Shire Pharmaceuticals Group plc Annual review and summary financial statement 2003

Shire: a focused global pharmaceutical company Focusing on a bright future Shire Pharmaceuticals Group plc The Shire mission

Our mission is to become the leading company in meeting the needs of the specialist physician. We want to achieve this by developing and Contents 01 Financial highlights marketing products of the highest quality 02 Chairman’s statement 04 Chief Executive Officer’s review for the treatment of serious diseases, 06 Product portfolio 07 Product development pipeline which are treated by medical specialists. 08 Operating review 22 CSR: Corporate and social responsibility 24 Financial review We aim to provide high quality and effective 28 Board of Directors 30 The Executive Committee products that enhance the health and 32 Directors’ remuneration report 44 Corporate governance quality of life of people around the world statement

Financial Statements and contribute to the long-term business 48 Statement of Directors’ responsibilities – Report of success of our Company, to the benefit independent auditors 49 Consolidated balance sheets 50 Consolidated statement of all our stakeholders. of operations 51 Consolidated statements of changes in shareholders’ equity We are driven by the needs of all our 52 Consolidated statements of cash flows stakeholders: patients, their families and 53 Notes to the consolidated financial statements 87 Five-year review caregivers, doctors and medical specialists, 88 Summary financial statement 93 Notes to summary employees and partner companies, the financial statement community in which we live and work and, Other 94 Shire head office and main operating locations of course, our shareholders. 95 Shareholder information 96 Trade marks – Cautionary statements We also want to be the employer of choice in our sector, attracting and retaining highly skilled and talented people, who play an active part in the development of our Company, by rewarding excellence and recognising individual contributions. Shire Pharmaceuticals Group plc Financial highlights 01

Financial results 2003: Shire revenues continued to grow – exceeding US$1.2 billion

Revenue growth $m 2003: 1,237.1 2002: 1,037.3 +19% Revenue $m R&D spend $m Operating income $m 2003: 1,237.1 2003: 215.8 2003: 394.6 2002: 1,037.3 +19% 2002: 189.2 +14% 2002: 327.0 +21%

03 03 03 02 02 02

Diluted EPS Diluted EPS: ADS Revenue growth over last ordinary shares five years 2003: 54.2 cents 2003: 162.6 cents 2002: 49.0 cents +11% 2002: 147.1 cents +11% 03 $1,237.1m 02 $1,037.3m 01 $853.0m 03 03 00 $647.7m 02 02 99 $515.4m

Sources of Sources of Revenue by reporting revenue % revenue $m segment %

8 8 4 3 1 1 7 7 2 6 6 5 5 4 4 1 3 2 3 2

1. ADDERALL/ADDERALL XR 43 1. ADDERALL/ADDERALL XR 535.6 1. US 69 2. AGRYLIN 11 2. AGRYLIN 132.5 2. International 14 3. PENTASA 8 3. PENTASA 99.3 3. Biologics 2 4. CARBATROL 4 4. CARBATROL 52.4 4. Corporate 15 5. PROAMATINE 4 5. PROAMATINE 49.3 6. CALCICHEW 2 6. CALCICHEW 28.9 7. OTHERS 11 7. OTHERS 135.5 8. ROYALTIES 17 8. ROYALTIES 203.6 02 Shire Pharmaceuticals Group plc Chairman’s statement

We have achieved clear success to date and through greater focus expect more to follow through 2004 and beyond

The international pharmaceutical industry has 2003 results changed considerably during the last decade In 2003, Shire once again produced strong and this continued in 2003. Our view at Shire financial results. Income from continuing is that, whatever their size, successful operations, before income taxes and equity pharmaceutical companies now require focus, method investees, increased 17% to US$384.5 particularly in their product markets, customer million. Revenues were up 19% to US$1,237.1 base, research and development and cost control. million. Diluted earnings per ordinary share Unsurprisingly, these are areas that we focused was 54.2 cents. on in 2003 and will continue to do so in the current year. We have achieved clear success Significantly, Shire’s cash position remained strong to date and through greater focus expect more with net cash of US$1,036 million, an increase to follow in 2004 and beyond. of US$230 million on 2002, which will be used for future expansion. Within his short time as Chief Executive Officer, Matthew Emmens has shaped Shire for its The Board future. Our newly deployed strategic model We continue to develop the Shire Board to is designed to optimise the opportunities for match the demands of what is now a large, us and deal with future challenges within the international business in a changing industry. Shire will position itself as the leading pharmaceutical marketplace. company in meeting the needs of the specialist physician with a focus on fewer, later stage and In line with newly published regulations on lower risk projects. This means that we don’t corporate governance, Shire has talked to a invent products but acquire them. Therefore we range of shareholders and taken advice on how are focusing on not only the type of deals that to best meet these guidelines. A programme of give us a good pipeline, but how to best develop implementation is underway and more detail can Dr James Cavanaugh them with ultimate market success in mind. be found in the corporate governance statement Chairman We will continue to enhance our positions in of this document on page 44. the key areas of Central Nervous System (CNS), Gastrointestinal (GI) and renal medicine, while In March 2003, Matthew Emmens was appointed remaining alert for new therapeutic areas that as Chief Executive Officer. He has a strong would benefit from our expertise. track record of success over an international pharmaceutical career spanning nearly 30 years. Shire’s sales force continues to deliver impressive Matthew was a founder of the joint venture Astra results and its reputation amongst specialist Merck Inc. in the US, and later its President and physicians makes it a partner of choice when Chief Executive. Before joining Shire, he was it comes to potential acquisitions and in-licensing President of the global pharmaceutical business projects and products. Our strong cash position of Merck KGaA in Germany. gives us considerable flexibility in looking at potential mergers and acquisitions (M&A) opportunities and we have identified a small number of highly attractive targets. Shire Pharmaceuticals Group plc Chairman’s statement 03

We are confident of delivering sustained growth in 2004 and beyond, following the momentum we developed in 2003

In July 2003, Shire’s Board appointed Robin People Buchanan as a new non-executive Director. Shire had 1,815 employees worldwide as He is a member of the Company’s Remuneration of 31 December 2003. We believe strongly Committee. Robin is the Senior Partner of the in the importance of hiring well-qualified, London office of business consultants Bain experienced staff with proven records of success. & Company and a member of the firm’s The Group’s future progress depends upon worldwide management committee. Since joining its ability to attract and retain such individuals. Bain & Company in 1982, he has been involved Shire will continue to apply and develop a strong in strategy development and organisation advice focus on staff recruitment and development for Bain’s clients in most industry sectors, at all levels. including healthcare. Current trading and future prospects On 10 March 2004, we announced that The Company is trading in line with our David Kappler will join the Shire Board as expectations. Shire has well-established positions a non-executive Director in April and will take in growing markets, a well defined strategy, strong over the Chairmanship of the Audit Committee cash resources and a promising pipeline of late in July 2004. David recently retired as Chief stage drugs. Consequently, we are confident Financial Officer of Cadbury Schweppes plc, of delivering sustained growth in 2004, following the FTSE and NYSE listed global confectionery the momentum we developed in 2003. and beverages group, where he held a range of senior finance positions during his almost 40-year career with the group.

While welcoming Matthew, Robin and David, I would also like to thank Francesco Bellini and Gérard Veilleux for the contribution they have made to the Board, having completed their two-year contracts with Shire. 04 Shire Pharmaceuticals Group plc Chief Executive Officer’s review

Our opportunities lie in addressing underserved markets and growing products beyond what the consensus of opinion might be

In 2003, Shire once again delivered a very Our model emphasises the ‘D’ in R&D. Therefore, strong financial performance. During the summer, our ‘R’ is based on finding products invented we began implementing a new strategy aimed by others. I believe this is a sound idea because at ensuring continued future growth. Since its ‘in house’ R&D has not met the needs of the inception, Shire has grown through acquisitions, larger companies. During 2003, slightly less than subsequent product development and effective one-half of all products marketed by large marketing. This idea remains the foundation pharmaceutical companies were not invented of our model. Some could say that it is ‘back there. This percentage has increased steadily to the future’ in that we will search (take the ‘re’ over the last decade. Conversely, approximately from research), and then develop and market. 70% of all Phase III* projects were developed But at this point in our history, this would be by non-major pharmaceutical companies. over-simplification. The Group has migrated from Our conclusion is that pre-clinical research this simple idea, and making this proven concept is becoming less predictable and the creativity viable in today’s larger organisation has kept may lie in a diffuse cross-section of smaller us very busy. companies or in products that are too small to contribute in a meaningful way to the major Starting in July, we began exiting certain companies. Therefore, we are focusing our businesses, changing our organisational structure, licensing efforts on products or projects in the and reshaping our leadership. It is critical that later stages of development with potential peak we simplify, create a unified culture and, most sales of US$150 million to US$500 million. importantly, integrate our drug development and This seems to keep us below what is relevant commercial activities. I believe that these actions to large Pharma, but meaningful to us. are the fundamental underpinnings that will enable the organisation to create value in the longer term. Exiting Businesses As we announced in August, we intend to exit Matthew Emmens Our goal is clear – we plan to lead where we our vaccines business. We have had numerous CEO choose to compete. Our opportunities lie in expressions of interest and are currently addressing underserved markets and growing examining the options which will best suit products beyond what the consensus of opinion our shareholders and the Company’s interests. might be. We have done this consistently in In pursuing these options we expect to have the past. We have learned that with the right completed the process by the middle of 2004. products, small, agile and focused sales forces We have closed our early stage research (lead can deliver impressive results. optimisation) unit in Canada and closed US manufacturing and distribution sites. Strategic actions in 2003 Focused R&D Mergers and acquisitions and out-licensing We have re-focused our Research and Development In addition, as a result of exiting oncology and (R&D) resources and technology to concentrate anti-infective research, we announced that we on areas where we have a commercial presence would examine opportunities to out-license and on a concentrated number of high-potential, the oncology project, TROXATYL and to seek late-stage products. After a thorough evaluation a partner for the HIV project, SPD754 – both of our pipeline, we currently have six products in Phase II projects. We continue to expect both registration, two in Phase III and two in Phase II to be completed in the middle of 2004. of development. This strategy aims to deliver the combined benefit of increased returns and Our geographic focus is on the US and Europe. lower risk. Therefore, we successfully out-licensed the Japanese marketing and development rights to AGRYLIN and FOSRENOL to two companies with an established presence in this market.

Furthermore, we have significantly enhanced our M&A effort by targeting acquisitions in the US, including larger scale transactions. Shire Pharmaceuticals Group plc Chief Executive Officer’s review 05

Shire is stronger than ever, I am confident that the implementation of our strategic initiatives will position us well for growth

Re-organisation Patent challenges Given Shire’s merger history and rapid It is inevitable that Shire will receive challenges, development, it was inevitable that a complex particularly from generic manufacturers, structure had developed. In order to better to its drugs portfolio – it is a reflection of today’s integrate, co-ordinate and rationalise our pharmaceutical industry. Our position is clear: business activities, we have embarked on a wide we will vigorously defend our Intellectual reaching strategic change programme. The aim Property, including patents. is to move the Group from a silo structure to a globally integrated organisation composed of Corporate social responsibility cross-functional teams with clear accountability Our approach to corporate social responsibility for delivering results. The business will also be (CSR) has also developed during the year with serviced by support functions that will be global the establishment of our CSR Committee led in their outlook. I have changed our management by our Chief Financial Officer Angus Russell, model to accomplish this. This resulted in changes and the setting of 2004 objectives. We will to the composition of the Executive Committee continue to report regularly on these activities. and the addition of two management components – The Portfolio Review Committee (PRC) Future development and Portfolio Teams. I chair both the Executive Shire is stronger than ever and I am confident Committee and the PRC and the Portfolio that the implementation of our strategic Teams report to the PRC. initiatives will position us well for future growth. The Company has a promising future with The US is the world’s largest pharmaceuticals a strong product franchise, an energetic market, where we already generate 69% of our management team and several very promising revenues and where more than 50% of our projects in the late stages of development that employees are based. In recognition of this, should be ready for launch in the near to mid we will establish a new corporate office in Wayne, term. Our aim during the forthcoming year is Pennsylvania. In addition to the vaccine sites in to continue to strengthen Shire’s position in Canada and the US that will be exited, we will its marketplaces and to develop the Company close our Newport, Kentucky and Rockville, into one of the leading specialty pharmaceutical Maryland sites. companies in the world.

The introduction of the Portfolio Teams and the The year 2003 was exciting and challenging. housing of R&D and US commercial functions The dedication and professionalism of our under one roof will improve communication employees made our success possible. and focus, and speed up the process of making Their hard work and innovative approach will decisions. Other key corporate functions such continue to ensure success for the Company as Business Development and Human Resources in the years ahead. will also be located in the new US office. *Source: IMS, R&D Focus January 2004. Shire’s UK Basingstoke office will remain the Company’s headquarters but all Executive Committee members will have offices in both locations to ensure management is spending time where the day-to-day business needs are greatest. The International division will continue to be led from the UK and appropriate significant R&D presence will also be maintained in Basingstoke to serve the European markets.

We foresee having just four major North American facilities by the end of 2005 compared with 14 at the beginning of 2003. 06 Shire Pharmaceuticals Group plc Product portfolio

Product portfolio: Delivering high quality treatments to meet patients’ needs

ADDERALL® ADDERALL XR® ADEPT® AGRYLIN® ADDERALL (mixed amphetamine ADDERALL XR (mixed amphetamine ADEPT (4% icodextrin solution). AGRYLIN (anagrelide hydrochloride). salts). ADDERALL is an immediate- salts). ADDERALL XR is indicated ADEPT is indicated for use as an AGRYLIN is indicated for the treatment release product indicated for the for the treatment of ADHD and is a intraperitoneal instillate for reduction of essential thrombocythaemia. treatment of attention deficit once-daily formulation of ADDERALL. of adhesions following abdominal Research indicates that a key benefit hyperactivity disorder (ADHD). It offers convenience to patients and surgery. It acts by providing a temporary of AGRYLIN is its platelet selectivity, caregivers, and the potential for separation of peritoneal surfaces targeting only those cells that develop improved compliance. by hydroflotation. into platelets.

CALCICHEW® CARBATROL® PENTASA® PROAMATINE® CALCICHEW range (calcium carbonate). CARBATROL (carbamazepine). PENTASA (mesalamine). PENTASA PROAMATINE (midodrine The CALCICHEW range of products CARBATROL is marketed for the is indicated for the induction of hydrochloride). PROAMATINE are calcium supplements (with or treatment of epilepsy, combining remission and treatment of patients is indicated for the treatment of without vitamin D) used as adjunctive proven medication with advanced with mild to moderately active symptomatic orthostatic hypotension. treatments for osteoporosis. drug delivery technology to enable ulcerative colitis, using a unique a convenient twice-daily treatment. delivery mechanism.

REMINYL® SOLARAZE® ZEFFIX® 3TC® REMINYL (galantamine hydrobromide). SOLARAZE (diclofenac sodium 3%). ZEFFIX (lamivudine). ZEFFIX 3TC (lamivudine). 3TC, also marketed REMINYL is indicated for the SOLARAZE is indicated for the is indicated for the treatment as EPIVIR®, in combination with other symptomatic treatment of mild to treatment of actinic keratosis, of chronic hepatitis B infection antiretroviral agents is indicated for the moderately severe dementia of the a pre-cancerous skin condition. associated with evidence treatment of human immunodeficiency Alzheimer type. REMINYL differs from of hepatitis B viral replication virus (HIV) infection. Lamivudine is a other compounds in its class in that and acute liver inflammation. component of the combination HIV it has a dual mechanism of action. treatments, COMBIVIR® and TRIZIVIR®. Shire Pharmaceuticals Group plc Project development pipeline 07

Project development pipeline: During 2003 significant progress was made. Shire now has six projects in registration

Indication Product Preclinical Phase I Phase II Phase III Registration

CNS Bipolar disorder BIPOTROL®/SPD417 Adult ADHD ADDERALL XR ADHD METHYPATCH® ADHD SPD503 ADHD SPD473 ADHD SPD465 ADHD SPD483

Gastrointestinal IBD* PENTASA 500mg IBD* SPD476 IBD* SPD480

Strategic Products Essential XAGRID® thrombocythaemia Hyperphosphataemia FOSRENOL®

Projects available for out-licensing Acute myeloid TROXATYL® leukaemia/ Pancreatic cancer HIV SPD754 HIV SPD756 Hepatitis C SPD760

*IBD: Inflammatory bowel disease 08 Shire Pharmaceuticals Group plc Operating review

Operating review: Shire had an excellent and development portfolios. Continued products and a number of progressions in

Product Highlights

ADDERALL XR is one of the most REMINYL continued to perform 2003 prescriptions for AGRYLIN widely prescribed ADHD treatments well in 2003 with a 63% prescription (anagrelide hydrochloride), in the US with a 23% market share growth in the UK, and 60% in the for reduction of elevated platelet and 49% prescription growth over US over 2002. count, grew 7% over 2002. 2002, despite increasing competitive pressures in this market.

PROAMATINE’s US prescription PENTASA for the treatment of CARBATROL benefited from a growth was 2% in 2003 following ulcerative colitis represented 10% of re-launch in the US epilepsy market loss of US market exclusivity during Shire’s product sales and maintained in early 2003. A 5% prescription the last quarter of 2003. an 11% share of the mesalamine/ increase over 2002 resulted. olsalazine market in 2003. Shire Pharmaceuticals Group plc Operating review 09 year in 2003 across both marketed prescription growth for the key marketed the development portfolio were achieved

Project Highlights

FOSRENOL (lanthanum carbonate) XAGRID (anagrelide hydrochloride), Early in 2004 a regulatory filing a phosphate-binder for use in patients for reduction of elevated platelet was made to the US Food and Drug with end-stage renal disease (ESRD) count received a Positive Opinion Administration (FDA) for BIPOTROL received its first European approval from the Committee for Proprietary (carbamazepine), previously known from Reference Member State (RMS), Medicinal Products (CPMP) for use as SPD417, an extended release Sweden, in March 2004. ‘Approvable’ in Europe. formulation of carbamazepine for letters were also received from the the treatment of bipolar disorder. FDA for FOSRENOL and the expanded indication for use of ADDERALL XR in adults with attention deficit hyperactivity disorder (ADHD).

Clinical programmes were SPD503 and SPD473, both non- SPD476 a high strength mesalamine initiated for ADDERALL XR and stimulant treatments for ADHD, based formulation for the treatment AGRYLIN to satisfy requests for entered Phase III and II of of ulcerative colitis entered Phase III data leading to a possible grant development respectively. of development. of six-months paediatric exclusivity. Data for AGRYLIN were submitted in March 2004. 10 Shire Pharmaceuticals Group plc Operating review: CNS Shire Pharmaceuticals Group plc Operating review: CNS 11

Central nervous system (CNS): Shire has established itself as a specialist leader in the development and commercialisation of CNS therapies

A strong ADHD franchise market. Combined, over 35.3 million Shire continues to build its portfolio of products prescriptions* have been written for ADDERALL for the treatment of attention deficit hyperactivity and ADDERALL XR over the franchise’s eight- disorder (ADHD), one of the most common year history. ADDERALL XR also received childhood psychiatric disorders. marketing approval in Canada in early 2004 and is now available on prescription. Approximately 3 to 7% of male and female children in the US are affected by ADHD. The success of ADDERALL XR has been built These children are often inattentive, impulsive on a thorough understanding of ADHD patient ADDERALL XR or hyperactive, difficulties that affect their ability needs, a strong heritage of assessing the safety ADDERALL XR has become to function normally in home, academic or social and efficacy of potential treatments, continued one of the most widely settings. Moreover, as many as two-thirds of investment in development, and a highly focused prescribed ADHD treatments children with ADHD may continue to exhibit commercial organisation. In addition, Shire has in the US. symptoms into adulthood. While there is no cure cultivated and sponsored a national faculty of key for ADHD, it can usually be successfully managed physician educators and led initiatives to help with a combination of treatments, including physicians diagnose, treat, and optimise therapy educational approaches, psychological and for patients with ADHD. Several studies were behavioural therapies, and medication. presented and published during 2003; details can be requested from Shire. All of these activities ADDERALL and ADDERALL XR (mixed resulted in a 49% increase in US ADDERALL XR amphetamine salts) constitute the market-leading prescriptions over 2002, despite increasing franchise for prescriptions in ADHD. Immediate- competitive pressures in this market. release ADDERALL was launched in the US in 1996 and was Shire’s ADHD brand leader ADDERALL XR Adult: Shire can foresee significant until the end of 2001. Applying Shire’s patented opportunities in this relatively untreated sector MICROTROL® extended release technology, Shire of the market. According to the National Institute developed and launched ADDERALL XR in 2001, for Mental Health, an estimated 8.2 million adults a novel formulation of ADDERALL, to provide suffer from ADHD, but only 600,000 are treated. an all-day treatment, with one morning dose. Currently, an estimated 17% of ADDERALL XR ADDERALL XR has a rapid onset of action, prescriptions are for patients older than 18 years. controlling symptoms throughout the day. After submitting a supplemental New Drug ADDERALL XR has since become one of the Application (sNDA) for use of ADDERALL XR most widely prescribed ADHD treatments in the in adults, Shire received an ‘Approvable’ letter US with approximately 11 million prescriptions* from the Food and Drug Administration (FDA) *IMS Health data, January 2004 and a 23% share* of the US prescription ADHD in October 2003.

Dr Frank Lopez Neuro-development Paediatrician Children’s Developmental Centre, Maitland, Florida

I’ve worked with many different We particularly rely on pharmaceutical companies over ADDERALL and ADDERALL XR the last 18 years, but none to treat young people at our as responsive and supportive developmental centre. as Shire. Whether it’s top management, or the I’ve seen hundreds of kids make representative who looks after huge strides as a result of taking our centre, you can see that this drug – they do better at they really care about the quality school, they relate to people of their products, and about the better, and their families find quality of the information they it much easier to live a normal provide about them. home life. 12 Shire Pharmaceuticals Group plc Operating review: CNS

CNS/ADHD: Shire continues to strengthen its ADHD portfolio

Responses to the FDA’s letter were submitted METHYPATCH (methylphenidate): In early in February 2004. A six-month review period 2003, Shire acquired the worldwide sales and is anticipated. Upon approval the adult indication marketing rights to METHYPATCH, a transdermal is expected to qualify for three-years Hatch- delivery system for the once-daily treatment of Waxman marketing exclusivity. ADHD, from Noven Pharmaceuticals Inc. (Noven). Subsequently, Noven received a ‘Not Approvable’ ADDERALL XR Paediatric Exclusivity: Shire letter from the FDA in response to its New Drug is evaluating ADDERALL XR in adolescents Application (NDA). Shire and Noven are to in response to a paediatric ‘Written Request’ undertake further clinical investigations to assist received from the US FDA in 2003. This clinical in addressing the questions raised by the FDA. programme could extend the existing Hatch- Waxman marketing exclusivity from October Additional life cycle projects for the ADHD 2004 to April 2005. franchise were introduced in early 2003. SPD465, currently in Phase I development, is targeted to Strengthening our ADHD portfolio offer an augmented duration of effect. SPD483, Shire continues to grow its existing ADHD another ADHD candidate, is in the Pre-clinical portfolio while developing new products that Phase of development. will complement its ADDERALL franchise: SPD473 a Phase II proof-of-concept study SPD503 (guanfacine), currently in Phase III in ADHD is underway. This non-stimulant mixed development for children and adolescents, monoamine re-uptake inhibitor has a unique is an established non-stimulant, non-scheduled mode of action, affecting three neurotransmitters compound that has been re-formulated by Shire that may be implicated in ADHD (noradrenaline, for use in ADHD. It may offer potential in the serotonin and dopamine). This makes it an treatment of adult ADHD. attractive candidate for ADHD treatment.

Alzheimer’s disease Alzheimer’s disease is the most common cause of dementia, affecting approximately 20 million people worldwide, mainly those aged 65 or older. It is a progressive disorder that gradually robs individuals of their ability to remember, learn new information and perform basic activities of daily living. Shire Pharmaceuticals Group plc Operating review: CNS 13

CNS/Epilepsy: Epilepsy is estimated to affect approximately 2.3 million people in the US

REMINYL is one of the fastest-growing products Bipolar disorder for treating mild to moderately severe dementia Bipolar disorder, also known as manic depression, of the Alzheimer type, with approvals in more is a mood disorder that can cause extreme swings than 25 countries. REMINYL was developed by between high (mania) and low (depression) Shire and Johnson & Johnson Pharmaceutical moods. The high and low phases of the illness are Research & Development under a co-development called ‘episodes’ and can be so extreme that they and licensing agreement. Currently available can result in hospitalisation. This condition has in both tablet and oral solution, Shire receives historically been under-diagnosed and under- royalties on sales of REMINYL from Janssen treated. An estimated 1.5 million people in the CARBATROL Pharmaceutica NV worldwide, except in the UK US suffer from bipolar disorder, yet only 650,000 CARBATROL is an extended and Ireland where Shire obtained full marketing are undergoing treatment. release carbamazepine rights in April 2004. In 2003 REMINYL continued formulation for the treatment to perform well in the UK with a 63% prescription In February 2004 Shire made a NDA filing of epilepsy. The reduced dosing growth over 2002. for BIPOTROL (previously known as SPD417), frequency compared to other an extended release carbamazepine formulation, carbamazepine products Epilepsy for use in bipolar disorder. BIPOTROL has shown makes it more patient-friendly. Epilepsy is estimated to affect approximately clear potential as a mood stabilizer with a highly 2.3 million people in the US, making it one favourable side-effect profile, and upon approval of the most common neurological disorders. would be the first carbamazepine-based product Carbamazepine is a widely prescribed indicated for the acute treatment of manic and anti-epileptic drug, and is a mainstay of mixed episodes in patients with bipolar disorder. treatment for partial seizures. In 1998, Shire In the US, BIPOTROL is expected to receive launched CARBATROL, an extended release three-years exclusivity under the US Hatch- formulation of carbamazepine that uses the Waxman Act. patented MICROTROL delivery system technology. It is a twice-daily extended-release Discontinued research projects formulation which makes it more patient-friendly During 2003 development of SPD451, than immediate release formulations on the a potential Parkinson’s disease treatment, market, which require dosing three or four times was discontinued. a day. CARBATROL can be administered as a capsule or sprinkled on food. CARBATROL benefited from a re-launch in the US early in 2003, in addition a 100mg dosage strength was launched in January 2004. Increased promotional efforts and better dosing flexibility resulted in a 5% increase in prescriptions.

