorise the Directors to allot relevant securities under Section 80 of the Companies Act 1985; and

• to authorise the Directors to disapply statutory pre-emption rights.

Details of the proposed Long Term Incentive Plan are set out in the accompanying shareholders’ circular.

The proposed increase in authorised share capital would increase the share capital of the Company from£8,900,000 to £10,000,000 by the creation of an additional 22,000,000 ordinary shares (representingapproximately 12.4 per cent of the current authorised share capital of the Company). This resolution wouldmake additional unissued share capital available for any future share issues which the Company may decide tomake, subject always to the Directors’ authority to allot.

The authority to allot shares will give the Directors power to issue 46,039,322 ordinary shares, representingapproximately 33 per cent of the total share capital of the Company in issue as at 1 May 1998. The Directorshave no present intention of exercising such authority, which will expire on the earlier of the close of the nextAnnual General Meeting and the date falling 15 months after the authority is granted.

The resolution disapplying statutory preemption rights applies to the securities covered by the above authorityto allot. In the case of allotments other than for pro rata offers to shareholders, the authority is limited to equitysecurities representing approximately five per cent of the total share capital of the Company in issue as at 1 May1998. The disapplication will expire on the earlier of the close of the next Annual General Meeting and the datefalling 15 months after the disapplication is granted.

AuditorsArthur Andersen have indicated their willingness to continue as auditors. A resolution to re-appoint ArthurAndersen as auditors of the Company is to be proposed at the Annual General Meeting.

By Order of the Board

Neil C HarrisSecretary

8 May 1998

Report of the Directors continued


Report of the Remuneration Committee

The Committee

The Remuneration Committee (the “Committee”) comprises Dr H Simon, Mr R G Bransgrove, Dr J H Cavanaugh

and is chaired by Dr B J Price. The Chief Executive attends meetings of the Committee at its invitation.

The Company is in compliance with Section A of the best practice provisions annexed to the Stock Exchange

Listing Rules.

Remuneration policy

The Committee’s policy on the remuneration of Executive Directors is directed at the retention and motivation

of Executive Directors by ensuring that their remuneration is competitive with companies within the sector of

emerging pharmaceutical companies, taking into account the interests of shareholders.

In framing its remuneration policy the Committee has given full consideration to Section B of the best practice

provisions annexed to the Stock Exchange Listing Rules. The Committee pays particular attention in its

deliberations to the conduct of salary reviews within the Group.

In the financial period to which this report relates the Committee has been required to review the salaries of

all the Executive Directors. When considering the increments to salaries, the Committee, where appropriate,

supplemented its own expertise and knowledge within the relevant sector with advice from external

consultants. Mr R D Griggs was appointed as an Executive Director on 22 August 1997. His remuneration was

approved by the Board of Directors and the Committee as part of the merger with Richwood Pharmaceutical

Company, Inc. on 22 August 1997. With effect from 1 October 1997 the Executive Directors’ salaries were

increased to the following sums:Per annum

R Stahel £ 225,000

Dr J R Murray £ 115,000

S A Stamp £ 135,000

R D Griggs $ 215,000

On 1 February 1998 Mr R D Griggs resigned his executive position and became a Non-Executive Director. His

annual fee for this non-executive post is £15,000. On 1 February 1998, upon Mr Griggs’ resignation from his

executive roles in the Shire Group, Shire Richwood Inc. entered into a consultancy agreement with Mr Griggs.

Under the terms of the consultancy agreement, Shire Richwood Inc. has agreed to pay Mr Griggs a fee of

$75,000 for the first six months and thereafter at the rate of $90,000 per annum. After the initial term of 18

months the consultancy agreement may be terminated by either party giving 6 months written notice.

The Committee has focused on the following principal areas at its meetings in the period to which this report

relates:

(a) Annual bonuses

The annual bonuses payable to Executive Directors are established on the basis of objectives for the Group

and personal objectives. They include measurable and quantitative criteria related to financial performance.

For the period ended 31 December 1997 these included turnover and profit targets. At a meeting of the

Remuneration Committee held on 12 September 1997 it was agreed to increase the maximum annual

bonus for each Executive Director from 30 per cent to 40 per cent of salary.

(b) Share optionsDetails of the share option scheme are set out below and in note 20 to the financial statements. Except asmentioned below, none of the Executive Directors who served during the period were granted additionaloptions under any of the Company’s share option schemes in the period ended 31 December 1997.


Mr R D Griggs was awarded 150,000 options under the Shire Pharmaceuticals Executive Share OptionScheme upon his appointment as an Executive Director on 22 August 1997. However, these options lapsedon 1 February 1998 when Mr Griggs became a Non-Executive Director.

During the period a further invitation was made under the Sharesave Scheme which allowed for savingscontracts of three or five years.

Share options are granted to Executive Directors and senior executives as an incentive. There are no statedqualifications for the grant of options, which are wholly discretionary and in relation to which theCommittee seeks the guidance and recommendation of the Chief Executive.

(c) Retirement benefitsThe Company contributes ten per cent of salary to the personal pension plans of the Executive Directors.

(d) Fees for Non-Executive DirectorsThe remuneration of each of the Non-Executive Directors was determined by the Board. Dr Cavanaugh haswaived his right to receive his remuneration of £7,500 for the period to 31 December 1997.

(e) Long Term Incentive Plan - ProposalThe Directors and in particular the Committee have reviewed the long term incentives provided by theCompany to retain and recruit high calibre staff. The Committee considers it to be in the best interests ofthe Company and the shareholders to introduce a Long Term Incentive Plan the details of which are givenin the accompanying circular to shareholders.

Directors’ emoluments

Total6 months Total

to 31 Year toDirectors’ Consultancy December 30 June

Salary Bonus (v) fees fees Benefits Pension 1997 1997£’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Executive DirectorsR Stahel (i) 94 – – – 4 9 107 220Dr J R Murray 60 – – – – 6 66 146S A Stamp 59 – – – – 6 65 119R D Griggs (ii) 71 27 – – 6 – 104 –

284 27 – – 10 21 342 485

Non-Executive DirectorsDr H Simon – – 13 – – – 13 25R G Bransgrove (iii) – – 8 23 – – 31 105Dr J H Cavanaugh (iv) – – – – – – – –Dr B J Price – – 8 – – – 8 15

– – 29 23 – – 52 145

Total 284 27 29 23 10 21 394 630

Notes:(i) Highest paid director in each period.(ii) Mr R D Griggs was appointed to the Board on 22 August 1997.(iii) Mr R G Bransgrove was appointed to the Board on 18 September 1995. On that date, the Company

entered into a two year consultancy agreement with RGB Enterprises Limited (“RGB”), a company owned

Report of the Remuneration Committee continued


by Mr Bransgrove, under which the Company agreed to pay RGB a fee of £90,000 per annum plus acommission of five per cent of net development income received on the conclusion of out-licensingagreements negotiated by RGB on the Company’s behalf in respect of certain new products. Feesreceivable by RGB are included in the above analysis. The agreement terminated in September 1997.

(iv) Dr J H Cavanaugh was appointed to the Board on 24 March 1997. Although Dr Cavanaugh is entitled toreceive Directors’ fees of £15,000 per annum, he has waived his entitlement (£7,500 for the period to 31December 1997 and £4,027 for the period from his appointment to 30 June 1997) and has indicated thathe will continue so to do for the current fiscal year.

(v) Bonuses are to be judged and awarded on the performance for the 12 months to 30 June 1998. Accordingly,no bonuses, except for a bonus to Mr R D Griggs, have been agreed as due or payable at 31 December 1997.Mr Griggs resigned his executive positions on 1 February 1998 and at this time his bonus was determinedby the Committee.

Directors’ shareholdings

Number of ordinary shares

31 December 1997 30 June 1997*

Dr H Simon 11,000 11,000R Stahel 13,827 13,827Dr J R Murray (i) 56,000 71,000S A Stamp 32,999 32,999R G Bransgrove (ii) 3,387,651 4,387,651Dr J H Cavanaugh (iii) 10,680,280 10,680,280Dr B J Price 31,350 31,350R D Griggs (iv) 5,162,149 4,879,566

* or later date of appointment

Notes:(i) Dr J R Murray’s holding includes ordinary shares held by his spouse and those of his children that have not

attained the age of 18 years. On 18 September 1997, Dr J R Murray and his wife sold a total of 15,000ordinary shares at 258p per share, realising gross proceeds of £38,700. On 30 September 1997 Dr Murrayexercised 50,000 share options and immediately sold the resulting ordinary shares at 280p per sharerealising gross proceeds of £140,000 and a gross gain of £115,000.

(ii) Mr R G Bransgrove’s holding includes ordinary shares held by his spouse and a trust in favour of Mr Bransgrove’s children. On 29 September 1997 Mr Bransgrove and his family sold 1,000,000 ordinaryshares at 275p per share, realising gross proceeds of £2,750,000.

(iii) Dr J H Cavanaugh is the President of HealthCare Ventures LLC, which is the management company for anumber of limited partnerships which have interests in 10,680,280 ordinary shares. Dr Cavanaugh is also ageneral partner in these partnerships which acquired their ordinary shares following the acquisition ofPharmavene Inc. in March 1997.

(iv) Mr R D Griggs was appointed a Director on 22 August 1997 following completion of the merger withRichwood Pharmaceutical Company, Inc. As a shareholder in Richwood, Mr Griggs was a party toagreements entered into in connection with the merger agreement referred to in Note 13(c) to thefinancial statements. As a result of the merger Mr Griggs became interested in 4,879,566 ordinary shares.Mr Griggs received beneficial ownership of a further 282,583 shares during the period upon the finalallocation of shares between the different classes of former shareholders in Richwood PharmaceuticalCompany, Inc. These shares were previously held in an escrow account pending final allocation.

On 16 February 1998 HealthCare Ventures LLC acquired 434,530 ordinary shares at 325p per share. On 20February 1998 HealthCare Ventures LLC acquired 1,100,000 ordinary shares at 367p per share. On 23 February1998 Dr J R Murray’s wife sold 4,000 ordinary shares at 366p per share realising gross proceeds of £14,640. On


1 April 1998, as part of the international offering, Dr H Simon acquired 20,000 ordinary shares at 343p per share

and Mr R D Griggs disposed of 921,000 ordinary shares at $5.75 per share realising gross proceeds of $5,295,750.

On 1 April 1998, as part of the international offering, HealthCare Ventures LLC acquired 10,000 American

Depository Shares (ADSs) (the equivalent of 30,000 ordinary shares) for $5.75 per ordinary share (or $17.25

per ADS). During April 1998, Dr Murray exercised 100,000 share options and immediately sold the resulting

ordinary shares at 435p per share realising gross proceeds of £435,000 and a gross gain of £385,000.

There have been no changes, except as stated above, to the shareholdings of the Directors who served during

the period between 31 December 1997 and the date of this document.

