8574 Shire99 Report 12/4/00 3:35 Pm Page 1

8574 shire99 Report 12/4/00 3:35 pm Page 1

Shire Pharmaceuticals Group plc

Annual review and summary financial statement 1999

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Contents

1 Strategic development 2 Group at a glance 5 Chairman’s review 7 Chief Executive’s review 8 Operating review – products currently marketed 10 Operating review – projects under development 12 Financial review 16 Board of Directors 18 Five year review 19 Report of the Remuneration Committee 28 Corporate governance 30 Statement of Directors’ responsibilities 31 Index to the consolidated financial statements 32 Report of the Auditors on the US GAAP financial statements 33 Consolidated balance sheets 34 Consolidated statements of income 35 Consolidated statements of changes in shareholders’ equity 35 Consolidated statements of comprehensive income 36 Consolidated statements of cash flows 38 Notes to the consolidated financial statements 57 Index to the summary financial statement 65 Reconciliation from US GAAP to UK GAAP 66 Shareholders’ information

Glossary 8574 shire99 Report 12/4/00 3:35 pm Page 3

Shire Pharmaceuticals Group plc

Shire is an international specialty pharmaceutical company with a strategic focus on four therapeutic areas: central nervous system disorders, metabolic diseases, oncology and gastroenterology. The Group has a global sales and marketing infrastructure with a broad portfolio of products targeting the US, Canada, UK, Republic of Ireland, France, Germany and Italy, with plans to add other key markets in due course. Shire’s global search and development expertise has already provided three marketed products, whilst the current pipeline of 13 projects includes one project in registration and nine that are post Phase II. Shire is actively searching to acquire further marketed products and development projects to enhance the potential for future growth, both organically and by acquisition.

1 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 4

Group at a glance

Key marketed products

Principal Marketed by/ Products Indication(s) Owner/Licensor Relevant Territory

Treatments for central Adderall ADHD Shire Shire/US nervous system disorders DextroStat ADHD Shire Shire/US Carbatrol Epilepsy Shire Shire/US

Treatments for metabolic diseases Calcichew range Osteoporosis Nycomed Shire/UK adjunct and Ireland

Treatments for oncology Agrylin Elevated blood Roberts Shire/US platelets and Canada

Treatments for gastrointestinal Pentasa Ulcerative colitis Ferring Shire/US disorders

Other ProAmatine Low blood Nycomed Shire/US pressure and Canada

2 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 5

Development pipeline

Product Indication Pre-clinical Phase I Phase II Phase III Registration Marketed

Central Nervous System

Reminyl (galantamine) Alzheimer’s disease Dirame Analgesia SLI 381 ADHD SLI 503 ADHD SPD 417 Bipolar disorder SPD 421 Epilepsy SPD 418 Epilepsy SPD 502 Stroke

Metabolic disease

Lambda Hyperphosphataemia

Oncology

SPD 424 Prostate cancer Agrylin Thrombocythaemia

Gastroenterology

Pentasa 500mg Ulcerative colitis Emitasol Diabetic gastroparesis

3 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 6

Our business is focused on four therapeutic Reminyl (galantamine) is being developed areas: central nervous system disorders for the treatment of Alzheimer’s disease; (CNS), metabolic diseases, oncology and a condition that initially results in memory gastroenterology. However, there is a loss, confusion and disorientation. significant emphasis on CNS disorders, This is followed in time by intellectual with 44 per cent of our revenues in and personality changes, emotional 1999 and 8 of our 13 projects being disintegration and death. for such disorders.

4 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 7

Chairman’s review

Change 1999* 1998 % Revenues ($m) 401.5 309.0 +30 Operating profit ($m) 59.2 23.3 +154 Profit before tax ($m) 56.3 23.6 +139 Earnings per share (basic) – ordinary shares $0.16 $0.09 +78 – ADS $0.49 $0.26

*Before exceptional charges.