Dr David Ficker Assistant Professor of Neurology/University of Cincinnati Medical Center. Director of Epilepsy Monitoring Unit at University Hospital Cincinnati, Ohio

Carbamazepine is still the best CARBATROL combines the thing on the market for most best features of carbamazepine people with partial epilepsy. in a form that’s very effective and has very few side effects. I think most doctors would choose it. 14 Shire Pharmaceuticals Group plc Operating review: Renal

Renal: Making a difference – FOSRENOL’s extensive clinical research programme involved more than 1,750 patients

Hyperphosphataemia: A serious disease This programme has demonstrated that Patients with end-stage renal disease (ESRD) FOSRENOL is an effective phosphate-binder often suffer from hyperphosphataemia, high with a proven safety profile for long-term use. phosphate levels in the blood caused by the FOSRENOL is formulated as a convenient inability of the kidneys (and dialysis) to filter chewable tablet, which eliminates the need for out excess phosphate absorbed from the diet. water to aid in swallowing, an important factor for Even with a low-phosphate diet as many as ESRD patients due to their restricted fluid intake. 80% of the 225,000 European and the 275,000 US dialysis patients develop hyperphosphataemia In March 2004, Shire announced that it had and need treatment with a phosphate-binder. acquired the rights to the global patents for The most well known consequences of FOSRENOL, excluding Japan, from AnorMED hyperphosphataemia are a range of bone Inc. for a consideration of up to US$31 million. diseases that can cause bone pain, skeletal The agreement also provides a 12-month deformities and fractures. Hyperphosphataemia option to purchase the Japanese patents for is also associated with the development of US$6 million, to be paid upon approval of the cardiovascular disease, which accounts for product in Japan. nearly 50% of all deaths in dialysis patients. Some of the currently available phosphate- ‘Approval’ letter binders may worsen these complications. Following a Marketing Authorisation Application (MAA) in Sweden, Shire received a regulatory FOSRENOL approval in March 2004. Further European Shire is developing FOSRENOL as a phosphate- approvals will be sought during the year via binder in ESRD patients who receive dialysis. the Mutual Recognition Procedure (MRP). FOSRENOL works by binding to dietary Assuming a positive response from these phosphate in the gastrointestinal tract; once regulatory authorities product launches are bound, the FOSRENOL phosphate complex planned throughout Europe during the second cannot readily pass through the intestinal lining half of 2004. into the blood stream and is eliminated from the body. As a consequence, overall phosphate ‘Approvable’ letter absorption from the diet is decreased In early 2003 in response to its NDA Shire significantly. Shire has conducted an extensive received an ‘Approvable’ letter. Shire supplied clinical research programme for FOSRENOL the FDA with responses in January 2004. involving more than 1,750 patients, some of A six-month review period is anticipated. whom have been treated for up to four years. Launch of FOSRENOL in the US is hoped for during the second half of 2004.

Dr Hartmut Malluche Professor and Chief of Nephrology University of Kentucky, Lexington, Kentucky

One of the long-term side- stop the phosphate being effects of kidney disease absorbed into the blood- is that the kidneys find it stream. Other currently increasingly difficult to filter available products, such out phosphates in the blood. as aluminium and calcium This can cause real problems, containing binders, have including bone disorders, been problematic. FOSRENOL and heart disease, which is part of a new generation is actually one of the main of aluminium and calcium causes of death in dialysis free binders which has patients. A patient with undergone extensive clinical this condition has to take studies and has a proven a ‘phosphate-binder’ to safety and efficacy profile. Shire Pharmaceuticals Group plc Operating review: Renal 15

Renal: Shire’s Global Marketing teams are actively laying the groundwork for a successful launch of FOSRENOL

Through a wide variety of activities Shire’s FOSRENOL has also been shown to significantly Global Marketing teams are actively laying reduce and maintain blood phosphate levels the groundwork for a successful launch of in a study of Chinese ESRD patients with FOSRENOL, including working with opinion hyperphosphataemia (American Society of leaders in renal medicine. Shire has also been Nephrology 36th Annual Meeting, November 2003). working to ensure that the results of studies on the efficacy and safety of FOSRENOL Out-licensed in Japan are disseminated. In December 2003, the rights to develop, market and sell FOSRENOL in Japan were out-licensed FOSRENOL During 2003, data reported by Shire from the to Bayer Yakuhin, in line with Shire’s strategy to First European approval ongoing clinical programme for FOSRENOL, focus its presence in North America and Europe. received in March 2004. showed that continued, long-term (one-year) Bayer Yakuhin in Japan already has an active treatment with FOSRENOL controls levels programme to manage renovascular disease of blood phosphate, which are frequently raised and expects to launch another major drug in in ESRD patients (data presented at the National Japan that will be sold in dialysis centres one Kidney Foundation Annual Meeting, April 2003). year or more ahead of FOSRENOL. Sustained efficacy and a good safety profile during three years of treatment has also been demonstrated (World Congress of Nephrology, June 2003).

Results of the first-ever multicentre paired bone-biopsy study investigating the effects of phosphate-binders on bone in dialysis patients showed that after one year of treatment ESRD patients treated with FOSRENOL had normalised markers of bone disease (Kidney International, June 2003). FOSRENOL has also been shown to rapidly initiate significant reductions in blood phosphate within one week of starting therapy. Blood phosphate was effectively controlled to target levels and FOSRENOL was a well- tolerated therapy (American Journal of Kidney Diseases, June 2003). 16 Shire Pharmaceuticals Group plc Operating review: Gastrointestinal

Gastrointestinal (GI): developing a worldwide portfolio – The GI therapeutic area is one of Shire’s core areas of strategic focus Shire Pharmaceuticals Group plc Operating review: Gastrointestinal 17

Gastrointestinal: ulcerative colitis is estimated to affect more than 1.2 million people worldwide

Ulcerative colitis Shire holds the key worldwide rights from Ulcerative colitis (UC), a type of inflammatory Giuliani S.p.A. to develop and market SPD476, bowel disease, is a chronic, relapsing disease which Shire took into Phase III development in which part, or all, of the large intestine during 2003. This novel proprietary formulation becomes inflamed and often ulcerated. targets the release of mesalamine to the bowel This condition is estimated to affect more than that enables even delivery of high doses of 1.2 million people worldwide. Patients experience mesalamine to the colon. Based on this profile, intermittent attacks separated by periods of SPD476 may offer a reduced tablet burden for remission. Clinical features include diarrhoea, UC patients, which may promote greater patient- PENTASA bleeding and abdominal pain and within 10 years compliance and offer a better quality of life. A new 500mg PENTASA of diagnosis approximately 25% of patients are strength was filed with required to undergo surgery. Shire also acquired from Giuliani S.p.A. rights the FDA in March 2004. to develop, manufacture and market in key The mainstay treatment for inflammatory territories worldwide SPD480, a rectally bowel disease is mesalamine (5-ASA) products. administered mesalamine aerosol foam for the In the US, Shire markets PENTASA as a 250mg treatment of certain types of UC. This formulation capsule that delivers mesalamine throughout the may be more acceptable and easier to use than small and large bowel. A 500mg PENTASA conventional liquid enema treatments, thereby capsule was filed with the FDA in March 2004. offering the potential for improved patient Upon approval this new therapeutic option will compliance. SPD480 has reached Phase II reduce the current capsule burden required for of development. the 250mg dosage strength and may offer greater convenience and patient compliance. Shire also markets COLAZIDE® (balsalazide), an oral mesalamine formulation for the treatment of UC in the UK and other European markets.

Growing the franchise Shire has a well-established pipeline, strong sales force, and an aggressive business development strategy to strengthen its GI franchise. Shire is actively looking to expand its GI product offering and continues to develop its product line for UC and, potentially, other forms of Inflammatory Bowel Disease (IBD).

Dr Carmen Cuffari Assistant Professor of Paediatrics, Division of Gastroenterology, Johns Hopkins Hospital Baltimore, Maryland

When you’re treating someone of it, it needs to produce minimal with ulcerative colitis you need side-effects, and it has to be a drug that can do three things: highly effective in an oral form, it has to be able to deal with the since that makes it easy to take whole colon area, not just part and easier for patients to stick to. 18 Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio

Additional Shire portfolio: Marketed products – Shire markets a diverse portfolio to meet the needs of the specialist physician

Anti-Infectives Oncology/Haematology HIV AGRYLIN Lamivudine forms a key component in most AGRYLIN is marketed in a number of countries, of the HIV combination treatment regimes. including the US, where it is the only product Discovered by Shire BioChem Inc., Shire receives specifically approved for the treatment of patients royalties from GlaxoSmithKline plc (GSK) on the with elevated platelet counts secondary to worldwide sales of lamivudine and any products myeloproliferative disorders (MPDs) such containing lamivudine (COMBIVIR and TRIZIVIR), as essential thrombocythaemia (ET). For more with the exception of Canada where there is a than six years AGRYLIN has been safely and AGRYLIN marketing partnership with GSK. effectively used by patients to lower the platelet For more than six years count. Platelets are involved in blood clotting. AGRYLIN has been safely Hepatitis B Lowering the elevated platelet count helps and effectively used by patients Lamivudine is also indicated for the treatment decrease the symptoms associated with MPDs, to lower platelets which are of chronic hepatitis B (HBV) associated including blood vessel blockages and bleeding involved in blood clotting. with evidence of hepatitis B viral replication, events. In March 2004 Shire submitted clinical and is marketed as ZEFFIX and various other data to the FDA in response to a paediatric trade marks around the world. In an agreement Written Request (WR). The data are currently similar to that for lamivudine for the treatment under review by the FDA. Satisfying the of HIV, Shire receives royalties on sales of conditions of the WR would lead to a six-month lamivudine by GSK for HBV, except in Canada extension of the existing exclusivity period, where Shire has a commercialisation partnership to September 2004. with GSK. In December 2003, Shire granted rights to the Pharmaceutical Division of Kirin Brewery Company Ltd (Kirin), to develop, market and sell AGRYLIN in Japan, where AGRYLIN has been designated as an orphan product (ie a product used to treat rare illnesses). With a leading share in the Japanese haematology market, as well as a strong clinical development arm, Kirin is the ideal company to take Shire’s product forward in this major world market. Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio 19

Additional Shire portfolio: Marketed products – Shire made good progress in 2003 with ADEPT, which is now marketed in 19 countries internationally

Vaccines ADEPT In line with Shire’s business strategy announced ADEPT is a novel solution for the prevention of in July 2003 to focus on fewer, later stage adhesions, which occur in up to 95% of patients and lower risk projects, Shire intends to exit undergoing abdominal surgery. Adhesions are its vaccines business by the middle of 2004. internal scars formed post-trauma from complex Shire is currently evaluating a number of options, processes involving tissues that have been to gain maximum benefit for Shire and for damaged during surgery. They are a major cause its stakeholders. of pain, infertility, small bowel obstruction and are a potentially fatal complication of abdominal ADEPT and SOLARAZE FLUVIRAL® S/F, a split-virion influenza vaccine for surgery. Shire made good progress in 2003 with The launches of ADEPT and the prevention of influenza infection is marketed ADEPT, which is now marketed in 19 countries SOLARAZE across Europe have in Canada. During 2003, Shire Biologics won internationally. helped develop capabilities for additional flu vaccine volumes from the Canadian selling innovative products. government, giving it as much as a 75% share SOLARAZE of the national requirement, guaranteed for five SOLARAZE is now marketed by Shire in nine years. Shire’s ability to increase its national market European countries, including successful share from 50% in a relatively short period of time launches in Italy and France in 2003, and is is the result of the high quality of its FLUVIRAL established as the leading topical treatment for product, outstanding service levels, and Actinic Keratosis (AK), which if left untreated could competitive pricing. lead to squamous cell carcinoma, a form of skin cancer, in up to 16% of patients. SOLARAZE gel Other specialist products offers an alternative to existing treatment options, The launches of ADEPT and SOLARAZE across which may cause burning or peeling during the Europe have helped develop capabilities for treatment of AK lesions. It is particularly useful selling innovative products into the Secondary for patients with AK on the face or scalp where Care sector as well as providing valuable other treatments like cryotherapy (freezing) experience in local and national pricing and would be too painful or risk leaving scarring. re-imbursement planning.

Dr Craig Kessler Director, Coagulation and Haemophilia Treatment Centre, Georgetown University Medical Centre, Bethesda, MD

What sets Shire apart, for me, in the blood are too high, is their determination to raise can cause strokes, bleeding awareness of essential and miscarriages. AGRYLIN thrombocythaemia and other helps lower the platelet count myeloproliferative disorders and, unlike some other (MPDs). These are rare illnesses, therapies, it is selective for or so-called ‘orphan diseases’. platelets. AGRYLIN can also Essential thrombocythaemia, be used in the treatment where the levels of platelets of other MPDs. 20 Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio

Additional Shire portfolio: Marketed products and drug delivery technologies

CALCICHEW Drug delivery technologies The CALCICHEW range of calcium and Shire Laboratories, Inc. (SLI), a subsidiary calcium/vitamin D supplements are marketed of the Shire Group, is a specialist provider as adjuncts in the treatment of osteoporosis, of innovative oral drug delivery technologies. a disease characterised by a progressive loss SLI’s oral controlled-release technologies include of bone mass that renders bone fragile and liable MICROTROL, which consists of beadlets that to fracture. More than three million people in the can be coated to provide customised release UK are estimated to suffer with this condition. profiles such as extended delivery (MICROTROL Osteoporosis affects both sexes but is more XRTM), pulsed delivery (MICROTROL PRTM) rapid and profound in women, largely as a result or delayed delivery (MICROTROL DRTM); of the decline in oestrogen production following SOLUTROLTM, a proprietary matrix tablet which the menopause. can provide extended release of highly soluble and pH dependent compounds; and ENSOTROL® PROAMATINE osmotic tablet technology which can facilitate Shire markets midodrine hydrochloride, as absorption of poorly soluble and soluble PROAMATINE in the US, AMATINE® in Canada compounds. These technologies can be applied and MIDON® in the Republic of Ireland, for the alone or in combination with SLI’s bioavailability treatment of symptomatic orthostatic hypotension, enhancement systems. The bioavailability which is due to a marked fall in blood pressure enhancement technologies include PROSCREEN®, on standing, causing dizziness, weakness and OPTISCREEN®, RAPITROL™ and EMUTROLTM. unconsciousness. In September 2003, the seven- year marketing exclusivity period in the US MICROTROL technology was applied to both expired and generic copies of the drug have CARBATROL, the twice-daily formulation since been launched. of carbamazepine and ADDERALL XR, the once-daily formulation of ADDERALL. Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio 21

Additional Shire portfolio: Development projects

Oncology/Haematology Projects available for partnering XAGRID Anti-infectives Anagrelide hydrochloride is being developed in SPD754 Europe (XAGRID) for the reduction of elevated Shire holds the worldwide rights to SPD754, platelet count in the chronic disorder essential a nucleoside analogue reverse transcriptase thrombocythaemia (ET). During 2003, a positive inhibitor (NRTI) that selectively blocks HIV-1 opinion was received from the Committee for replication. Granted fast track review status Proprietary Medicinal Products (CPMP), the by the FDA, it has demonstrated activity scientific committee of the European Medicines against HIV strains resistant to other nucleoside Evaluation Agency (EMEA). XAGRID has Orphan analogues, including AZT and 3TC. Resistance Drug designation in Europe and, upon marketing to SPD754 appears to develop slowly. Currently authorisation approval, is expected to receive in Phase II development, clinical studies to date up to 10 years marketing exclusivity in Europe. have shown it to display potent antiviral activity and to be well tolerated. As announced in July Vaccines 2003, Shire intends to seek a partner for SPD754. Shire intends to exit its vaccines business by A number of opportunities have been investigated the middle of 2004. The current portfolio includes and Shire aims to complete this process by the five projects ranging from Phase I to Phase III middle of 2004. of development. SPD756 (HIV) and SPD760 (Hepatitis C) are also now available for partnering.

Oncology/Haematology TROXATYL TROXATYL (troxacitabine) is a dioxolane nucleoside analogue in development for the treatment of pancreatic cancer and acute myelogenous leukaemia. Phase II is the highest development phase reached. In 2003, Shire announced that it is seeking to out-license TROXATYL. 22 Shire Pharmaceuticals Group plc CSR: Corporate social responsibility

CSR: Corporate social responsibility report

For Shire, CSR has always been inherent in Progress made in 2003 the way we run and manage our business day- During the course of 2003, Shire has engaged to-day. As a healthcare company, providing in continuous improvement of its management treatments that improve and prolong people’s practices, and has introduced structural changes lives, we have always taken our responsibility to as part of its strategic review. These have been society very seriously. This responsibility extends handled sensitively and with awareness of the to all areas of society which our business can social impact on the communities involved. affect: the communities in which we run our The day-to-day values adopted by the Company business, the supplier companies that we partner set standards for behaviour and are an active Shire prevents undue with, our employees, the doctors and physicians guide for all business managers and employees. environmental pollution through who prescribe our medicines and, of course, Shire rewards individuals who have especially its state of the art equipment the patients whose lives we directly impact as demonstrated how they have lived any one, in place at its manufacturing well as their care providers and support groups. or all, of the four values (dynamism, integrity, site in Owing Mills. Recognising that our shareholders and CSR caring and innovation). opinion leaders wish to know more detail about our CSR related activities, this year we are We have made progress against the objectives producing a standalone CSR report which that we set in 2003. Full details are in the will be available in printed and online versions. separate CSR report, however, these are some of the highlights: Development of Shire CSR Committee We believe that a good CSR reputation Strengthening our engagement with is a reflection of good management and stakeholders: sound business practices. Our CSR Committee, – We conducted an all employee survey which was established during the year, therefore during the year and gathered important and comprises line managers who represent the helpful information on how we are managing functions that have most direct influence on, their careers. and involvement with, our daily business – Relationship management is at the heart management. This has proved to be a most of the Shire marketing and selling model – Shire believes in partnering effective way of ensuring that the Company both during the year we proved the strength of with the NHS to help support reports on its CSR achievements and understands these relationships in the US with the resilience improved patient care and any challenging CSR risks that may arise. of ADDERALL XR’s performance, despite access to important therapies. the launch of a competitor product. Over 2002/3 Shire therefore The CSR Committee is led by Angus Russell, – During the year 2003, Matthew Emmens invested almost £500K to the Company’s Chief Financial Officer and Board the Chief Executive Officer, Angus Russell support localised improvement member. As part of his role he regularly reports the Chief Financial Officer and Cléa Rosenfeld plans in dementia service matters of relevance to the Executive Committee the Investor Relations Head met investors provision. The majority of this and to the Board and offers guidance, information face to face, at conferences and answered investment went into supporting and, where necessary, detailed briefings to Board a range of questions. In addition, Barry Price, the provision of 21 specialist members. The CSR Committee’s main the Company’s senior non-executive Director ‘DementiaLink Nurses’ around responsibilities are to: and Chairman of the Remuneration Committee, the country, who would work met and consulted with a range of major within a local service structure – facilitate an effective and cross-functional institutional shareholders. to help shape and develop that implementation of Shire’s CSR policy; service to improve patient care. – advise and inform the Board on business risks related to Social, Environmental and Ethical (SEE) matters; and – review and approve Shire’s CSR disclosures.

The understanding, assessment and reporting of SEE risks is embedded within the organisation’s overall framework of risk management and further details can be found in the full CSR Report under the heading ‘internal control’. Shire Pharmaceuticals Group plc CSR: Corporate social responsibility 23

This year we have made further progress with our approach and reporting of CSR

Setting up Group and site environmental and Looking forward health and safety objectives and targets This year, the Committee has set a number – Environmental health and safety objectives of CSR objectives for 2004 for each area of were made part of the Shire US Manufacturing impact: Workplace, Marketplace, Environment facility’s overall goals and inserted into each and Community. These objectives provide and every departmental goal, not only in 2003 the overall direction for Shire’s improvements but for every year forward. and measurement of CSR related progress. – An overall environmental health and safety These objectives are also embedded in the strategy encompassing regulatory, individual and respective functional areas as part of the site issues was developed and implemented. Company’s own emphasis on continuous The goal is zero reportable accidents and improvement. You will find details of these maintenance of total regulatory compliance. in our standalone CSR report. – Key performance indicators were developed and are currently published monthly to the site We are pleased with the progress made in CSR and management. this year but aware that there are still many ways – Additional personnel were hired in the in which we can improve further and we are environment health and safety group committed to doing so. and empowered. We welcome comments and suggestions on Shire has a policy of contributing Integrating CSR topics into the management our CSR approach as we are always looking to funds raised by employees of our contractors and suppliers at ways for continuous improvement and this in charity sponsored events. – A draft set of principles is under discussion year we have set up a dedicated email address Paula Anken was one of many for inclusion in all supplier contracts. to encourage this process: of the Company’s employees who participated in such events. Improving data gathering and reporting [email protected]. She ran the London Marathon in – Enhancement of the Group community 3hrs 49 mins and raised £2,400 and health and safety data gathering For copies of the full CSR report, please send for the Wessex Cancer Trust. and reporting processes. your name and address details to this email address, or contact us at the address listed Building up employee awareness and at the back of this document. commitment to CSR – Through the employee survey, we have been able to measure current levels of CSR awareness and have developed an action plan for 2004 to sustain and continuously improve it. In addition, CSR matters have featured in the Company induction scheme for new joiners, within the Company newsletter and In 2003 Shire waived its rights on the intranet. to royalties on the sale of 3TC, the world’s most widely used Improving Shire’s ranking in key CSR indices treatment for HIV in sub-Saharan – The Company continues to be a constituent Africa, as part of its agreement of the FTSE4Good index; took part for the with GlaxoSmithKline. second year in the Business in the Community Corporate Responsibility index; has had improved ratings awarded to it by Morley Fund Mangement and by PIRC and moved to fourth position in The Guardian newspaper’s Giving List index of top UK companies charitable contributions. 24 Shire Pharmaceuticals Group plc Financial review

For the year ended 31 December 2003, total revenues increased by 19% to $1,237.1 million

The following review should be read in conjunction ADDERALL with the Group’s consolidated financial statements Sales of ADDERALL for the year ended and related notes appearing elsewhere in this 31 December 2003 were $61.1 million (2002: annual report. $109.8 million). ADDERALL had a 2% share of the total US ADHD market in December 2003, Results of operations compared with 5% in December 2002. The fall The Group recorded net income of $276.1 million in market share was anticipated and is the result (2002: $250.6 million) and diluted earnings per of the switch of patients to either ADDERALL XR ordinary share of 54.2¢ (2002: 49.0¢). or generic alternatives.

Total revenues AGRYLIN For the year ended 31 December 2003, total Sales of AGRYLIN for the year ended revenues increased by 19% to $1,237.1 million, 31 December 2003 were $132.5 million, compared to $1,037.3 million in 2002. an increase of 11% compared to the prior year (2002: $119.2 million). AGRYLIN had Revenue is primarily derived from sales of a 27% share of the total US AGRYLIN, Hydrea pharmaceutical products and royalties earned and generic hydroxyurea prescription market on products out-licensed to third parties. For the in December 2003 (December 2002: 27%). year ended 31 December 2003, 83% of revenues were in respect of pharmaceutical product sales PENTASA (2002: 83%). Sales of PENTASA for the year ended 31 December 2003 were $99.3 million, (a) Product sales an increase of 14% compared to the prior For the year ended 31 December 2003, year (2002: $87.2 million). PENTASA had a the Group’s product sales increased by 20% 17% share of the total US oral mesalamine/ Angus Russell to $1,029.8 million, compared to $859.4 million olsalazine prescription market in December Chief Financial Officer in the prior year. 2003, compared with 18% in December 2002.

The following statements include references CARBATROL to prescription and market share data for key Sales of CARBATROL for the year ended products. The source of this data is IMS Health 31 December 2003 were $52.4 million, December 2003. IMS Health is a leading global an increase of 16% compared to the prior provider of business intelligence for the year (2002: $45.3 million). CARBATROL had pharmaceutical and healthcare industries. a 43% share of the total US extended release carbamazepine prescription market in December ADDERALL XR 2003, compared with 36% in December 2002. Sales of ADDERALL XR for the year ended 31 December 2003 were $474.5 million, an increase of 49% compared to the prior year (2002: $317.9 million). ADDERALL XR had a 23% share of the total US Attention Deficit Hyperactivity Disorder (ADHD) market in December 2003, compared with 18% in December 2002. Shire Pharmaceuticals Group plc Financial review 25

PROAMATINE Capital structure Sales of PROAMATINE for the year ended The Group has financed its operations since 31 December 2003 were $49.3 million, inception through private and public offerings a decrease of 3% compared to prior year of equity securities, the issuance of loan notes (2002: $50.9 million). At the end of the third and convertible notes, collaborative licensing quarter of 2003, sales of PROAMATINE were and development fees, product sales and subject to generic competition, which caused investment income. this reduction. PROAMATINE had a 15% share of the total US PROAMATINE and fludrocortisone The Group’s funding requirements depend on a acetate prescription market in December 2003, number of factors, including the Group’s product compared with 25% in December 2002. development programmes, business and product acquisitions, the level of resources required for the (b) Royalties expansion of marketing capabilities as the product Royalty revenue increased 16% to $203.6 million base expands, increased investment in trade for the year ended 31 December 2003, compared debtors and stock levels which may arise as sales to $174.8 million in 2002. levels increase, competitive and technological developments, the timing and cost of obtaining Shire receives royalties from GSK on worldwide required regulatory approvals for new products sales of 3TC and ZEFFIX. Other royalties are and the continuing revenues generated from primarily in respect of REMINYL, a product sales of key products. marketed worldwide by Johnson & Johnson (J&J), with the exception of the UK, where During the year the Company purchased and a commercialisation partnership with J&J subsequently cancelled 7,592,778 ordinary existed throughout 2003. shares for a total consideration of £31.8 million ($52.4 million), representing an average price Cost of sales and net operating expenses per share of £4.12 ($6.78). For the year ended 31 December 2003 cost of product sales amounted to 16% of product As of 31 December 2003, the Group had cash sales (2002: 16%). and marketable securities of $1,414.2 million (2002: $1,213.8 million), which consisted of Research and development expenditure increased immediately available money market fund 14% to $215.8 million in 2003, representing balances and investment grade securities. 17.5% of total revenues (2002: 18%). Shire’s Total long-term debt, excluding capital leases strategic priority is now the development of later as at 31 December 2003, was $370.7 million stage, lower risk products. As a result of this (2002: $401.0 million), of which $370.2 million focus Shire closed its early stage therapeutic (2002: $400.0 million) was in respect of research unit in Canada. guaranteed convertible notes. These convertible notes, due 2011, were issued to international Selling, general and administrative (SG&A) institutional investors and bear interest at a rate expenses increased from $332.2 million in 2002 of 2% per annum. to $376.9 million in 2003, an increase of 13% in contrast with product sales growth of 20% Investors have the right to require the issuer for the period. SG&A expenses were 37% to redeem the notes at par on 21 August 2004, of product sales (2002: 39%). 2006 or 2008. Subject to certain conditions, the convertible notes will be callable after 21 August The depreciation and amortisation charge for the 2004. See note 15(i) to the consolidated financial year ended 31 December 2003 was $86.7 million statements for further information. (2002: $55.2 million). Included within the 2003 charge are $27.5 million of intangible asset During the second quarter of 2003, Shire impairments and write-downs (2002: $18.8 repurchased $29.8 million of the $400 million million) and $16.7 million of tangible fixed asset 2% guaranteed convertible notes due 2011. write-downs (2002: $nil). 26 Shire Pharmaceuticals Group plc Financial review

Dividends Market risk of investments Reflecting the Group’s stage of development As at 31 December 2003, the Group had and cash generative profile, the Board intends $73.2 million (2002: $72.0 million) of investments to declare the payment of the Company’s first on its books comprising equity investment funds, interim dividend of one penny per share for private companies and public quoted companies. the six-months ending June 2004, with a view The public quoted companies are exposed to growing the dividend progressively. to market risk. No financial instruments or derivatives have been employed to hedge Treasury policies and financial risk this risk. management Shire’s principal treasury operations are managed Interest rate risk by the corporate treasury function based in Due to the proportion of fixed rate debt, the the UK. All treasury operations are conducted Group’s interest charge has limited exposure within a framework of policies and procedures to interest rate movements. approved by the Board. As a matter of policy, the Group does not undertake speculative Total debt, excluding capital leases, as of transactions that would increase currency 31 December 2003 was $371.8 million or interest rate exposure. The Board reviews (2002: $401.9 million). The main component and agrees policies for managing these risks was the $370.2 million (2002: $400.0 million) and they are summarised below. in guaranteed convertible notes due 2011.