Directors’ share options

The Directors and employees have been granted options over ordinary shares under the Shire Holdings Limited

Share Option Scheme (“SHL Scheme”), the Imperial Pharmaceutical Services Limited Employee Share Option

Scheme (Number One) (“SPC Scheme”), the Pharmavene 1991 Stock Option Plan (“SLI Plan”), the Shire

Pharmaceuticals Executive Share Option Scheme (Parts A and B) (“Executive Scheme”), the Shire

Pharmaceuticals Sharesave Scheme (“Sharesave Scheme”), the Shire Pharmaceuticals Group plc Employee

Stock Purchase Plan (“Stock Purchase Plan”) and the Richwood 1993 and 1995 Stock Option Plans (“SRI Plan”)

as follows:


At At Exercise

1 July 31 December price Exercise dates

Director Scheme 1997 Granted Exercised 1997 £ Earliest Latest

R Stahel SHL Scheme (i) 146,660 – – 146,660 0.50 07.03.95 06.03.01146,660 – – 146,660 0.50 07.03.96 06.03.01146,680 – – 146,680 0.50 07.03.97 06.03.0189,840 – – 89,840 1.00 24.11.96 23.11.0289,840 – – 89,840 1.00 24.11.97 23.11.0289,840 – – 89,840 1.00 24.11.98 23.11.0290,160 – – 90,160 1.00 24.01.97 23.01.0390,160 – – 90,160 1.00 24.01.98 23.01.0390,160 – – 90,160 1.00 24.01.99 23.01.03

Executive Scheme ‘A’ (iii) 13,761 – – 13,761 2.18 15.02.99 14.02.06Executive Scheme ‘B’ (iii) 329,095 – – 329,095 1.75 15.02.99 14.02.03Sharesave Scheme (iv) 9,857 – – 9,857 1.75 01.04.01 30.09.01

1,332,713 – – 1,332,713

Dr J R Murray SHL Scheme (i) 100,000 – (50,000)* 50,000 0.50 01.07.95 30.06.01100,000 – – 100,000 0.50 01.07.96 30.06.01100,000 – – 100,000 0.50 01.07.97 30.06.0120,000 – – 20,000 1.00 24.11.96 23.11.0220,000 – – 20,000 1.00 24.11.97 23.11.0220,000 – – 20,000 1.00 24.11.98 23.11.02

Executive Scheme ‘A’ (iii) 13,761 – – 13,761 2.18 15.02.99 14.02.06Executive Scheme ‘B’ (iii) 219,381 – – 219,381 1.75 15.02.99 14.02.03Sharesave Scheme (iv) 6,331 – – 6,331 1.54 01.12.99 31.05.00

599,473 – (50,000) 549,473

* The market price of the Company’s ordinary shares on the date of exercise was 280p per share.



Number of ordinary sharesAt At Exercise

1 July 31 December price Exercise datesDirector Scheme 1997 Granted Exercised 1997 £ Earliest Latest

S A Stamp SHL Scheme (i) 53,320 – – 53,320 0.50 11.04.95 10.04.0153,320 – – 53,320 0.50 11.04.96 10.04.0153,360 – – 53,360 0.50 11.04.97 10.04.0166,660 – – 66,660 1.00 24.11.96 23.11.0266,660 – – 66,660 1.00 24.11.97 23.11.0266,680 – – 66,680 1.00 24.11.98 23.11.0226,660 – – 26,660 1.00 24.01.97 23.01.0326,660 – – 26,660 1.00 24.01.98 23.01.0326,680 – – 26,680 1.00 24.01.99 23.01.03

Executive Scheme ‘A’ (iii) 13,761 – – 13,761 2.18 15.02.99 14.02.06Executive Scheme ‘B’ (iii) 180,523 – – 180,523 1.75 15.02.99 14.02.03

634,284 – – 634,284

Mr R D Griggs was appointed a Director on 22 August 1997 following the completion of the merger withRichwood Pharmaceutical Company, Inc. Mr Griggs’ interests in share options are as follows:

Number of ordinary sharesAt At

22 August 31 December Exercise Exercise datesDirector Scheme 1997 Granted Exercised 1997 price Earliest Latest

R D Griggs SRI Plan (vii) 379,131 – – 379,131 $0.28 See note 21.06.99388,852 – – 388,852 $0.45 (vii) below 14.03.01209,316 – – 209,316 $1.64 13.03.02

Executive Scheme ‘B’ (iii) 150,000 – 150,000 £2.69 26.08.00 25.08.04

977,299 150,000 – 1,127,299

The middle market price of Shire Pharmaceuticals Group plc’s ordinary shares was 287p as at 31 December1997. The high and low mid-market prices during the six month period to 31 December 1997 were 288p and235p respectively.

As of 1 February 1998, Mr R D Griggs resigned as an Executive Director of the Company and therefore the150,000 share options granted to him on 26 August 1997 under the Executive Scheme ‘B’ lapsed. Mr Griggsnow serves as a consultant and Non-Executive Director.

On 9 February 1998 the following share options were granted to the Executive Directors under the ExecutiveScheme ‘B’ at an exercise price of 338.5p per share:


R Stahel 81,918Dr J R Murray 12,837S A Stamp 54,063

During April 1998 Dr J R Murray exercised 100,000 share options under the SHL Scheme at an exercise priceof 50p per share. The market value at the time of exercise was 435p per share.

Except as disclosed above, no Director who served during the period under review has been granted orexercised any options during the period between 1 January 1998 and the date of this report.

In addition to those options granted to Executive Directors disclosed above, employees and former employeesof the Group have been granted options over the following ordinary shares:



At At

31 December 30 June Exercise Exercise dates

Scheme 1997 1997 price Earliest Latest

SHL Scheme (i) 103,320 153,140 £0.51 05.02.93 04.02.99104,960 156,640 0.51 05.02.94 04.02.99106,820 156,820 0.51 05.02.95 04.02.99

4,640 7,960 1.00 17.08.94 16.08.004,640 7,960 1.00 17.08.95 16.08.004,720 8,080 1.00 17.08.96 16.08.00

34,760 48,340 1.00 01.07.95 30.06.0134,760 48,340 1.00 01.07.96 30.06.0135,420 49,100 1.00 01.07.97 30.06.01

100 100 1.00 11.10.95 10.10.01100 100 1.00 11.10.96 10.10.01100 100 1.00 11.10.97 10.10.01

4,100 4,100 1.00 01.11.96 31.10.024,100 4,100 1.00 01.11.97 31.10.024,140 4,140 1.00 01.11.98 31.10.02

13,320 13,320 1.00 06.11.96 05.11.0213,320 13,320 1.00 06.11.97 05.11.0213,360 13,360 1.00 06.11.98 05.11.02

129,000 134,740 1.00 24.11.96 23.11.02129,740 134,740 1.00 24.11.97 23.11.02131,000 136,100 1.00 24.11.98 23.11.02

1,340 1,520 1.00 24.01.97 23.01.031,380 1,520 1.00 24.01.98 23.01.031,740 1,740 1.00 24.01.99 23.01.03

SPC Scheme (ii) 48,000 72,000 0.31 See note (ii) below 30.06.0193,600 93,600 0.31 16.08.02

Executive Scheme ‘A’ (iii) 124,327 138,088 2.18 15.02.99 14.02.0656,315 56,315 1.90 30.09.99 29.09.067,620 n/a 2.69 26.08.00 25.08.07

Executive Scheme ‘B’ (iii) 445,673 451,912 1.75 15.02.99 14.02.0355,685 59,685 1.90 30.09.99 29.09.0340,000 40,000 2.34 25.02.00 24.02.04

850,000 850,000 2.19 25.03.00 24.03.04622,380 n/a 2.69 26.08.00 25.08.0410,000 n/a 2.60 31.10.00 30.10.04

Sharesave Scheme (iv) 108,018 117,875 1.75 01.04.01 30.09.0154,565 62,162 1.54 01.12.99 31.05.0050,402 50,402 1.54 01.12.01 31.05.0231,313 n/a 2.20 01.11.00 30.04.0125,243 n/a 2.20 01.11.02 30.04.03

Stock Purchase Plan (v) 38,997 56,820 2.01 31.08.99 31.08.99307,783 n/a 2.30 31.12.99 31.12.99

SLI Plan (vi) – 3,881 $0.83 See note (vi) below 20.05.024,108 4,108 0.83 09.06.02

12,541 12,541 1.30 03.02.03– 730 1.30 11.03.03




At At

31 December 30 June Exercise Exercise dates

Scheme 1997 1997 price Earliest Latest

SLI Plan (vi) continued 6,967 6,967 1.30 06.04.03143,703 239,767 1.30 18.10.0323,226 23,226 1.30 27.02.0412,880 20,698 1.30 10.04.046,547 8,271 1.30 17.10.04

– 46,449 1.30 16.01.0537,544 55,820 1.30 06.03.053,252 3,968 1.30 04.04.05

279,943 382,415 1.30 21.05.056,423 6,423 1.30 11.07.055,129 5,285 1.30 17.10.05

55,921 93,081 1.30 05.12.0520,939 21,117 1.30 22.01.065,682 10,634 1.30 19.02.06

488,773 539,426 1.30 05.03.06143,161 161,627 1.30 13.05.06889,593 889,593 1.30 24.06.0610,879 18,635 1.30 07.08.0615,207 15,207 1.73 06.11.06

210,752 210,752 1.73 10.12.06

SRI Plan (vii) 194,426 n/a $0.10 See note (vii) below 01.06.98313,812 n/a 0.26 01.06.98696,196 n/a 0.26 21.06.99172,553 n/a 0.26 19.04.00

1,273,044 n/a 0.28 05.09.00904,643 n/a 0.41 14.03.01415,757 n/a 1.61 13.03.02

10,204,402 5,928,860

Notes:

(i) These options have been granted over shares in Shire Holdings Limited, a previous holding company of the

Group. Exercise of these options results in the optionholder receiving ordinary shares in the Company as

set out above.

(ii) These options have been granted over shares in Shire Pharmaceutical Contracts Limited, a company

acquired by the Group in September 1995. Exercise of these options results in the optionholder receiving

ordinary shares in the Company as set out above. As a result of the acquisition of Shire Pharmaceutical

Contracts Limited in September 1995, and in accordance with the terms of the SPC Scheme, all options

granted under the SPC Scheme became immediately capable of exercise.

(iii) Options granted under the Executive Scheme are subject to performance criteria and cannot be exercised

in full, unless the Company’s share price increases at a compound rate of at least 20.5 per cent per annum

over a minimum three-year measurement period. If the Company’s share price increases at a compound

rate of at least 14.5 per cent per annum over a minimum three year measurement period, 60 per cent of

the options may be exercised. If these conditions are not met after the initial three years, they are thereafter

tested quarterly by reference to share price growth over the extended period. If the share price does not

meet these conditions at any time, none of the options will become exercisable.

(iv) Options granted under the Sharesave Scheme are granted with an exercise price equal to 80 per cent of



the mid-market price on the day before invitations are issued to employees. Following changes in the Inland

Revenue rules governing such schemes, employees may now enter into three or five year savings contracts.

A further invitation under the Sharesave Scheme was made during the period.

(v) The Stock Purchase Plan is available only to US employees of the Group. Under the Stock Purchase Plan

options are granted with an exercise price equal to 85 per cent of the market value of the ordinary shares

on the first or last day of the offering period, whichever is the lower. The offering period is 27 months from

the time of the offer and employees can save up to $500 per month. Options may be exercised at the end

of the offering period.

(vi) These options have been granted over shares in Shire Laboratories, formerly Pharmavene Inc., the company

acquired by the Group on 14 March 1997. Exercise of these options results in the optionholder receiving

ordinary shares in the Company as set out above. As a result of the acquisition of Shire Laboratories, and

in accordance with the terms of the original share option plan, all options granted under that plan became

immediately capable of exercise.

(vii) These options have been granted over shares in Shire Richwood, formerly Richwood Pharmaceutical

Company, Inc., the company acquired by the Group on 22 August 1997. Exercise of these options results

in the optionholder receiving ordinary shares in the Company as set out above. As a result of the acquisition

of Shire Richwood, and in accordance with the terms of the original share option plan, all options granted

under that plan became immediately capable of exercise.

Corporate governance statement

Internal financial controls

The Group has complied, throughout the year, with the Code of Best Practice by the Committee on the

Financial Aspects of Corporate Governance (the “Cadbury Code”).

The Directors of Shire acknowledge that they are responsible for the system of internal financial control

established by the Group and place great emphasis on maintaining a strong control environment. The Audit

Committee is comprised wholly of Non-Executive Directors. The Directors have reviewed the effectiveness of

the internal financial controls of the Group.

The Directors have established an organisational structure with clearly drawn lines of accountability and

delegation of authority. All Group employees are required to adhere to specified codes of conduct at all times

and the Board actively promotes a culture of quality and integrity throughout the organisation. The identification

and appraisal of risks is carried out through the annual process of preparing business plans and budgets and

through the close monitoring of operations.