The merger with Roberts has M&A activities non-executive Director. We are very pleased brought together two of the fastest The merger in December between Shire and to welcome Dr Canavan and appreciate the growing publicly traded specialty Roberts Pharmaceutical Corporation brought advice he has contributed already during pharmaceutical companies. together two of the fastest growing publicly the year. In May 1999, Dr Henry Simon traded specialty pharmaceutical companies resigned as Chairman. We would like to The combined company remains in the world. This followed the acquisition thank Dr Simon for his significant contribution focused and dynamic. We are of the European subsidiaries of Fuisz to Shire since he joined in 1987. Following well placed to continue the growth International Ltd in France, Germany and Dr Simon’s resignation, I was pleased to of the company going forward. Italy which completed in October/November accept the invitation to succeed as 1999. The Group now covers 6 of the non-executive Chairman. In December, 8 major pharmaceutical markets of the Stephen Stamp, the Group Finance Director world and has a much broader and resigned from the Board and was replaced deeper product and project portfolio. by Angus Russell. Mr Stamp joined Shire in 1994 and was instrumental in the execution Financial reporting of the UK flotation, US IPO and the various Approximately 65 per cent of the company’s M&A activities during his tenure. We would shareholders now reside in the US and 81 like to thank him for his significant contribution per cent of our revenues are derived from to the company. We would like to welcome that market. On the basis of this and various Mr Russell and the experience he will bring other factors we have taken the decision to to the Board, particularly in the areas of change how we report our results. The non corporate finance, mergers and acquisitions, statutory accounts in this report have been and US and UK financial reporting. prepared in accordance with US Generally Accepted Accounting Principles (GAAP) in In December, the former President & CEO US$ and are presented as a ‘pooling of of Roberts, Mr John Spitznagel, became a interests,’ as if the merger had occurred at non-executive Director of Shire, along with the beginning of the periods described. Dr Robert Vukovich, Dr Zola Horovitz, Ronald Previous accounts have been reported in Nordmann and Joseph Smith. In February UK GAAP in sterling. 2000, Dr Vukovich resigned his Board position to pursue other business interests. Results Shire again surpassed average industry Outlook growth rates. Operating profit (pre exceptional The broadly based product portfolio is charges) was up 154 per cent at $59.2 million, growing strongly, whilst the R&D pipeline based on Group revenues for the year of has a significant number of projects post $401.5 million. Full details of the one time, Phase II, with development progressing well. primarily merger related charges are described Plans are in place to start launching Reminyl in the Financial review on pages 12 to 15. following further successful approvals, in the fourth quarter of 2000. The combined work Operations force remains focused and dynamic and we Significant growth was achieved for all key believe we are well placed to continue the products and ranged from 16 per cent for the growth of the company going forward. older Calcichew range to 201 per cent for Carbatrol, although this growth was based Notice of Annual General Meeting on a launch in June 1998. Adderall, which Following the merger with Roberts, Shire is accounted for 37 per cent of product sales, now subject to additional US Securities and achieved 92 per cent growth versus 1998. Exchange Commission rules. The Board has decided therefore, to prepare the notice The lead development project, Reminyl, convening the Company’s AGM separately was submitted for regulatory approval in from the annual review. The final notice will most of the major markets of the world be sent to all shareholders in due course. during 1999, including Europe and the US. The first approval for Reminyl was received

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5 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 8

ADHD is primarily a childhood disorder. Adderall is generally administered once or twice a day, so there is no need for a dose at school, unlike its major competitors.

6 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 9

Chief Executive’s review

Shire is an international specialty Shire’s business model has four levels but also as part of our strategy to extend pharmaceutical company. We of focus: business, functional, geographic, our geographic reach (see below). An selectively in-license and develop early and therapeutic area. additional responsibility of the ‘search’ stage projects for our own marketing function is to identify and negotiate M&A in the major markets of the world. Business opportunities, an area that has continued Shire is an international specialty to be successful in the growth of Shire. pharmaceutical company. The term specialty refers to products used by specialist Our global R&D group manages each doctors who only treat certain diseases. project through all relevant stages of This clearly distinguishes Shire's strategy development and registration, working in from that of major pharmaceutical companies. multifunctional project teams that include Targeting of specialists allows maximisation marketing and finance. of sales by a relatively small sales force. This enables us to compete effectively in The other key functional area for Shire is the market place and can be demonstrated marketing, the powerhouse of the company. by our rapidly growing products and gains Lean, but well trained and highly motivated Product sales by geographic region 1999 in market share, despite a total sales force sales forces, effectively target key prescribers, 1 US 81% of only 432 representatives. This strategy achieving above average sales growth for 2 UK/Ireland 13% has resulted in an enviable revenue per all key products again in 1999. 3 Canada 4% 4 Europe 2% employee figure for 1999 of around $400k, based on approximately 1000 employees Geography and total revenues of $401.5 million. Our aim is to market our products using Shire sales forces in all eight major Underpinning the other elements of our pharmaceutical markets of the world. strategy there are clearly defined financial The M&A activity in 1999 brought us closer goals. These include high gross profit and to this target, adding Canada, Germany, operating profit, above average annual Italy and France to our existing coverage of sales growth and investment in R&D, the UK/Ireland and the US. We plan to add combined with aggressive earnings per the remaining markets, Spain and Japan by share targets. the end of 2000 and 2004, respectively. This increased geographic coverage has

Sales by product 1999 Functional already enhanced our ability to attract 1 Adderall 37% Shire focuses on specific functional areas potential licensors and we aim to capitalise 2 DextroStat 2% that we believe are key to our business, such on this and the wider geographic rights we 3 Carbatrol 4% 4 Calcichew 4% as ‘search & development’ and marketing. hold for existing products and projects over 5 Pentasa 13% the coming months and years. 6 Agrylin 8% Rather than having in-house research 7 ProAmatine 5% 8 Noroxin 3% laboratories to generate our own molecules, Therapeutic areas 9 Other Europe 3% we selectively in-license projects, usually at Our business is focused on four therapeutic 10 Other US 17% the pre-clinical or early stages of clinical areas: central nervous system disorders 11 Canada 4% development. An example of this is SPD (CNS), metabolic diseases, oncology and 421, a unique pro drug of valproic acid gastroenterology. However, there is a in-licensed from D-Pharm in March 2000. significant emphasis on CNS disorders, Our strategy also includes the identification with 44 per cent of our revenues in 1999 of off-patent products that could be and 8 of our 13 projects being for such enhanced, using the drug delivery expertise disorders. of our US based company, Shire Laboratories Inc. (SLI), such as SPD 418 We believe our focused strategy and broad or the in-licensing of existing molecules product and project portfolio will allow us for new indications, such as SPD 503 and to achieve our financial objectives, whilst SPD 417. These strategies significantly delivering much needed new treatments reduce the risk, cost and time to launch for patients. Product sales by therapeutic area 1999 for the typical Shire project compared