Foreign currency risk The convertible notes bear interest of 2% per The Group is exposed to movements in foreign annum, payable semi-annually. This interest rate exchange rates against the US dollar for trading is fixed over the period of the debt, thus reducing transactions and the translation of net assets any cash flow risk associated with movements and earnings of non-US subsidiaries. The main in interest rates. trading currencies of the Group are the US dollar, the Canadian dollar, pounds sterling and the The interest rate risk that has been mitigated euro. The financial statements of foreign entities by obtaining a fixed rate debt is equivalent to a are translated using the accounting policies $3.7 million saving per 1% rise in interest rates described in note 2(j) to the consolidated per annum. Conversely, a fall in interest rates by financial statements. 1% would effectively cost the Group $3.7 million.

The Group reports its results in US dollars. In the year ended 31 December 2003, As the majority of the Group’s transactions are the average interest rate received on cash also denominated in US dollars, this reduces and liquid investments was approximately the impact of currency movements on the 1.18% per annum. The largest proportion of Group’s results. investments was in US dollar liquidity funds.

A small proportion of debt is denominated in non-US dollar currencies. As at 31 December 2003, a total of $1.5 million was outstanding (31 December 2002: $1.9 million) in respect of loans denominated in Canadian dollars.

The exposure to foreign exchange market risk is managed and monitored by the Group treasury function. The Group has not undertaken any foreign currency hedges through the use of forward foreign exchange contracts or foreign exchange derivatives during the year to 31 December 2003. Instead, exposures have been managed through natural hedging via the currency denomination of cash balances. Shire Pharmaceuticals Group plc Financial review 27

Taxation Capital expenditure For the year ended 31 December 2003, the Expenditure on intangible fixed assets of income tax charge increased by $19.0 million $47.0 million comprised various product to $107.4 million. acquisitions including the worldwide sales and marketing rights to METHYPATCH for A reconciliation of the current tax charge for $25.0 million. 2003, to the loss before tax for the year at the statutory tax rate of 30%, is given in note 25 Capital expenditure on tangible fixed assets to the consolidated financial statements. in the year ended 31 December 2003 was $52.2 million. This expenditure included the Cash flows purchase of a new office building for Shire’s UK As of 31 December 2003 cash and marketable based R&D operations, further upgrades to the securities totalled $1,414.2 million, an increase US manufacturing facility and a new enterprise of $200.4 million from $1,213.8 million at resource planning system (SAP). 31 December 2002. Marketable securities consisted of money market fund balances and investment grade securities.

For the year ended 31 December 2003 net cash provided by operating activities amounted to $355.3 million compared to $345.1 million in 2002.

During the year ended 31 December 2003, cash generated from operations was used primarily to fund the Group’s tax payments, capital expenditures including the purchase of intangible and tangible fixed assets, repayment of debt and a share buy-back programme. 28 Shire Pharmaceuticals Group plc Board of Directors

The Board of Directors

1. 2. 3. 4.

1. Dr James Cavanaugh (67) venture between Merck and Astra AB 4. Dr Wilson Totten (48) Chairman and non-executive Director of Sweden. He later became President Chief Scientific Officer Joined the Board of Shire on 24 March and Chief Executive Officer. In 1999 he Joined Shire on 17 January 1998 1997 and was appointed as non-executive joined Merck KGaA and established EMD as Group Research and Development Chairman with effect from 11 May 1999. Pharmaceuticals, the Company’s US Director. Dr Totten is a medical doctor and Dr Cavanaugh is President of HealthCare prescription pharmaceutical business and has wide experience in the pharmaceutical Ventures LLC. Formerly he was President was later promoted to President of the industry covering all phases of drug of SmithKline & French Laboratories, the global prescription business and moved development. He has substantial US pharmaceutical division of SmithKline to Germany to run the prescription division experience in the field of worldwide drug Beecham Corporation. Prior to that, of that company. Mr Emmens is a graduate development. He was Vice President of he was President of SmithKline Beecham of Fairleigh Dickenson University (New Clinical R&D with Astra Charnwood from Corporation’s clinical laboratory business Jersey, US) with a BS in Business 1995 to 1997, having previously worked and, before that, President of Allergan Management. Mr Emmens is the Chairman for Fisons Pharmaceuticals from 1989 International. Prior to his industry of the Executive Committee and Portfolio to 1995, and prior to that with 3M Health experience, Dr Cavanaugh served as Review Committee. Care and Eli Lilly. Dr Totten is a member Deputy Assistant to the President of the of the Executive Committee and the US for Health Affairs on the White House 3. Mr Angus Russell (48) Portfolio Review Committee. Staff in Washington, DC. He is non- Chief Financial Officer executive Chairman of Diversa Corporation Joined Shire in 1999 as Group Finance 5. Dr Barry Price (60) and Vicuron, Inc. and a non-executive Director. Mr Russell previously worked for Senior non-executive Director Director of MedImmune Inc. and Advancis ICI, Zeneca and AstraZeneca. His last Joined the Board of Shire on 16 January Pharmaceutical Corporation. Dr Cavanaugh position was Vice President – Corporate 1996 having spent 28 years with Glaxo was a member of the Remuneration Finance at AstraZeneca plc. Prior to this, holding a succession of executive positions Committee and the Audit Committee he held a number of positions within the with Glaxo Group Research. He is and Chairman of the Nomination Zeneca Group from 1993 until 1999, Chairman of Antisoma plc and Biowisdom Committee in 2003. including Group Treasurer, and before that Ltd. He is also on the Board of Directors in ICI from 1980 until 1992. Mr Russell is of Pharmagene plc. Dr Price was Chairman 2. Mr Matthew Emmens (52) a Chartered Accountant, having qualified of the Remuneration Committee and Chief Executive Officer with Coopers & Lybrand, and is a fellow a member of both the Audit Committee Joined Shire as Chief Executive Officer of the Association of Corporate Treasurers. and the Nomination Committee in 2003. and member of the Board of Shire on Mr Russell is a member of the Executive 12 March 2003. Mr Emmens began his Committee. He is also a non-executive career in international pharmaceuticals Director of the City of London Investment with Merck & Co, Inc. in 1974. He held Trust plc. a wide range of sales, marketing and administrative positions before volunteering to help establish Astra Merck, the joint Shire Pharmaceuticals Group plc Board of Directors 29

5. 6. 7. 8.

6. The Hon James Andrews Grant (66) Mr Nordmann received his undergraduate Ex-Board Members Non-executive Director degree from The Johns Hopkins University Mr Rolf Stahel – Former Chief Executive Joined Shire in March 1994 as Chief Executive Joined the Board of Shire on 11 May 2001 and a MBA from Fairleigh Dickinson from Wellcome plc where he worked for 27 years as a non-executive Director. Prior to its University. Mr Nordmann is also a Director in Switzerland, Italy, Thailand, Singapore and the merger with Shire, Mr Grant had been of Guilford Pharmaceuticals Inc., Neurochem UK. As Regional Director of Wellcome based in a Director of BioChem Pharma Inc. since Inc. and Pharmaceutical Resources Inc. Singapore, Mr Stahel was responsible for 18 Pacific Rim countries. From April 1990 until February 1994, 1986. He is a partner with the law firm Mr Nordmann was Chairman of the Audit he served as Director of Group Marketing reporting Stikeman Elliot in Montreal. Mr Grant sits Committee and a member of the to the Chief Executive. A Business Studies graduate on the Boards of two Canadian public Nomination Committee in 2003. of KSL Lucerne, Switzerland, he attended the 97th corporations, in addition to other private Advanced Managers Programme at Harvard Business School. On 15 March 2001 Mr Stahel received the corporations and foundations and councils 8. Mr Robin Buchanan (51) Chief Executive Officer of the Year Award 2001 for that are not for profit organisations. Non-executive Director the global pharmaceutical industry. Mr Stahel stepped He attended McGill University receiving Joined the Board of Shire on 30 July 2003. down as Chief Executive on 12 March 2003 and as a BA in Arts in 1958 and a BCL in Law He is the Senior Partner of the London office a Director of the Company on 19 March 2003. in 1961. Mr Grant was a member of the of business consultants Bain & Company Dr Francesco Bellini – non-executive Director Nomination Committee in 2003. and a member of the firm’s worldwide Joined the Board of Shire on 11 May 2001 as a management committee. Prior to his career non-executive Director. Dr Bellini is Chairman of 7. Mr Ronald Nordmann (62) with Bain & Company, Mr Buchanan Picchio International Inc. and Neurochem Inc. and also on the Board of several companies and Non-executive Director worked for American Express International organisations such as Molson Inc. and Industrial- Joined the Board of Shire on 23 December Banking Corporation in New York, Alliance Life Insurance Co. Formerly, he was 1999 having previously served as a non- McKinsey & Company and Deloitte & Chairman and CEO of BioChem Pharma which executive Director of Roberts Pharmaceutical Touche where he qualified as a Chartered he co-founded in 1986. He stepped down as a Corporation since May 1999. Mr Nordmann Accountant. Mr Buchanan currently serves Director of the Company in May 2003. has been a financial analyst in healthcare as a non-executive Director of Liberty Mr Gérard Veilleux – non-executive Director equities since 1971. From September 1994 International plc. Mr Buchanan has an Joined the Board of Shire on 11 May 2001 as a to January 2000 he was an analyst and MBA with Distinction (Baker Scholar) from non-executive Director. He was formerly a Director of BioChem since 1999. He is President of Power partner at Deerfield Management. He is Harvard Business School. Mr Buchanan Communications Inc. and Vice President of Power currently Co-President of Global Health was a member of the Remuneration Corporation, a diversified management and holding Associates and has held senior positions Committee in 2003. company. Mr Veilleux is a Director of several public with PaineWebber, Oppenheimer & Co., and private companies as well as a member of the Board of Governors at McGill University. He has F Eberstadt & Co., and Warner-Chilcott a Masters Degree in Public Administration from Laboratories, a division of Warner-Lambert. Carleton University and a Bachelor of Commerce from Laval University. Mr Veilleux was a member of the Remuneration Committee. He stepped down as a Director of the Company in May 2003. 30 Shire Pharmaceuticals Group plc The Executive Committee

The Executive Committee

4. 5. 6. 7.

1. Mr Matthew Emmens (52) 6. Mr Greg Flexter 7. Mr Joseph Rus Chief Executive Officer Executive Vice President and General Executive Vice President and General Biography on page 28. Manager, North America Manager, International Greg joined Shire in April 2001, as Senior Joseph joined Shire in 1999 as President 2. Mr Angus Russell (48) Vice President Marketing, Shire US, of Shire Canada following more than Chief Financial Officer bringing over 22 years of experience 25 years experience with other leading Biography on page 28. in global and domestic marketing, business international pharmaceutical companies development and R&D. Prior to joining both in Canada and abroad. With the 3. Dr Wilson Totten (48) Shire, Greg was Vice President and Head merger of Shire Pharmaceuticals and Chief Scientific Officer of the Neuroscience Business Unit for BioChem Pharma in May 2001, he was Biography on page 28. Novartis Pharmaceuticals, with accountability appointed President and CEO of Shire for US Marketing, Sales and Medical BioChem Inc. 4. Mr Jeff Devlin Research. He began his career in the Executive Vice President of Corporate industry with Marion Laboratories in clinical In 1972 Joseph began his career in sales Strategy & Integration research management, transitioning to with Warner Lambert Canada and rose Joined Shire in January 2000 as Director a leadership role in New Product Marketing. rapidly to managerial positions in various of Corporate Affairs. Prior to joining Shire In 1991 he served as Product Group departments. Joseph was Vice President he was a partner at Ernst & Young and Director, Global Commercial Development of the Canadian Pharmaceutical Division also a member of its Global Executive for Marion Merrell Dow and subsequently of Hoffmann-La Roche Ltd between 1994 Steering Group for Life Sciences. was promoted to Vice President, Global and 1998. He was previously with Arthur D Little, Marketing and Medical Research with Management Consultancy, where he Hoechst Marion Roussel. Greg is Educated in Romania and a graduate of the was a European Director in its Healthcare a pharmacist. Executive Marketing Management Program and Pharmaceuticals practice. of the University of Western Ontario as well as the International Program at the Institute 5. Ms Tatjana May of Management and Development of the General Counsel and Executive Vice University of Lausanne, Joseph is multi- President of Global Legal Affairs lingual, speaking English, Romanian and Tatjana joined Shire in May 2001 from Hungarian with a knowledge of Italian, AstraZeneca Plc (formerly Zeneca Group) French and German. where she occupied the position of Assistant General Counsel in Corporate Headquarters. Prior to joining AstraZeneca Tatjana worked at Slaughter and May. Shire Pharmaceuticals Group plc The Executive Committee 31

8. 9. 10. 11. 12.

8. Mrs Anita Graham John has held multi-plant responsibilities 11. Mr Richard de Souza Executive Vice President of and led the Worldwide Manufacturing Director International Human Resources Functional Excellence Program while Joined Shire in September 2000 as Anita joined Shire in January 2004 at Schwarz Pharma. The Shire US Director International. Prior to this he as Executive Vice President of Human Manufacturing facility is the seventh worked as President, Pharmaceuticals Resources. Anita has 10 years global HR pharmaceutical plant for which John Europe and Asia in Warner Lambert/Parke- experience spanning the management of has been responsible. Davis. He was previously with SmithKline mergers and acquisitions, organisational Beecham for 22 years, where he was development, employee relations and John is certified by the American Production Chairman, Pharmaceuticals Europe. compensation and benefits. Prior to joining and Inventory Control Society in Production the Shire team Anita led the global Human and Inventory Management and has taught 12. Mr Mark Webster Resources function for Cytyc Corporation. core elements of Supply Chain Management Commercial Director Additionally, Anita held senior HR positions within the APICS organisation Responsible for Global Business with Serono, Inc. and Scudder Kemper Development, Mergers & Acquisitions Investments, Inc. 10. Mr Jack Khattar and Strategic Marketing. He has worked President and Chief Executive, SLI in the pharmaceutical industry for 20 years Anita has worked both in Europe and in Joined Shire as President and CEO in a number of general management and the US. She is an MBA graduate and was of Shire Laboratories Inc. in May 1999. senior sales and marketing roles in the UK, educated both at the New York University Jack came to Shire from CIMA, a drug Canada and the US. Mark worked for and Cornell University, New York. delivery company, where he had last Abbott Laboratories for 13 years, where served as Executive Officer and the immediately before joining Shire he held 9. Mr John Lee Chairman of the Operative Management the post of Vice-President and General Executive Vice President Global Supply Committee. Jack held several marketing Manager Anti-Virals, Abbott Labs USA. Chain & Quality and business development positions at He has a BSc (Hons) in Chemistry from John joined Shire in April 2000 as Senior Merck & Co., Novartis, Playtex and Kodak Durham University. Vice President, Operations having 31 years in the US, Europe and the Middle East. experience in the Pharmaceutical Industry. In 1985, he received his MBA from the Ex-Executive Committee member Mr Bill Nuerge – President and Chief Executive, John has previously held supply chain Wharton School of the University of Shire US Inc. responsibilities as Vice President, Pennsylvania. Joined Shire US in 1994 as chief Operating Officer. Operations for Schwarz Pharma, Central Bill has over 25 years experience within the industry Pharmaceuticals, The Vitarine Company and has held several senior pharmaceutical positions. Bill holds a Bachelor of Science degree from Purdue (now Eon) and Glenwood Laboratories. University and a MBA from Indiana Wesleyan University. He stepped down in March 2004. 32 Shire Pharmaceuticals Group plc Directors’ remuneration report

Dear Shareholder This Report sets out the Board’s approach to Directors’ During the year ended 31 December 2003 the Remuneration remuneration. It complies with: Committee continued its work on behalf of the Board on Directors’ remuneration. Following a process of consultation with some of – the 1998 Combined Code’s Principles of Good Governance; our major shareholders the Committee has made some changes – the Directors’ Remuneration Report Regulations 2002; and to its remuneration policy. Among these changes are: – the requirements of the Listing Rules of the Financial Services Authority. – the introduction of new employment contracts for its executive Directors which reduce the two-year termination provisions The Board has taken steps to ensure that it complies during 2004 following a change in control to one year; and with the new Combined Code published in 2003. – reducing to one the number of opportunities for re-testing the performance conditions attached to the vesting of options. Unaudited Information The Remuneration Committee The Company operates in a highly-competitive multi-national The Remuneration Committee is responsible for all elements environment. In 2003 approximately 90% of Shire’s revenues of the executive Directors’ remuneration, as well as their and 80% of its employees were based outside the UK. Indeed, performance management. most of Shire’s revenues come from the US. The Committee has never espoused a US pay policy but it does need to take this The Company considers all members of the Committee operating environment into account. To give you a perspective on to be independent, although the constitution of the Committee the complexities we face, Matthew Emmens, who was appointed will be reviewed in light of the new Combined Code in 2004. Chief Executive Officer in March 2003, is American. Although his The Chief Executive Officer attends meetings of the Committee principal base with Shire is in the US and his home is in the US, at its invitation, but is not involved in any discussions on his his remuneration is benchmarked against the UK market. own remuneration.

The Remuneration Committee is committed to a continuing The members of the Remuneration Committee during 2003 were: dialogue with shareholders and we strive to accommodate your views. I hope that this report and our conversations provide – Dr Barry Price, who is the Senior Independent Director of the helpful context and explanation about the policies and practical Company and Chairman of the Committee; considerations that influence our decisions. – Dr James Cavanaugh, who is Chairman of the Company; – Mr Robin Buchanan, who joined the Board and the Committee In 2004, we will continue our work on remuneration policy. in July 2003 as an independent non-executive Director; and The Board will also review the Committee’s constitution to ensure – Mr Gérard Veilleux, who stepped down as a Board and all members of the Committee are deemed to be independent Committee member in May 2003. as defined by the new Combined Code. The Remuneration Committee was materially assisted in 2003 by Mr Christian Proulx, Senior VP Global Human Resources, Mr Jeff Devlin, Director of Corporate Affairs and Ms Tatjana May, General Counsel. The following external advisers were appointed by, and materially assisted, the Committee:

– Towers Perrin, who also provided benefits advice in the UK and US; – Slaughter and May, who provided general legal advice; and – Deloitte & Touche LLP, the Company’s auditors, who provided Dr Barry Price advice in relation to the Company’s Long Term Incentive Plan Chairman of the Remuneration Committee and some aspects of Mr Stahel’s departure arrangements. Shire Pharmaceuticals Group plc Directors’ remuneration report 33

Remuneration policy 2. Annual Incentive Plan The Remuneration Committee considers that an effective Shire operates an Annual Incentive Plan which rewards remuneration policy is an important contributor to the Company’s performance. The plan is also designed to encourage executives success. It directly impacts the Company’s ability to attract, retain to meet ‘stretch’ performance objectives at both the Group and motivate high-calibre executives who embody the Company’s and the personal level. values and deliver value to shareholders. The Remuneration Committee sets individual executive Director The Remuneration Committee is responsible for developing, performance objectives as well as the Group objectives at the reviewing and implementing the Company’s compensation start of each financial year to ensure they are aligned. The Group and benefits policy. The current policy is intended to be objectives apply to all employees participating in the Company’s durable and its effectiveness is regularly monitored by the Annual Incentive Plan. Each objective, whether Group or personal, Remuneration Committee. is weighted and is described in specific terms with allocated deadlines. The 2003 Group performance objectives included: The policy is based on the following principles: – growth in revenue; – Compensation is market-driven and benchmarked against – growth in net income; the FTSE 100, despite the fact that the majority of employees, – progression of R&D portfolio; and including the Chief Executive Officer, are US-based. – operational objectives. – The annual incentive plan is performance-related and is linked to the achievement of an appropriate mix of Group and The Remuneration Committee assesses performance against individual performance targets. The Committee currently aims objectives in the first quarter of the following year. The annual for the performance-related elements of executive Director bonus is payable in cash and is not pensionable. Target bonus compensation to represent over half of total remuneration. is paid where executive Directors have fully achieved their – Share-based compensation is a key element of the Company’s personal objectives and the Group objectives have been met remuneration policy as it aligns the interests of the Company’s in full. Maximum bonus is paid only if the Remuneration executives with the interests of its shareholders. Committee determines that personal and/or Group performance – Compensation and benefits arrangements are clear and has been exceptional. Maximum bonus payments are capped well understood. at 100% of salary for the Chief Executive Officer and 75% of salary for other executive Directors. Details of the bonus structure The remuneration package and the relative weighting of objectives between Group and The main elements of the remuneration package for executive personal objectives are shown in the table below. The levels Directors and senior management are: of target and maximum bonuses have been set in line with the competitive market in the UK. 1. Salary; Maximum 2. Annual Incentive Plan; Target bonus bonus Weighting of target 3. Share Options; (as a % of (as a % of bonus objectives 4. Long Term Incentive Plan; salary) salary) Group Personal 5. Deferred Bonus Plan; and Mr Matthew Emmens 55% 100% 80% 20% 6. Pension and other benefits. Chief Executive Officer

1. Salary Mr Angus Russell 50% 75% 60% 40% Chief Financial Officer The Remuneration Committee reviews salaries annually. In doing so, it looks at a range of factors such as competitive Dr Wilson Totten 50% 75% 60% 40% market data provided by independent external consultants, Chief Scientific Officer local market conditions, performance-related pay increases across the Company and individual skills and performance. The bonus awarded to the executive Directors for 2003 reflects The Remuneration Committee’s policy is for salary to be set at the Group and personal achievements and amounted to 53% the median of the appropriate comparator group unless individual of salary for Mr Emmens, 50.5% of salary for Mr Russell and performance and/or skills shortages require a different approach. 47.9% of salary for Dr Totten. 34 Shire Pharmaceuticals Group plc Directors’ remuneration report

3. Share Options The Committee is of the view that re-testing should be retained Executive Directors are eligible to participate in the Company’s on this limited basis in order to maintain the Scheme’s 2000 Executive Share Option Scheme. Share options, which form international competitiveness. In particular, the Committee part of the executive Directors’ long-term compensation, are used is conscious of the fact that performance tests are not attached to align Directors’ interests with those of shareholders and to to the vesting of options in many markets and that, in the US, promote sustained long-term company performance. phased vesting of options is also common.