Financial results and key operational and financial performance indicators are reported regularly throughout the

year and variances from plans and budgets are followed up vigorously. The Group has a system of control

procedures and compliance with these procedures is monitored through a system of internal review. However,

any system of internal financial control can provide only reasonable, and not absolute, assurance against material

misstatement or loss.

Going concern

The Directors have reviewed the Group’s budget and cash flow for the year to 31 December 1998 and outline

plans for the Group thereafter in the light of the financial position of the Group at 31 December 1997.

The Directors are satisfied that the Group has sufficient resources to continue operations for the foreseeable

future. Accordingly they continue to adopt the going concern basis in preparing the accounts.

Statement of Directors’ responsibilities


The Directors are required by the Companies Act 1985 to prepare accounts for each financial year which give

a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and

of the profit and loss of the Group for the financial year.

The Directors consider that in preparing the accounts on pages 23 to 57, the Company has used appropriate

accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates,

that all accounting standards which they consider to be applicable have been followed, and that it is appropriate

to use the going concern basis.

The Directors have responsibility for ensuring that the Company keeps accounting records which disclose with

reasonable accuracy the financial position of the Company and which enable them to ensure that the financial

statements comply with the Companies Act 1985. They also have general responsibility for taking such steps as

are reasonably open to them to safeguard the assets of the Group and to prevent and detect fraud and other

irregularities.

The Directors, having prepared the accounts, are required to provide to the Auditors such information and

explanation as the Auditors think necessary for the performance of their duty.


Report of the auditors

To the members of Shire Pharmaceuticals Group plc

We have audited the financial statements on pages 23 to 57 and the tables included on pages 14 to 20 of theReport of the Remuneration Committee.

Respective responsibilities of the Directors and auditors

As described on page 21, the Company’s Directors are responsible for the preparation of the financialstatements. It is our responsibility to form an independent opinion, based on our audit, on those statements andto report our opinion to you.

Basis of opinion

We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An auditincludes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financialstatements. It also includes an assessment of the significant estimates and judgements made by the Directors inthe preparation of the financial statements, and of whether the accounting policies are appropriate to theGroup’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considerednecessary in order to provide us with sufficient evidence to give reasonable assurance that the financialstatements are free from material misstatement, whether caused by fraud or other irregularity or error. Informing our opinion we also evaluated the overall adequacy of the presentation of information in the financialstatements.

Opinion

In our opinion the financial statements give a true and fair view of the state of affairs of the Company and theGroup as at 31 December 1997 and of the loss and cash flows of the Group for the period then ended andhave been properly prepared in accordance with the Companies Act 1985.

Corporate governance mattersIn addition to our audit of the financial statements, we have reviewed the Directors’ statements on page 20 onthe Company’s compliance with the paragraphs of the Code of Best Practice specified for our review by theLondon Stock Exchange and their adoption of the going concern basis in preparing the financial statements. Theobjective of our review is to draw attention to non-compliance with Listing Rules 12.43(j) and 12.43(v).

Basis of opinion

We carried out our review in accordance with guidance issued by the Auditing Practices Board. That guidancedoes not require us to perform any additional work necessary to express a separate opinion on the effectivenessof either the Company’s system of internal financial control or corporate governance procedures, or on theability of the Group to continue in operational existence.

Opinion

With respect to the Directors’ statements on internal financial control and going concern on page 20, in ouropinion the Directors have provided the disclosures required by the Listing Rules referred to above and suchstatements are not inconsistent with the information of which we are aware from our audit work on the financialstatements.

Based on enquiry of certain Directors and Officers of the Company, and examination of relevant documents, inour opinion the Directors’ statements on page 20 appropriately reflect the Company’s compliance with theother paragraphs of the Code specified for our review by Listing Rule 12.43(j).

Arthur Andersen

Chartered Accountants, Registered AuditorsAbbot’s House, Abbey Street, Reading RG1 3BD

8 May 1998


Consolidated profit and loss account

6 months to 6 months to Year to

31 December 31 December 30 June

1997 1996 1997

Continuing (Unaudited)

Acquisition operations Total Total Total

Notes £’000 £’000 £’000 £’000 £’000

Turnover 2 13,458 15,147 28,605 9,879 23,072

Cost of sales and

operating expenses 3 (6,040) (20,335) (26,375) (10,630) (24,471)

Operating profit/(loss) 7,418 (5,188) 2,230 (751) (1,399)

Bank interest receivable 91 246 337 648 1,278

Interest payable and

similar charges 6 (19) (96) (115) (2) (25)

Profit/(loss) on ordinary

activities before taxation 4 7,490 (5,038) 2,452 (105) (146)

Tax on profit/(loss) on

ordinary activities 7 (2,832) – (2,832) – –

Profit/(loss) on ordinary

activities after taxation 4,658 (5,038) (380) (105) (146)

(Loss) per share – ordinary 9 (0.3)p (0.2)p (0.2)p

A statement of movement on reserves is given in note 21.

The accompanying notes are an integral part of this consolidated profit and loss account.

Consolidated statement of total recognised gains and losses



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Loss for the period (380) (105) (146)

Translation of overseas subsidiaries financial statements 353 – 9

Total recognised gains and losses relating to the period (27) (105) (137)


Consolidated balance sheets


1997 1996 1997

(Unaudited)

Notes £’000 £’000 £’000

Fixed assets

Intangible assets 11 7,687 217 1,543

Tangible assets 12 4,263 1,035 1,893

11,950 1,252 3,436

Current assets

Stocks 14 6,684 719 1,158

Debtors 15 10,791 4,206 6,671

Investments 16 – 20,688 14,111

Cash at bank and in hand 10,283 5,283 2,764

27,758 30,896 24,704

Creditors: Amounts falling due within one year 17 (18,522) (4,148) (11,984)

Net current assets 9,236 26,748 12,720

Total assets less current liabilities 21,186 28,000 16,156

Creditors: Amounts falling due after more than one year 18 (11,246) (158) (2,211)

Provision for liabilities and charges 19 – (2,750) –

Net assets 9,940 25,092 13,945

Capital and reserves

Called-up share capital 20 6,226 3,049 4,204

Share premium 21 193,386 41,734 89,302

Capital reserve 21 2,755 2,755 2,755

Other reserves 21 24,223 6,669 10,665

Profit and loss account 21 (216,650) (29,115) (92,981)

Shareholders’ funds 22 9,940 25,092 13,945

Approved by the Board of Directors on 8 May 1998 and signed on their behalf by:

Stephen Stamp

The accompanying notes are an integral part of these consolidated balance sheets.


Company balance sheets


1997 1996 1997

(Unaudited)

Notes £’000 £’000 £’000

Fixed assets

Intangible assets 11 6,259 31 31

Tangible assets 12 1,387 706 721

Investments 13 216,394 41,887 101,498

224,040 42,624 102,250

Current assets

Stocks 14 3,584 – –

Debtors 15 241 90 39

Investments 16 – – –

Cash at bank and in hand 1,300 1,896 110

5,125 1,986 149

Creditors: Amounts falling due within one year 17 (7,425) (540) (7,103)

Net current (liabilities)/assets (2,300) 1,446 (6,954)

Total assets less current liabilities 221,740 44,070 95,296

Creditors: Amounts falling due after more than one year 18 (8,508) (158) –

Provision for liabilities and charges 19 – – –

Net assets 213,232 43,912 95,296

Capital and reserves

Called-up share capital 20 6,226 3,049 4,204

Share premium 21 193,386 41,734 89,302

Capital reserve 21 1,674 1,674 1,674

Other reserves 21 18,055 501 4,497

Profit and loss account 21 (6,109) (3,046) (4,381)

Shareholders’ funds 213,232 43,912 95,296

Approved by the Board of Directors on 8 May 1998 and signed on their behalf by:

Stephen Stamp

The accompanying notes are an integral part of these balance sheets.




1997 1996 1997

(Unaudited)

Note £’000 £’000 £’000

Net cash inflow/(outflow) from operating activities 24a 8,565 186 (3,686)

Returns on investments and servicing of finance

Interest received 337 649 1,278

Interest paid (60) – (20)

Interest element of finance lease rentals (55) (3) (5)

Net cash inflow from returns on investments

and servicing of finance 222 646 1,253

Taxation

Corporation tax paid (1,455) – (91)

Capital expenditure and financial investments

Purchase of intangible fixed assets – (59) (673)

Purchase of tangible fixed assets (1,034) (159) (313)

Sale of tangible fixed assets 10 11 13

Net cash outflow for capital expenditure and

financial investments (1,024) (207) (973)

Acquisitions and disposals

Deferred consideration (6,203) – –

Purchase of subsidiary undertaking 24b (9,427) – (15,590)

Expenses of acquisitions (979) – (921)

Net cash acquired with subsidiary undertaking 4,065 – 54

Net cash outflow from acquisitions (12,544) – (16,457)

Cash (outflow)/inflow before management of

liquid resources and financing (6,236) 625 (19,954)

Financing

Issue of ordinary share capital – 51 13,053

Exercise of share options 548 – 71

Expenses of share issue (666) – (1,380)

Capital element of finance leases (291) (130) (340)

Net cash (outflow)/inflow from financing (409) (79) 11,404

Management of liquid resources

Decrease in cash placed on short term deposit 24c 14,111 (628) 5,949

Increase/(decrease) in cash in the period 24c 7,466 (82) (2,601)

The accompanying note is an integral part of this consolidated cash flow statement.

Consolidated cash flow statement


Notes to the financial statements

1 Accounting policies

A summary of the principal group accounting policies, all of which have been applied consistently throughout the periodspresented, is set out below:

(a) Basis of accountingThe financial statements have been prepared under the historical cost convention and in accordance with applicableaccounting standards. The financial statements have been prepared under United Kingdom Generally AcceptedAccounting Principles (UK GAAP). A reconciliation from UK GAAP to US GAAP is set out in note 25.

The interim accounts for the period to 31 December 1996 have been prepared in accordance with the accountingpolicies adopted for the annual accounts for the year to 30 June 1996. The results for the six months ended 31 December1996 have not been audited and do not constitute statutory accounts within the meaning of Section 240 of theCompanies Act 1985.

(b) Basis of consolidationThe group accounts consolidate the accounts of Shire Pharmaceuticals Group plc and all its subsidiary undertakings.

Under the acquisition method of accounting, which has been adopted for all business combinations other than groupreconstructions, the results of subsidiary undertakings acquired or disposed of in a period are included in the consolidatedprofit and loss account from the date of acquisition up to the date of disposal. Goodwill arising on consolidation(representing the excess of the fair value of the consideration given over the fair value of the separable net assetsacquired) is written off against reserves on acquisition.

Where merger accounting principles apply, subsidiary undertakings are consolidated as if they had always been ownedby the Company and acquired share premium has been shown as other reserves. There has been no difference betweenthe nominal value of shares issued to acquire subsidiary undertakings and the nominal value of shares acquired.

(c) TurnoverProduct sales are recognised upon shipment of products.

Licensing and development fees represent revenues derived from licence agreements and from collaborative researchand development arrangements.

Licensing fees are recognised upon transfer or licensing of intellectual property rights. Development fee revenue relatesto ongoing research and development in connection with licensed technology.

Revenue in respect of research and development performed on a cost plus or fixed percentage of cost basis is recognisedas research and development work is performed. Where collaborative research and development arrangements stipulatepayment on a milestone basis, revenue is recognised upon achievement of those milestones.

Royalty revenue relating to licensed technology is recognised when receivable.

Revenues are stated net of VAT and similar taxes, trade discounts and intra-group transactions.

No revenue is recognised for consideration, the value or receipt of which is dependent on future events, future performance,or refund obligations.

(d) Research and developmentResearch and development expenditure includes funded and unfunded expenditure and is written off in the period inwhich it is incurred.

(e) Leased assetsThe cost of operating leases is charged to the profit and loss account on a straight line basis over the lease term, even ifrental payments are not made on such a basis.