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7 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 10

Operating review – products currently marketed

Shire’s lean but well trained and highly Treatments for central nervous Carbatrol motivated sales forces effectively system disorders Carbatrol, an extended release formulation target key prescribers achieving of carbamazepine, is used as a first line above average sales growth for all Adderall & DextroStat treatment for epilepsy; a condition that key products again in 1999. Adderall and DextroStat are both affects approximately 2.5 million people treatments for Attention Deficit Hyperactivity in the US. Shire Laboratories Inc. (SLI) Disorder (ADHD), a disorder characterised developed Carbatrol using their proprietary by varying degrees of inattention, Microtrol technology. The product was impulsiveness and hyperactivity. ADHD designed to deliver steady blood levels is primarily a childhood disorder, although of drug as a twice daily formulation, rather it is increasingly being recognised through than the usual four times daily dosing of adolescence and into adulthood. It is the immediate release competitor. Further estimated that between three and five per advantages include the ability to sprinkle cent of children in the US suffer from the the contents over food, making it easier condition. Adderall is a unique combination to give to children and the elderly. of four amphetamine salts and is generally administered once or twice a day. This Sales avoids the need for a dose during school Sales of Carbatrol in 1999 were $16.0 hours, unlike Adderall’s major competitors. million, an increase of 201 per cent over the previous year. Although the growth DextroStat is a branded generic containing has been tremendous, it should be noted dextroamphetamine. that Shire did not formally launch the product until June 1998. Sales Sales of Adderall grew by 92 per cent Market sector compared with 1998 to reach $142.0 The US anti-epileptic market was worth million. The growth of Adderall was fuelled $2.5 billion in 1999. The sectors in which by the addition of 49 sales representatives Carbatrol directly competes, the between January and June 1999, an carbamazepine market and the extended increase of 46 per cent, and several clinical release carbamazepine market, were papers which highlighted benefits of Adderall valued at $217 million and $79 million, over its major competitor, methylphenidate. respectively. Carbatrol has continued to penetrate the extended release DextroStat, although significantly less carbamazepine market and had gained important within the product portfolio 22.8 per cent of this market in than Adderall, still contributed sales of December 1999. $8.8 million, an increase of 47 per cent compared with 1998. Marketing rights/territories Shire owns the global rights for Carbatrol. Market sector Currently the product is only available in In December 1999, Adderall and the US, however plans to develop for DextroStat accounted for 30.7 per cent other markets are under consideration. of US prescriptions written for ADHD.

According to IMS data the total US ADHD market was worth $ 614 million in 1999.

Marketing rights/territories Shire markets Adderall and DextroStat in the US; there are currently no plans to extend this.

8 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 11

Treatments for gastrointestinal Sales Marketing rights/territories disorders Sales of Agrylin increased by 37 per cent Shire markets the Calcichew range in the to $32.6 million in 1999, of which $22.3 UK and Ireland and has rights in certain Pentasa million were sales inthe US. export countries where sales are generally Pentasa is licensed in the US for the handled by agents. treatment of ulcerative colitis, an Market sector inflammatory condition affecting the colon The products Hydrea and hydroxyurea, and other closely associated areas of the although unlicensed, are also used Treatments for other conditions gut. It causes abscesses in the upper off-label by doctors for thrombocythaemia. layers of the affected gut lining resulting Together with Agrylin, US sales of these ProAmatine in recurrent low abdominal pain and three products in 1999, including sales ProAmatine is the only FDA approved frequent diarrhoea. Pentasa addresses a of the former products for their licensed treatment available in the US for orthostatic market of over 2 million patients in the US. indications, were $46.9 million. hypotension. This is a condition involving In prescription terms, Agrylin gained low blood pressure on standing, resulting in Sales market share over the year, increasing dizziness, weakness or unconsciousness. Sales of Pentasa grew by 56 per cent to from 8.3 per cent in December 1998 to $51.8 million, a very healthy growth rate 13.2 per cent in 1999. Sales even allowing for the slight distortion as the Sales of ProAmatine in 1999 were product was in-licensed during mid 1998. Marketing rights/territories $19.8 million, an increase of 28 per cent In June 1999, all rights to Agrylin, including over 1998. Market sector intellectual property, were acquired from Pentasa competes primarily in the Bristol Myers Squibb, ending all royalty Market sector olsalazine/mesalamine oral market. obligations on sales. The product is In addition to ProAmatine, Florinef is According to IMS data, these products currently on the market in the US and used off-label for orthostatic hypotension. together generated sales of $231 million Canada; trials are underway in Europe and The US prescription market for ProAmatine during 1999. Pentasa retained 17.8 per Japan with a view to gaining marketing and Florinef prescriptions indicates that cent of this prescription market, which for approval for these markets. ProAmatine had an 18.8 per cent share in these products had grown 12.4 per cent December 1999, an increase from 13.9 compared with 1998. per cent in December 1998. In 1999, the Metabolic diseases combined ProAmatine/Florinef market was Marketing rights/territories worth $37 million. Shire acquired the US rights for Pentasa in Calcichew range mid 1998 from Hoechst Marion Roussel. This is a range of calcium /calcium and Marketing rights/territories vitamin D supplements, used primarily as ProAmatine is currently marketed by adjuncts in the treatment of osteoporosis. Shire in the US and Canada. Shire also Treatments for Oncology Osteoporosis is characterised by a has rights for the UK and Ireland, although progressive loss of bone mass causing the there are no immediate plans to develop Agrylin bone to become fragile and liable to fracture. the product for these markets. Agrylin is the only US product licensed for the It is estimated that around three million treatment of essential thrombocythaemia. people in the UK suffer from this condition. Patients with this condition are more likely to experience adverse blood clotting Sales events such as heart attack and stroke, The first product in the Calcichew range compared with the general population, was launched approximately 11 years as a consequence of raised blood platelet ago. However, despite the maturity of the levels. Agrylin is intended to inhibit range, sales continued to rise in 1999 excessive platelet production and reduce increasing 16 per cent over the previous the morbidity and mortality of heart attack year to $17 million. and stroke in these patients. Market sector Since launch, Shire has had two major competitors, Sandoz and Sanofi, from which it has gained market share. In December 1999, Shire had a 70 per cent share of the UK calcium prescription market. The UK calcium market in 1999 was valued at $25 million, an increase of 16 per cent over the preceding year.