The grant of options to executive Directors is wholly at the The Committee is aware that some shareholders oppose even discretion of the Remuneration Committee. In granting share limited re-testing and, as with all remuneration policy matters, options, the Committee takes into account the advice and will therefore keep this aspect of policy under review. recommendations of the Chief Executive Officer. The face value of options granted under the Scheme is normally capped at three Any new option scheme established in the future will not contain times salary per year for executive Directors and senior managers. a re-testing feature. This annual grant level is competitive in the UK market and is consistent with the emphasis the Company places on share-based The table below sets out the share options that were granted remuneration for its executives. In exceptional circumstances, to executive Directors during 2003. such as on the appointment of the new Chief Executive Officer, Number of Matthew Emmens, this grant level has been exceeded. Executive Director and ordinary Exercise share option scheme Date of grant shares Price £ The current performance measure for the vesting of options was Mr Matthew Emmens introduced in 2002 following consultation with major institutional 2000 Executive Scheme 18.03.03 945,010 3.6825 shareholders. The performance tests for executive Directors’ Stock Purchase Plan 22.08.03 2,098 4.0900 options were toughened following this consultation process. Dr Wilson Totten The performance tests are based on real growth in diluted earnings 2000 Executive Scheme 04.03.03 301,775 3.3800 per share (EPS) as measured by ‘diluted EPS’ and as reported in the Company’s Form 10-K under US GAAP. This measure Mr Angus Russell is favoured by the Remuneration Committee because it is transparent 2000 Executive Scheme 04.03.03 284,024 3.3800 and a highly relevant indicator of financial performance. A grant of share options to Matthew Emmens was made on The minimum performance test attaching to the exercise of share his appointment as Chief Executive Officer. By UK standards options for executive Directors is higher than for other employees. it is substantial, but it is considerably lower than he could have No options vest unless Shire’s EPS meets the minimum growth expected on an annual basis in the US where options are typically threshold set at 15% in excess of the Retail Price Index (RPI) granted with no performance tests. For all his options to vest, (or 5% on average a year) in the three years following the date Shire’s EPS will need to increase by an average of 9% a year of grant. In the case of an annual grant of options worth three in excess of RPI. times salary, Shire’s EPS must grow by 21% in excess of RPI (or on average 7% a year) in the three years following the date Details of the Company’s share option schemes are set out of grant for all the options to vest. below and in note 27 to the consolidated financial statements. Performance conditions attaching to previous executive option Grant % of salary Three-year EPS growth grants are detailed on page 41 in the audited section of this Report. Up to 100% Retail Price Index (RPI) plus 15% (for executive Directors) Share options under the Stock Purchase Plan (see note (vi) (for all other employees it is RPI plus 9%) on page 41) are offered at a discount as permitted by paragraph 101% to 200% RPI plus 15% 13.31 of the Listing Rules. Shares granted under the Stock Purchase Plan are not performance-related. 201% to 300% RPI plus 21% Over 301% RPI plus 27% 4. Long Term Incentive Plan The Long Term Incentive Plan (the Plan) was adopted at the The 2000 Executive Share Option Scheme, which was approved Company’s 1998 Annual General Meeting and amended in 2000. by shareholders in 2000, contains an unlimited re-testing feature Under the Plan, the Remuneration Committee has discretion to from the date of grant. The Remuneration Committee, after make awards of shares subject to a maximum of 100% of salary consultation with some of its major institutional shareholders a year. Awards are made to executive Directors and senior in 2003, has decided that, for options granted under the scheme managers. from 2004 onwards, the performance condition should be re- tested once only, at five years after the grant. The re-test will be The performance condition attached to the vesting of the applied only where Shire’s EPS growth has not met the EPS test share awards made under the Plan is Shire’s Total Shareholder described above. The annual average growth required over the Return (TSR) relative to the FTSE 100 index over a three-year first three years must be achieved over the extended performance period. The Remuneration Committee considers this to be period. Hence the level of EPS growth in the next two years needs an appropriate measure given that Shire is a member of the to be consequentially higher to meet the test. FTSE 100 and the same comparator group is used for remuneration benchmarking purposes. Shire Pharmaceuticals Group plc Directors’ remuneration report 35

Under the Plan: 6. Pension and other benefits The Company’s policy is to ensure that pension benefits – all shares vest if Shire’s TSR is in the top 10% of the FTSE 100; are competitive in the markets in which Shire operates. – 20% of the shares vest if Shire’s TSR is at the median of the Shire contributes 30% of the Chief Executive Officer’s annual FTSE 100, with vesting between these points on a linear salary to a SERP and 401 (K) Plan in the US. In the UK, Shire basis; and operates a defined contribution scheme. The Company contributes – no shares vest if Shire’s TSR is below the median of the 25% of salary for the Chief Financial Officer and Group R&D FTSE 100. Director to pension benefits. These rates are in line with market practice for FTSE 100 companies. The implications of the The Remuneration Committee determines whether and to what forthcoming pension tax reforms will be considered during extent the performance condition has been met on the basis of the course of the year. data provided by an independent third party. To date, all awards made under the Plan have been made as a ‘conditional allocation’, In addition to salary, the executive Directors receive certain thereby allowing, at the Remuneration Committee’s discretion, benefits in kind, principally a car or car allowance, life insurance, for a cash equivalent to be paid on maturity of the award. Whilst private medical insurance and dental cover. These benefits are the performance period is measured over three years, an award not pensionable. is normally transferred after the fourth anniversary of grant to the extent the performance condition has been met. Service Contracts The Committee has made some policy changes to its executive Directors were granted awards under the Plan in 2003 as Director contracts of employment following consultation with some a ‘conditional allocation’, (as defined in the Plan), as follows: of the Company’s major shareholders in 2003. New contracts for the Company’s executive Directors have been prepared and Earliest date Value of Total on which an contain the following changes: conditional number of award can be Date of award at ordinary transferred to – a reduction in the amount payable in the event of termination award grant date shares a Director of employment within 12-months of a change of control. Mr Matthew Emmens 20.03.03 £290,000 80,960 21.03.07 The amount payable is reduced from two years’ to one year’s salary and the cash equivalent of one year’s pension, car and Dr Wilson Totten 20.03.03 £170,000 47,459 21.03.07 other contractual benefits. Any bonus payable is at the discretion Mr Angus Russell 20.03.03 £160,000 44,667 21.03.07 of the Remuneration Committee and is capped at the contractual maximum bonus; and 5. Deferred Bonus Plan – the amount of bonus payable upon termination of employment Following consultation with some of its major shareholders and in other circumstances, other than for cause, is at the discretion the subsequent revision of the design of the Plan, the Company of the Remuneration Committee and is capped at the asked shareholders in 2003 to approve a Deferred Bonus Plan contractual target bonus. in which executive Directors can participate. This Plan provides for participants to use up to 50% of their annual bonus to buy The Remuneration Committee’s policy continues to be that shares in the Company. The Company will match any shares executive Directors’ service contracts should be for a rolling term bought, but the matched shares will vest for executive Directors and, for UK contracts, incorporate notice periods of 12-months. only if the Company’s EPS grows by more than 15% in excess The Committee also believes that the Company should retain of RPI over a three-year period (9% in excess of RPI for other the right to make a payment in lieu of notice to a Director. employees). Diluted EPS was chosen since it is consistent with The obligations on the executive Directors in respect of intellectual the minimum performance test that applies to the vesting of property remain in place together with the post-termination options – see above. restrictions. The Committee’s view is that in the event of early termination executive Directors should be treated fairly but paid The Remuneration Committee believes that this Plan will no more than is necessary. Moreover, there should be no element deliver value to shareholders by encouraging executive share of reward for failure. ownership. The Committee is committed to aligning executive and shareholder interests and is considering the introduction The executive Directors’ contracts of employment, which were of a shareholding policy. revised to reflect the changes noted above, are dated 10 March 2004 in the case of each of Mr Russell and Dr Totten and 12 March 2004 in the case of Mr Emmens. The contract for Mr Stahel, the previous Chief Executive Officer, was dated 28 February 2003. Mr Russell’s and Dr Totten’s contracts require them to give the Company 12-months’ notice and expire on them reaching 65. Mr Emmens’ contract requires him to give the Company six-months’ notice and no age is specified for retirement. The Company is required to give Mr Russell and Dr Totten 12-months’ notice of termination, other than if termination is for cause, whereas it is not obliged to give Mr Emmens any notice. 36 Shire Pharmaceuticals Group plc Directors’ remuneration report

Non-executive Directors and the Chairman Performance graph Each non-executive Director is paid a fee for serving as a Director The graph below sets out the Total Shareholder Return (TSR) for and additional fees are paid for membership or Chairmanship the five years ending 31 December 2003. The graph compares of the Audit, Remuneration and/or Nomination Committee. the performance of a holding of the Company’s shares with that The Chairman of the Company receives a separate fee. Fees are of a holding of shares in the FTSE UK Pharma and Biotech Index determined by the Board and are benchmarked against non- over the relevant period, calculated in accordance with the executive Director fees of comparable companies. Details of fees Directors’ Remuneration Report Regulations 2002. The FTSE paid to the Chairman and non-executive Directors in 2003 are set UK Pharma and Biotech Index has been selected to show out in the table on page 37. shareholders how Shire’s TSR has performed relative to other companies in its sector over a five year period. The fees paid to non-executive Directors are not performance- related. Non-executive Directors do not participate in any of the Five Year Historical TSR Performance Change in the Value Company share schemes or other employee benefit schemes and of a Hypothetical £100 Holding Over Five Years. FTSE UK no options have been granted to non-executive Directors in their Pharma and Biotech Index Comparison Based on Spot Values. capacity as non-executive Directors of Shire. Neither the Chairman nor the non-executive Directors are eligible to join the Company’s £400 pension scheme. £350 The Hon James Grant holds share options relating to his service with Shire BioChem, which merged with Shire. The grant of these £300 options was made on the same terms as applied to other employees, at the time, including that these options are not £250 subject to any performance conditions. £200 The Chairman and the non-executive Directors have letters of appointment detailing their specific terms of engagement which, £150 other than for Dr Price, are for a two-year term which may be renewed. Dr Price’s re-appointment in January 2004 is for a one- £100 year term which may be renewed. Details of the unexpired terms of the letters of appointment and notice periods are as follows: £50

Date of Date of Notice Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Director appointment term expiry period Dr James Cavanaugh 24.03.03 23.03.05 3 months Shire Pharmaceuticals Group PLC FTSE UK Pharma and Biotech Index Dr Barry Price 25.01.04 24.01.05 3 months The Hon James Grant 11.05.03 10.05.05 3 months Termination payments Mr Rolf Stahel stepped down as Chief Executive Officer Mr Ronald Nordmann 23.12.03 22.12.05 3 months of the Company in March 2003. As was disclosed in the 2002 Mr Robin Buchanan 30.07.03 29.07.05 3 months Remuneration Report, the Board decided to pay Mr Stahel in accordance with the payment in lieu of notice provisions in his Related party transactions contract of employment. The compensation for loss of office Details of transactions relating to Mr John Spitznagel, a former payment, equating to his contractual entitlement, amounted non-executive Director who entered into a consultancy agreement to £1,335,169. In the view of the Remuneration Committee with the Company, and The Hon James Grant, who is a partner and the Board this payment was justified given that Mr Stahel’s of a Canadian law firm with which the Company incurred contract was terminated, not for any failure on his part, but rather professional fees during the year, are given in note 19 to the because the Board had reached the view that shareholders would consolidated financial statements. benefit from the appointment of a successor who could lead the Company to its next stage of development.

Details of Mr Stahel’s options, LTIP awards, emoluments for 2003 and pension contributions are set out in the next part of this report, under Audited Information.

Other remuneration Mr Russell was appointed as a non-executive Director of The City of London Investment Trust plc (and its associated companies, The City of London European Trust Limited, The City of London Investments Limited and The City of London Finance Company Limited) during 2003. In this capacity, he was paid £16,000. Mr Russell will retain this remuneration. Shire Pharmaceuticals Group plc Directors’ remuneration report 37

Audited information Aggregate Directors’ Remuneration The total amounts for Directors’ remuneration were as follows:

2003 2002 £’000 £’000 Emoluments 2,256 2,300 Money purchase pension contributions 4,676 383 Gains on exercise of share options 114 2,962 Amounts receivable under long-term incentive schemes 276 – Compensation for loss of office 1,335 – 8,657 5,645

Directors’ emoluments

Cash Non-cash benefits benefits Total Total Salary Bonuses Fees in kind in kind 2003 2002 Director £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Mr Matthew Emmens (ii) (i) 446 235 – 14 4 699 – Mr Angus Russell 320 162 – 10 7 499 444 Dr Wilson Totten 340 163 – 11 17 531 481 Mr Rolf Stahel (iii) 154 124 – – 33 311 1,144 1,260 684 – 35 61 2,040 2,069

Non-executive Dr James Cavanaugh – – 54 – – 54 45 Dr Barry Price – – 43 – – 43 37 The Hon James Grant – – 35 – – 35 30 Mr Ronald Nordmann – – 45 – – 45 34 Mr Robin Buchanan (iv) – – 16 – – 16 – Dr Francesco Bellini (v) – – 11 – – 11 30 Mr Gérard Veilleux (v) – – 12 – – 12 32 The late Dr Bernard Canavan – – – – – – 23 – – 216 – – 216 231 Total 1,260 684 216 35 61 2,256 2,300

(i) Paid in US$, Mr Emmens’ annual salary in 2003 was $935,018 (ii) Appointed 12 March 2003 (iii) Stepped down on 19 March 2003 (iv) Appointed 30 July 2003 (v) Stepped down on 10 May 2003

The Remuneration Committee and the Board awarded Mr Stahel the maximum pro rated bonus for the part of 2003 he worked prior to his departure in March 2003.

Cash benefits in kind represent expense allowances (including dental costs) and non-cash benefits represent emoluments. Non-cash benefits in kind consist of a car and private medical insurance.

Details of exercise of share options are disclosed on page 39. Non-executive Director remuneration is to/from the date of resignation/appointment. 38 Shire Pharmaceuticals Group plc Directors’ remuneration report

Directors’ pension entitlements Directors’ shareholdings* The following Directors are members of money purchase schemes. Directors who held office at the end of the year had interests Contributions paid by the Company in respect of 2003 were in the share capital of the Company as follows: as follows: 31 December, 31 December, 2003 2002 Notes 2003 2002 Name of Director £’000 £’000 Dr James Cavanaugh (i) 8,806,368 8,806,368 Mr Matthew Emmens 138 – Mr Matthew Emmens – – Mr Angus Russell 80 56 Mr Angus Russell – – Dr Wilson Totten 85 46 Dr Wilson Totten 6,061 6,061 Mr Rolf Stahel 4,347 216 Dr Barry Price 31,350 31,350 (stepped down on 19 March 2003) The Hon James Grant (ii) 4,551 4,551 Dr Francesco Bellini 26 65 Mr Ronald Nordmann 46,968 46,968 (stepped down on 10 May 2003) Mr Robin Buchanan – – 4,676 383 *All interests are beneficial unless otherwise stated. The 2002 Remuneration Report disclosed that the Remuneration Committee and the Board decided, in recognition of Mr Stahel’s Notes exceptional services to the Company over the nine years of his (i) Dr Cavanaugh is President of HealthCare Ventures LLC, employment to make an additional one-off payment to a defined which is the management company for a number of limited contribution pension arrangement for Mr Stahel of £4.3 million. partnerships, which have interests in 8,690,090 ordinary shares. Dr Cavanaugh is also the beneficial owner of The pension payment to Dr Bellini, the former chief executive 116,278 ordinary shares. of BioChem Pharma Inc., arose from Dr Bellini’s termination arrangement, which was based on his pre-merger employment (ii) On 9 June 2003 The Hon James Grant exercised an option contract. The Company’s obligation to make pension payments granted to him under the BioChem Stock Option Plan to Dr Bellini ended on 13 May 2003. for 31,859 shares at the option price of £1.25 per share. All these shares were sold on the same day at a price of £4.17 per share.

Directors’ share options Aggregate emoluments disclosed above do not include any amounts for the value of options to acquire ordinary shares in the Company granted to or held by the Directors.

Directors and employees have been granted options over ordinary shares under the Shire Pharmaceuticals Group plc 2000 Executive Share Option Scheme (Parts A and B) (2000 Executive Scheme), the Shire Holdings Limited Share Option Scheme (SHL 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), the Roberts Stock Option Plan (Roberts Plan) and the BioChem Stock Option Plan (BioChem Plan). Shire Pharmaceuticals Group plc Directors’ remuneration report 39

Details of the options exercised during the year (with prior-year comparatives) are as follows:

Market price Gains on Gains on Exercise at exercise exercise exercise Number price date 2003 2002 Director Scheme of options £ £ £’000 £’000 Mr Rolf Stahel SHL 89,840 1.00 6.020 – 451 89,840 1.00 6.020 – 451 89,840 1.00 6.020 – 451 90,160 1.00 3.887 – 260 90,160 1.00 3.887 – 260 90,160 1.00 3.887 – 260 Executive Scheme B 329,095 1.75 3.887 – 703 Executive Scheme A 13,761 2.18 3.680 21 – 21 2,836

The Hon James Grant BioChem Plan 31,859 2.08 6.032 – 126 31,859 1.25 4.175 93 – 93 126 114 2,962

Details of options for Directors who served during the year are as follows:

Number of ordinary shares Exercise dates At At Exercise 1 January 31 December price Director Scheme Notes 2003 Granted Exercised Lapsed 2003 £ Earliest Latest Mr Matthew Emmens 2000 Executive Scheme B (iv) – 945,010 – – 945,010 3.6825 18.03.06 17.03.13 Stock Purchase Plan (vi) – 2,098 – – 2,098 4.0900 22.11.05 22.11.05 – 947,108 – – 947,108 Mr Angus Russell Executive Scheme A (i) 4,181 – – – 4,181 7.1750 13.12.02 12.12.09

Executive (i) 45,819 – – – 45,819 7.1750 13.12.02 12.12.06 Scheme B 6,422 – – – 6,422 10.2750 01.03.03 28.02.07

2000 Executive (iv) 69,213 – – – 69,213 12.5700 05.06.04 04.06.11 Scheme B 114,474 – – – 114,474 5.0650 04.03.05 03.03.12 – 284,024 – – 284,024 3.3800 04.03.06 03.03.13

Sharesave (ii) 1,882 – – – 1,882 5.0200 01.12.05 31.05.06 241,991 284,024 – – 526,015 Dr Wilson Totten Executive Scheme A (i) 8,862 – – – 8,862 3.3850 09.02.01 08.02.08

Executive (i) 141,138 – – – 141,138 3.3850 09.02.01 08.02.05 Scheme B 25,000 – – – 25,000 4.7050 12.05.02 11.05.06 16,995 – – – 16,995 10.2750 01.03.03 28.02.07

2000 Executive (iv) 63,242 – – – 63,242 12.8000 03.08.03 02.08.10 Scheme B 73,986 – – – 73,986 12.5700 05.06.04 04.06.11 122,368 – – – 122,368 5.0650 04.03.05 03.03.12 – 301,775 – – 301,775 3.3800 04.03.06 03.03.13

Sharesave (ii) 1,882 – – – 1,882 5.0200 01.12.05 31.05.06 453,473 301,775 – – 755,248 40 Shire Pharmaceuticals Group plc Directors’ remuneration report

Number of ordinary shares Exercise dates At At Exercise 1 January 31 December price Director Scheme Notes 2003 Granted Exercised Lapsed 2003 £ Earliest Latest Mr Rolf Stahel Executive Scheme A (i) 13,761 – (13,761) – – 2.1800 15.02.99 14.02.06

Executive (i) (iii) 81,918 – – – 81,918 3.3850 19.03.04 17.09.06 Scheme B (i) (iii) 54,189 – – – 54,189 10.2750 19.03.04 17.09.06

2000 Executive (iii) 34,241 – – – 34,241 12.8000 19.03.03 18.03.04 Scheme B (iii) 126,492 – – – 126,492 12.5700 18.03.04 04.12.04 (iii) 209,211 – – – 209,211 5.0650 18.09.03 03.09.05

Sharesave (ii) 1,151 – – (1,151) – 8.4100 01.12.04 31.05.05 520,963 – (13,761) (1,151) 506,051 The Hon James Grant BioChem (v) 31,859 – (31,859) – – 1.2500 14.05.01 16.06.03 31,859 – – – 31,859 1.2400 14.05.01 26.06.04 31,859 – – – 31,859 2.5000 14.05.01 06.06.05 31,859 – – – 31,859 6.2600 14.05.01 04.06.06 2,275 – – – 2,275 6.2000 14.05.01 05.05.07 2,275 – – – 2,275 6.9400 14.05.01 20.04.08 7,964 – – – 7,964 5.7000 14.05.01 10.06.09 13,653 – – – 13,653 6.5800 14.05.01 23.05.10 153,603 – (31,859) – 121,744 Dr Francesco Bellini BioChem (v) 3,413,550 – – – 3,413,550 7.1200 14.05.01 28.01.07 3,413,550 – – – 3,413,550 Mr Gérard Veilleux BioChem (v) 10,003 – – – 10,003 6.6000 14.05.01 18.07.09 10,003 – – – 10,003 For those options which remained unexercised during the year, no payment was made by any Director in consideration of the grant award.

There have been no variations to the terms and conditions or performance criteria for share options during the financial year except as detailed in the notes below. Shire Pharmaceuticals Group plc Directors’ remuneration report 41

Notes During 2002, the performance criteria were again reviewed i) Options granted under the Executive Scheme are subject to ensure the criteria reflected the market in which the to performance criteria and cannot be exercised in full, unless Company operates. Given the Company’s development the Company’s share price increases at a compound rate it was felt appropriate that an EPS based measure should of at least 20.5% per annum over a minimum three-year be adopted in place of share price growth targets. Therefore, measurement period. If the Company’s share price increases option grants made from August 2002 onwards will only at a compound rate of 14.5% per annum over a minimum become exercisable in full if the Company’s EPS growth three-year measurement period, 60% of the options may be exceeds the RPI over a three-year period for the following exercised. If these conditions are not met after the initial three tranches of grants: years, they are thereafter tested quarterly by reference to share price growth over the extended period. If the share price does Options with a grant value RPI plus 9% not meet these conditions at any time, none of the options will of up to 100% of salary (Directors, RPI plus 15%) become exercisable. Between 101% and ii) Options granted under the Sharesave Scheme are granted 200% of salary RPI plus 15% with an exercise price equal to 80% of the mid-market Between 201% and price on the day before invitations are issued to employees. 300% of salary RPI plus 21% Employees may enter into three or five-year savings contracts. The exercise of options under this Scheme is not subject Over 301% of salary RPI plus 27% to any performance criteria. The adoption of the new performance criteria applies to iii) In connection with the termination of Mr Stahel’s employment, all options granted from August 2002 onwards. The 2000 the Remuneration Committee agreed to exercise its discretion Executive Scheme provides for the performance test to be under the Rules of the respective option schemes to allow re-applied annually from a fixed point until the option expires. Mr Stahel to retain these options for a phased period of time The Remuneration Committee agreed at the end of 2003 of up to 21/2 years following his termination date as set out that, from 2004, for future grants under the Scheme the in the table above. Mr Stahel’s options may not be exercised performance condition should be re-tested once only, if he is in breach of certain post termination restrictive five years after the grant. covenants and/or if he engages in activity detrimental to the Company over that period. v) Following the acquisition of BioChem on 11 May 2001, the BioChem Plan was amended such that options over iv) Options granted under the 2000 Executive Scheme vest BioChem’s common stock became options over ordinary six weeks prior to the expiry date. Options granted under the shares of the Company. All BioChem options, which were 2000 Executive Scheme following the Company’s 2000 Annual not already exercisable, vested and became exercisable General Meeting, are subject to performance criteria and as a result of the acquisition and were not subject to any cannot be exercised in full, unless the Company’s share price performance conditions. It is intended that no further options increases at a compound rate of at least 20.5% per annum will be granted under the BioChem Plan. over a minimum three-year period. If the Company’s share price increases at a compound rate of at least 14.5% per vi) Under the Stock Purchase Plan options are granted with annum over a minimum three-year measurement period, an exercise price equal to 85% of the fair market value of 60% of the options will be exercisable. If these conditions are a share on the enrolment date (the first day of the offering not met after the initial three-year measurement period, they period) or the exercise date (the last day of the offering period), will thereafter be tested quarterly by reference to compound whichever is the lower. The offering period is for 27-months. annual share price growth over an extended period. If the The exercise of options under this plan are not subject to any share price does not meet these conditions at any time, none performance condition. of these options will become exercisable. The market price of the ordinary shares at 31 December 2003 At the Annual General Meeting of the Company, held on was £5.42 and the range during the year was £2.93 to £5.42. 5 June 2001, a resolution was passed to permit the grant of options under the 2000 Executive Scheme to be made subject to performance criteria being satisfied prior to the date of grant. Subsequent to the passing of this resolution options have been granted based on a performance criteria being satisfied before grant namely that the Company’s share price had increased by an annualised compound rate of 20.5% over a minimum three-year period. 42 Shire Pharmaceuticals Group plc Directors’ remuneration report

Long Term Incentive Plan (LTIP) Long Term Incentive Plan maturities during the year 2003 are as follows:

Value of Actual Market award at performance price at Value at Date of Initial award grant date related maturity maturity Date of Director award made £ award £ £ maturity Mr Angus Russell 13.12.99 12,436 90,000 9,203 4.90 45,141 13.12.03 Dr Wilson Totten 08.04.99 15,255 71,000 11,289 4.13 46,624 08.03.03 Mr Rolf Stahel (i) 08.04.99 32,230 150,000 23,850 3.68 87,828 18.03.03 01.03.00 35,785 360,050 26,084 3.68 96,054 18.03.03 Total 275,647

Note (i) On Mr Stahel’s termination of employment, the Remuneration Committee determined in accordance with the LTIP Rules in respect of the 1999 and 2000 Awards to make a cash equivalent payment to Mr Stahel on the basis of an LTIP Award of:

(a) 23,850 shares under the 1999 LTIP Award (b) 26,084 shares under the 2000 LTIP Award.

The Remuneration Committee further determined that Mr Stahel’s 2001 and 2002 LTIP awards would lapse and no payment would be made to Mr Stahel in respect of either of them.

In addition to the above disclosure, the following Directors who served during the year under review have exercised the following long term incentive awards during the period between 1 January 2004 and 12 March 2004.

Long Term Incentive Plan maturities

Value of Actual award at performance Value at Date of Initial award grant date related maturity Date of Director award made £ award £ maturity Mr Angus Russell (i) 01.03.00 1,789 18,000 1,296 7,147 02.03.04 Dr Wilson Totten (i) 01.03.00 19,881 200,032 14,398 79,404 02.03.04

Note (i) For awards made under the LTIP prior to June 2001, performance is measured over a three-year period but the performance conditions are based on criteria of (i) 50% TSR benchmarked against FTSE mid-250 index and (ii) 50% subject to an EPS condition measured against the diluted EPS of the Company for the financial year ended before the commencement of the performance period and the diluted EPS of the Company for the financial year ended on or before the end of the performance period. Shire Pharmaceuticals Group plc Directors’ remuneration report 43

Details of current and outstanding awards under the long term incentive plan for Directors who served during the year are as follows:

Ordinary Value of Ordinary Earliest date shares at award at shares at on which an 1 January Date of Award made grant date 31 December award can Director 2003 award 20.03.03 £’000 2003 be made Mr Matthew Emmens – – 80,960 290 80,960 20.03.07 80,960 290 80,960 Mr Angus Russell 1,789 01.03.00 – 18 1,789 01.03.04 11,535 05.06.01 – 134 11,535 05.06.05 19,078 04.03.02 – 127 19,078 04.03.06 – 44,667 160 44,667 20.03.07 32,402 44,667 439 77,069 Dr Wilson Totten 19,881 01.03.00 – 200 19,881 01.03.04 12,330 05.06.01 – 144 12,330 05.06.05 20,394 04.03.02 – 136 20,394 04.03.06 – 47,459 170 47,459 20.03.07 52,605 47,459 650 100,064 Mr Rolf Stahel 21,081 05.06.01 – 246 – 05.06.05 See note (i) 34,868 04.03.02 – 232 – 04.03.06 55,949 – 478 The above awards made during the year were all at the price of £3.58 per share. Performance conditions attaching to awards made under the Long Term Incentive Plan are detailed on pages 34 to 35.