Assets acquired under finance leases are included in the balance sheet as tangible fixed assets and are depreciated overtheir useful lives. The capital elements of future lease payments are recorded as liabilities, while the interest elements arecharged to profit and loss account over the period of the leases to give a constant charge on the balance of the capitalrepayments outstanding.

(f) PensionsThe Group contributes to personal defined contribution pension plans of employees. Contributions are charged to theprofit and loss account as they become payable.

(g) Finance costs of debtThe finance costs of debt comprise interest, issue costs and the discount arising on the issue of warrants to former loan noteholders and are charged to the profit and loss account over the term of the debt at a constant rate on the carrying amount.

(h) TaxationCorporation tax is provided on taxable profits at the current rate.

Deferred taxation (which arises from differences in the timing of recognition of items, principally depreciation, in theaccounts and by the tax authorities) has been calculated on the liability method. Deferred taxation is provided on timingdifferences which will probably reverse at the rates of tax likely to be in force at the time of reversal. Deferred taxationis not provided on timing differences which, in the opinion of the Directors, will probably not reverse.

(i) Foreign currencyMonetary assets and liabilities in foreign currencies are translated into sterling at the rate of exchange ruling at the balancesheet date. Transactions in foreign currencies are translated into sterling at the rate of exchange ruling at the date of thetransaction. Exchange differences are taken into account in arriving at the operating profit.

The results of overseas operations are translated at the average rates of exchange during the period and their balancesheets at the rates ruling at the balance sheet date.

(j) Intangible fixed assetsIntellectual property including trademarks for products with an immediate defined revenue stream and acquired forvaluable consideration are amortised over their estimated economic lives. Intellectual property with no defined revenuestream is written off on acquisition. Amounts recorded as intangible assets are reviewed for impairment on a periodicbasis using expected undiscounted cash flows.

(k) Tangible fixed assetsTangible fixed assets are shown at cost less accumulated depreciation and any provision for permanent diminution invalue. Depreciation is provided on a straight line basis at rates calculated to write off the cost less estimated residual valueof each asset over its estimated useful life as follows:

Motor vehicles 25 per cent per annumEquipment 25 per cent per annumFurniture and fittings 20-25 per cent per annum

(I) InvestmentsFixed asset investments are shown at cost less any provision for permanent diminution in value. Current asset investmentsare shown at the lower of cost and net realisable value.

(m) StocksStocks are stated at the lower of cost and net realisable value. Cost incurred in bringing each product to its presentlocation and condition is based on purchase costs calculated on a first-in, first-out basis, including transport.

Net realisable value is based on estimated normal selling price less further costs expected to be incurred to completionand disposal. Provision is made for obsolete, slow moving or defective items where appropriate.

(n) Employee share schemesIn accordance with UITF Abstract 17 “Employee share schemes” the cost of awards to employees that take the form ofshares or rights to shares is recognised as a charge to the profit and loss account. The amount recognised, which is thedifference between the market value at date of grant of the underlying share and any exercise price, is charged to theprofit and loss account over the period the shares are vested with a corresponding credit to reserves.

(o) Related party transactionsIn accordance with the exemptions in FRS 8, Related Party Transactions, transactions between Group companies havenot been disclosed since group accounts are prepared and include the results of all subsidiary undertakings.


Notes to the financial statements continued


2 Turnover and segment information

(a) Turnover by business activity6 months to 6 months to Year to


1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Product sales 21,412 6,016 13,307

Licensing and development fees 6,625 3,592 9,031

Royalties 568 271 734

28,605 9,879 23,072

(b) Turnover by geographical destination

United Kingdom 7,510 5,499 12,792

Europe 5,405 3,654 9,119

United States of America 15,320 – 684

Other overseas markets 370 726 477

28,605 9,879 23,072

(c) Contribution by business activityProduct Licensing &

sales development Royalties Total

6 months to 31 December 1997 £’000 £’000 £’000 £’000

Turnover 21,412 6,625 568 28,605

Cost of product sales (5,911) – – (5,911)

Distribution costs (6,432) – – (6,432)

Funded research and development costs – (6,261) – (6,261)

9,069 364 568 10,001

Unfunded research and development costs (5,437)

Expenses not allocated (2,334)

Operating profit 2,230

Product Licensing &


6 months to 31 December 1996 (Unaudited) £’000 £’000 £’000 £’000

Turnover 6,016 3,592 271 9,879




1,123 751 271 2,145



Operating loss (751)


Product Licensing &


Year to 30 June 1997 £’000 £’000 £’000 £’000

Turnover 13,307 9,031 734 23,072




2,432 2,542 734 5,708



Operating loss (1,399)

(d) Geographical analysis by country of origin

Turnover Operating profit/(loss) Net assets

1997 1996 1997 1996 1997 1996

(Unaudited) (Unaudited) (Unaudited)

6 months to 31 December £’000 £’000 £’000 £’000 £’000 £’000

United Kingdom 8,869 7,150 (3,992) (3,258) 593 2,578

Rest of Europe 4,413 2,729 472 2,507 3 22,514

United States of America 15,323 – 5,750 – 9,344 –

28,605 9,879 2,230 (751) 9,940 25,092

1997 1997 1997

Year to 30 June £’000 £’000 £’000

United Kingdom 16,624 (4,800) (3,586)

Rest of Europe 5,764 4,008 17,213

United States of America 684 (607) 318

23,072 (1,399) 13,945

(e) Acquisitions of subsidiary undertakings

The analyses presented above include the following amounts in respect of Shire Richwood Inc., which was acquired during

the period:6 months to

31 December

1997

£’000

Turnover 13,458


Net assets at the end of the period 8,641

All turnover related to Shire Richwood Inc. originated in the United States of America.



3 Cost of sales and operating expenses6 months to 6 months to Year to


1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Cost of product sales 5,911 2,684 6,457

Distribution costs 6,432 2,209 4,418

Research and development costs

– funded 6,261 2,841 6,489

– unfunded 5,437 1,765 4,303

General and administrative expenses 2,334 1,131 2,804

26,375 10,630 24,471

The above amounts in the six months ended 31 December 1997 include cost of sales of £2,065,000, distribution costs

of £3,285,000 and general and administrative expenses of £690,000 in respect of Shire Richwood Inc., which was

acquired in the period.

4 Profit/(loss) on ordinary activities before taxation

Profit/(loss) on ordinary activities before taxation is stated after charging/(crediting):



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Staff costs (note 5) 4,606 1,972 4,865

Auditors’ remuneration

– audit fees 20 20 40

– other services 30 5 45

Operating lease rentals 295 194 482

Depreciation of tangible fixed assets

– owned 404 89 204

– held under finance leases and hire purchase contracts 94 – 99

Amortisation of intangible fixed assets 84 17 35

Profit on sale of fixed assets (8) – –

Cost of employee share options 25 – l27

Foreign exchange loss 92 13 20

Galantamine licensing and co-development arrangements (note 10)

– turnover (4,116) (2,492) (5,100)

– operating expenses 4,519 2,483 5,098

The following amounts have been charged directly to share premium:

Six months ended 31 December 1997: non-audit fees of £145,000 related to the acquisition of Shire Richwood Inc. in

August 1997.

Six months ended 31 December 1996: no amounts were charged directly to share premium.

Year ended 30 June 1997: non-audit fees of £149,000 related to the acquisition of Shire Laboratories Inc. in March 1997.



5 Staff costs

Particulars of employee costs (including directors’ remuneration) are shown below:



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Wages and salaries 4,073 1,760 4,296

Social security costs 345 178 406

Pension contributions 188 34 163

4,606 1,972 4,865

The average weekly number of people employed by the Group during the period was as follows:



1997 1996 1997

(Unaudited)

Number Number Number

Manufacturing 45 – –

Distribution 195 53 57

General and administrative 41 22 26

Research and development 106 31 45

387 106 128

Directors’ remuneration in respect of directors of the Company was as follows:



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Aggregate emoluments 373 252 596

Company contributions to money purchase pension schemes 21 17 34

394 269 630

Directors waived emoluments of £7,500 in the six months ended 31 December 1997, £2,000 in the six months ended

31 December 1996 and £4,000 in the year ended 30 June 1997.


The number of directors who were members of Company pension schemes was as follows:



1997 1996 1997

(Unaudited)

Number Number Number

Money purchase schemes 3 3 3

The above amounts for remuneration include the following in respect of the highest paid director:



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Aggregate emoluments 98 103 205

Company contributions to money purchase pension schemes 9 8 15

107 111 220

The highest paid director did not exercise any share options in any period.

6 Interest payable and similar charges6 months to 6 months to Year to


1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Bank loans, overdrafts and other loans wholly repayable within five years 60 – 20

Finance leases and hire purchase contracts 55 2 5

115 2 25



7 Tax on profit/(loss) on ordinary activities

The tax charge comprises:6 months to 6 months to Year to


1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Overseas corporation tax 2,832 – –

UK corporation tax at 31 per cent (six month period to 31 December

1996: 33 per cent; year to 30 June 1997: 32.5 per cent) – current period – – –

– prior period – – –

2,832 – –

Approximate gross tax losses to carry forward against certain future

UK corporation tax liabilities 10,685 3,870 5,131

Additionally, the Group had non-UK tax losses to carry forward against certain future non-UK tax liabilities.

There was no unprovided deferred taxation liability at any year or period end.

8 Loss attributable to Shire Pharmaceuticals Group plc

The loss for the financial period dealt with in the accounts of the Company was £1,728,000 (31 December 1996:

£1,103,000; 30 June 1997: £2,438,000). As provided by Section 230 of the Companies Act 1985, no profit and loss

account is presented in respect of the Company.

9 Loss per share

Loss per share has been calculated by dividing the loss on ordinary activities after taxation of £380,000, £105,000 and

£146,000 in the six months ended 31 December 1997 and 1996 and in the year ended 30 June 1997 respectively by

the weighted average number of ordinary shares in issue of 112,605,135, 60,931,000 and 67,153,150.

Fully diluted earnings per share was calculated in periods where disclosure was required on the basis that ordinary shares

underlying all unexercised share options and warrants were issued at the beginning of the period or the date of grant of

the options or warrants if later.


10 Material transactions

(a) Galantamine

On 30 November 1995, the Group entered into co-development and licensing arrangements for galantamine with

Janssen Pharmaceutica NV, a subsidiary of Johnson & Johnson. These arrangements provided for a one-off upfront

payment, a milestone payment and the reimbursement of substantially all future development costs for the Alzheimer’s

disease indication. Included in the results are the following amounts in respect of these arrangements:



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Turnover 4,116 2,492 5,100

Operating expenses 4,519 2,483 5,098

The Group incurred expenses amounting to £5,858,000 relating to the development of galantamine which were written

off in periods prior to 30 November 1995.

(b) Carbatrol

On 23 December 1997, the Group reacquired the worldwide rights to Carbatrol from Athena Neurosciences Inc., a

wholly owned subsidiary of Elan Corporation plc. Under the terms of this agreement, $25 million consideration was paid

by Shire which comprised $2 million in cash, a zero coupon note with an initial value of $14 million and the issue of

ordinary shares in Shire valued at $9 million. The note converted into 2,464,919 ordinary shares which were sold as part

of the offering completed on 1 April 1998. Included in the balance sheet at 31 December 1997 are the following amounts

in respect of the agreement:

31 December

1997

£’000

Intangible fixed assets (net of $8 million milestone payment) 6,228

Tangible fixed assets 438

Stock 3,583

Creditors: Amounts falling due in less than one year (6,685)

Creditors: Amounts falling due in more than one year (8,508)



11 Intangible fixed assetsGroup Company

£’000 £’000

Cost

As at 1 July 1996 383 –

Additions 60 31

As at 31 December 1996 (Unaudited) 443 31

Additions 1,343 –

As at 30 June 1997 1,786 31

Additions 6,228 6,228

As at 31 December 1997 8,014 6,259

Amortisation

As at 1 July 1996 208 –

Charge for the period 18 –

As at 31 December 1996 (Unaudited) 226 –


As at 30 June 1997 243 –


As at 31 December 1997 327 –

Net book value

As at 1 July 1996 175 –

As at 31 December 1996 (Unaudited) 217 31

As at 30 June 1997 1,543 31

As at 31 December 1997 7,687 6,259

Included in additions for the six months to 30 June 1997 is £613,000 for the acquisition of the Nivalin trademark

(galantamine) giving marketing rights in Austria and certain Eastern European countries, and £730,000 for exclusive

distributorship rights for Urispas, a specialist product for the treatment of urinary incontinence, in the UK, Ireland and 12

export territories.