9 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 12

Operating review – projects under development

Shire selectively in-licenses Central nervous system disorders Project status compounds, taking them through the During 1999 Phase III trials investigating development and regulatory review Reminyl the safety and efficacy of the product in procedure, a process that is referred Reminyl (galantamine) is being developed osteoarthritis were progressed. to as ‘search and development’. for the treatment of Alzheimer’s disease; a condition that initially results in memory Territorial rights/licensees Shire’s global search and development loss, confusion and disorientation. Shire has exclusive worldwide rights to expertise has already provided three This is followed in time by intellectual Dirame. These were acquired from Bayer. marketed products, whilst the current and personality changes, emotional pipeline of 13 projects includes one disintegration and death. SLI 381 and SPD 503 project in registration and nine that Shire is developing these two projects for the are post Phase II. It is estimated that eight million people treatment of attention deficit hyperactivity in the US and Western Europe suffer from disorder (ADHD). They are intended to this disease. strengthen Shire’s position in this market, building on the success of the currently Project status marketed Adderall and DextroStat. In March 1999, a filing was made by Janssen to Sweden, the reference SLI 381 is a patent protected modification of member state in the EU Mutual Adderall, being developed with the objective Recognition Procedure. In March 2000, of achieving, at minimum, equivalent efficacy Sweden approved the Marketing to the parent product. SPD 503 is a patent Authorisation Application, allowing the protected non-scheduled treatment. Mutual Recognition Procedure to proceed. In September 1999, a Project status submission was made to the US Food SLI 381 has reached the end of Phase II. and Drug Administration (FDA). Various SPD 503 is in Phase I. other submissions were also made during the year. Territorial rights/licensees Shire will have global rights to these Territorial rights/licensees patented products. SPD 381 is likely to be Reminyl is being developed by the marketed in the US whilst SPD 503 will be Janssen Research Foundation and Shire aimed at all major markets. under a co-development and licensing agreement. Following successful SPD 417 approval, Reminyl will be marketed by SPD 417 is the development of Carbatrol Janssen Pharmaceutica in the US and (carbamazepine) for bipolar disorder, to by Janssen-Cilag in most other countries. add to the existing indications of epilepsy In the UK and Ireland, Shire will market and trigeminal neuralgia. There is the product under a co-promotion anecdotal evidence to support the use agreement with Janssen-Cilag. of carbamazepine in this disorder, which affects approximately 3.5 million patients Dirame in the US. Dirame is an orally administered, centrally acting analgesic for the Project status treatment of moderate to moderately Development has now reached the end of severe pain. It may have applications in Phase II. several therapeutic areas, including pain associated with cancer, advanced arthritis Territorial rights/licensees and post surgical pain. Shire believes Shire has global rights to this that it may have a favourable side effect patented project. profile especially in terms of low addiction potential.

According to IMS data the US analgesic market is worth approximately £2.2 billion.