Approval This report was approved by the Board of Directors on 12 March 2004 and signed on its behalf by:

Dr Barry Price Chairman of the Remuneration Committee 44 Shire Pharmaceuticals Group plc Corporate governance statement

The Company is committed to high standards The Board has taken into consideration that The Hon James Grant of corporate governance is a partner of Stikeman Elliot, a Canadian law firm which, from time The Board is committed to high standards of corporate governance. to time, provides legal advice to the Group. The Board considers In July 2003, the new Combined Code on Corporate Governance Mr Grant to be independent notwithstanding his position as he is was published and will take effect for the Company for the not involved in the provision of legal advice to the Group and financial year commencing on 1 January 2004. The Company is not engaged in marketing the services of Stikeman Elliott to the has already taken steps to comply with the new Combined Code, Group. Mr Grant was a board member of BioChem Pharma Inc. notwithstanding that it is not required to do so until its report prior to its merger with the Company in 2001 and he brings for the 2004 financial year. The Company’s compliance with a wealth of experience and expertise to the Board. the provisions of the new Combined Code is described in this corporate governance review. Board changes There were several changes to the Board in 2003. Mr Rolf Stahel, Throughout the period under review the Company has, in the the Company’s former Chief Executive stepped down from the Directors’ opinion, (i) applied the principles of the Combined Board on 19 March 2003 and Dr Francesco Bellini and Mr Gérard Code in effect for the 2003 financial year and (ii) complied with Veilleux stepped down from the Board as non-executive Directors the provisions of the Combined Code in effect for the 2003 on 10 May 2003. Mr Matthew Emmens joined the Board as Chief financial year. Executive Officer on 12 March 2003 and Mr Robin Buchanan joined the Board as a non-executive Director and a member The Board of the Remuneration Committee on 30 July 2003. The Board comprises three executive and five non-executive Directors and meets at least five times a year. Board meetings During 2003, there were 14 Board meetings of which five were The Board has overall responsibility for managing the Company face-to-face meetings and the remainder held by telephone. Board and its strategic direction and seeks to provide effective leadership meetings are well attended. The record of attendance by Directors and the control required for a listed company. The Board has at Board meetings is set out below: formally reserved specific matters to itself for determination which include strategic issues, budgeting, changes in share capital, Number of approval of the Company’s financial statements and entry into meetings Out of material contracts. Matters not formally reserved to the Board are Directors attended possible % delegated to the Executive Committee and to various other Board James Cavanaugh (Chairman) 14 14 100 committees set out below. The Board receives detailed information Matthew Emmens (Chief Executive Officer) 11 11 100 from executive Directors, the Company Secretary and other senior (appointed 12 March 2003) managers to enable it to exercise its responsibility. Angus Russell (Chief Financial Officer) 14 14 100 Dr Wilson Totten 14 14 100 All Directors have access to the advice and guidance of the Dr Barry Price 14 14 100 Company Secretary and are encouraged to seek independent The Hon James Grant 13 14 93 advice at the Company’s expense, where they feel it is appropriate. Ronald Nordmann 14 14 100 The Board is of the opinion that each of its members has the Robin Buchanan 5 6 83 knowledge, aptitude and experience to perform the functions (appointed 30 July 2003) required of a Director of a listed company. Rolf Stahel (stepped down 19 March 2003) 3 3 100 Dr Francesco Bellini 4 5 80 Biographical details of the members of the Board are shown (stepped down 10 May 2003) on pages 28 and 29. Gérard Veilleux 3 5 60 (stepped down 10 May 2003) Independent Directors The Board considers Dr James Cavanaugh, Dr Barry Price, The non-executive Directors have met informally during the year The Hon James Grant, Mr Ronald Nordmann and Mr Robin without the Chairman and Chief Executive Officer present but not Buchanan to be independent non-executive Directors. The Board as part of a structured programme. It is intended that such views each of these non-executive Directors to be independent meetings will be formalised in 2004. of management, independent in judgement and character, and free from any business or other relationship which could materially Chairman and Chief Executive Officer interfere with the exercise of their independent judgement. The offices of Chairman and Chief Executive Officer are held separately. The Chairman, Dr James Cavanaugh, is responsible The Board considered its non-executive Chairman, Dr James for the conduct of the Board and ensures that Board discussions Cavanaugh, to be an independent non-executive Director are conducted in such a way that all views are taken into account, in 2003. Dr Cavanaugh is a member of the Company’s Audit so that no individual Director or small group of Directors and Remuneration Committees and is Chairman of the Company’s dominates proceedings. The Chief Executive Officer has the Nomination Committee. As the new Combined Code contemplates general responsibility for running the business on a day-to-day that the Chairman should no longer be considered to be basis and chairs the Executive Committee. ‘independent’, the Company will address this by changing the constitution of the Audit and Remuneration Committees in 2004. The roles and responsibilities of the Chairman and the Chief Executive Officer are clearly defined, separate and have been approved by the Board. Shire Pharmaceuticals Group plc Corporate governance statement 45

Senior non-executive Director The Audit Committee met on four occasions during 2003. Dr Barry Price is the nominated senior independent Mr Ronald Nordmann was the Chairman of the Audit Committee non-executive Director. in 2003 and Dr Barry Price and Dr James Cavanaugh were members of the Committee in 2003. All members attended Supply of information all meetings in 2003. The executive Directors and the Company Secretary are responsible for ensuring that detailed information is provided Mr Nordmann has been a financial analyst for over 30 years to Board members in advance of any scheduled Board meeting. and accordingly is considered by the Board to have recent and Before decisions are made consideration is given to the adequacy relevant financial experience. of information available to the Board and, if necessary, decisions are deferred if further information is required. ii) Remuneration Committee The Remuneration Committee determines on behalf of the Board Re-appointment the policy for the setting of remuneration and incentivisation Non-executive Directors are appointed for a term of two years, of the executive Directors and other senior executives and the subject to shareholder approval. Re-appointment of non-executive fixing of the terms of their employment. The Remuneration Directors following the expiry of such two-year period is subject Committee may engage external consultants to advise on any to satisfactory performance and to Board approval. aspects of remuneration.

At each Annual General Meeting, any Director who has been The remuneration of non-executive Directors is determined appointed by the Board is required to seek re-election, together by the Board. with, but not exceeding, one-third of the other Directors for the time being. Accordingly, no Director should serve for more than The Directors’ remuneration report appears on pages 32 to 43 three years without being subject to re-election by shareholders. and provides further information on the role of this Committee.

Performance appraisals The Remuneration Committee met on 10 occasions in 2003. The new Combined Code will require the Company to describe Dr Barry Price chaired the Remuneration Committee in 2003 how performance evaluation of the Board, its Committees and Dr James Cavanaugh was a member of this Committee and its Directors has been conducted. Whilst the Board has in 2003. Mr Gérard Veilleux was a member until he stepped down monitored overall Board and individual Director performance from the Board on 10 May 2003. Mr Robin Buchanan joined the during 2003, a more formal performance evaluation for the Board, Remuneration Committee on 30 July 2003. Mr Veilleux was unable its Committees and for each Director will be introduced in 2004. to attend two of the six Remuneration Committee meetings which took place before he stepped down from the Board, but otherwise Committees of the Board all members attended all meetings. The Board has established the Audit Committee, the Remuneration Committee, the Nomination Committee and the Executive iii) Nomination Committee Committee. Each committee has its own written terms of reference The Nomination Committee is responsible for identifying and that have been approved by the Board. The terms of reference nominating, for the approval of the Board, candidates to fill for the Audit, Remuneration and Nomination Committees have vacancies to the Board. This Committee meets as required recently been revised and updated in light of new regulatory and in 2003 was chaired by Dr James Cavanaugh. Mr Ronald requirements in the US and the release of best practice guidance Nordmann, The Hon James Grant and Dr Barry Price also served in the UK. The terms of reference of the Audit, Nomination and on this Committee in 2003. All members attended all meetings Remuneration Committees will be made available on the Company’s in 2003. website in 2004. Details of each committee are as follows: When considering appointments to the Board, the Nomination i) Audit Committee Committee takes into account the skills, knowledge and The Audit Committee is required, amongst other things, to review experience of the existing members of the Board and determines the effectiveness of internal control systems, to monitor the the capabilities which are required of any new Director. relationship with external auditors including discussing the scope The Nomination Committee retains the services of executive of the audit and any issues arising from it, to review the Company’s search consultants to assist it in the identification and nomination statutory accounts and other financial statements and information of new Board candidates. and to review the business risks faced by the Company. The Audit Committee also proposes to shareholders the appointment or the iv) Executive Committee re-appointment of the external auditors and is responsible for The Executive Committee has the day-to-day management recommending their remuneration. of the Company delegated to it by the Board and operates within clear and formal parameters. The Executive Committee meets The Audit Committee is also required to approve any audit at least monthly. The Chief Executive Officer is the Chairman of and non-audit services provided by the Company’s auditors. the Executive Committee, which in 2003 consisted of nine senior Any such services are either approved by the Audit Committee, executives including the three executive Directors. The Executive or if between scheduled Audit Committee meetings, by the Committee reports to and seeks guidance from the Board on Chairman of the Audit Committee (who has been delegated a regular basis. responsibility for doing so) or are provided under a pre-approval policy adopted by the Audit Committee. The Audit Committee Directors’ remuneration is informed at each meeting of services approved by the Chairman The Company’s remuneration policy is described in the Directors’ or provided under the pre-approval policy. These procedures are remuneration report on pages 32 to 43. The report details the level intended to safeguard auditor objectivity and independence. of remuneration for Directors and the basis upon which executive remuneration is fixed. 46 Shire Pharmaceuticals Group plc Corporate governance statement

Executive remuneration Code of Ethics The remuneration of the members of the Executive Committee, The Company is committed to the maintenance of high ethical other than the executive Directors, is determined by the Chief standards in its dealings with all persons with whom it is involved. Executive Officer within policy guidelines set down by the The Group’s Code of Ethics was reviewed and updated in 2003 Remuneration Committee and is dependent on performance. and the amended version was approved by the Board in December 2003. The Code of Ethics applies to all Directors and Relations with shareholders employees and is available for review on the Company’s website. The Company is committed to maintaining constructive relationships with shareholders. The Chief Executive Officer and Financial disclosure, internal control and the role the Chief Financial Officer, supported by other senior executives, of the auditors arrange individual and group meetings with major shareholders The Board has, through the Audit Committee, established formal throughout the year to discuss the Company’s strategy and and transparent arrangements for financial reporting, internal performance and to understand the views of major shareholders, control and external auditing. The Audit Committee’s terms which are then communicated to the Board as a whole. of reference extend to the Company’s risk management activities The Chairman and the senior independent non-executive Director as a whole and not just the financial aspects of internal control. also are available to meet with major shareholders. All employees can raise any concerns in any of these areas with The Company maintains a flow of information to its shareholders the Chairman of the Audit Committee in the strictest confidence. through the announcement of quarterly results and the provision The Company operates a whistle-blowing policy which is the of annual reports. The Company’s website at www.shire.com also framework for a confidential process through which all employees provides information about the Company and its business and is are able to report concerns relating to financial disclosure, internal regularly updated. The Company’s Investor Relations department control and other compliance issues in good faith without fear acts as a contact point for investors throughout the year. of discrimination or reprisal. In addition, the Audit Committee has introduced a procedure for the receipt and monitoring of The Company holds its Annual General Meeting in London complaints relating to internal controls. at which shareholders are given the opportunity to ask questions of the Directors. i) Financial reporting The Board has ultimate responsibility for the preparation Balanced and timely assessment of positions and prospects of accounts and for the monitoring of systems of internal The Company strives to give timely assessments of matters financial control. The Board strives to present a balanced and that impact on its business and financial position and to present understandable assessment of the Company’s position and scientific and other price-sensitive data in a balanced way. Before its prospects and endeavours to present scientific and other it was required under SEC rules, the Company voluntarily adopted price-sensitive information in a balanced way. The Company quarterly financial reporting, which is not obligatory in the UK. publishes quarterly financial reports so that its shareholders can monitor the Company’s financial position regularly. Corporate social responsibility (CSR) The Company recognises the impact that its business may have On behalf of the Board, the Audit Committee has the responsibility on people and the environment as well as the social implications for reviewing the effectiveness of the system of internal financial of its operations on the general community. The Company controls and the audit process. The Audit Committee has therefore attaches great importance to social and environmental independent access to the auditors throughout the year in issues and to ethical business practices. Accordingly, ultimate addition to presentations from the auditors on a quarterly basis. responsibility for them is taken at the highest levels. The Board Any significant findings or identified risks are closely examined reviews the Company’s approach to corporate social responsibility and are reported to the Board with recommendations for action. generally and the specific business risks related to Social, Environmental and Ethical (‘SEE’) matters. The Company has established a Disclosure Committee which is chaired by the Chief Financial Officer. Its membership comprises The Board receives advice and information from the CSR senior managers from legal, finance and risk. Its responsibility is Committee to make this assessment. The CSR Committee, to establish and maintain controls and other procedures to ensure which is chaired by the Chief Financial Officer, was established that information disclosed to investors is recorded, summarised during 2003. It meets three times a year and is responsible for and reported accurately and to monitor the effectiveness of these setting the policies and procedures that manage SEE issues, procedures. The Disclosure Committee also has the responsibility risks and opportunities. SEE risks are managed within the overall for the review and oversight of the Company’s periodic reporting. framework of risk management, explained below under the heading ‘internal control’.

This year the Company has decided to produce a standalone report on CSR. This is available on request or from the Shire website. Shire Pharmaceuticals Group plc Corporate governance statement 47

Following the enactment of the Sarbanes-Oxley Act 2002 in the The internal review of the Company’s control procedures and US, the Chief Executive Officer and the Chief Financial Officer compliance with them is mostly undertaken through internal audit. are required to complete formal certifications, which confirm, The Company’s outsourced internal audit function was operational inter alia, that: throughout 2003. The majority of internal audit work during 2003 has been concentrated on internal financial controls and on – the annual report in the US on Form 10-K does not contain any achieving compliance with Sarbanes-Oxley Act requirements, material misstatements or omissions; which is required by 31 December 2004. This will continue in – financial information reported in Form 10-K fairly presents 2004. The Audit Committee, which is responsible for monitoring the financial condition, results of operations and cash flows the activity of the internal audit function, has reviewed the of the Company; effectiveness of the internal audit during 2003. – the Chief Executive Officer and the Chief Financial Officer are responsible for determining and maintaining disclosure controls Although the Board and the Audit Committee receive reports and procedures; and on areas of significant risk to the Company and related internal – the Chief Executive Officer and the Chief Financial Officer have controls, there are limitations in any system of internal control indicated in Form 10-K whether there were any significant and accordingly even the most effective system can provide only changes in the Company’s internal control over financial reporting. reasonable and not absolute assurance. Such a system is designed to manage rather than eliminate the risk of failure to achieve The Chief Executive Officer and the Chief Financial Officer have business objectives and can only provide reasonable and not completed these certifications and they will be filed with the SEC absolute assurance against material misstatement or loss. in the US as part of the Company's annual report in the US. Whilst there is no formal requirement for these certifications to be given iii) External auditing in connection with the accounts prepared in accordance with UK The Audit Committee reviews the scope and results of the GAAP, the UK statutory financial statements have been prepared audit and non-audit services provided by the auditors, the cost using the same processes. effectiveness and the independence and objectivity of the auditors. ii) Risk management and internal control Going concern basis The Board, in accordance with the Turnbull Guidance on internal After making enquiries, the Directors have formed a judgement, control, recognises its overall responsibility to maintain a sound at the time of approving the financial statements, that there is system of internal control to safeguard shareholders’ investments a reasonable expectation that the Group has adequate resources and the Company’s assets and to regularly review its effectiveness. to continue in operational existence for the foreseeable future. The Board has reviewed both the key risks faced by the Company For this reason the Directors continue to adopt the going concern and the effectiveness of the Company’s internal control systems basis in preparing the financial statements. in 2003.

Outside of its review, the Board delegates responsibility to the Audit Committee for more regular review of both key risks and internal controls and for monitoring the activities of the internal audit function. The Audit Committee has kept these areas under review in 2003.

The Company has an integrated risk management and internal audit function. The Head of Risk and Audit, whose appointment was confirmed by the Audit Committee, reports to the Chief Financial Officer and attends and presents regularly at Audit Committee meetings. The Head of Risk and Audit also has direct access to the Chairman, the Chairman of the Audit Committee and the other members of the Audit Committee.

The Company has an ongoing process for identifying, evaluating and managing the significant risks that it faces. This process has been in operation throughout the period under review and up to the date of the signing of the accounts. This includes analysis of the impact on the operation of key risks and the action being taken to avoid or reduce each risk. The risk schedule allocates responsibility for management of each key risk to appropriate senior executives. The Company also has a system of control procedures. Compliance with these procedures is monitored through a system of internal review and regular reports on financial performance. Any significant issues arising are reported to the Audit Committee. 48 Shire Pharmaceuticals Group plc Statement of Directors’ responsibilities – Report of independent auditors

Statement of Directors’ responsibilities The Directors are responsible for keeping proper accounting UK company law requires the Directors to prepare financial records which disclose with reasonable accuracy at any statements for each financial year which give a true and fair time the financial position of the Company and enable them view of the state of affairs of the Company and the Group to ensure that the financial statements comply with the as at the end of the financial year and of the profit or loss Companies Act 1985. They are also responsible for the system of the Group for that period. In preparing those financial of internal control, for safeguarding the assets of the Company statements, the Directors are required to: and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. – select suitable accounting policies and then apply them consistently; – make judgements and estimates that are reasonable and prudent; and – state whether applicable accounting standards have been followed.

Report of independent auditors In our opinion the consolidated financial statements present fairly, To the Shareholders of Shire Pharmaceuticals Group plc: in all material respects, the financial position of the companies We have audited the accompanying consolidated balance sheets as of December 31, 2003 and 2002, and the results of their of Shire Pharmaceuticals Group plc and its subsidiaries as of operations and their cash flows for each of the three years in the December 31, 2003 and 2002, and the related consolidated period ended December 31, 2003, in conformity with accounting statements of operations, comprehensive income, changes principles generally accepted in the United States of America. in shareholders equity, and cash flows for each of the three Also, in our opinion, the financial statement schedule, when years in the period ended December 31, 2003. These financial considered in relation to the basic consolidated financial statements are the responsibility of the Company’s management. statements taken as a whole, presents fairly in all material respects Our responsibility is to express an opinion on these financial the information set forth therein. statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Deloitte & Touche LLP management, as well as evaluating the overall financial statement Reading, England presentation. We believe that our audits provide a reasonable March 10, 2004 basis for our opinion. Shire Pharmaceuticals Group plc Consolidated balance sheets 49 In thousands of US dollars, except share data

December 31, December 31, 2003 2002 Notes $’000 $’000 Assets Current assets: Cash and cash equivalents 1,103,286 880,973 Restricted cash 6,795 16,745 Marketable securities (5) 304,129 316,126 Accounts receivable, net (6) 215,690 138,397 Inventories (7) 45,258 49,216 Deferred tax asset (25) 64,532 34,849 Prepaid expenses and other current assets (8) 48,017 30,790 Total current assets 1,787,707 1,467,096 Investments (9) 73,153 71,962 Property, plant and equipment, net (10) 161,225 135,234 Goodwill, net (11) 225,860 203,767 Other intangible assets, net (11) 307,882 301,084 Deferred tax asset (25) – 6,216 Other non-current assets (12) 22,953 23,264 Total assets 2,578,780 2,208,623

Liabilities and shareholders’ equity Current liabilities: Current installments of long-term debt (15) 1,054 888 Accounts payable and accrued expenses (13) 215,494 184,107 Other current liabilities (14) 37,127 16,725 Total current liabilities from continuing operations 253,675 201,720 Current liabilities from discontinued operations (4) – 12,784 Total current liabilities 253,675 214,504 Long-term debt, excluding current installments (15) 376,781 407,302 Deferred tax liability (25) 1,400 – Other non-current liabilities (16) 23,798 13,651 Total liabilities 655,654 635,457

Shareholders’ equity: Common stock, 5p par value; 800,000,000 shares authorized; and 477,894,726 (2002: 484,344,412) shares issued and outstanding 39,521 40,051 Exchangeable shares: 5,839,559 (2002: 5,874,112) shares issued and outstanding 270,667 272,523 Additional paid-in capital 983,356 1,027,499 Accumulated other comprehensive income/(loss) 79,007 (41,431) Retained earnings 550,575 274,524 Total shareholders’ equity 1,923,126 1,573,166 Total liabilities and shareholders’ equity 2,578,780 2,208,623

The accompanying notes are an integral part of these consolidated financial statements. 50 Shire Pharmaceuticals Group plc Consolidated statements of operations In thousands of US dollars, except share data

2003 2002 2001 Year ended December 31, Notes $’000 $’000 $’000 Revenues Product sales 1,029,838 859,388 699,351 Licensing and development 3,677 3,064 5,498 Royalties 203,573 174,812 145,155 Other revenues 13 34 2,952 Total revenues 1,237,101 1,037,298 852,956

Costs and expenses Cost of product sales 163,114 133,682 112,006 Research and development (21) 215,781 189,179 171,029 Selling, general and administrative (3), (11) 463,592 387,399 305,544

Other charges (22) BioChem merger: Restructuring charges – – 8,809 Asset impairments – – 20,890 Merger transaction expenses – – 83,470 Loss on the disposition of facility – – 8,100 Total operating expenses 842,487 710,260 709,848

Operating income 394,614 327,038 143,108 Interest income 16,856 19,536 19,667 Interest expense (9,470) (9,252) (12,035) Other expense, net (23) (17,539) (8,262) (52,933) Total other (expense)/income, net (10,153) 2,022 (45,301)

Income from continuing operations before income taxes, equity in (losses)/earnings of equity method investees and discontinued operations 384,461 329,060 97,807 Income taxes (25) (107,353) (88,350) (67,781) Equity in (losses)/earnings of equity method investees (26) (1,057) 1,668 1,985 Income from continuing operations 276,051 242,378 32,011 Income from discontinued operations (net of income tax expense of $nil, $3,588 and $3,963 respectively) (4) – 6,108 6,748 Gain on disposition of discontinued operations (net of income tax expense of $nil, $1,224 and $nil respectively) (4) – 2,083 – Net income 276,051 250,569 38,759 Earnings per share – basic (20) Income from continuing operations 55.4¢ 48.4¢ 6.5¢ Income from discontinued operations – 1.6¢ 1.4¢ 55.4¢ 50.0¢ 7.9¢ Earnings per share – diluted (20) Income from continuing operations 54.2¢ 47.4¢ 6.4¢ Income from discontinued operations – 1.6¢ 1.3¢ 54.2¢ 49.0¢ 7.7¢ Weighted average number of shares Basic 498,212,826 500,687,594 492,594,226 Diluted 518,967,395 522,418,246 504,875,587

The accompanying notes are an integral part of these consolidated financial statements. Shire Pharmaceuticals Group plc Consolidated statements of changes in shareholders’ equity 51 In thousands of US dollars, except share data

Accumulated other Common Exchangeable Accumulated compre- Common stock Exchangeable shares Additional (deficit)/ hensive Total stock number shares number paid-in retained income/ shareholders’ amount shares amount shares capital earnings (losses) equity $’000 000’s $’000 000’s $’000 $’000 $’000 $’000 As of December 31, 2000 40,292 488,015 – – 1,209,448 (14,804) (60,550) 1,174,386 Net income – – – – – 38,759 – 38,759 Foreign currency translation – – – – – – (32,507) (32,507) Issue of shares for acquisitions (3,662) (51,876) 802,256 17,292 (798,594) – – – Issue of common stock for conversion of loan note 22 295 – – 1,522 – – 1,544 Issue costs – – – – (18) – – (18) Exchange of exchangeable shares 2,414 33,940 (524,870) (11,313) 522,456 – – – Options exercised 795 11,443 – – 69,397 – – 70,192 Stock option compensation and warrants – – – – 6,780 – – 6,780 Tax benefit associated with exercise of stock options – – – – 3,805 – – 3,805 Unrealized holding gain on available-for-sale investments – – – – – – 48 48 As of December 31, 2001 39,861 481,817 277,386 5,979 1,014,796 23,955 (93,009) 1,262,989 Net income – – – – – 250,569 – 250,569 Foreign currency translation – – – – – – 50,314 50,314 Issue of common stock for conversion of loan note 21 268 – – 1,479 – – 1,500 Exchange of exchangeable shares 22 315 (4,863) (105) 4,841 – – – Options exercised 147 1,944 – – 5,861 – – 6,008 Stock option compensation – – – – (166) – – (166) Tax benefit associated with exercise of stock options – – – – 688 – – 688 Unrealized holding gain on available for sale investments – – – – – – 1,264 1,264 As of December 31, 2002 40,051 484,344 272,523 5,874 1,027,499 274,524 (41,431) 1,573,166 Net income – – – – – 276,051 – 276,051 Foreign currency translation – – – – – – 114,116 114,116 Redemption of common stock (625) (7,593) – – (51,767) – – (52,392) Exchange of exchangeable shares 8 104 (1,856) (34) 1,848 – – – Options exercised 87 1,040 – – 5,108 – – 5,195 Stock option compensation and warrants – – – – (24) – – (24) Tax benefit associated with exercise of stock options – – – – 692 – – 692 Unrealized holding gain on available for sale investments – – – – – - 6,322 6,322 As of December 31, 2003 39,521 477,895 270,667 5,840 983,356 550,575 79,007 1,923,126

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statements of comprehensive income In thousands of US dollars

2003 2002 2001 Year ended December 31, $000 $000 $000 Net income 276,051 250,569 38,759 Other comprehensive income/(loss): Foreign currency translation 114,116 50,314 (32,507) Unrealized holding gains on available for sale securities 6,322 1,264 48 Comprehensive income 396,489 302,147 6,300

The components of accumulated other comprehensive income/(loss) as of December 31, 2003 and 2002 are as follows:

December 31, December 31, 2003 2002 $000 $000 Foreign currency translation 71,421 (42,695) Unrealized holding gains on available for sale securities 7,586 1,264 Accumulated other comprehensive income/(loss) 79,007 (41,431)

There are no material tax effects related to the items included above.