Included in additions for the six months to 31 December 1997 is £6,228,000 in respect of the worldwide rights to

Carbatrol reacquired from Athena (see note 10b).


12 Tangible fixed assetsMotor Furniture

vehicles Equipment and fittings Total(a) Group £’000 £’000 £’000 £’000

Cost

As at 1 July 1996 61 370 378 809

Additions – 734 – 734

Disposals (20) – – (20)

As at 31 December 1996 (Unaudited) 41 1,104 378 1,523

Additions – 144 10 154

Acquisition of subsidiary undertaking – 1,724 246 1,970

Disposals – (1) – (1)

Foreign exchange – (73) (9) (82)

As at 30 June 1997 41 2,898 625 3,564

Additions – 1,386 86 1,472

Acquisition of subsidiary undertaking – 780 638 1,418

Disposals (23) – – (23)

Foreign exchange – (15) 5 (10)

As at 31 December 1997 18 5,049 1,354 6,421

Depreciation

As at 1 July 1996 24 191 191 406

Charge 6 43 40 89

Disposals (7) – – (7)

As at 31 December 1996 (Unaudited) 23 234 231 488

Acquisition of subsidiary undertaking – 935 80 1,015

Charge 5 187 22 214

Disposals – (1) – (1)

Foreign exchange – (39) (6) (45)

As at 30 June 1997 28 1,316 327 1,671

Acquisition of subsidiary undertaking – – – –

Charge 5 386 107 498

Disposals (21) – – (21)

Foreign exchange – 9 1 10

As at 31 December 1997 12 1,711 435 2,158

Net book value

As at 1 July 1996 37 179 187 403

As at 31 December 1996 (Unaudited) 18 870 147 1,035

As at 30 June 1997 13 1,582 298 1,893

As at 31 December 1997 6 3,338 919 4,263

Leased assets included above, at cost

As at 1 July 1996 – – – –

As at 31 December 1996 (Unaudited) – 575 – 575

As at 30 June 1997 – 1,947 – 1,947

As at 31 December 1997 – 1,173 50 1,223



Furniture

Equipment and fittings Total

(b) Company £’000 £’000 £’000

Cost

As at 1 July 1996 53 2 55

Additions 668 – 668

As at 31 December 1996 (Unaudited) 721 2 723

Additions 54 – 54

As at 30 June 1997 775 2 777

Additions 805 – 805

As at 31 December 1997 1,580 2 1,582

Depreciation

As at 1 July 1996 4 1 5

Charge 12 – 12


Charge 39 – 39

As at 30 June 1997 55 1 56

Charge 139 – 139

As at 31 December 1997 194 1 195

Net book value

As at 1 July 1996 49 1 50


As at 30 June 1997 720 1 721

As at 31 December 1997 1,386 1 1,387

Leased assets included above, at cost

As at 1 July 1996 – – –

As at 31 December 1996 (Unaudited) 575 – 575

As at 30 June 1997 575 – 575

As at 31 December 1997 771 – 771


13 Fixed asset investments

(a) CompanyShares in Amount due

subsidiary Convertible to subsidiary

undertakings loan stock undertakings Total

£’000 £’000 £’000 £’000

Cost

As at 1 July 1996 45,033 – (2,729) 42,304

Net acquisitions/advances – – (420) (420)

Share options exercised 3 – – 3

As at 31 December 1996 (Unaudited) 45,036 – (3,149) 41,887

Net acquisitions/advances 63,611 – (4,000) 59,611

Transfer (63,611) 60,000 3,611 –

As at 30 June 1997 45,036 60,000 (3,538) 101,498

Net acquisitions/advances 126,887 – (14,991) 111,896

Interest on intra-Group loan note – 3,000 – 3,000

As at 31 December 1997 171,923 63,000 (18,529) 216,394

Shire Holdings (Europe) Limited, a Group company, issued Unsecured Convertible Redeemable Loan Stock (1997 –

2002) in favour of the Company in consideration for the whole of the issued share capital of Shire Laboratories Inc. at a

price of £60.0 million. The loan stock has a face value of £96.6 million.

(b) Principal subsidiaries

The Company owned directly or indirectly the whole of the issued share capital of the following companies:

Country of

Subsidiary incorporation/operation Principal activity

Shire Pharmaceuticals Limited * UK Marketing of pharmaceuticals

Shire Pharmaceutical Development Limited * UK Development of pharmaceuticals,

including on behalf of other Group companies

Shire Pharmaceutical Contracts Limited * UK Development and licensing of pharmaceuticals

The Endocrine Centre Limited UK Endocrine clinic

Shire Holdings (Europe) Limited * UK Intermediate holding company

Shire International Licensing BV Netherlands Licensing and development of pharmaceuticals

Shire Holdings Limited * Bermuda/UK Intermediate holding company

Shire Laboratories Inc. USA Development and licensing of pharmaceuticals

Shire Richwood Inc.* USA Development and marketing of pharmaceuticals

All subsidiary undertakings have been included in these consolidated accounts.

* Held directly by Shire Pharmaceuticals Group plc.



(c) Acquisition

On 22 August 1997, the Company acquired all of the outstanding shares of Shire Richwood Inc. (formerly Richwood

Pharmaceutical Company, Inc.), a company involved in the development, manufacture and marketing of pharmaceutical

products. The consideration paid was £130.2 million, comprising 39.5 million shares of 5p each at a premium of £104.2

million, share options of £13.5 million, cash of £9.4 million and expenses of £1.0 million.

Additional details are given in note 24b.

For comparative purposes, the pre acquisition results of Shire Richwood Inc. for the period 1 January 1997 to 22 August

1997 were:£’000

Turnover 14,303

Operating expenses (10,438)


Interest receivable 142

Interest payable and similar charges (227)

Profit on ordinary activities before taxation 3,780

Taxation (1,478)

Profit on ordinary activities after taxation 2,302

The subsidiary undertaking had no recognised gains or losses other than the profit reported above.

14 StocksGroup Company

31 December 31 December 30 June 31 December 31 December 30 June1997 1996 1997 1997 1996 1997

(Unaudited) (Unaudited)£’000 £’000 £’000 £’000 £’000 £’000

Raw materials and

consumables 2,075 318 286 1,699 – –

Finished goods 4,609 401 872 1,885 – –

6,684 719 1,158 3,584 – –

There is no material difference between the balance sheet value of stocks and their replacement costs.

15 DebtorsGroup Company

31 December 31 December 30 June 31 December 31 December 30 June1997 1996 1997 1997 1996 1997

(Unaudited) (Unaudited)£’000 £’000 £’000 £’000 £’000 £’000

Amounts falling due

within one year:

Trade debtors 9,696 3,720 6,376 – – –

VAT 317 274 – 126 68 –

Other debtors 441 26 85 – – –

Prepayments and

accrued income 337 186 210 115 22 39

10,791 4,206 6,671 241 90 39


16 InvestmentsGroup Company

31 December 31 December 30 June 31 December 31 December 30 June

1997 1996 1997 1997 1996 1997

(Unaudited) (Unaudited)

£’000 £’000 £’000 £’000 £’000 £’000

Bank and building society

term deposits – 15,698 10,096 – – –

Commercial paper – 4,990 4,015 – – –

– 20,688 14,111 – – –

17 Creditors: Amounts falling due within one year

Group Company


1997 1996 1997 1997 1996 1997


£’000 £’000 £’000 £’000 £’000 £’000

Obligations under finance

leases and hire purchase

contracts 431 286 540 160 286 300

Trade creditors 6,393 2,415 2,348 175 153 196

Other creditors 507 56 355 2 – 2

Payable in respect of

termination of a licence

agreement 500 – 500 – – –

Payable in respect of Urispas

distributor rights (note 11) – – 630 – – –

Corporation tax payable 416 230 121 – – –

VAT 92 147 40 – – –

Social security and PAYE 156 10 137 35 2 30

Accruals and deferred income 3,342 1,004 1,110 368 99 372

Deferred consideration

(note 23c ii) – – 6,203 – – 6,203

Payable in respect of Carbatrol

repurchase (note 10b) 6,685 – – 6,685 – –

18,522 4,148 11,984 7,425 540 7,103



18 Creditors: Amounts falling due after more than one year

Group Company


1997 1996 1997 1997 1996 1997


£’000 £’000 £’000 £’000 £’000 £’000

Loan note (note 10b) 8,508 – – 8,508 – –

Obligations under finance

leases and hire purchase

contracts 770 158 333 – 158 –

Accruals and deferred income 218 – 128 – – –

Payable in respect of

termination of a licence

agreement 1,750 – 1,750 – – –

11,246 158 2,211 8,508 158 –

Amounts are payable as follows:Group


1997 1996 1997

(Unaudited)

£’000 £’000 £’000

One to two years 9,376 148 877

Two to three years 802 10 584

Three to four years 578 – 500

Four to five years 275 – 250

Thereafter 215 – –

11,246 158 2,211


19 Provision for liabilities and chargesGroup

£’000

Provision in respect of the termination of a licence agreement

As at 1 July 1996 and 31 December 1996 2,750

Utilised in period (500)

Transferred to creditors (2,250)

As at 30 June 1997 and 31 December 1997 –

The amount due in relation to the licence agreement was reclassified from provisions to creditors within the balance

sheet when the amount and timing of payments became certain. The Company had no provisions for liabilities and

charges at 31 December 1997 and 1996 and at 30 June 1997.

20 Called-up share capitalNumber ’000 £’000

Authorised

As at 1 July 1996

Ordinary shares of 5p each 86,500 4,325

As at 31 December 1996 (Unaudited)


As at 30 June 1997


As at 31 December 1997


Allotted, issued and fully paid

As at 1 July 1996 – ordinary shares of 5p each 60,894 3,044

Issued on exercise of options for cash consideration 101 5

As at 31 December 1996 – ordinary shares of 5p each (Unaudited) 60,995 3,049


Issued as part consideration for Shire Laboratories Inc. for non-cash consideration 16,947 848

Issued pursuant to an Open Offer for cash consideration 6,100 305

As at 30 June 1997 – ordinary shares of 5p each 84,076 4,204


Issued as part consideration for Shire Richwood Inc. for non-cash consideration 39,488 1,974

As at 31 December 1997 – ordinary shares of 5p each 124,531 6,226

On 1 April 1998 the Group completed an international offering, issuing 6,000,000 ordinary shares for gross proceeds of

$34.5 million.

The Directors’ interests in the share capital are set out on page 15.



Share options

The Company’s Directors and employees have been granted options over ordinary shares under the Shire Holdings

Limited Share Option Scheme (“SHL Scheme”), the Imperial Pharmaceutical Services Limited Employee Share Option

Scheme (Number One) (“SPC Scheme”), the Pharmavene 1991 Stock Option Plan (“SLI Plan”), the Shire Pharmaceuticals

Executive Share Option Scheme (Parts A and B) (“Executive Scheme”), the Shire Pharmaceuticals Sharesave Scheme

(“Sharesave Scheme”), the Shire Pharmaceuticals Group plc Employee Stock Purchase Plan (“Stock Purchase Plan”) and

the Richwood 1993 and 1995 Stock Option Plans (“SRI Plan”).