10 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 13

SPD 418 It is estimated that there are 650,000 Treatments for gastrointestinal This project is aimed at developing a novel, patients worldwide with end stage disorders patented formulation of an established kidney disease. anti-epileptic agent to complement our Pentasa 500mg success with Carbatrol in this market. Project status Pentasa 250mg is licensed in the US Lanthanum carbonate entered Phase III for the treatment of ulcerative colitis and Project status in the US in July 1999, following early addresses a market of up to one million Feasibility studies were conducted during entry into Phase III in Europe at the end patients. This new 500mg tablet formulation 1999. If these prove to be successful the of 1998. Phase I studies in Japan were will aid the compliance of patients. project will proceed to Phase I. also completed during the year. Project status Territorial rights/licensees Territorial rights/licensees This project is about to start Phase III. Shire has global rights to this Shire has global rights to Lambda. patented project. Territorial rights/licensees ProAmatine Pentasa was acquired for the US market SPD 421 ProAmatine was being studied for the from Hoechst Marion Roussel during the SPD 421 is a unique pro drug of valproic treatment of hypotension associated second quarter of 1998. acid. Initially Shire will study SPD 421 for the with renal dialysis. Development has treatment of epilepsy. The world market for now ceased following the R&D portfolio Emitasol anti-epileptics is projected to grow to $4.5 review in early 2000. Emitasol is an intranasal formulation billion by 2005. of metoclopramide HCl, an existing anti-nausea drug currently available in Project status Treatments for Oncology oral and injectable forms. This route avoids The first Phase I study has been completed. the need for drug absorption through SPD 424 the gastrointestinal tract, whilst being Territorial rights/licensees SPD 424, previously known as RL0903, preferable to an injection. In 1998, SPD 421 was in-licensed from D-Pharm is a subcutaneous implant containing a according to IMS data, the US market in March 2000, where it was known as GnRH agonist for the hormonal treatment for anti-nausea compounds was DP-VPA. Shire has exclusive rights to of prostate cancer. The hydrogel implant approximately $1 billion. develop and market the product globally. employs a proprietary technology that delivers therapeutic agents at a controlled Project status SPD 502 constant release for over one year. Emitasol is about to start Phase III studies. SPD 502 is a potent AMPA-antagonist According to IMS data the US market for for the treatment of brain damage prostate cancer has been estimated to Territorial rights/licensees following acute ischaemic stroke. Stroke be in excess of $1 billion. Shire is developing this project for Ribogene, is the leading cause of adult disability in who will provide up to $7 million in funding. the western world with a prevalence of Project status Shire holds an option for exclusive rights 500-800 per 100,000. SPD 424 is ready to start Phase III trials. to market the product upon approval in North America, Canada and Mexico. Project status Territorial rights/licensees SPD 502 entered Phase I during 1999. Shire acquired the rights to the patented Tazofelone & LY 315535 hydrogel implant delivery technology Development of Tazofelone and LY 315535 Territorial rights/licensees for the US and Europe from Hydro Med has now ceased, following the R&D portfolio Shire has marketing rights outside of Sciences in February 1999. review in early 2000. It is intended to certain Nordic countries. out-license these two projects. Agrylin Treatments for metabolic diseases Agrylin is an oral treatment for Lanthanum carbonate (Lambda) is being thrombocythaemia aimed at lowering the developed to reduce phosphate levels in blood platelet count. It is marketed in the the blood of patients with chronic kidney US and Canada but is under development failure (hyperphosphataemia). If left for the European market. (See page 9.) untreated, hyperphosphataemia can result in renal osteodystrophy, a painful condition Project status where there are abnormalities in the The project is currently at Phase III in Europe. formation and structure of bone. Territorial rights/licensees All rights to the product were acquired from Bristol Myers Squibb in June 1999.

11 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 14

Financial review

Total Revenues ($m) 1999 1998 • Sales 385.2 291.8 • Licensing/development fees 10.8 11.8 • Royalties 3.5 3.7 • Other 2.0 1.7

1999

1998

Following the merger with Roberts The following review should be read in Other significant contributors to the Pharmaceutical Corporation at the conjunction with the Company’s consolidated increase in product sales in 1999 were the end of 1999, these non statutory financial statements and related notes US marketed products Pentasa, Carbatrol accounts have been prepared in appearing elsewhere in this annual review. and Agrylin. The Company acquired accordance with US Generally Pentasa, licensed for the treatment of Accepted Accounting Principles Results of operations ulcerative colitis, in the second quarter of (GAAP) as a ‘pooling of interests’. years ended 31 December 1998 and recorded sales of $51.8 million The financial information for the 1998 and 1999 in 1999 compared to $33.3 million in combined Company is presented as On 23 December 1999, Shire and Roberts 1998. Carbatrol increased its share of total if the merger had occurred at the merged in a tax-free exchange of shares. US extended release carbamazepine beginning of the periods described. Shire exchanged 1.0427 ADSs for each prescriptions written to 22.8% in December The Board has decided that the common share of Roberts. This transaction 1999 from 8.5% in December 1998 and Group should report its US GAAP was accounted for as a pooling of interests. Agrylin sales grew 37% over 1998 to results in US dollars with UK statutory Merger transaction expenses and merger $32.6 million in 1999. reporting in sterling. This annual related restructuring costs totalled $75.9 review reflects that decision. million and are reflected in Shire’s Cost of sales 1999 accounts. For the year ended 31 December 1999 cost of sales amounted to 24.3% of Total revenues product sales as compared to 32.6% in For the year ended 31 December 1999, 1998. The decrease in cost of sales total revenue increased by 30% to $401.5 percentage and corresponding increase in million, compared to $309.0 million in gross margin is attributable to an improved fiscal 1998. This increase was primarily product mix due to the faster growth of the result of an increase in product sales. products with a higher gross margin. Product sales in the US continue to Additionally, the Company acquired all rights represent a significant percentage of to Agrylin including the ending of royalty worldwide sales, increasing to 81% in obligations from Bristol Myers Squibb, which 1999 from 78% in 1998. enhanced the gross margin of this product.