The accompanying notes are an integral part of these consolidated financial statements. 52 Shire Pharmaceuticals Group plc Consolidated statements of cash flows In thousands of US dollars

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Cash flows from operating activities: Net income from continuing operations 276,051 242,378 32,011 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,474 36,434 45,809 Increase/(decrease) in provision for doubtful accounts and discounts 3,268 (1,139) 3,015 Increase/(decrease) in provision for rebates and returns 17,089 (2,297) 35,526 Stock option compensation – options (24) (166) 2,278 Stock option compensation – warrants – – 4,502 Tax benefit of stock option compensation, charged directly to equity 692 688 3,805 (Increase)/decrease in deferred tax asset (22,067) (9,884) 2,275 Non-cash exchange gains and losses 8,558 12,495 (1,017) (Gain)/loss on sale of property, plant and equipment (169) 1,376 8,112 Loss on sale of intangible assets – – 2,052 Write-down of long-term investments 15,616 8,732 61,596 Write-down of intangible assets 27,489 18,777 25,393 Write-down of property, plant and equipment 6,026 – – Write-down of assets held for resale 10,689 – – Equity in earnings of equity method investees 1,057 (1,668) (1,985) Other elements 1,468 – 1,788 Changes in operating assets and liabilities, net of acquisitions: (Increase)/decrease in accounts receivable (57,932) 61,159 (52,033) Decrease/(increase) in inventory 7,387 (3,543) 5,278 (Increase)/decrease in prepayments and other current assets (13,024) 9,801 (29,124) Increase in property plant and equipment held for resale 12,470 – – Decrease in other assets 311 2,905 823 (Decrease)/increase in accounts and notes payable and other liabilities (3,822) (13,581) 27,970 Increase/(decrease) in deferred revenue 19,372 (17,409) 17,409 Dividend received from equity method investees 2,289 – – Net cash provided by operating activities 355,268 345,058 195,483

Cash flows from investing activities: Decrease/(Increase) in short-term deposits 11,997 407,653 (367,206) Purchase of subsidiary undertakings – (17,300) – Purchase of long-term investments (5,643) (5,933) (20,351) Purchase of intangible assets (47,049) (24,032) (35,986) Purchase of property, plant and equipment (52,165) (22,647) (13,604) Proceeds from sale of long-term investments 1,000 4,108 – Proceeds from sale of property, plant and equipment 1,262 721 7,081 Proceeds from sale of intangible assets – – 4,556 Proceeds from sale of a business – 71,000 – Movements in restricted cash 9,950 (16,745) – Net cash (used in)/provided by investing activities (80,648) 396,825 (425,510)

Cash flows from financing activities: (Redemption)/proceeds from 2% convertible loan notes (29,775) – 400,000 Payment of debt issuance costs – – (9,000) Repayment of long-term debt, capital leases and notes (579) (3,381) (207,762) Proceeds from issue of common stock, net – – 1,526 Proceeds from exercise of options 5,195 6,008 70,192 Payments for redemption of common stock (52,392) – – Net cash (used in)/provided by financing activities (77,551) 2,627 254,956 Effect of foreign exchange rate changes on cash and cash equivalents 25,244 6,964 (1,509) Net increase in cash and cash equivalents 222,313 751,474 23,420 Cash flows used in discontinued operations – 11,459 1,354 Net increase in cash and cash equivalents 222,313 762,933 24,774 Cash and cash equivalents at beginning of period 880,973 118,040 93,266 Cash and cash equivalents at end of period 1,103,286 880,973 118,040 Supplemental information associated with continuing operations: Interest paid 7,716 8,101 11,122 Income taxes paid 118,527 101,779 65,773 Non cash activities: Common stock issued on conversion of zero-coupon note – 1,500 1,544 Capital leases assumed on acquisition of subsidiaries – 6,266 – The accompanying notes are an integral part of these consolidated financial statements. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 53 In thousands of US dollars, except where indicated

1 Description of operations Shire Pharmaceuticals Group plc (Shire) and its subsidiaries (collectively referred to as the Company) is a global pharmaceutical company with a strategic focus on meeting the needs of the specialist physician. The Company has a particular interest in innovative therapies that are prescribed by specialist doctors as opposed to primary care physicians.

The Company is focusing on the development of late stage projects and marketing products in the areas of central nervous system (CNS), gastrointestinal (GI) and renal.

Geographically, the Company has operations in the world’s key pharmaceutical markets, namely North America and Europe. The Company’s corporate head office is based in Basingstoke, UK. The Company’s business is organized across five operating segments: US, International (covering territories outside of the US), Research & Development (R&D), Biologics and Corporate. Revenues are derived primarily from three sources: sales of products by the Company’s own sales and marketing operations, royalties (where Shire has out-licensed products to third parties) and licensing and development fees.

In May 2001, Shire merged with BioChem Pharma, Inc. (BioChem), an international pharmaceutical company based in Laval, Canada. This brought anti-infective projects to Shire as well as a royalty stream on sales of 3TC and ZEFFIX, out-licensed to GlaxoSmithKline (GSK).

In September 2002, Shire acquired APS, subsequently renamed Shire US Manufacturing Inc. (SUMI), which includes a state-of-the-art manufacturing facility located in Owings Mills, Maryland. It is expected that the SUMI facility will become a primary or secondary manufacturer for ADDERALL XR, CARBATROL, PENTASA and DEXTROSTAT in 2004. This will mitigate Shire’s supply risk in the US, in line with the Company’s policy of dual sourcing key products.

In February 2003, the Company acquired the worldwide sales and marketing rights to METHYPATCH, a methylphenidate transdermal delivery system for the once-daily treatment of attention deficit hyperactivity disorder (ADHD) from Noven Pharmaceuticals Inc. Also during 2003, the Company acquired five products for the Canadian market from DRAXIS Health Inc. and certain international rights to VANIQA® from Women First Healthcare, Inc.

Following a detailed strategic review conducted in 2003, the Company has revised its strategic priority. Shire will search, develop and market but will not invent. The Company will seek to acquire products with substantive patent protection rather than just three years’ Hatch-Waxman exclusivity. The Company will also focus its in-licensing and merger and acquisition (M&A) efforts on the US market, and obtain European rights whenever possible.

Shire has refocused its Research and Development (R&D) efforts and technology to concentrate on areas where it has a commercial presence and is creating the flexibility to add new therapeutic areas based on product acquisition opportunities. The strategic review thoroughly evaluated the Group’s pipeline and refocused resources on four projects, which are currently in Phase II and III of development. This approach aims to deliver the combined benefit of increased returns and lower risks.

The implementation of these actions has resulted in:

– the exit from early stage therapeutic research, which was completed in the third quarter of 2003; – the planned exit from the vaccines business, which Shire is targeting to achieve around mid-year 2004.

These changes have implications for both the Group’s organizational structure and operating sites. The Company has a new global management structure aimed at close interaction between development, marketing and sales, and new people in key positions reporting directly to the Chief Executive Officer. In addition, the Company has advanced its plans to reduce the number of North American sites from fourteen to four, including the opening of a new US headquarters office on the East Coast. Pennsylvania is currently being considered in this regard. The Company will close its sites in Newport, Kentucky and Rockville, Maryland. Shire’s world headquarters will continue to be located in Basingstoke, UK.

The cost of the planned reorganization in 2004 is estimated at approximately $55 million split between retaining and relocating key staff to the new US headquarters, and site closure costs and other relocation expenses. The majority of these costs will be charged as part of operating expenses. It is anticipated that these changes will improve both the efficiency of operation and the cost structure of the Group going forward. 54 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

1 Description of operations continued The Company’s principal revenues in the relevant markets include:

– in the US, ADDERALL XR and ADDERALL for the treatment of ADHD, AGRYLIN for the treatment of elevated blood platelets, PENTASA for the treatment of ulcerative colitis, CARBATROL for the treatment of epilepsy and PROAMATINE for the treatment of orthostatic hypotension. In addition, the Company receives royalties on sales of REMINYL for the treatment of Alzheimer’s disease, marketed by Janssen, and on EPIVIR, COMBIVIR and TRIZIVIR for the treatment of HIV/AIDS and EPIVIR-HBV® for the treatment of hepatitis B, each marketed by GSK; – in the UK and the Republic of Ireland, the CALCICHEW range, used primarily as adjuncts in the treatment of osteoporosis, and REMINYL, which is co-promoted by Janssen-Cilag; – in Canada, 3TC for the treatment of HIV/AIDS, COMBIVIR and HEPTOVIR (all marketed in partnership with GSK); AMATINE and FLUVIRAL S/F, a vaccine for the prevention of influenza; and – in the Rest of the World, royalties on the sales of ZEFFIX for the treatment of hepatitis B, marketed by GSK, and royalties on sales of REMINYL marketed by Johnson & Johnson.

In addition, the Company has a number of projects in later stage development including:

– FOSRENOL for the treatment of high blood phosphate levels associated with kidney failure. The Company submitted the first regulatory submission for FOSRENOL under the European Mutual Recognition procedure on March 13, 2001 and a New Drug Application (NDA) with the US FDA on April 30, 2002. The Company received an approvable letter from the US FDA on March 3, 2003; – XAGRID in the EU (which is the trade name of AGRYLIN in the EU). On July 25, 2003, the Company received a positive Committee for Proprietary Medicinal Products opinion; – Adult indication for ADDERALL XR. The Company received an approvable letter from the US FDA on October 20, 2003; – METHYPATCH, a transdermal delivery system for the once daily treatment of ADHD. Shire and Noven are working closely to supply the FDA with appropriate Phase III data requested in their non-approvable letter issued on April 28, 2003; – BIPOTROL (SPD417) for bipolar disorder. In February 2004 Shire filed an NDA for this indication; – SPD503 (guanfacine) for ADHD, in Phase III; and – SPD476 for ulcerative colitis in Phase II.

2 Summary of significant accounting policies a) Basis of preparation The accompanying consolidated financial statements include the accounts of Shire and all of its subsidiary undertakings after elimination of intercompany accounts and transactions. b) Use of estimates in consolidated financial statements The preparation of consolidated financial statements, in conformity with US generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to provisions for product returns, valuation of intangible assets, contingent liabilities and sales deductions. c) Revenue recognition The Company recognizes revenue when:

– there is persuasive evidence of an agreement or arrangement; – delivery of products has occurred or services have been rendered; – the seller’s price to the buyer is fixed or determinable; and – collectability is reasonably assured.

The Company’s principal revenue streams and their respective accounting treatments are discussed below:

(i) Product sales Revenue for the sales of products is recognized upon shipment to customers or at the time of delivery (i.e. FOB destination) depending on the terms of sale. Provisions for rebates, product returns and discounts to customers are provided for as reductions to revenue in the same period as the related sales are recorded. The Company monitors and tracks the amount of rebates, product returns and discounts to customers based on historical experience to estimate the amount of reduction to revenue. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 55 In thousands of US dollars, except where indicated

2 Summary of significant accounting policies continued (ii) Licensing and development fees Licensing and development fees represent revenues derived from product out-licensing agreements and from contract research and development agreements.

Initial license fees received in connection with product out-licensing agreements, even where such fees are non-refundable and not creditable against future royalty payments, are deferred and recognized over the period of the license term, or the period of the associated collaborative assistance. In circumstances where initial license fees are not for a defined period, revenues are deferred and recognized over the period to the expiration of the relevant patent to which the license relates.

During the term of certain research and development agreements and licensing agreements, the Company receives non-refundable milestones as certain technical targets are achieved. Revenues are recognized on achievement of milestones.

The Company also receives non-refundable clinical milestones when certain targets are achieved during the clinical phases of development, such as the submission of clinical data to a regulatory authority. These clinical milestones are recognized when received. If milestone payments are creditable against future royalty payments, the milestones are deferred and released over the period in which the royalties are anticipated to be paid.

Revenue from contract research and development agreements is recognized as the services are performed.

(iii) Royalty income Royalty income relating to licensed technology is recognized when the licensee sells the underlying product. The Company receives sales information from the licensee on a monthly basis. For any period that the information is not available, the Company estimates sales amounts based on the historical product information.

Where applicable, all revenues are stated net of value added tax and similar taxes, and trade discounts.

No revenue is recognized for consideration, the value or receipt of which is dependent on future events, future performance, or refund obligations. d) Research and development Research and development expenditures include funded and unfunded expenditures and are charged to operations in the period in which the expense is incurred. e) Leased assets The costs of operating leases are charged to operations on a straight-line basis over the lease term, even if rental payments are not made on such a basis.

Assets acquired under capital leases are included in the balance sheet as tangible fixed assets and are depreciated over the shorter of the period of the lease or their useful lives. The capital elements of future lease payments are recorded as liabilities, while the interest element is charged to operations over the period of the lease to produce a level yield on the balance of the capital lease obligation. f) Finance costs of debt Finance costs of debt are recorded as a deferred asset and then amortized to the statement of operations over the term of the debt, using the effective interest rate method. Deferred financing costs relating to debt extinguishments are written off and reflected in interest expense in the consolidated statement of operations. g) Income taxes The Company provides for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.109, ‘Accounting for Income Taxes’ (SFAS No. 109). Deferred tax assets and liabilities are provided for differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the tax bases of assets and liabilities that will result in future taxable or deductible amounts. The deferred tax assets and liabilities are measured using the enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Income tax expense is computed as the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities.

Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. h) Earnings per share Earnings per share (EPS) is computed in accordance with SFAS No. 128, ‘Earnings per Share’ (SFAS No. 128). Basic EPS is computed by dividing consolidated net income available to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is computed by dividing consolidated net income available to ordinary shareholders by the weighted average number of shares outstanding during the period, adjusted for potentially dilutive shares that might be issued upon exercise of ordinary stock options. Such potentially dilutive shares are excluded when the effect would be to increase earnings per share or reduce a loss per share. 56 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

2 Summary of significant accounting policies continued i) Advertising expense The Company expenses the cost of advertising as incurred. Advertising costs amounted to $40.7 million, $45.6 million and $21.8 million for the years ended December 31, 2003, 2002 and 2001 respectively. j) Foreign currency Monetary assets and liabilities in foreign currencies are translated into the relevant functional currency at the rate of exchange ruling at the balance sheet date. Transactions in foreign currencies are translated into the relevant functional currency at the rate of exchange ruling at the date of the transaction. Transaction gains and losses are recognized in arriving at operating net income.

The results of overseas operations, whose functional currency is not US dollars, are translated at the average rates of exchange during the period and their balance sheets at the rates ruling at the balance sheet date. The cumulative effect of exchange rate movements is included in a separate component of other comprehensive income.

Foreign currency exchange transaction gains and losses on an after-tax basis included in consolidated net income in the years ended December 31, 2003, 2002, and 2001, pursuant to SFAS No. 52, ‘Foreign Currency Translation’, amounted to a $6.7 million loss, $0.3 million loss and $0.5 million loss, respectively. k) Employee stock plans The Company accounts for its stock options using the intrinsic-value method prescribed in Accounting Principles Board Opinion No. 25, ‘Accounting for Stock Issued to Employees’ (APB No. 25). Accordingly, compensation cost of stock options is measured as the excess, if any, of the quoted market price of Shire’s stock at the measurement date over the option exercise price and is charged to operations over the vesting period. For plans where the measurement date occurs after the grant date, referred to as variable plans, compensation cost is re-measured on the basis of the current market value of Shire stock at the end of each reporting period. Shire recognizes compensation expense for variable plans with performance conditions if achievement of those conditions becomes probable. As required by SFAS No. 123, ‘Accounting for Stock Based on Compensation’ (SFAS No. 123), the Company has included in these financial statements the required pro forma disclosures as if the fair-value method of accounting had been applied.

As of December 31, 2003, the Company had seven stock-based employee compensation plans, which are described more fully in Note 27 to the consolidated financial statements.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Net income, as reported 276,051 250,569 38,759 Add: Stock-based employee compensation credit/(charge) included in reported net income, net of related tax effects (24) (166) 2,278 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards (31,956) (24,084) (32,268) Pro forma net income 244,071 226,319 8,769

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Earnings per share As reported – basic 55.3¢ 50.0¢ 7.9¢ As reported – diluted 48.9¢ 49.0¢ 7.7¢ Pro forma – basic 54.1¢ 45.2¢ 1.8¢ Pro forma – diluted 48.1¢ 44.4¢ 1.7¢ l) Cash and cash equivalents Cash and cash equivalents are defined as short-term highly liquid investments with original maturities of ninety days or less. m) Marketable securities Marketable securities consist of commercial paper and institutional and managed cash funds. In accordance with SFAS No. 115 ‘Accounting for Certain Investments in Debt and Equity Securities’, and based on the Company’s intentions regarding these instruments, the Company has classified all marketable securities as held-to-maturity and has accounted for these investments at amortized cost.

Institutional and managed cash funds are short-term money market instruments, including bank and building society term deposits from a variety of companies with strong credit ratings. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 57 In thousands of US dollars, except where indicated

2 Summary of significant accounting policies continued n) Inventories Inventories, consisting primarily of finished goods, are stated at the lower of cost (including manufacturing overheads, where appropriate) or net realizable value. Cost incurred in bringing each product to its present location and condition is based on purchase costs calculated on a first-in, first-out basis, including transport. Net realizable value is based on estimated normal selling price less further costs expected to be incurred to completion and disposal. o) Investments The Company has certain investments in equity securities.

Investments are accounted for using the equity method of accounting if the investment gives the Company the ability to exercise significant influence, but not control over, the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on the investee’s Board of Directors and the impact of commercial arrangements, are considered in determining whether the equity method of accounting is appropriate.

Under the equity method of accounting, the Company records its investments in equity-method investees in the consolidated balance sheet as Investments – Equity method investments and its share of the investees’ earnings or losses together with other-than temporary impairments in value as Equity in (losses)/earnings of equity method investees in the consolidated statement of operations.

All other equity investments, which consist of investments for which the Company does not have the ability to exercise significant influence, are accounted for under the cost method or at fair value. Investments in private companies are carried at cost, less provisions for other than temporary impairment in value. For public companies that have readily determinable fair values, the Company classifies its equity investments as available-for-sale and, accordingly, records these investments at their fair values with unrealized gains and losses included in the consolidated statements of comprehensive income, net of any related tax effect. Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other expense, net (see note 23). The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included as interest income. p) Goodwill and other intangible assets (i) Goodwill Goodwill represents the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired.

Periods ending on or before December 31, 2001 For periods ending on or before December 31, 2001, goodwill recognized in respect of each significant business combination was amortized over a period of 5 to 30 years (weighted average: 19 years) on a straight line basis depending on the nature of the goodwill, and was evaluated for impairment when events or changes in circumstance indicated, in management’s judgment, that the carrying value of such assets may not be recoverable.

Impairments of goodwill were recognized if expected undiscounted cash flows were not sufficient to recover the goodwill. If a material impairment was identified, goodwill was written down to its estimated fair value. Fair value was 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.

Periods commencing January 1, 2002 Effective January 1, 2002, the Company adopted SFAS No. 142, ‘Goodwill and Other Intangible Assets’ (SFAS No. 142), which applies to all goodwill and other intangible assets, recognized in the balance sheets at that date, regardless of when the assets were initially recognized. This statement requires that goodwill and other intangibles with indefinite lives no longer be amortized to operations, but instead be reviewed for impairment, at least annually. The Company has no intangible assets with indefinite useful lives.

The Company annually examines the carrying value of goodwill to determine whether there are any impairment losses and has determined that for the years ended December 31, 2002 and 2003, there are no such losses.

(ii) Other intangible assets Other intangible assets, which comprise intellectual property including trade marks for products with a defined revenue stream (namely commercial products or rights to products awaiting final regulatory approval), are recorded at cost and amortized over the estimated useful life of the related product, which ranges from 5 to 40 years (weighted average 23 years). Intellectual property with no defined revenue stream, where the related product has not yet completed the necessary approval process, is written off to operations on acquisition. 58 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

2 Summary of significant accounting policies continued The following factors are considered in estimating useful lives. Where an intangible asset is a composite of a number of factors, the period of amortization is determined from considering these factors together:

– expected use of the asset; – regulatory, legal or contractual provisions, including the regulatory approval and review process, patent issues and actions by government agencies; – the effects of obsolescence, changes in demand, competing products and other economic factors, including the stability of the market, known technological advances, development of competing drugs that are more effective clinically or economically; and – actions of competitors, suppliers, regulatory agencies or others that may eliminate current competitive advantages. q) Property, plant and equipment Property, plant and equipment is shown at cost, less accumulated depreciation and any impairment. Cost of significant assets includes capitalized interest incurred during the construction period. Depreciation is provided on a straight-line basis at rates calculated to write- off the cost less estimated residual value of each asset over its estimated useful life as follows:

Buildings 20 to 50 years Office furniture, fittings and equipment 4 to 10 years Warehouse, laboratory and manufacturing equipment 4 to 10 years

The cost of land is not depreciated.

Expenditures for maintenance and repairs are charged to operations as incurred. The costs of major renewals and improvements are capitalized. At the time property, plant and equipment is retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the asset and accumulated depreciation accounts. The profit or loss on such disposition is reflected in operating income. r) Valuation and impairment of long-lived assets other than goodwill and investments The Company evaluates the carrying value of long-lived assets other than goodwill and investments for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. When such a determination is made, management’s estimate of undiscounted cash flows to be generated by the assets is compared to the carrying value of the assets to determine whether an impairment has occurred. If an impairment is indicated, the amount of the impairment recognized in the consolidated financial statements is determined by estimating the fair value of the assets and recording a loss for the amount that the carrying value exceeds the estimated fair value. This fair value is usually estimated based on estimated discounted cash flows. s) Assets held for sale An asset is classified as held for sale when, amongst other things, the Company has committed to a plan of disposition, the asset is available for immediate sale, and the plan is not expected to change significantly. t) Rebates Rebates primarily consist of statutory rebates to state Medicaid agencies and contractual rebates with health-maintenance organizations (HMOs). Statutory rebates to state Medicaid agencies and contractual rebates with HMOs are based on price differentials between a base price and the selling price. As a result, the rebates increase as a percentage of the selling price over the life of the product. Provision for rebates are recorded as reductions to revenue in the same period as the related sales with estimates of future utilization derived from historical trends. u) Common stock The authorized common stock of the Company as of December 31, 2003 was 799,999,965 ordinary shares and 17,500,000 special ordinary voting shares. The special ordinary voting shares are entitled to dividend and other rights that are economically equivalent to those of the ordinary shares.

During the second quarter of 2003, the Company initiated a planned re purchase of its common stock. During that period, the Company repurchased 7,592,778 of its ordinary shares at an average price of $6.78 per share. v) Concentration of risk Revenues are mainly derived from agreements with major pharmaceutical companies and relationships with pharmaceutical wholesale distributors and retail pharmacy chains. Significant customers are disclosed in note 21. Such clients have significant cash resources and therefore any credit risk associated with these transactions is considered minimal.

Excess cash is invested in bank and building society term deposits and commercial paper from a variety of companies with strong credit ratings. These investments typically bear minimal credit risk.

A significant proportion of revenue is derived from ADDERALL XR and 3TC. During 2003, revenues from these products were $474.5 million and $144.6 million respectively, representing 38% and 12% of total revenues respectively. As a result, factors affecting the sale or production of ADDERALL XR or 3TC would have a material adverse effect on the Company’s financial condition and results of operation. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 59 In thousands of US dollars, except where indicated

2 Summary of significant accounting policies continued w) Reclassifications Certain amounts reported in previous years have been reclassified to conform to the 2003 presentation. x) New accounting pronouncements (i) Adopted in the current year In April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, ‘Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections’ (SFAS No 145). The principal change reflected in this pronouncement is that gains or losses from extinguishment of debt which were classified as extraordinary items by SFAS No. 4 are no longer classified as such. The Company adopted SFAS No. 145 during the current year. When adopted, prior extraordinary items relating to the extinguishment of debt were reclassified. This resulted in extraordinary items of $2.6 million ($4.1 million before taxes and $1.5 million of income taxes) in 2001 being reclassified to interest expense and income taxes, respectively.

(ii) To be adopted in future periods In December 2003, the FASB issued a revision to Interpretation No. 46 ‘Consolidation of Variable Interest Entities, an interpretation of ARB No. 51’ (FIN 46R or the Interpretation). FIN 46R clarifies the application of Accounting Research Bulletin No. 51 ‘Consolidated Financial Statements’ to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support. FIN 46R requires the consolidation of these entities, known as variable interest entities, by the primary beneficiary of the entity. The primary beneficiary is the entity, if any, that will absorb a majority of the entity’s expected losses or receive a majority of the entity’s expected residual returns, or both.

Among other changes, FIN 46R (a) clarified some requirements of the original FIN 46 which had been issued in January 2003, (b) eased some implementation problems and (c) added new exceptions. FIN 46R deferred the effective date of the Interpretation for public companies to the end of the first reporting period after March 15, 2004 except that all public companies must, at a minimum, apply the provisions of the Interpretation to all entities that were previously considered ‘special purpose entities’ under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The Company does not anticipate that the adoption of FIN 46 will have a material impact on its financial position, cash flows or results of operations. y) Statutory accounts The consolidated financial statements as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 do not comprise statutory accounts within the meaning of Section 240 of the UK Companies Act 1985.

Statutory accounts prepared in accordance with generally accepted accounting principles in the United Kingdom for the years ended December 31, 2002 and 2001, have been delivered to the Registrar of Companies for England and Wales. The auditors’ report on those accounts was unqualified.

3 Business combinations and reorganizations Year ended December 31, 2003 a) Closure of Lead Optimization On July 31, 2003, Shire announced its decision to close Lead Optimization as a result of a strategic review. The closure resulted in:

– the severance of approximately 135 Lead Optimization employees. As of December 2003, 130 had left the Company, and the remaining employees left by January 31, 2004. Severance payments are being made to the former employees over a fifteen-month period, as required by local regulations; – a $6.0 million write-off of associated tangible fixed assets. These assets, primarily laboratory equipment, were used by Lead Optimization for research and development and have no alternative use; and – the cancellation, to the extent possible, of contracts directly relating to Lead Optimization. 60 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

3 Business combinations and reorganizations continued The costs have been reflected in the statement of operations and within the reporting segments as follows:

Income statement classification Allocation between segments R&D SG&A R&D International $’000 $’000 $’000 $’000 Employee severance 6,425 – 6,425 – Write-off of tangible fixed assets – 6,026 – 6,026 Other costs 800 – 800 – 7,225 6,026 7,225 6,026

As noted above, certain of the costs associated with the closure will be incurred in subsequent periods. The following provides a roll-forward of the liability that has been recorded as of December 31, 2003.

Costs recorded Utilization in year to in year to Opening December 31, December 31, Closing liablity 2003 2003 liability $’000 $’000 $’000 $’000 Employee severance – 6,425 (2,973) 3,452 Write-down of tangible fixed assets 6,026 (6,026) – Other costs – 800 (475) 325 – 13,251 (9,474) 3,777 b) Assets held for sale Subsequent to the closure of Lead Optimization, the decision to dispose of the Biologics business and the announced US site reorganization (all discussed above), the Company began an assessment of property needs in Canada and the United States. As a result of this initial process, the Company decided to dispose of its building in Laval, Canada and will relocate the employees based in Laval to another site or enter into a lease agreement with an ultimate buyer. The Company also decided to sell its building in Buffalo Grove. As of December 31, 2003, the Company had obtained valuations of the properties and entered into sale negotiations with third parties on the Laval property and is actively seeking buyers for its Buffalo Grove facility. Based on these negotiations, the valuations obtained, the limitations on use of the building in its current state and the overall real estate market, the Company has recorded an impairment charge of $10.7 million, which is included in selling, general and administrative expenses in the consolidated statement of operations; in addition, the Company has reclassified to prepaid expenses and other current assets the assets held for sale in the consolidated balance sheets.