The following table sets forth certain information relating to the changes to options outstanding in the periods presented:

As at As at

1 July Options Options Options 31 December

1997 granted exercised lapsed 1997

Number of ordinary shares of 5p each

SHL Scheme 2,879,380 – (258,400) (10,100) 2,610,880

SPC Scheme 165,600 – (24,000) – 141,600

Executive Scheme ‘A’ 235,686 7,620 – (13,761) 229,545

Executive Scheme ‘B’ 2,130,596 782,380 – (10,239) 2,902,737

Sharesave Scheme 246,627 56,556 – (17,454) 285,729

Stock Purchase Plan 56,820 292,800 – (2,840) 346,780

SLI Plan 2,780,621 – (389,535) (7,916) 2,383,170

SRI Plan – 5,631,800 (684,070) – 4,947,730

8,495,330 6,771,156 (1,356,005) (62,310) 13,848,171

The Directors’ interests in share options are set out on pages 16 to 17.


21 ReservesShare Capital Other Profit and

premium reserve reserves loss account

Group £’000 £’000 £’000 £’000

As at 1 July 1996 as previously reported 41,721 2,755 6,135 (28,509)

Prior years’ cost of employee share options – – 501 (501)

As at 1 July 1996 restated 41,721 2,755 6,636 (29,010)

Options exercised 13 – 33 –

Loss for the period – – – (105)

As at 31 December 1996 (Unaudited) 41,734 2,755 6,669 (29,115)

Premium on issue of shares 48,930 – – –

lssue expenses (1,380) – – –

Goodwill on acquisition of subsidiary undertaking – – – (63,834)

Options exercised 18 – – –

Shire Laboratories Inc. share options – – 3,869 –

Cost of employee share options – – 127 –

Foreign exchange adjustment – – – 9


As at 30 June 1997 89,302 2,755 10,665 (92,981)


lssue expenses (666) – – –

Goodwill on acquisition of subsidiary undertaking – – – (123,642)


Shire Richwood Inc. share options – – 13,533 –


Foreign exchange adjustment – – – 353


As at 31 December 1997 193,386 2,755 24,223 (216,650)

The cumulative goodwill resulting from acquisitions which has been written off amounts to £20,292,000 as at 30 June

1996, £84,126,000 as at 30 June 1997, and £207,768,000 as at 31 December 1997.

The capital reserve arose in relation to a group reconstruction and certain financing transactions, and is not distributable.

Shire Pharmaceuticals Group plc had an accumulated profit and loss account deficit as of 31 December 1997, 31

December 1996 and 30 June 1997. No dividend can therefore be paid.



Share Capital Other Profit andpremium reserve reserves loss account

Company £’000 £’000 £’000 £’000

As at 1 July 1996 41,721 1,674 – (1,442)

Prior years’ cost of employee share options – – 501 (501)

As at 1 July 1996 restated 41,721 1,674 501 (1,943)


Loss for the period – – – (1,103)

As at 31 December 1996 (Unaudited) 41,734 1,674 501 (3,046)


lssue expenses (1,380) – – –


Shire Laboratories Inc. share options – – 3,869 –



As at 30 June 1997 89,302 1,674 4,497 (4,381)


lssue expenses (666) – – –


Shire Richwood Inc. share options – – 13,533 –



As at 31 December 1997 193,386 1,674 18,055 (6,109)

22 Reconciliation of movements in shareholders’ funds6 months to 6 months to Year to

31 December 31 December 30 June1997 1996 1997

(Unaudited)£’000 £’000 £’000

Loss for the period (380) (105) (146)

Other recognised gains and losses relating to the period 353 – 9

(27) (105) (137)

Cost of employee share options 25 – 127

Share capital issued 106,772 51 50,154

Issue expenses (666) – (1,380)

Goodwill on acquisition of subsidiary undertaking (123,642) – (63,834)

Share options issued on acquisition of subsidiary undertaking 13,533 – 3,869

Net deductions to shareholders’ funds (4,005) (54) (11,201)

Opening shareholders’ funds 13,945 25,146 25,146

Closing shareholders’ funds 9,940 25,092 13,945

The cumulative foreign exchange differences on translation amount to £362,000 as at 31 December 1997, £Nil as at 31

December 1996 and £9,000 as at 30 June 1997.


23 Guarantees, commitments and contingencies

(a) Operating leases

The Group leases property, computer and office equipment and motor vehicles on short term leases. The rents payable

under property leases are subject to renegotiation at various intervals specified in the leases. The Group pays for

substantially all of the insurance, maintenance and repair of these assets.

The minimum annual rentals under the foregoing leases are as follows:Computer

and office MotorGroup

Property equipment vehicles

As at 31 December 1997 £’000 £’000 £’000

Operating leases which expire:

– within 1 year 20 1 35

– within 2-5 years 444 35 251

– after 5 years 174 – –

638 36 286



– within 1 year – – 27

– within 2-5 years – 31 157


116 31 184

As at 30 June 1997


– within 1 year – 3 76

– within 2-5 years 397 31 147


513 34 223

Company

As at 31 December 1997 £’000 £’000


– within 1 year – –

– within 2-5 years 10 22

– after 5 years – –

10 22



– within 1 year – 2

– within 2-5 years 10 –


10 2



As at 30 June 1997 £’000 £’000


– within 1 year – –

– within 2-5 years 10 12


10 12

(b) Capital commitments

There were no capital commitments at 31 December 1997 and 1996, or 30 June 1997.

(c) Contingent liabilities

(i) A Group company and a number of other third party pharmaceutical companies are being sued in a number of law-

suits for damages for personal injury arising from certain products supplied for the treatment of obesity. These products

include phentermine, a product manufactured and distributed by the Group company. Generally, the lawsuits allege

that the Group company and the other defendants marketed phentermine and the other products for the treatment

of obesity and either misled or failed to inform users about the products and the dangers associated with them.

The lawsuits seek, among other things, compensatory and punitive damages and court-supervised medical monitoring

of persons who have ingested phentermine. Of the approximately 260 lawsuits filed, only 14 of the lawsuits specify

damages. In the 14 cases that seek specific damages, the plaintiffs have claimed an aggregate of approximately $158

million but do not break down the amount of damages sought against each defendant. Two of the 14 cases are class

action suits seeking relief for an unenumerated number of individuals in addition to named plaintiffs. In the remaining

12 cases there are an aggregate of 17 named plaintiffs. Shire has been dismissed in approximately 30 cases and in

only five cases has it been alleged that Shire’s product has been used by the plaintiff.

While Shire believes that the phentermine manufactured and distributed by the Group company constitutes less

than one per cent of the phentermine manufactured and distributed in the United States annually, that percentage

does not in any way correlate to Shire’s potential liability. Shire has product liability insurance in the aggregate amount

of $3 million for these claims. In addition, Shire may have indemnities from both a predecessor company and a third

party manufacturer in respect of some of the phentermine distributed by the Group company although this latter

indemnity may be limited and subject to a number of defenses. The insurer of such third party manufacturer of the

phentermine distributed by Shire has been providing for the defence of Shire in these actions. However, this insurer

of the third party manufacturer has filed a declaratory judgement seeking to define its obligations vis-a-vis the

distributors of phentermine (including Shire) and their various insurers and this complaint was filed in April. There

were 21 defendants to this case in total as originally filed. In excess of 800 claims have been tendered to this insurer

from the various defendants. Shire has also assessed the ability of the other defendants, certain of whom are large

multinational companies, to pay their share of reasonable losses, if any. Based upon publicly available information,

Shire believes that the defendants will, in general, pay their share of any reasonable losses, if any. Accordingly, at the

present stage of the litigation, prior to class certification and meaningful pre-trial discovery, Shire is unable to estimate

the likelihood of an adverse decision and, in the event of such decision, the range or amount of any potential liability

after taking into account any available product liability insurance and enforceable indemnities.

Shire intends to defend vigorously any and all claims made against the Group in respect of phentermine.

(ii) Under the terms of an agreement with American Home Products Inc. (‘‘AHP’’), the rights to a product, Robaxin,

were to be transferred to the Company upon the exercise by the Company of an option to acquire the product.

The Company has exercised the option but made no payment because the Company believes that, under the terms

of the agreement with AHP, the £2.3 million payable upon exercise of the option is repayable by AHP on the basis

that a product licence in respect of Lyrelle (a transdermal oestrogen patch developed by the Company for AHP)

has been received. AHP has disputed its obligation to repay this sum and, if it does not, this may result in the

Company having to initiate proceedings to recover the sum in question if and when the Company pays it.


24 Notes to the consolidated cash flow statement

(a) Reconciliation of operating profit/(loss) to net cash flow from operating activities



1997 1996 1997

(Unaudited)

£’000 £’000 £’000

Operating profit/(loss) 2,230 (751) (1,399)

Cost of employee share options 25 – 127

Depreciation 498 89 303

Amortisation of intangible fixed assets 84 18 35

(Profit)/loss on sale of fixed assets (8) – –

(Increase)/decrease in stocks (269) 138 (301)

(Increase)/decrease in debtors (620) 817 418

Increase/(decrease) in creditors 1,681 (125) (2,369)

Utilisation of provisions – – (500)

Carbatrol milestone payment 4,944 – –

Net cash inflow/(outflow) from operating activities 8,565 186 (3,686)

(b) Purchase of subsidiary undertakingBook value and

fair value

6 months to

31 December

1997

£’000

Net assets acquired:

Tangible fixed assets 1,418

Stocks 1,220

Debtors 3,827

Cash at bank and in hand 4,065

Creditors (4,009)

Net assets acquired 6,521

Goodwill 123,642

Consideration 130,163

Satisfied by:

Issue of ordinary shares 106,224

Issue of share options 13,533

Cash from own resources 9,427

Expenses of acquisition 979

130,163

The cash flows of Shire Richwood Inc. during the period since acquisition and included in the Group cash flows for the

six months to 31 December 1997 include £3,935,000 inflow from operating activities, £72,000 inflow in respect of net

returns on investments and servicing of finance, £3,456,000 outflow in respect of taxation and £140,000 outflow from

investing activities.

(c) Analysis of changes in net fundsOther

non-cash

Start of period Cash flow Acquisitions movement End of period

6 months to 31 December 1997 £’000 £’000 £’000 £’000 £’000

Cash at bank and in hand 2,764 7,466 – 53 10,283

Short term deposits 14,111 (14,111) – – –

Finance leases due within one year (540) (233) (124) – (431)

16,335 (6,878) (124) 53 9,852

Finance leases due after one year (333) (142) (579) – (770)

16,002 (7,020) (703) 53 9,082

6 months to 31 December 1996 (Unaudited)

Cash at bank and in hand 5,365 (82) – – 5,283

Short term deposits 20,060 628 – – 20,688

Finance leases due within one year – (131) – (417) (286)

25,425 415 – (417) 25,685

Finance leases due after one year – – – (158) (158)

25,425 415 – (575) 25,527

Year to 30 June 1997

Cash at bank and in hand 5,365 (2,601) – – 2,764

Short term deposits 20,060 (5,949) – – 14,111

Finance leases due within one year – (285) (250) (575) (540)

25,425 (8,835) (250) (575) 16,335

Finance leases due after one year – (55) (388) – (333)

25,425 (8,890) (638) (575) 16,002




25 Summary of significant differences between UK generally accepted accounting principles followed by the Group and US generally accepted accounting principles

The Group’s consolidated financial statements have been prepared under UK GAAP, which differs in certain respects

from US GAAP. The principal differences between the Group’s accounting policies under UK GAAP and US GAAP are

set out in the table below. A comparison of UK GAAP and US GAAP has not been prepared in respect of the unaudited

period.

Reconciliation of net loss from UK GAAP to US GAAP6 months to Year to

31 December 30 June

1997 1997

£’000 £’000

Net loss as reported under UK GAAP (380) (146)

Adjustments for:

Write off of in process Research and Development (note i) – (50,626)

Amortisation of goodwill (note i) (2,334) (220)

Recognition of deferred tax asset (note ii) 1,222 794

Share option compensation costs (note iii) (1,365) (40)

Net loss as reported under US GAAP (2,857) (50,238)

There is no tax effect related to the adjustments included above.