The company manages and controls the Costs and expenses business on geographic lines. The three In 1999 the Company recorded charges reportable segments are the United totalling $135.2 million pre-tax for asset States, Europe and the Rest of the World. impairments ($48.5 million), merger-related Additional information regarding segments transaction expenses ($32.3 million), is provided in Note 20 to the consolidated restructuring ($43.6 million), loss on financial statements. product dispositions ($5.8 million) and other charges ($5.0 million). These charges 1999 are disclosed separately within operating Product sales by segment $m expenses in the Statement of Income. United States 314 Europe 55 The Company recorded an impairment Rest of World 16 charge of $34.2 million to adjust intangible asset values, primarily product rights, to Total product sales 385 their estimated fair value. These charges are consistent with the Company’s accounting policy to review periodically the carrying Product sales value of the intangibles and evaluate whether For the year ended 31 December 1999, there has been any impairment in the total product sales increased by 32% to carrying value of those intangibles as $385.2 million, compared to $291.8 million compared with estimated undiscounted in the prior year. Of the Company’s total future cash flow relating to those intangibles. product sales, 39% related to Adderall and DextroStat, the Company’s products marketed in the US for the treatment of ADHD. On a combined basis, these products increased their share of the total US ADHD prescriptions written from 20.4% in December 1998 to 30.7% in December 1999.

12 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 15

The estimated fair value has been calculated Shire has commenced negotiations with Liquidity and capital resources using projected discounted cash flows of potential purchasers of the Eatontown The Company has financed its operations the products. Other asset impairments are property, which has been written down to since inception through private and public the write off of inventory held for research its estimated fair value. The Company offerings of equity securities, the issuance and development work and duplicate anticipates realising annual savings of loan notes, collaborative licensing and equipment ($ 3.2 million), adjustments to the resulting from the merger of approximately development fees, product sales and carrying value of the RiboGene investment $20 million. investment income. to its estimated realisable value at 31 December 1999 ($ 7.6 million), and write Research and development The Company’s funding requirements down of notes receivable to their estimated Research and development expenditure depend on a number of factors, including realisable value ($ 3.5 million). increased from $59.3 million in 1998 to the Company’s product development The components of the restructuring $77.5 million in 1999, representing an overall programmes, business and product charge are as follows: increase of 30.7%. This increase reflects acquisitions, the level of resources required the significant portion of development for the expansion of marketing capabilities $m projects at Phase II or later where as the product base expands, increased Employee termination costs 37.9 development costs tend to be higher. investment in accounts receivable and Property 5.7 inventory which may arise as sales levels Selling, general and increase, competitive and technological 43.6 administrative expenses developments, the timing and cost of Selling, general and administrative expenses obtaining required regulatory approvals for increased $39.6 million from $131.7 million new products, and the continuing revenues In December 1999, the decision was made in 1998 to $171.3 million in 1999, primarily generated from sales of its key products. to close the Roberts’ office facility in due to an increase in size of the US sales Eatontown, New Jersey and consolidate the force and higher levels of marketing For the year ended 31 December 1999 sales and marketing operations into the expenditure. As a percentage of operating cash flows amounted to $90.5 existing Shire facility in Florence, Kentucky total revenues, selling, general and million compared to $34.6 million in 1998. and to transfer the research & development administrative expenses were constant activities to Shire’s facility in Rockville, at approximately 43% in 1998 and 1999. As of 31 December 1999, the Company Maryland. Similarly, Roberts’ sales and A significant component of selling, general had cash, cash equivalents and marketing operation in the UK was and administrative expenses is amortisation, marketable securities of $138.4 million, combined with Shire’s established operation which increased from $22.0 million in 1998 which consisted of immediately available in Andover, Hampshire. to $24.4 million in 1999, due to the addition money market fund balances and of the Pentasa and Agrylin product rights. investment grade securities. As a result of the restructuring and elimination of duplicate facilities, Interest income and expense Debt 147 employees will be terminated. In the year ended 31 December 1999 the In 1998, the Company acquired the These positions were mainly based in the Company received interest income of $7.3 product rights to Pentasa. The majority of US in sales and marketing, research and million compared with $6.4 million in 1998. the purchase price was financed through a development and administrative functions. Interest expense increased from $6.5 credit agreement between Roberts, DLJ All employees were notified of their million in 1998 to $9.7 million in 1999 as a Capital Funding and various other lenders. termination prior to 31 December 1999. result of a full year's interest expense from Under this credit agreement, the merger of Included in the employee termination costs the financing of the Pentasa acquisition. Shire and Roberts constituted a change of is approximately $18 million related to control which would trigger the acceleration pension contributions, which was paid Income taxes of the repayment of the principal amounts prior to the year end. The Company For the year ended 31 December 1999, outstanding. On 19 November 1999 anticipates all activities associated with income taxes increased $13.1 million from Roberts, Shire’s US subsidiaries and Shire this restructuring to be substantially $3.0 million to $16.1 million. The Company’s entered into an agreement with DLJ to complete at the end of 2000 with the effective tax rate in 1999 (before merger replace the existing credit agreement with remaining cash expenditures expected related transaction expenses, restructuring a $250 million credit facility consisting of a in this period. costs and asset impairments) was 29%. $125 million five-year revolving credit The Company has recorded net deferred facility and a $125 million five-year term The termination costs consist of payments tax assets of approximately $37 million. loan facility. for severance, medical and other benefits, Realisation is dependent upon generating outplacement counselling, acceleration of sufficient taxable income to utilise such pension benefits and excise taxes. assets. Although realisation of these tax assets is not assured, management believes it is more likely than not that the deferred tax assets will be realised.