Year ended December 31, 2002 a) SUMI acquisition On September 27, 2002, the Company completed its acquisition of SUMI from Niro Inc. for cash consideration of $17.3 million, including $0.3 million costs of acquisition. This transaction provided the Company with an in-house facility in which to manufacture several key US products. The acquisition was accounted for using the purchase method and goodwill of $10.2 million was recorded. The results of operations of SUMI have been included in the consolidated results of the Company since the date of acquisition.

The purchase price of $17.3 million was allocated as follows:

Fair value $’000 Total current assets 3,188 Property, plant and equipment, net 11,620 Current installments of long-term debt (216) Accounts payable (1,367) Long-term debt, excluding current installments (6,050) Net assets acquired 7,175 Goodwill 10,175 17,350 Represented by: Purchase consideration 17,000 Acquisition fees 350 17,350 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 61 In thousands of US dollars, except where indicated

3 Business combinations and reorganizations continued The following unaudited consolidated pro forma results of operations for the years ended December 31, 2002 and 2001 give effect to the acquisition of SUMI as if it was completed at the beginning of each period. These proforma results reflect incremental financing costs resulting from acquisition and the amortization of acquired intangible assets:

2002 2001 Year ended December 31, $’000 $’000 Revenues 1,042,748 861,660 Net income 248,983 38,824 Earnings per share - basic 49.7 7.9 Earnings per share - diluted 48.7 7.7

This unaudited pro forma financial information has been prepared for comparative purposes only and does not purport to represent the results of operations which would actually have occurred had the companies operated as one during the period, nor to predict the Company’s results of future operations. b) Divestment of OTC products division On December 27, 2002, the Company completed its divestment of a group of non-strategic US products, known collectively as the Over-The-Counter (OTC) products. The Company received sale proceeds of $71.0 million and recorded a gain on disposal of $2.1 million. Further details of this discontinued operation are provided in note 4 below.

4 Discontinued operations In December 1999 the Company acquired a group of products, collectively referred to as the OTC portfolio, through its merger with Roberts Pharmaceutical Corporation (Roberts). The OTC portfolio consisted of non-prescription laxatives and dietary supplements sold by the Company’s US operating segment. As a pharmaceuticals company that focuses on prescription only products, this part of the business was not considered to be a core part of the Company’s long-term strategy and hence the decision was made to divest the OTC portfolio. On December 27, 2002, the Company completed its divestment of the OTC business. The Company received sale proceeds of $71.0 million and recorded a gain on disposal of $2.1 million.

The historical consolidated financial statements have been restated to reflect the OTC business as a discontinued operation for all periods presented. Operating results of the discontinued operations are summarized below.

The amounts include income tax provisions based on the stand alone results of the OTC business. There have been no allocations of general and administrative corporate costs or interest expense related to corporate credit facilities to the discontinued operation. As the OTC business functioned within Shire US, which itself essentially functions as an independent entity, no corporate costs were eliminated upon discontinuance of the operation. Within Shire US, the OTC business had few dedicated resources. All of the products were manufactured and packaged by third party contract manufacturers. The products were distributed through a shared warehouse facility and sold through a small sales team.

2002 2001 Year ended December 31, $’000 $’000 Product sales 24,010 24,613 Cost of product sales (5,764) (6,279) Gross profit 18,246 18,334 Operating expenses: Selling, general and administrative (8,550) (7,623) Operating income 9,696 10,711 Income taxes (3,588) (3,963) Income from discontinued operations 6,108 6,748 Gain on sale (net of tax) 2,083 – 8,191 6,748 62 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

4 Discontinued operations continued The assets and liabilities of the discontinued operation are summarized below.

December 31, December 31, 2002 2001 $’000 $’000 Current assets: Inventories – 1,779 Long term assets: Goodwill and other intangible assets, net – 65,348 Deferred tax liability – (7,400) Total long term assets – 57,948 Current liabilities: Other current liabilities (12,784) – Total current liabilities (12,784) – Net (liabilities)/assets (12,784) 59,727

Included in the 2002 other current liabilities are amounts for ongoing liabilities that were not transferred to the purchaser. There are no remaining liabilities as of December 31, 2003.

5 Marketable securities

December 31, December 31, 2003 2002 $’000 $’000 Commercial paper 120,872 87,843 Institutional and managed cash funds 183,257 228,283 304,129 316,126

December 31, December 31, 2003 2002 Maturity profile of commercial paper $’000 $’000 Less than one month 27,854 7,297 1-3 months 84,763 12,981 3-6 months 8,255 67,565 120,872 87,843

December 31, December 31, 2003 2002 Maturity profile of institutional and managed cash funds $’000 $’000 Less than one month 51,550 63,600 1-3 months 19,861 20,373 3-6 months 26,791 45,090 6-12 months 36,195 25,192 More than one year 48,860 74,028 183,257 228,283 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 63 In thousands of US dollars, except where indicated

6 Accounts receivable, net

December 31, December 31, 2003 2002 $’000 $’000 Trade receivables, net 208,893 130,210 Research and development contracts 5,151 5,184 Other receivables 1,646 3,003 215,690 138,397

Included within research and development contracts receivable are amounts due in respect of an agreement with the Canadian government, Technology Partnerships Canada (TPC), under which a contribution is made towards certain eligible research and development costs incurred by Shire’s Canadian subsidiary, Shire BioChem Inc. This was $3.4 million at December 31, 2003 (2002: $1.0 million).

Trade receivables are stated net of a provision for doubtful accounts and discounts of $7.9 million (December 31, 2002: $4.6 million). The movement in the provision for doubtful accounts and discounts is as follows:

2003 2002 2001 $’000 $’000 $’000 As of January 1, 4,585 5,724 2,709 Charged to income 42,841 35,021 27,239 Utilization (39,573) (36,160) (24,224) As of December 31, 7,853 4,585 5,724

7 Inventories

December 31, December 31, 2003 2002 $’000 $’000 Finished goods 28,356 27,672 Work-in-process 10,104 13,716 Raw materials 6,798 7,828 45,258 49,216

8 Prepaid expenses and other current assets

December 31, December 31, 2003 2002 $’000 $’000 Prepaid expenses 19,747 14,558 Assets held for resale 12,470 – Deferred financing costs 1,004 1,208 Value added taxes receivable 3,819 2,730 Other current assets 10,977 12,294 48,017 30,790

Deferred financing costs relate to the $370 million convertible loan note (see note 15). These costs are being amortized over 10 years using the effective interest rate method. 64 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

9 Investments

December 31, December 31, 2003 2002 $’000 $’000 Investments in private companies 46,068 47,255 Investments in public companies 22,057 14,129 Equity method investments 5,028 10,578 73,153 71,962 a) Investments in private companies Investments in private companies comprise investments in a number of pharmaceutical and biotechnology companies. The investments in the following private companies require Shire to make additional future investments:

(i) GeneChem funds Between 1997 and 2000, the Company made investments in two venture capital funds. The fund managers distribute income to the partners of the funds in respect of dividends or realized gains made on sale of investments. As part of its initial investment, the Company was required to make additional future investments. As of December 31, 2003, the Company is committed to making an additional investment of $4.1 million (CAN$5.3 million).

(ii) EGS Healthcare fund In November 2000, the Company entered into an agreement to invest up to $10.0 million in various EGS healthcare funds. EGS is a private equity company that makes investments in healthcare companies that focus mainly on biotechnology and pharmaceuticals. As of December 31, 2003, the Company has invested $6.1 million in EGS healthcare funds and the Company is committed to invest a further $3.9 million into these funds. b) Investments in public companies During the year ended December 31, 2003, there were no new investments made in public companies. In July 2002, the Company’s $11.1 million preference share investment in Immunogen Inc. was converted in to a common stock holding.

During the year ending December 31, 2002, the Company wrote down the cost of investments in public companies by $4.5 million due to other than temporary impairments. This expense is included within non-operating other (expense)/income, net (see note 23). c) Equity method investments The Company has accounted for its commercialization partnership with GSK (through which the products 3TC and ZEFFIX are marketed in Canada) using the equity method of accounting. The Company’s 50% share of the partnership is included within ‘Equity in earnings of equity method investees’ and the related equity investment of $5.0 million (December 31, 2002: $2.9 million) is included above.

On December 31, 2003, the Company sold its investment in Qualia Computing Inc., an equity method investee, to iCAD Inc. The Company received sale proceeds of $5.5 million consisting of cash and a receivable. There was no gain or loss recognized on this transaction.

During 2003 the Company had applied the equity method of accounting as the Company owned, but did not exercise control over its 50% share of the joint venture. As a result, the Company’s investment was valued at cost, adjusted for its share of the earnings or losses of the joint venture. The Company’s share of the partnership was included within ‘Equity in earnings of equity method investees’ in the consolidated statement of operations and the related equity investment was included in equity method investments in the consolidated balance sheet. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 65 In thousands of US dollars, except where indicated

10 Property, plant and equipment, net

December 31, December 31, 2003 2002 $’000 $’000 Land and buildings 107,466 111,164 Office furniture, fittings and equipment 48,847 31,210 Warehouse, laboratory and manufacturing equipment 80,978 46,706 237,291 189,080 Less: Accumulated depreciation (76,066) (53,846) 161,225 135,234

Depreciation expense for the years ended December 31, 2003, 2002 and 2001 was $32.8 million, $12.9 million and $14.4 million respectively. Included within the charge for 2003 is a $6.0 million write-down of equipment from Lead Optimization.

11 Goodwill and other intangible assets, net

December 31, December 31, 2003 2002 $’000 $’000 Goodwill arising on businesses acquired 281,072 254,207 Less: accumulated amortization (55,212) (50,440) 225,860 203,767 Intellectual property rights acquired 469,137 397,807 Less: accumulated amortization (161,255) (96,723) 307,882 301,084 Total 533,742 504,851

The increase/(decrease) in the net book value of goodwill and other intangible assets for the year ended December 31, 2003 is shown in the table below:

Other intangible Goodwill assets $’000 $’000 As of January 1, 2003 203,767 301,084 Acquisitions – 48,275 Amortization charged – (26,400) Asset impairments – (27,489) Foreign currency translation 22,093 12,412 As of December 31, 2003 225,860 307,882

The acquisition of other intangible assets primarily related to METHYPATCH, VANIQA and five products, purchased in Canada from DRAXIS Health Inc.

Throughout the year the Company continuously assesses the carrying value of its other intangible assets. This involves consideration of, among other things, the direction of the business and the marketability of the underlying products. The Company recorded asset impairments of $12.1 million (2002: $18.8 million) and wrote down $15.4 million (2002: $nil) of assets during the year ended December 31, 2003. The asset impairments of $12.1 million resulted from a decline in product prices, which decreased the estimated future cash flows and the $15.4 million resulted from a decision not to renew product licenses that were not core to the business. The impairments and write-downs totalling $27.5 million have been reflected in selling, general and administrative expenses in the consolidated statement of operations ($11.7 million (2002: $10.8 million) in the US segment and $15.8 million (2002: $8.0 million) in the International segment).

During 2002 the Company reviewed its existing product base. On completion of this review, management decided to cease supporting certain products that were not considered to be core to the business and to redirect investment toward other more profitable products. Intangible assets associated with these products, namely product rights and licenses, were written down to their fair value based on discounted cash flow analyses. This resulted in the recognition of an impairment loss of $18.8 million ($10.8 million in the US segment and $8.0 million in the international segment), which has been reflected in selling, general and administrative expenses in the consolidated statement of operations.

Amortization charged for the three years ended December 31, 2003, 2002 and 2001 was $26.4 million, $23.5 million and $31.4 million, respectively. Goodwill was no longer amortized with effect from January 1, 2002 following the adoption of SFAS No. 142. 66 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

11 Goodwill and other intangible assets, net continued Adoption of SFAS No. 142 As described in note 2, the Company adopted SFAS No. 142 as of January 1, 2002.

A transitional assessment of goodwill impairment as of January 1, 2002 was completed by June 30, 2002. Management concluded that the fair value of the Company’s individual reporting units exceeded the carrying value of the net assets including goodwill, and hence this process did not result in any impairment being recorded on adoption of SFAS No. 142.

A reconciliation table is provided below to exclude the effect of goodwill amortization in accordance with the transitional disclosures relating to SFAS No. 142. Results for the years ended December 31, 2003 and 2002 have been prepared in accordance with SFAS No. 142.

2001 Year ended December 31, $’000 Income from continuing operations as reported 34,615 Add back of goodwill amortization charge 10,763 Adjusted income from continuing operations 45,378 Net income as reported 38,759 Add back of goodwill amortization charge 10,763 Adjusted net income for basic earnings per share 49,522 Interest charged on convertible debt, net of tax – Adjusted net income for diluted earnings per share 49,522 2001 Year ended December 31, $’000 Basic earnings per share (in $): Basic earnings per share, as reported 7.9 Add back goodwill amortization charge 2.2 Adjusted basic earnings per share 10.1 Diluted earnings per share (in $): Diluted earnings per share as reported 7.7 Add back goodwill amortization charge 2.1 Interest charged on convertible debt, net of tax – Adjusted diluted earnings per share 9.8 No. of shares Weighted average number of shares: Basic 492,594,226 Diluted 504,875,587

There is no tax effect related to the goodwill amortization disclosed above.

The useful economic lives of all intangible assets that continue to be amortized under SFAS No. 142 have been assessed. Management estimates that the annual amortization charges in respect of intangible fixed assets held at December 31, 2003 will be approximately $43 million for each of the five years to December 31, 2008. Estimated amortization expense can be affected by various factors including future acquisitions, disposals of product rights and the technological advancement and regulatory approval of competitor products.

The net book value of goodwill by operating segment is as follows:

US International Biologics Corporate R&D Total December 31, $’000 $’000 $’000 $’000 $’000 $’000 2003 193,023 32,837 – – – 225,860 2002 174,617 29,150 – – – 203,767

There were no changes in allocation of goodwill in either period and all the movements are due to foreign exchange. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 67 In thousands of US dollars, except where indicated

12 Other non-current assets

December 31, December 31, 2003 2002 $’000 $’000 Deferred financing costs 6,441 7,915 SERP investment 12,042 12,070 Other assets 4,470 3,279 22,953 23,264

The deferred financing costs are in respect of the $370 million convertible loan note. These costs are being amortized over 10 years. The current element of these costs is included within prepaid expenses and other current assets (note 8).

Further details of the Supplemental Executive Retirement Plan (SERP) investment are provided in note 24. The amount shown above is the cash surrender value of life insurance policies which is backed by marketable securities. A liability of $8.9 million is included within notes 14 and 16 (2002: $8.4 million).

13 Accounts payable and accrued expenses

December 31, December 31, 2003 2002 $’000 $’000 Trade accounts payable 21,301 46,912 Accrued rebates and charge-backs 59,397 45,919 Accrued bonuses 18,920 13,622 Research and development accruals 27,676 26,298 Marketing accrual 16,045 21,269 Deferred revenue 4,132 – Other accrued expenses 68,023 30,087 215,494 184,107

14 Other current liabilities

December 31, December 31, 2003 2002 $’000 $’000 Income taxes payable 19,102 5,440 Interest on long-term debt 2,653 2,893 Social security liabilities 2,216 1,934 Value added taxes 1,503 1,957 SERP 2,781 1,233 Other accrued liabilities 8,872 3,268 37,127 16,725 68 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

15 Long-term debt

December 31, December 31, 2003 2002 $’000 $’000 Total obligations 377,835 408,190 Current maturities of long-term obligations (1,054) (888) Total long-term debt 376,781 407,302

An analysis of total obligations by loan type is presented below:

December 31, December 31, 2003 2002 $’000 $’000 Convertible notes due 2011 370,225 400,000 Canadian provincial and federal government loan 1,532 1,880 Capital leases 6,078 6,310 377,835 408,190

Principal payments in each of the next five years and thereafter on total obligations outstanding as of December 31, 2003 amount to:

December 31, 2003 $’000 2004 1,054 2005 1,014 2006 254 2007 272 2008 294 Thereafter 374,947 377,835

(i) Convertible notes due 2011 The $370 million of guaranteed convertible notes due 2011, were issued in August 2001 by Shire Finance Limited (the Issuer), a wholly owned finance subsidiary of Shire.

The convertible notes are guaranteed by Shire and are convertible into redeemable preference shares of the Issuer which upon issuance will be immediately exchanged for either (i) Shire ordinary shares, (ii) Shire ADSs or (iii) at the Issuer’s option, a cash amount based upon the London Stock Exchange volume-weighted average prices of ordinary shares on the fourth through eighth business days following conversion.

At the choice of investors, each $1,000 of nominal value notes can be converted into 49.62 Shire ordinary shares (subject to adjustment) or 16.54 Shire ADSs (subject to adjustment) at any time up to August 21, 2011. Alternatively, investors can choose to receive repayment of the nominal principal in cash either at the maturity date of August 21, 2011 or by exercising a put option on any of the three put dates being August 21, 2004, August 21, 2006 and August 21, 2008.

At the option of the Company, repayment can be made in the form of Shire ordinary shares or ADSs. The number of ordinary shares that a note holder would receive would be based on the notional principal of the notes divided by 95% of the London Stock Exchange volume-weighted average price of ordinary shares on the five trading days after the Company gives notice of the exercise of its option. Such notice will be on or before the tenth business day preceding the repayment put date. On or after August 21, 2004, the Company may redeem, for cash, all or part of the notes providing the ordinary share price has exceeded $26.20 (British pound equivalent at the time) for 20 of the 30 consecutive dealing days in the period prior to redemption.

The decision as to whether a note holder should exercise a put option will depend on a number of factors, particularly the price of Shire shares at the put date and the likelihood of the Company’s share price exceeding the conversion threshold price. The conversion threshold price is equivalent to $20.15 or £12.52 (at the closing exchange rate for 2003) for Shire ordinary shares and $60.46 for Shire ADSs. If the price of Shire ordinary shares at the first put date of August 21, 2004 remains at a level similar to the 2003 year-end price of £5.42 ($29.06 for Shire ADSs), it is quite possible that note holders will choose to exercise their put options. The Company currently has adequate resources from which it could satisfy repayment of the entire convertible debt principal of $370.2 million.

During the year ended December 31, 2003, the Company repurchased $29.8 million of the convertible notes due 2011, recording a gain of $0.5 million which is reflected in other expense, net on the consolidated statement of operations.

The interest expense recorded in the year ended December 31, 2003 was $7.5 million (2002: $8.0 million, 2001: $2.9 million). Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 69 In thousands of US dollars, except where indicated

15 Long-term debt continued (ii) Canadian federal and provincial government loan The Company has a Canadian federal and provincial government loan outstanding of $1.5 million (CAN$2.0 million). This facility is non- interest bearing and is repayable in annual installments of $0.8 million (CAN$1.0 million).

(iii) Capital leases

December 31, December 31, 2003 2002 Obligations under capital leases $’000 $’000 Current 282 261 Non-current 5,796 6,049 6,078 6,310

The following is an analysis of the leased property under capital leases by major asset classes:

December 31, December 31, 2003 2002 $’000 $’000 Land and buildings 6,645 6,259 Office furniture, fittings and equipment 172 160 6,817 6,419 Less: accumulated depreciation (888) (126) 5,929 6,293

The following is a schedule by years of future minimum lease payments under capital leases:

December 31, 2003 $’000 2004 282 2005 254 2006 254 2007 272 2008 294 Thereafter 4,722 6,078

16 Other non-current liabilities

December 31, December 31, 2003 2002 $’000 $’000 SERP (note 24) 6,102 7,131 Long-term bonuses 3,117 – Deferred revenue 13,430 – Other accrued liabilities 1,149 6,520 23,798 13,651

The deferred revenue relates to amounts received from the out-licensing of AGRYLIN and FOSRENOL in Japan. 70 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

17 Financial instruments The estimated fair value of the Company’s financial instruments at December 31, is summarized below. Certain estimates and judgments were required to develop the fair value amounts. The fair value amounts shown below are not necessarily indicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability to dispose of the financial instrument.

The following methods and assumptions were used to estimate the fair value of each material class of financial instrument:

– Marketable securities (commercial paper and institutional and managed cash funds) – the carrying value approximates fair value because of the short-term nature of these instruments. – Investments – the carrying value of non-current investments with readily determinable market values equals the fair value as such instruments are marked to market. – Long-term debt – the fair value of long-term debt is estimated based on the discounted future cash flows using currently available interest rates or, where the debt instrument is traded, by reference to the market price.

The carrying amounts and corresponding fair values of financial instruments, were as follows as of December 31, 2003 and 2002:

Carrying Amount Fair Value $’000 $’000 December 31, 2003 Financial assets: Commercial paper 120,872 120,872 Institutional and managed cash funds 183,257 183,257 Investments 22,057 22,057 Financial liabilities: Long-term debt 376,781 378,769 December 31, 2002 Financial assets: Commercial paper 87,843 87,843 Institutional and managed cash funds 228,283 228,283 Investments 14,129 14,129 Financial liabilities: Long-term debt 408,190 376,883

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short-term maturity of these instruments. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 71 In thousands of US dollars, except where indicated

18 Commitments and contingencies a) Leases The Company leases facilities, motor vehicles and certain equipment under operating leases expiring through 2012. Expense related to operating leases is recognized on a straight-line basis over the life of the lease. In addition, the Company has a building lease, which is accounted for as a capital lease, which expires in 2019.

Future minimum lease payments presented below include principal lease payments and other fixed executory fees under lease arrangements as of December 31, 2003:

Operating Capital leases lease $’000 $’000 2004 12,719 282 2005 7,854 254 2006 5,234 254 2007 3,646 272 2008 2,794 294 Thereafter 11,819 4,722 44,066 6,078 Less: amount representing fixed executory costs, including interest, included in future minimum lease payments – Total capital lease obligation 6,078 Less: current portion of capital lease obligation (282) Non-current portion of capital lease obligation 5,796

Lease and rental expense included in selling, general and administrative expenses in the accompanying statements of operations amounted to $12.2 million, $6.7 million and $6.1 million for the fiscal years ended December 31, 2003, 2002 and 2001, respectively.

Shire has guaranteed a building lease and has $6.8 million of restricted cash held as collateral for this lease. b) Letters of credit As of December 31, 2003 the Company had an irrevocable standby letter of credit with Fifth Third Bank to Allfirst Bank in the amount of $10.0 million relating to the bonds that financed the construction of its US manufacturing facility.

As of December 31, 2003 the Company had an irrevocable standby letter of credit with Barclays Bank plc to Zurich International (UK) Limited in the amount of $15.0 million providing security on the recoverability of insurance claims.

An irrevocable standby letter of credit of $19.0 million (CAN$24.5 million) that represented the Company's obligations with respect to the establishment of pandemic readiness as of December 31, 2003. c) Commitments (i) The Company has undertaken to subscribe to interests in companies and partnerships for amounts totaling $44.8 million (December 31, 2002: $38.1 million). As of December 31, 2003 an amount of $36.8 million (December 31, 2002: $26.4 million) has been subscribed, leaving an outstanding commitment of $8.0 million (December 31, 2002: $11.7 million).

(ii) Government of Canada In 2001, the Company signed a ten-year non-cancellable contract with the Government of Canada (GOC) to assure a state of readiness in the case of an influenza pandemic (worldwide epidemic) and to provide influenza vaccine for all Canadian citizens in such an event (hereinafter referred to as the Pandemic contract).

The concept of a state of readiness against an influenza pandemic requires the development of sufficient infrastructure and capacity in Canada to provide for domestic vaccine needs in the event of an influenza pandemic. The Company is committed to provide 32 million doses of single-strain (monovalent) influenza vaccine within a production period of 16 weeks. The Company has therefore begun a process of expanding its production capacity in order to meet this objective within a five-year period ending January 2006.

The Company is committed to approximately $13.9 million (CAN$18.0 million) of capital expenditure for the purpose of achieving the level of pandemic readiness required in the Pandemic contract. The Government has agreed to reimburse the Company $10.4 million (CAN$13.5 million). At the end of the contract, the Company is committed to buy back any unused and unexpired materials and capital assets reimbursed by the GOC (at net book value) that can be used for production of trivalent vaccine or other products. 72 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

18 Commitments and contingencies continued As a condition of the Pandemic contract, Shire Biochem, a wholly owned subsidiary, entered into an irrevocable standby letter of credit of $19.0 million (CAN$24.5 million). The standby letter of credit is collateralized by an equivalent amount of cash.

In addition, under another GOC contract, the Company is required to supply the GOC with a substantial proportion of its annual influenza vaccine requirements over a ten-year period ending March 2011. Subject to mutual agreement, the contract can be renewed for a further period of between one and ten years.

(iii) Vaccine production facility The Company is also committed to the expansion of its vaccine production facility located in Quebec City. A new building will be located alongside the existing vaccine production facility in the Quebec Metro High Tech Park for an estimated $37.8 million (CAN$48.8 million). Construction of this facility commenced in November 2003. It is expected that this facility will be operational in 2006.

(iv) TPC research facility In March 2000, the Company entered into a funding agreement with TPC, a Canadian governmental agency, (hereinafter referred to as the TPC agreement) relating to the research and development of recombinant protein vaccines. The TPC agreement has as its objective the creation in Canada of skilled scientific and technological jobs in the research and development field, the local manufacture of developed products, capital investment and financial return on investment.

The TPC agreed to a total contribution not to exceed $61.9 million (CAN$80.0 million). Such contribution is repayable to the TPC in the form of royalties on the net sales value (gross invoiced amounts less discounts, taxes and delivery costs) if the products become commercialized. The Company is obligated to pay such royalties in the period to December 31, 2016. No amounts have been accrued with respect to this obligation as the conditions for repayment have not yet been met.

As a condition of the TPC agreement, the Company has an obligation to build a vaccine research facility in Canada. The construction of the vaccine research center in Laval, Canada will represent an investment of approximately $27.5 million (CAN$35.6 million) and should be completed in December 2004.

The TPC agreement requires the Company to comply with certain conditions as outlined in the agreement. Any violation of such conditions allows the TPC to declare the Company in default and may result in repayment of all previous funding.