Earnings per share per US adjusted results6 months to Year to

31 December 30 June

1997 1997

Basic loss per ordinary share (pence) (2.68)p (74.81)p

Diluted loss per ordinary share n/a n/a

Stock outstanding - basic earnings per share 112,605,135 67,153,150

Stock options outstanding 5,050,815 2,650,092

Stock outstanding - diluted earnings per share 117,655,950 69,803,242

Diluted earnings per share is not presented since the Group reported a net loss under US GAAP. Stock options out-

standing represent potentially dilutive items. There is no difference between the net loss income for computing basic and

diluted loss per share at any period.

Shareholders’ equity 31 December 30 June

1997 1997

£’000 £’000

As reported under UK GAAP 9,940 13,945

Adjustments for:

Capitalisation of goodwill (note i) 134,071 4,226

Goodwill amortisation (note i) (2,721) (387)

Contingent purchase price (note i) – 6,203

Deferred tax (note ii) 9,809 8,587

As reported under US GAAP 151,099 32,574



Shareholders’ equity under US GAAP comprises the accumulated deficit of the Group determined in accordance with

US GAAP, the nominal value of ordinary shares issued and additional non-distributable amounts classified as part of

shareholders’ equity under both US and UK GAAP as follows:

Share premium

This represents paid-in capital in excess of the nominal value of the shares, net of direct expenses of issuing the shares.

Other reserves

There are a number of different amounts included in this equity account. Firstly, two group reconstructions have been

accounted using merger accounting. The shareholder equity amounts were combined except for adjustments necessary

to give effect to legal requirements for par or stated values. This treatment is in accordance with US GAAP. Secondly,

where shares have been issued in subsidiary undertakings, the premium on these shares is credited to other reserves on

consolidation. Under US GAAP, these amounts would be credited to additional paid in capital and classified as part of

shareholders’ equity. Thirdly, on the acquisition of certain subsidiary undertakings, share options in the acquired business

immediately vested and were replaced by options in Shire shares. The cost of these options was accounted for as part

of the purchase cost of the acquired business in accordance with APB 16.

Capital reserve

This account comprises two main elements. Firstly, in accordance with US and UK GAAP, the fair value attributed to

share warrants issued by the Company was credited to the capital reserve. Secondly, on the conversion of certain

preferred shares, the difference between the nominal value of those shares and the ordinary shares issued on redemption

was credited to capital reserve and thereby the shares issued on redemption were recorded at the carrying amount of

the preferred shares, in accordance with US GAAP.

Details of movements on these accounts are given in note 21.

Reconciliation of movement in shareholders’ equity under US GAAP

6 months to Year to

31 December 30 June

1997 1997

£’000 £’000

Beginning of period 32,574 29,993

Retained loss (see note 25a above) (2,857) (50,238)

Allotment of ordinary shares (see note 21 above) 106,772 50,154

Issue costs (see note 21 above) (666) (1,380)

Share option compensation cost (see note (iii) below) 1,390 167

Exchange of loan notes (see note 21 above) – –

Foreign exchange adjustment (see note 21 above) 353 9

Share options on acquisitions (see note 24 above) 13,533 3,869

End of period 151,099 32,574

(i) Accounting for business combinations

Goodwill

Under UK GAAP, goodwill arising on the acquisition of a business may be written off to retained earnings in the period

of acquisition. This is not in accordance with US GAAP, which requires goodwill to be capitalised and amortised over a

period of up to 40 years. Under US GAAP, for each acquisition, the Group analyses all factors available to it in making a

reasonable estimate of the useful life of goodwill. Goodwill recognised in each significant business combination, all of

which have been accounted for as purchases, is being amortised over a period of 5-30 years on a straight line basis

depending on the nature of the goodwill, and is evaluated annually for realisability based on expectations of undiscounted

cash flows and earnings from operations for each subsidiary having a material goodwill balance. Impairments to goodwill


would be recognised if future expected cash flows were not sufficient to recover the goodwill. Based upon its most recent

analysis, the Group believes that no material impairment of goodwill exists at 31 December 1997. If a material impairment

is identified, goodwill would be written down to its fair value. Fair value is determined based on the present value of

expected net cash flows to be generated by the business, discounted using a rate commensurate with the risks involved.

The movement on goodwill under US GAAP is as follows:£’000

At 1 July 1996 3,494

Amortisation (95)

At 31 December 1996 (Unaudited) 3,399

Arising on acquisition of SLI 565

Amortisation (125)

At 30 June 1997 3,839

Arising on acquisition of SRI 123,442

Arising on payment of SLI contingent consideration 6,203

Amortisation (2,334)

131,150

In process research and development

Under UK GAAP, fair values are not attributed to in process research and development. Under US GAAP, acquired

research and development expenditure is expensed to the extent that technological feasibility has not been established

and the technology has no future alternative uses.

Contingent purchase price

Under UK GAAP, at 30 June 1997, the Group included within creditors an amount of £6,203,000 representing the

maximum deferred consideration payable to the former shareholders of Shire Laboratories Inc. on approval of the drug

Carbatrol by the Federal Drugs Administration of the United States of America. Under US GAAP, amounts related to

contingent consideration are only included where the outcome of the contingency is determinable beyond reasonable

doubt. This amount became payable in the six months ended 31 December 1997.

(ii) Deferred taxation

Under UK GAAP, deferred tax is provided in respect of timing differences only to the extent that liabilities are expected

to crystallise in the foreseeable future. Net deferred tax assets are only recognised to the extent that they are expected

to be recoverable without replacement by equivalent debit balances. Under US GAAP, deferred taxation is recorded in

respect of all temporary differences between the tax bases and book values of assets and liabilities which will result in

taxable or tax deductible amounts in future years. Deferred tax assets under US GAAP are recognised to the extent that

it is more likely than not that they will be realised.

Under UK GAAP, deferred taxes are not normally recognised in respect of the difference between the fair value

attributable to net assets of an acquired business and their underlying tax basis. Under US GAAP, such deferred tax

attributes are recognised in the allocation of values. Any subsequent adjustments to the valuation allowances established

at date of acquisition against deferred tax assets recognized on that date are treated as an adjustment to the purchase

price. Accordingly it has no effect on net income/(loss) and shareholders’ equity in relation to deferred tax assets arising

on acquisition.



The analysis of the deferred taxation asset required by SFAS 109 (Accounting for Income taxes) is as follows:

31 December 30 June

1997 1997

£’000 £’000

Losses carried forward 12,570 10,207

Capitalised start up costs for tax purposes 2,742 2,102

Debt conversion 227 303

15,539 12,612

Valuation allowance (5,569) (3,996)

9,970 8,616

Deficit of tax value over book value of fixed assets (161) (29)

Deferred tax asset 9,809 8,587

Of the above amounts, £910,000 arose on the acquisition of Shire Pharmaceutical Contracts in September 1995 and

£6,440,000 in relation to the acquisition of Shire Laboratories Inc. in March 1997.

Valuation allowances against deferred tax assets have not been provided to the extent that future taxable income and

tax planning strategies are expected to enable losses brought forward to be utilised.

(iii) Share options

The Group has granted share options at exercise prices, which were lower than the estimated fair value of the underlying

shares on the grant date. Under UK GAAP, a compensation expense must be recognised on some share option schemes

based on the difference between the fair value of the shares at the date of grant and the exercise price, over the vesting

period of the options. A compensation expense does not have to be recognised for certain schemes open to all

employees on similar terms at a discount against the fair value of the shares of not more than 20 per cent.

Under US GAAP, APB Opinion 25, compensation expense must be recognised based on the difference between the fair

value of the shares at the measurement date and the exercise price, over the vesting period of the options. The

measurement date is the date on which both the exercise price and the number of shares under option are known. A

compensation expense need not be recognised for certain non-compensatory schemes where the discount to market

price at the grant date is less than 15 per cent.

The Group has applied APB Opinion 25 and related Interpretations in accounting for its stock options under US GAAP.

The additional disclosures required by Statement of Financial Accounting Standards No. 123, Accounting for Stock based

compensation (SFAS 123) are shown below.

(iv) Effect of adopting SFAS 123

The Group’s Directors and employees have been granted options over ordinary shares under the following share option

plans: Shire Holdings Limited Share Options Scheme (‘‘SHL Scheme’’), the Imperial Pharmaceutical Services Limited

Employee Share Option Scheme (Number One) (‘‘SPC Scheme’’), the Pharmavene 1991 Stock Option Plan (‘‘SLI Plan’’),

the Shire Pharmaceuticals Executive Share Option Scheme (Parts A and B) (‘‘Executive Scheme’’), the Shire

Pharmaceuticals Sharesave Scheme (‘‘Sharesave Scheme’’), the Shire Pharmaceuticals Group plc Employee Stock

Purchase Plan (‘‘Stock Purchase Plan’’) and the Richwood Stock Option Plans (‘‘Richwood Plan’’). The group accounts for

these plans under APB Opinion No. 25, under which compensation cost has been recognised to the extent the exercise

price is less than the fair market value of the stock at the date of grant. Such cost is amortised over the applicable vesting

period. Had compensation cost for stock options awarded under these plans been determined in accordance with SFAS

123, the Group’s net income and earnings per share would have been reduced to the following pro forma amounts.


6 months to Year to

31 December 30 June

1997 1997

£’000 £’000

Net loss As reported under US GAAP (2,857) (50,238)

Reversal of UK GAAP

Compensation expense and

Incremental APB25 expense 1,390 167

FAS 123 expense Pro forma under US GAAP (511) (633)

Net loss Pro forma under US GAAP (1,978) (50,704)

Basic earnings per share As reported under US GAAP (pence) (2.68)p (74.81)p

Pro forma under US GAAP (pence) (1.86)p (75.51)p

Because the SFAS 123 method of accounting has not been applied for options granted prior to 1 April 1995 the resulting

pro forma compensation cost may not be representative of that to be expected in future years.

No further options will be granted under the SHL Scheme, SPC scheme, SLI Plan or Richwood Plan. In a period of five

years, not more than five per cent of the issued share capital of the company may be placed under option under any

employee share scheme. In a period of ten years, not more than ten per cent of the issued share capital of the Group

may be placed under option under any employee share scheme.

In addition, the following terms apply to options that may be granted under the various plans:

Executive Scheme: up to five per cent of the issued ordinary share capital of the company, in any period of ten years,

subject to a limit of 2.5 per cent in the period of four years following adoption of the Scheme and a limit of three per

cent in any period of three calendar years.

Stock Purchase Plan: up to 2,000,000 ordinary shares.

The Group has granted options through 31 December 1997 under the various plans as follows:

Number of options Expiry period from date of issue Vesting period

SHL Scheme 2,610,880 7 years, or 3 months after 1-3 years

end of employment

SPC Scheme 141,600 7 years, or 6 months after 2 years

end of employment

SLI Plan 2,383,170 10 years Immediate on acquisition by Shire

Executive Scheme 3,132,282 10 years 3 years, subject to performance criteria

Sharesave Scheme 285,729 6 months after vesting 3 or 5 years

Stock Purchase Plan 346,780 Automatic exercise 27 months

Richwood Plan 4,947,730 5 years Immediate on acquisition by Shire

Further details of the Group’s share option plans are given in note 20 to the financial statements.