13 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 16

Capital expenditure Market risk Foreign exchange market risk Capital expenditures in 1999 of Shire's principal treasury operations are The Group's parent company and a approximately $4.8 million were principally managed by the Group's treasury function number of subsidiary operations are for the upgrade and expansion of sales based in the UK in accordance with the located outside the United States. and administration functions. Group's treasury policies and procedures As such, the consolidated financial results which are approved by Shire's Board. are subject to fluctuations in exchange Business combinations As a matter of policy, Shire does not rates, particularly between the British pound and divestitures undertake speculative transactions which and Canadian dollar against the US dollar. During October and November 1999 the would increase its currency or interest The financial statements of foreign entities Company acquired the European sales rate exposure. are translated using the accounting policies and marketing subsidiaries from Fuisz described in Note 1 of the consolidated International Ltd. The operations located in The Company is subject to market risk financial statements. The exposure to France, Germany and Italy were acquired exposure in the following areas: foreign exchange market risk is managed for approximately $39.5 million in cash. by the Group's treasury function, using A substantial portion of the purchase price Interest rate market risk forecasts provided by the operating units. was allocated to intangible assets, which The Company has cash and cash Derivative instruments in the form of are amortised over 20 years. equivalents on which interest income is average rate options are used to hedge earned at variable rates. The financing and Shire's currency exposures. The premium On 13 January 1999 Shire disposed of its cash management requirements of the paid for the options is amortised over the Indianapolis manufacturing plant for a net operating subsidiaries are transacted within hedging period. There were no derivatives consideration after expenses of $1.5 million the Group's treasury function, where outstanding at 31 December 1999 or 1998. including a loan note of $0.5 million. The appropriate, in order to improve the return net gain of $0.8 million is included in results on liquid assets, manage any currency Inflation of operations. During November 1999, the exposure on non-US dollar denominated Although at reduced levels in recent years, Company sold the product Tigan for $6.4 deposits and maintain internal controls. inflation continues to apply upward pressure million. The Company incurred a loss on on the cost of goods and services used by disposal of $5.8 million, which is included The applicable interest rate on the the Company. However, management within the results of operations. Company’s credit facility DLJ ranges believes that the net effect of inflation on between 0.5% and 1.5% over the prime the Company’s operations has been Concentration of credit risk rate of DLJ Capital Funding, Inc. or the minimal during the past three years. Financial instruments that potentially expose Federal Funds Rate plus 0.5% or between the Company to concentrations of credit 1.5% and 2.5% over the London Interbank Year 2000 risk consist primarily of short-term cash Overnight rate, in each case depending on The Year 2000 (‘Y2K’) issue results from investments and trade accounts receivable. Shire's credit rating. The facility is secured the inability of some computer programmes by all material property owned by Shire to identify the year 2000 properly, potentially As revenues are mainly derived from and its subsidiaries and the capital stock leading to errors or systems failures. agreements with major pharmaceutical of Shire's subsidiaries. If Shire's credit The Company did not incur any significant companies and relationships with drug rating reaches specified levels, the facility problems relating to the Y2K issue and does distributors, and such clients typically will not be secured. The facility contains not expect to incur significant expenses to have significant cash resources, any credit customary covenants and additional remedy minor operating issues. risk associated with these transactions is maintenance tests that require Shire to considered minimal. The Company maintain a minimum net worth, a specified operates credit evaluation procedures. leverage ratio and a specified coverage ratio. At 31 December 1999 the Company Excess cash is invested in short-term money satisfied the aforementioned covenants market instruments, including bank and and maintenance tests. building society term deposits and commercial paper from a variety of companies with strong credit ratings. These investments typically bear minimal risk.

14 Shire Pharmaceuticals Group plc Financial Review 8574 shire99 Report 12/4/00 3:35 pm Page 17

Euro conversion The Company has reviewed its financial and On 1 January 1999, the European operating systems and is satisfied that the Economic and Monetary Union (the ‘EMU’) introduction of the Euro will not cause any introduced the Euro as the official currency disruption to the business, and that the of the 11 participating member countries. systems are in place to receive and make On that date, the currency exchange rates payments in Euros. Shire will continue to of the participating countries were fixed monitor the UK’s stance in relation to against the Euro. There is a three year participation in the Euro and assess the transition to the Euro, and at the end of impact of any significant changes in policy. 2001 the currency will come into circulation

and national currencies will be withdrawn

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c c 1 January 1999 and it is uncertain whether c or on what terms the UK would be Angus Russell permitted to join at a later date. There can Group Finance Director be no prediction as to whether the UK will participate in the EMU or as to the rate at which the pound sterling would be converted into the Euro. Furthermore, there can be no prediction as to the likely impact on the US dollar/sterling exchange rate of a decision by the UK to participate in the EMU.

It is anticipated that the pricing of goods and services will be more transparent through the use of a single currency within the participating member states. Competition is likely to increase with the greater price transparency and removal of exchange rate risk. In the longer term more general price convergence is likely, assuming the EMU leads to greater harmonisation of healthcare policies across the participating member states.

Shire has sales and marketing operations in France, Germany and Italy and therefore there may be some impact on the Company’s business and competitive position as a result of the increased price transparency.

15 Shire Pharmaceuticals Group plc Financial Review 8574 shire99 Report 12/4/00 3:35 pm Page 18

Board of Directors

1 5

2 3

4 6

1 3 5 Dr James Cavanaugh (62) Angus Russell (43) Dr Bernard Canavan (64) Chairman and Non-executive Director Group Finance Director Non-executive Director Joined the Board on 24 March 1997 and Joined Shire in December 1999 as Group (Chairman Audit Committee) was appointed as Non-executive Chairman Finance Director, previously he worked for Joined the Board as a Non-executive Director with effect from May 1999. Dr Cavanaugh is ICI, Zeneca and AstraZeneca for a total in March 1999. Dr Canavan is a medical the President of HealthCare Ventures LLC. of 19 years. Mr Russell is a chartered doctor. He was employed by American He was President of SmithKline & French accountant, having qualified with Home Products for over 25 years until he Laboratories, the US pharmaceutical Coopers & Lybrand and is a member of retired in January 1994. He was president division of SmithKline Beecham Corporation. the Association of Corporate Treasurers. of that Corporation from 1990 to 1994. His last position was Vice President 2 Corporate Finance at AstraZeneca PLC. 6 Rolf Stahel (55) Ronald Nordmann (58) Chief Executive 4 Non-executive Director Joined the Group in March 1994 as Chief Dr Wilson Totten (44) Joined as a Non-executive director in Executive from Wellcome plc where he Group R&D Director December 1999 and has been a financial worked for 27 years. From April 1990 until Has served as Group R&D Director since analyst in healthcare equities since 1971. February 1994, he served as Director of January 1998. Dr Totten is a medical From September 1994 until January 2000, Group Marketing reporting to the Chief doctor. His last position was Vice President he was a portfolio manager and partner Executive. A business studies graduate of of Clinical Research & Development with at Deerfield Management. KSL Lucerne, Switzerland, he attended the Astra Charnwood where he served from 97th Advanced Managers Program at 1995 to 1997. Harvard Business School.

16 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 19

Executive Committee

Rolf Stahel Bill Nuerge Dr Wilson Totten Jack Khattar Angus Russell Neil Harris

7 9 11

8 12

10 13

7 9 11 Dr Zola Horovitz (65) Joseph Smith (61) Bill Nuerge Non-executive Director Non-executive Director President and Chief Executive, SRI Has served as a Non-executive Director Has served as a non-executive director Joined SRI in 1994 as Chief Operating Officer. since December 1999. Dr Horovitz has since December 1999. From 1989 to 1997, He currently holds the positions of President been self-employed as a consultant in the Mr Smith served in various positions at and Chief Executive Officer of SRI. Prior to biotechnology and pharmaceutical industries Warner-Lambert Company, including joining SRI in 1994 he served as General since 1994. Previously he held various President of Parke-Davis Pharmaceuticals Manager and Vice President of Operations for positions at Squibb Corporation and its and President of the Shaving Products Lafayette Pharmaceuticals, Inc., from 1988. successor corporation, Bristol-Myers Division (Schick and Wilkinson Sword). Squibb & Co, including that of Vice President, 12 Business Development and Planning. 10 Jack Khattar John Spitznagel (58) President and Chief Executive, SLI 8 Non-executive Director In May 1999, Mr Khattar joined Shire as Dr Barry Price (56) Joined the Board in December 1999 president and CEO of Shire Laboratories Inc. Senior non-executive Director following service as President and Chief Mr Khattar came to Shire from CIMA, a drug (Chairman Remuneration Committee) Executive Officer of Roberts since September delivery company, where he last served as an Joined the Board on 24 January 1996 1997. He was Executive Vice President Executive Officer and the Chairman of the having spent 28 years with Glaxo holding Worldwide Sales and Marketing from March Operating Management Committee with a a succession of key executive positions 1996 to September 1997, having served functional role as VP of Business Development. with Glaxo Group Research. He is a as President of Reed and Carnrick Non-executive Director of Celltech Pharmaceuticals from September 1990 13 Chiroscience plc and Chairman of until July 1995. Neil Harris Antisoma plc. Dr Price is Chairman Company Secretary of the Remuneration Committee. Mr Harris is a barrister and has 14 years experience in the pharmaceutical industry. He joined Shire in November 1995 from the group legal department of Wellcome plc, where he had been Senior Legal Advisor following its integration with Glaxo plc.

17 Shire Pharmaceuticals Group plc 8574 shire99 Report 12/4/00 3:35 pm Page 20

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