A summary of the status of the Group’s share option plans as at 31 December 1997 and 30 June 1997 is presented in

the table and narrative below:

31 December 1997 30 June 1997

Weighted Weighted

average average

Number exercise Number exercise

of shares price £ of shares price £

Outstanding at beginning of the period 8,495,330 1.34 4,815,879 1.26

Granted 6,771,156 0.64 3,976,770 1.56

Exercised (1,356,005) 0.61 (135,271) 0.56

Forfeited (62,310) 1.62 (162,048) 1.71

Outstanding at end of the period 13,848,171 0.96 8,495,330 1.34

Exercisable at end of the period 9,522,672 0.69 4,005,763 0.82

Weighted average fair value of options granted 2.69 2.21

The options outstanding at 31 December 1997 have the following characteristics:

Exercise Weighted average Exercisable at

Number of options prices £ exercise price £ 31 December 1997

6,065,455 0.12 – 0.51 0.28 6,065,455

1,642,704 0.75 – 1.00 0.97 1,082,237

3,891,066 1.30 – 1.90 1.50 2,374,980

2,248,946 2.01 – 2.69 2.38 –

The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model to

determine their minimum value with the following weighted average assumptions: risk free interest rate of 5.2 per cent

to 6.6 per cent, expected dividend yield of 0 per cent; expected life of four years and expected volatility of 28.2 per cent.

(v) Consolidated statement of cash flows

The consolidated statement of cash flows prepared under UK GAAP presents substantially the same information as that

required under US GAAP by SFAS 95 – Statement of Cash Flows. These standards differ however with regard to

classification of items within the statements as regards the definition of cash and cash equivalents.

Under UK GAAP, cash comprises only cash in hand and deposits repayable on demand. Deposits are repayable on

demand if they can be withdrawn at any time without notice and without penalty or if a maturity or period of notice of

not more than 24 hours or one working day has been agreed. Under US GAAP, cash equivalents are short term highly

liquid investments, generally with original maturities of three months or less, that are readily convertible to known

amounts of cash and present insignificant risk of changes in value because of changes in interest rates.

Under UK GAAP, cash flows are presented separately for operating activities, returns on investments and servicing of

finance, taxation, capital expenditure and financial investment, management of liquid resources and financing activities. US

GAAP requires only three categories of cash flow activity to be reported: operating, investing and financing. Cash flows

from taxation and returns on investments and servicing of finance under UK GAAP would, with the exception of

dividends paid, be shown under operating activities under US GAAP. The payment of dividends would be included as a

financing activity under US GAAP. Management of liquid resources under UK GAAP would be included as cash and cash

equivalents under US GAAP to the extent that the amounts involved have a maturity of less than three months and are

convertible into known amounts of cash.


Summary statements of cash flow presented under US GAAP are given below:

6 months to Year to

31 December 30 June

1997 1997

£’000 £’000

Cash outflow from operating activities 7,332 (2,524)

Cash outflow on investing activities (13,568) (17,430)

Cash inflow from financing activities 9,148 7,929

Increase/(decrease) in cash and cash equivalents 2,912 (12,025)

Opening cash and cash equivalents 7,371 19,396

Closing cash and cash equivalents 10,283 7,371

(vi) Fair value of financial instruments

The following information is presented in compliance with the requirements of SFAS 107, Disclosures about Fair Value

Instruments and SFAS 115, Accounting for Certain Investments in Debt and Equity Securities. The carrying amounts and

fair values of the material financial instrument groups are as follows:

31 December 1997 30 June 1997

Carrying Carrying

amount Fair value amount Fair value

£’000 £’000 £’000 £’000

Investments – – 14,111 14,104

Cash at bank and in hand 10,283 10,283 2,764 2,764

The fair value of financial instruments is calculated as follows:

Investments represent bank and building society term deposits and commercial paper and are marked to market/

represent known amounts of cash. All investments are classified as held to maturity and mature in less than one year.

There was an unrealized holding loss of £4,000 and £7,000 at 30 June 1996 and 1997 respectively.

Cash at bank and in hand are short term items readily convertible into known amounts of cash. As a result, the fair value

is the same as the carrying value.

(vii) Valuation and qualifying accounts

Allowance for uncollectible amounts:

Balance at Balance at

beginning Arising on Charged end of

of period acquisition to costs Utilised period

£’000 £’000 £’000 £’000 £’000

Six months to 31 December 1997 1 24 – – 25

Year to 30 June 1997 2 – – (1) 1


General shareholders’ information

Registered office address

East Anton

Andover

Hampshire

SP10 5RG

England

Registered in England No: 2883758

Registrars and transfer office

All administrative enquiries relating to shareholdings should be addressed to Computershare Services PLC

clearly stating the registered shareholder’s name and address.

Computershare Services PLC

PO Box 82

Caxton House

Redcliffe Way

Bristol

BS99 7NH

England

US Shareholders

(i) ADSs

The Company’s American Depositary Shares (ADSs) (each representing 3 ordinary shares) are listed on

NASDAQ under the symbol “SHPGY”. The Company files reports and other documents with the Securities

and Exchange Commission which are available for inspection and copying at the SEC’s public reference facilities

or can be obtained by writing to the Company Secretary.

(ii) ADR Depositary

Morgan Guaranty Trust Company of New York is the depositary for Shire Pharmaceuticals Group plc. All

enquiries concerning American Depositary Receipts records, certificates or transfer of ordinary shares into ADSs

should be addressed to:

Morgan Guaranty Trust Company of New York

PO Box 8205

Boston, MA 02266-8205

USA

Telephone: +1 781 575 4328

Facsimile: +1 781 575 4088

(iii) Voting at the Annual General Meeting

The 1998 Annual General Meeting of shareholders takes place in London on 30 June 1998. ADR holders may

instruct the Depositary as to how the ordinary shares represented by their ADRs should be voted by

completing and returning the voting cards in accordance with the instructions printed thereon.


Notice is hereby given that the Annual General Meeting of Shire Pharmaceuticals Group plc will be held

at the offices of Panmure Gordon & Co. Ltd., New Broad Street House, 35 New Broad Street, London

EC2M 1NH on 30 June 1998 at 10.00 am for the purposes of considering the following resolutions, of which

resolutions numbered 1 to 5 will be proposed as ordinary resolutions and resolution number 6 as a special

resolution:

Ordinary business

1 To receive and consider the Directors’ Report and Accounts for the period ended 31 December 1997.

2 To re-appoint Arthur Andersen as auditors and authorise the Directors to fix their remuneration.

Special business

Ordinary resolutions

3 That:

(i) the Shire Pharmaceuticals Group plc Long Term Incentive Plan (the “Long Term Plan”), the principal

terms of which are summarised in the Circular to Shareholders dated 28 May 1998 and the Rules of which

are produced to the meeting and signed for the purposes of identification by the Chairman, be and it is

hereby approved and adopted and the Directors be authorised to do all acts and things which they consider

expedient for the purposes of carrying the same into effect; and

(ii) the Directors be and they are hereby authorised to establish further plans based on the Long Term

Plan but modified to take account of local tax, exchange control or securities laws in overseas territories,

provided that any shares made available under such further plans are treated as counting against any limits

on individual or overall participation in the Long Term Plan.

4 That the authorised share capital of the Company be increased from £8,900,000 to £10,000,000 by the

creation of 22,000,000 new ordinary shares of 5p each, forming a single class with the existing ordinary

shares of 5p each in the capital of the Company.

5 That in substitution for all existing authorities (save to the extent the same may have been exercised by the

issue of relevant securities prior to 30 June 1998 or by reason of any offer or agreement made prior to 30

June 1998 which would or might require relevant securities to be allotted on or after 30 June 1998), the

Directors be and are hereby generally and unconditionally authorised pursuant to Section 80 of the

Companies Act 1985 to exercise all or any of the powers of the Company to allot relevant securities

(within the meaning of that section) up to an aggregate nominal amount equal to £2,301,966.10 for a

period expiring (unless previously renewed, varied or revoked by the Company in general meeting) fifteen

months after the date of the passing of this Resolution or at the conclusion of the Annual General Meeting

of the Company following the passing of this Resolution whichever first occurs, save that the Company may

make an offer or agreement which would or might require relevant securities to be allotted after such

expiry and the Directors may allot relevant securities pursuant to any such offer or agreement.

Special resolution

6 That, subject to the passing of the previous resolution in substitution for all existing authorities, the

Directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity

securities (within the meaning of Section 94(2) of the Companies Act 1985) of the Company pursuant to

the authority conferred by the passing of the previous resolution as if Section 89(1) of the Companies Act

1985 did not apply to such allotment provided that this power:

(i) shall expire fifteen months after the date of the passing of this Resolution or at the conclusion of the

Annual General Meeting of the Company following the passing of this Resolution, whichever first occurs,

save that the Company may make an offer or agreement which would or might require equity securities to

be allotted after such expiry and the Directors may allot equity securities pursuant to any such offer or

agreement; and

(ii) shall be limited to:

(a) allotment of equity securities where such securities have been offered (whether by way of a rights

issue, open offer or otherwise) to holders of ordinary shares in proportion (as nearly as may be) to

their existing holdings of ordinary shares but subject to the Directors having a right to make such

exclusions or other arrangements in connection with such offering as they may deem necessary or

expedient:

(1) to deal with equity securities representing fractional entitlements;

(2) to deal with ordinary shares represented by depository receipts; and

(3) to deal with legal or practical problems under the laws of, or the requirements of any recognised

regulatory body or any stock exchange in, any territory; and

(b) allotments of equity securities for cash otherwise than pursuant to paragraph (a) up to an aggregate

nominal amount of £348,782.70.

By Order of the Board

Neil C Harris

Secretary

28 May 1998

Registered office:

East Anton

Andover

Hants

SP10 5RG

Notes:(1) A member entitled to attend and vote may appoint one or more proxies to attend and, on a poll, vote instead of him. A proxyneed not also be a member. The appointment of a proxy will not preclude a member of the Company from attending and voting inperson at the meeting if he or she so desires.

(2) A form of proxy is enclosed. To be valid, forms of proxy must reach the Registrar not later than 10.00 am on 28 June 1998 (or 48hours before any adjournment of the meeting).

(3) The Company, pursuant to Regulation 34 of the Uncertificated Securities Regulations 1995, specifies that only those shareholdersregistered in the register of members of the Company as at 6.00 pm on 28 June 1998 (or in the case of adjournment as at 48 hoursbefore the time of the adjourned meeting) shall be entitled to attend and vote at the meeting in respect of the number of sharesregistered in their name at the time. Changes to entries on the register after such time will be disregarded in determining the right ofany person to attend and/or vote at the meeting.

(4) There will be available for inspection at the Company’s registered office at East Anton, Andover, Hants SP10 5RG during thenormal business hours on any week day (excluding Saturdays, Sundays and public holidays) from the date of this notice until the dateof the Annual General Meeting and at the meeting from 9.45 am until the close of the meeting:

• copies of the service contracts of the Directors with the Company;

• the register of Directors’ share interests;

• copies of the existing Articles of Association.

Notice of Annual General Meeting continued

Contents

1 Chairman’s statement

2 Chief Executive’s review

6 Profile of Shire Richwood Inc.

8 Board of Directors

9 Five year review

10 Report of the Directors

13 Report of the Remuneration Committee

20 Corporate governance statement

21 Statement of Directors’ responsibilities

22 Report of the auditors

23 Consolidated profit and loss account

23 Consolidated statement of total recognised gains and losses

24 Consolidated balance sheets

25 Company balance sheets

26 Consolidated cash flow statement

27 Notes to the financial statements

58 General shareholders’information


Designed and produced by

The Design Department Limited.

Cover photography by

Lewis Mulatero and

Science Photo Library.

Printed by Ventura Litho.

Cautionary statement

Statements included herein which are not historical facts are forward looking statements. The forward looking

statements involve a number of risks and uncertainties and are subject to change at any time. In the event

such risks or uncertainties materialise, the Company’s results could be materially affected. The risks and uncer-

tainties include, but are not limited to, dependence on sales of Adderall, fluctuations in future financial results

and currency exchange rates, product liability claims and the lack of adequate insurance, satisfactory results

of clinical trials, government regulation and approvals, reliance on third parties, competition and dependence

on new products.

Sh

ire Ph

armaceu

ticals Gro

up

plc


East Anton Andover

Hampshire SP10 5RG England

Telephone +44 1264 333455

Facsimile +44 1264 333460


Financial statementsSix months ended 31 December 1997

Financial statements – Six m

onths ended 31 Decem

ber 1997

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