(v) METHYPATCH In connection with the Company’s purchase of METHYPATCH in 2003, the Company is committed to pay an additional $50 million upon regulatory approval of the product. In addition the Company has an obligation to make further milestone payments, which are linked to the future sales performance of the product. These payments could total $75 million.

(vi) DRAXIS In connection with the Company’s purchase of a range of products from DRAXIS Health Inc. in 2003, the Company has an obligation to make certain milestone payments if no generic events occur for certain products purchased. The milestone payments could reach an amount up to $3.1 million (CAN$4 million) if no generic events have occurred for those products by January 22, 2007. d) Legal proceedings (i) General The Company accounts for litigation losses in accordance with SFAS No. 5, ‘Accounting for Contingencies’ (SFAS No. 5). Under SFAS No. 5, loss contingency provisions are recorded for probable losses when management is able to reasonably estimate the loss. Where the estimated loss lies within in a range and no particular amount within that range is a better estimate than any other amount, the minimum amount is recorded. In other cases management's best estimate of the loss is recorded. These estimates are developed substantially before the ultimate loss is known and the estimates are refined each accounting period in light of additional information being known. In instances where the Company is unable to develop a best estimate of loss, no litigation loss is recorded at that time. As information becomes known a loss provision is set up when a best estimate can be made. The best estimates are reviewed quarterly and the estimates are changed when expectations are revised. Any outcome upon settlement that deviates from the Company’s best estimate may result in an additional expense in a future accounting period. During the year ended December 31, 2003 a legal accrual of $2.0 million was released, to the consolidated statement of operations, because of the outcome of previously pending litigation. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 73 In thousands of US dollars, except where indicated

18 Commitments and contingencies continued (ii) Phentermine Shire US Inc. (SUS), a wholly-owned subsidiary of Shire, is a defendant in 429 lawsuits still pending in both US federal and state courts which seek damages for, among other things, personal injury arising from phentermine products supplied for the treatment of obesity by SUS and several other pharmaceutical companies. SUS, formerly known as Shire Richwood Inc., has been sued as a manufacturer and distributor of phentermine, an anorectic used in the short-term treatment of obesity and one of the products addressed by the lawsuits. The suits relate to phentermine either alone or together with fenfluramine or dexenfluramine. The lawsuits generally allege the following claims: the defendants marketed phentermine and other products for the treatment of obesity and misled users about the products and dangers associated with them; the defendants failed adequately to test phentermine individually and when taken in combination with the other drugs; and the defendants knew or should have known about the negative effects of the drugs and should have informed the public about such risks and/or failed to provide appropriate warning labels. SUS has been named as a defendant in a total of 4,226 such phentermine lawsuits, in respect of which SUS has been dismissed as a defendant in 3,797 cases. Shire is awaiting the furtherance of proceedings in the remaining 429 pending lawsuits.

SUS became involved with phentermine through its acquisition of certain assets of Rexar Pharmacal Corporation (Rexar) in January 1994. In addition to SUS potentially incurring liability as a result of its own production of Oby-Cap, a phentermine product, the plaintiffs may additionally seek to impose liability on SUS as successor to Rexar. SUS intends to defend vigorously all the lawsuits. SUS denies liability on a number of grounds including lack of scientific evidence that phentermine, properly prescribed, causes the alleged side effects and that SUS did not promote phentermine for long-term combined use as part of the ‘fen/phen’ diet. Accordingly, SUS intends to defend vigorously any and all claims made against the Company in respect of phentermine. Legal expenses to date have been paid by Eon, the supplier to SUS, or Eon’s insurance carriers, but such insurance is now exhausted. Eon has agreed to defend and indemnify SUS in this litigation pursuant to an agreement dated November 30, 2000 between Eon and SUS.

(iii) ADDERALL XR Shire’s extended release ‘once daily’ version of ADDERALL, ADDERALL XR is covered by US patent No. 6,322,819 (the ’819 Patent). In January 2003 the Company was notified that Barr Laboratories, Inc. (Barr) had submitted an Abbreviated New Drug Application (ANDA) under the Hatch-Waxman Act seeking permission to market a generic version of ADDERALL XR prior to the expiration date of the Company’s ’819 Patent. The notification alleged that the ’819 Patent is not infringed by Barr’s extended release mixed amphetamine salt product, which is the subject of Barr’s ANDA. On February 24, 2003 Shire Laboratories Inc. (Shire Laboratories) filed suit against Barr in the United States District Court for the Southern District of New York alleging that Barr’s ANDA infringes the ’819 Patent. The Company is seeking a ruling that Barr’s ANDA infringes the ’819 Patent and should not be approved before the expiration date of the ’819 Patent. The Company is also seeking an injunction to prevent Barr from commercializing its ANDA product before the expiration of the ’819 Patent, damages in the event that Barr should engage in such commercialization, as well its attorneys’ fees and costs. Barr has counterclaimed for a declaration that its ANDA product will not infringe the claims of the ’819 Patent. Barr is also seeking its attorneys’ fees, costs and expenses.

On August 12, 2003, Shire Laboratories was issued a new US patent No. 6,605,300 (the ’300 Patent) covering ADDERALL XR. In August 2003 Shire was notified that Barr had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of ADDERALL XR prior to the expiration date of the ’300 Patent and alleging that the ‘300 Patent is invalid. In September 2003 Shire Laboratories filed a lawsuit in the United States District Court for the Southern District of New York against Barr alleging that Barr’s ANDA infringes the ’300 Patent. The Company is seeking a ruling that Barr’s ANDA infringes the ’300 Patent and should not be approved before the expiration date of the ’300 Patent. The Company is also seeking an injunction to prevent Barr from commercializing its ANDA product before the expiration of the ’300 Patent, damages in the event that Barr should engage in such commercialization, as well its attorneys’ fees and costs. By way of a counterclaim Barr is seeking a declaration that the ’300 Patent is invalid and Barr has also asked for its attorneys’ fees, costs and expenses. The lawsuits against Barr with respect to the ’819 and ’300 Patents were consolidated in December 2003 and a trial date scheduled for January 2006.

Barr may not launch a generic version of ADDERALL XR before it receives final approval of its ANDA from the FDA. The lawsuits triggered stays of FDA approval of up to 30 months from the Company’s receipt of Barr’s notices to allow the court to resolve the suits. Even if Barr receives a tentative approval from the FDA, it cannot lawfully launch its generic version before the earlier of the expiration of the latest stay (February 2006) or a district court decision in its favor. In the event that the Company does not prevail, then Barr could be in a position to market its extended release mixed amphetamine salt product upon FDA final approval of its ANDA following the expiry of the existing Hatch-Waxman exclusivity in October 2004.

In November 2003, Shire was notified that Impax Laboratories (Impax) had submitted an ANDA under the Hatch-Waxman Act seeking permission to market its generic version of ADDERALL XR prior to the expiration dates of the ’819 and ’300 Patents and alleging that the ’819 and ’300 Patents are not infringed by Impax’s extended release mixed amphetamine salt product, the subject of Impax’s ANDA. In December 2003, Shire Laboratories filed suit against Impax for infringement of the ’819 and ’300 Patents. The Company is seeking a ruling that Impax’s ANDA infringes the ’819 and ’300 Patents and should not be approved before the expiration dates of the ’819 and ’300 Patents. The Company is also seeking an injunction to prevent Impax from commercializing its ANDA product before the expiration of the ’819 and ’300 Patents, damages in the event that Impax should engage in such commercialization, as well its attorneys’ fees and costs. Impax’s affirmative defenses include non-infringement and invalidity of both the ’819 and ’300 Patents. Impax is also requesting that costs be assessed against the Company. 74 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

18 Commitments and contingencies continued Impax may not launch a generic version of ADDERALL XR before it receives final approval of its ANDA from the FDA. The lawsuit triggered a stay of FDA approval of up to 30 months from the Company’s receipt of Impax’s notice to allow the court to resolve the suit. Even if Impax receives a tentative approval from the FDA, it cannot lawfully launch its generic version before the earlier of the expiration of the stay (May 2006) or a district court decision in its favor. In the event that the Company does not prevail, then Impax could be in a position to market its extended release mixed amphetamine salt product upon FDA final approval of its ANDA following the expiry of the existing Hatch-Waxman exclusivity in October 2004 and upon expiry of any exclusivity that Barr may hold.

(iv) CARBATROL In August 2003, the Company was notified that Nostrum Pharmaceuticals, Inc. (Nostrum) had submitted an ANDA under the Hatch- Waxman Act seeking permission to market its generic version of the 300 mg strength of CARBATROL prior to the expiration date of the Company’s US patents for CARBATROL, US patent No. 5,912,013 (the ’013 Patent) and US patent No. 5,326,570 (the ’570 Patent). The notification alleges that the ’013 and ’570 Patents are not infringed by Nostrum’s 300 mg extended release carbamazepine product, the subject of Nostrum’s ANDA. This dosage strength represents about half of Shire’s current sales in epilepsy. On September 18, 2003 Shire Laboratories served suit against Nostrum in the United States District Court for the District of New Jersey for infringement of these two patents. The Company is seeking a ruling that Nostrum’s ANDA infringes the ’013 and ’570 Patents and should not be approved before the expiration date of the ’013 and ’570 Patents. The Company is also seeking an injunction to prevent Nostrum from commercializing its ANDA product before the expiration of the ’013 and ’570 Patents, damages in the event that Nostrum should engage in such commercialization, as well its attorneys’ fees and costs. On January 23, 2004 the Company amended the Complaint to delete the allegations with respect to the ’013 Patent. By way of counterclaims Nostrum is seeking a declaration that the ’570 and ’013 Patents are not infringed by Nostrum’s ANDA product as well as actual and punitive damages for alleged abuse of process by Shire.

Nostrum may not launch a generic version of CARBATROL before it receives final approval of its ANDA from the FDA. The lawsuit triggered a stay of FDA approval of up to 30 months from Shire’s receipt of Nostrum’s notice to allow the court to resolve the suit. Even if Nostrum receives tentative approval from the FDA for its ANDA, it cannot lawfully launch its generic version before the earlier of the expiration of the stay (February 2006) or a district court decision in its favor. In the event that the Company does not prevail, then Nostrum could be in a position to market its 300 mg extended release carbamazepine product upon FDA final approval of its ANDA.

19 Related parties a) Professional fees The Company incurred professional fees with Stikeman Elliott, a law firm in which the Hon James Grant, a director of the Company, is a partner, totaling $0.8 million for the year ended December 31, 2003 ($1.2 million for the year ended December 31, 2002 and $1.9 million for the year ended December 31, 2001).

$0.5 million was due to the law firms in which the Hon James Grant is a partner as of December 31, 2003 (2002 $nil). b) Immunosystems BioChem Immunosystems Inc. (Immunosystems), formally a wholly owned subsidiary of BioChem, was sold in February 2000 to a third party. Dr Bellini, the former chief executive officer of BioChem, continued as a Director of Immunosystems. In December 2001, the Company acquired a 19.9% equity interest in Immunosystems in consideration for the release of a debt owing to the Company from Immunosystems. This debt existed prior to the Company’s merger with BioChem. As part of the same transaction, the Company was released from a pre-existing BioChem guarantee over other Immunosystems’ liabilities. c) Mr Spitznagel Mr Spitznagel, a former Director of the Company, who resigned during the year ended December 31, 2001, entered into a consultancy agreement with the Company in December 1999, which provided that:

– If he had good reason, as defined in his service agreement with Roberts, to terminate his employment with Roberts under his service agreement, the Company would cause Roberts to provide him with the payments and benefits he would be entitled to upon a ‘good reason’ termination; – Mr Spitznagel would provide consulting services to the Company for at least 42 months following the acquisition of Roberts, unless Mr Spitznagel terminated the consultancy agreement prior to the end of the 42nd month upon 30 days notice; and – The Company would pay Mr Spitznagel at a rate of $400,000 per annum for his consulting services, $150,000 per annum as an office allowance, $250,000 per annum to comply with certain restrictive covenants contained therein and $150,000 per annum for tax, financial and estate planning advice, life insurance and health insurance.

During 2003 the final payment was made to Mr Spitznagel of $0.5 million. The consultancy agreement has now been terminated and no further payments will be made. At December 31, 2002 Mr Spitznagel was owed $0.5 million (2001: $1.4 million). Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 75 In thousands of US dollars, except where indicated

20 Earnings per share The following table reconciles income from continuing operations and the weighted average ordinary shares outstanding for basic and diluted EPS for the periods presented:

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Income from continuing operations 276,051 242,378 32,011 Income from discontinued operations, net of tax – 8,191 6,748 Numerator for basic earnings per share 276,051 250,569 38,759 Interest charged on convertible debt, net of tax 5,218 5,585 – Numerator for diluted earnings per share 281,269 256,154 38,759

No. No. No. of shares of shares of shares Weighted average number of shares outstanding Basic 498,212,826 500,687,594 492,594,226 Effect of dilutive shares: Share options 1,859,076 1,883,475 11,362,332 Convertible debt 18,895,493 19,847,177 – Warrants – – 919,029 20,754,569 21,730,652 12,281,361 Diluted 518,967,395 522,418,246 504,875,587 Basic earnings per share: Income from continuing operations 55.4¢ 48.4¢ 6.5¢ Income from discontinued operations, net of tax – 1.6¢ 1.4¢ 55.4¢ 50.0¢ 7.9¢ Diluted earnings per share: Income from continuing operations 54.2¢ 47.4¢ 6.4¢ Income from discontinued operations, net of tax – 1.6¢ 1.3¢ 54.2¢ 49.0¢ 7.7¢

The computation of weighted average number of shares for diluted EPS for the year ended December 31, 2001 does not include convertible debt because, after eliminating interest charged to operations from the numerator, the inclusion would be anti-dilutive.

The warrants are issuable in respect of a research and development agreement. A charge of $4.5 million has been reflected in research and development in the consolidated statement of operations in the year ended December 31, 2001.

The warrants and share options not included within the calculation of the diluted weighted average number of shares, because the exercise prices exceeded the Company’s average share price during the calculation period, are shown below:

2003 2002 2001 No. No. No. Year ended December 31, of shares of shares of shares Share options 17,006,093 17,492,575 10,384,600 Warrants 1,346,407 1,346,407 – 18,352,500 18,838,982 10,384,600 76 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

21 Segment reporting The Company has disclosed segment information for the individual reporting segments of the business, based on the way in which the business is managed and controlled. The Company’s principal reporting segments are by operational function, each being managed and monitored separately and serving different markets. The Company evaluates performance based on operating income. The Company does not have inter-segment transactions.

The US segment represents our commercial operations in the United States and the International segment represents the commercial operations in the Rest of the World. The Biologics segment represents the vaccine operations in Canada and the research and development center in the United States. The R&D segment represents all direct research and development costs incurred by the Company throughout the world. Corporate represents the royalty business that is managed at the corporate office and certain costs that are managed at the corporate office and not allocated to the other segments.

US International Biologics Corporate R&D Total Year ended December 31, 2003 $’000 $’000 $’000 $’000 $’000 $’000 External revenues: Product sales 846,438 158,643 24,757 – – 1,029,838 Licensing and development 3,376 301 – – – 3,677 Royalties 14 10,314 – 193,245 – 203,573 Other revenues 13 – – – – 13 Total revenues 849,841 169,258 24,757 193,245 – 1,237,101 Cost of product sales 94,597 53,166 15,351 – – 163,114 Research and development – – – – 215,781 215,781 Selling, general and administrative 234,091 76,912 9,134 56,777 – 376,914 Depreciation and amortization (1) 30,965 24,338 4,571 26,804 – 86,678 Total operating expenses 359,653 154,416 29,056 83,581 215,781 842,487 Operating income/(loss) 490,188 14,842 (4,299) 109,664 (215,781) 394,614

US International Biologics Corporate R&D Total December 31, 2003 $’000 $’000 $’000 $’000 $’000 $’000 Total assets (2) 697,460 484,093 25,207 1,262,889 109,131 2,578,780 Long-lived assets (2) 238,774 281,058 24,325 200,225 46,691 791,073 Capital expenditure on long-lived assets 18,324 53,469 383 15,827 16,854 104,857

(1) Included in depreciation and amortization are the write downs of intangible assets, property, plant and equipment and assets held for resale. Depreciation from manufacturing plants is included within cost of product sales. Depreciation and amortization relating to R&D assets are included within US and International segments.

(2) Total assets and long lived assets in the Biologics segment relate to the research and development center in the US. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 77 In thousands of US dollars, except where indicated

21 Segment reporting continued

US International Biologics Corporate R&D Total Year ended December 31, 2002 $’000 $’000 $’000 $’000 $’000 $’000 External revenues: Product sales 714,655 131,465 13,268 – – 859,388 Licensing and development 2,661 403 – – – 3,064 Royalties 215 8,999 – 165,598 – 174,812 Other revenues – 34 – – – 34 Total revenues 717,531 140,901 13,268 165,598 – 1,037,298 Cost of product sales 63,356 59,242 11,084 – – 133,682 Research and development – – – – 189,179 189,179 Selling, general and administrative 211,032 68,290 8,480 44,386 – 332,188 Depreciation and amortization (1) 28,999 11,200 4,138 10,874 – 55,211 Total operating expenses 303,387 138,732 23,702 55,260 189,179 710,260 Operating income/(loss) 414,144 2,169 (10,434) 110,338 (189,179) 327,038

US International Biologics Corporate R&D Total December 31, 2002 $’000 $’000 $’000 $’000 $’000 $’000 Total assets (2) 818,383 423,688 22,292 894,136 50,124 2,208,623 Long-lived assets (2) 260,751 216,004 21,413 214,018 29,341 741,527 Capital expenditure on long-lived assets 13,158 270 1,298 35,600 2,286 52,612

(1) Included in depreciation and amortization are the write downs of intangible assets. Depreciation from manufacturing plants is included within cost of sales. Depreciation and amortization relating to R&D assets are included within US and International segments.

(2) Total assets and long lived assets in the Biologics segment relate to the research and development center in the US.

US International Biologics Corporate R&D Total Year ended December 31, 2001 $’000 $’000 $’000 $’000 $’000 $’000 Product sales 587,449 106,286 5,616 – – 699,351 Licensing and development 4,507 991 – – – 5,498 Royalties 264 5,604 – 139,287 – 145,155 Other revenues – 900 2,052 – – 2,952 Total revenues 592,220 113,781 7,668 139,287 – 852,956 Cost of product sales 58,655 40,754 12,597 – – 112,006 Research and development – – – – 171,029 171,029 Selling, general and administrative 179,115 41,542 1,203 37,875 – 259,735 Depreciation and amortization (1) 18,375 10,744 4,129 12,561 – 45,809 Asset impairments and restructuring charges – – – 29,699 – 29,699 Merger transaction expenses – – – 83,470 – 83,470 Loss on disposition of assets – 8,100 – – - 8,100 Total operating expenses 256,145 101,140 17,929 163,605 171,029 709,848 Operating income/(loss) 336,075 12,641 (10,261) (24,318) (171,029) 143,108

US International Biologics Corporate R&D Total December 31, 2001 $’000 $’000 $’000 $’000 $’000 $’000 Total assets (2) 658,031 127,828 – 1,095,776 29,096 1,910,731 Long-lived assets (2) 327,289 46,562 – 373,039 23,286 770,176 Capital expenditure on long-lived assets 3,880 36,224 – 27,349 2,488 69,941

(1) Included in depreciation and amortization are the write downs of intangible assets. Depreciation and amortization relating to R&D assets are included within US and International segments.

(2) The total assets and long lived assets relating to the Biologics segment are managed within the International segment. 78 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

21 Segment reporting continued Material customers In the periods set out below, certain customers accounted for greater than 10% of the Company’s total revenues:

2003 2003 2002 2002 2001 2001 Year ended December 31, $’000 % revenue $’000 % revenue $’000 % revenue Customer A 274,771 22% 231,270 22% 176,941 21% Customer B 269,364 22% 197,184 19% 123,350 14% Customer C 175,856 14% 160,210 15% 136,927 16% Customer D 158,689 13% 149,613 14% – –

Amounts outstanding as of December 31, in respect of these material customers were as follows:

2003 2002 December 31, $’000 $’000 Customer A 23,793 4,354 Customer B 25,676 9,189 Customer C 45,712 45,227 Customer D 8,212 9,738

22 Other charges

2001 Year ended December 31, $’000 BioChem merger: Restructuring charges 8,809 Asset impairments 20,890 Merger transaction expenses 83,470 Loss on disposition of facility 8,100 121,269

Year ended December 31, 2001 a) BioChem merger (i) Restructuring charges Upon consummation of the merger with BioChem, the Company formalized a plan to restructure the combined organization by (a) closing a duplicate manufacturing facility and (b) eliminating certain duplicate positions throughout the combined organization. This plan resulted in the decision to terminate 57 employees and to dispose of Shire’s existing manufacturing facility. All of the planned terminations were completed by December 31, 2001, at a cost of $8.8 million. The Company paid $8.0 million of this during the year ended December 31, 2001 and the remaining $0.8 million over the following year.

(ii) Asset impairments Asset impairments consist of the write-off of approximately $6.3 million of patents, $6.8 million of licenses and $7.8 million of distribution rights, which were held by BioChem at the time of the merger. Upon consummation of the BioChem merger, the Company reviewed the carrying value of all intangible assets of the combined organization in an attempt to identify any intangible assets that were duplicative, inconsistent with the strategic direction of the Company, or where management did not perceive any ongoing value that would be derived from these assets. This review resulted in the write-off of certain patents and licenses that were related to products and know-how that would not be utilized by the combined organization and that had no residual sales value. In addition, it resulted in the write-off of distribution rights related to a specific product for which BioChem management was pursuing sales in the United States. The combined organization did not intend to sell this product in the United States; additionally, the distribution rights had no residual sales value.

(iii) Merger transaction expenses The merger transaction expenses represent direct costs incurred by the Company in connection with the merger with BioChem. These costs include bank and other advisory fees, taxes associated with the transaction and other direct incremental costs associated with the merger.

(iv) Loss on disposition of facility As described above, the Company made the decision to close its existing manufacturing facility in Toronto and to dispose of the facility. The Company incurred a loss of $8.1 million upon the disposition. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 79 In thousands of US dollars, except where indicated

23 Other expense, net

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 SERP valuation adjustment 175 (2,301) (2,018) Write-down of long-term investments due to impairment (15,540) (8,680) (55,748) GeneChem funds income 3,755 3,333 3,995 Foreign exchange (6,716) (344) (487) Other 787 (270) 1,325 (17,539) (8,262) (52,933)

December 31, 2003 The Company recorded an impairment of $8.5 million against its investments in the GeneChem funds during the year due to an other than temporary impairment in the investment portfolio. In addition, the Company recorded an impairment of $4.5 million due to a decrease in the market value of its investment in private companies. The assessment of market value was based on the projected value of an anticipated share offering in early 2004 by the Company at a value less than the current price per share recorded by the Company. The impairments were recorded in the International segment.

December 31, 2002 The Company recorded an impairment of $5.5 million against its investments in the GeneChem funds during 2002 due to an other than temporary impairment in the investment portfolio. In addition, the Company recorded an impairment of $3.2 million due to a decrease in the market value of its investment in private companies, based on changes in estimates in value from the prior year.

December 31, 2001 Following the merger with BioChem in 2001, management of the combined organization determined that it should review the carrying value of all cost method investments held by the combined organization, considering, amongst other things, (a) the combined organization’s strategic direction and re-prioritization of investments, (b) the Company’s knowledge of certain developments in 2001 with regards to the US Food and Drug Administration’s approval process of certain products, and (c) a strategic re-evaluation of the risks that the combined organization was willing to retain, relating to certain ventures and guarantees.

As a result of this review, the Company determined that it was necessary to record impairment charges totaling $55.7 million related to certain of these investments. The impairment consisted of the write-off of an investment in Qualia, of $18.7 million, the write-off of the investment in a Biovector of $6.2 million and a write-down of the net assets of Immunosystems by $30.8 million. a) Qualia BioChem held a 14.1% equity interest in common stock and an investment in preferred shares of Qualia, which, at the time of the merger, owned, amongst other development projects, the rights to a product that was approved for sale in Europe and Canada. This product was in development for a planned submission to the FDA for approval to sell in the United States. The Company reviewed the status of the product and the estimated timing of submission to the FDA, its estimate of the future cash flows from royalties which would be received upon sale of the product (without such registration) and Qualia’s access to additional funding. Based on the assessment of these factors, the Company determined that the investment should be written off as (1) approval by the FDA, originally expected in June 2001, had not occurred, creating doubt relative to the timing of an eventual approval of the product by the FDA, (2) Shire management believed that without registration with the FDA the projected royalties generated from the sale of this product could not generate cash flows sufficient to recover the investment and (3) Shire anticipated the efforts necessary to obtain approval from the FDA as significant.

BioChem management assessed the carrying value of the Qualia investment at the end of 2000. Based on the projected operating results at that time, the initial sales of the product in Canada and Europe, and, most importantly, their expectation of FDA approval by June 2001, BioChem management concluded that an other than temporary impairment did not exist.

In February 2002, FDA approval was received to sell the product into the United States. Subsequent to the approval, structural changes were made to the Company’s holding in Qualia and the Company’s distribution rights for the product, which resulted in the Company owning a 50% interest in a combined structure and releasing the Company from any future funding obligations. Qualia has continued to incur operating losses since the approval of the product by the FDA, and the Company has recorded its portion of those losses. b) Biovector In late 2000, BioChem management noted that Biovector Therapeutics S.A. (Biovector), a privately held French company in which it held a 9.6% interest, had begun to experience financial and operational difficulties. At that time, management considered whether there was an other than temporary impairment and determined there was not, based on its estimate of the future operations, the historical financial information available and publicly available information. However, in April 2001, Biovector formally informed its investors that it was experiencing financial difficulties, principally because of an inability to attract additional research and development collaboration partners and an inability to identify additional sources of financing.

Following the merger with BioChem, the Company made a decision not to invest further money in this entity and to take steps to cancel any contracts therewith. Based on this decision and the financial difficulties being experienced by Biovector, the Company determined that it was appropriate to write-off this investment. In February 2002, Biovector went into liquidation. 80 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

23 Other expense, net continued c) Immunosystems In January 1999, BioChem adopted a formal plan to dispose of its diagnostic operations and at that time recorded an impairment of $8.8 million to reflect the net assets at the estimated realizable value. In March 2000, BioChem made the decision to divest of certain of its diagnostics operations (Immunosystems) to a management-led group. It did so in exchange for a debenture of $35.8 million and an agreement that BioChem would act as a guarantor of certain long-term debt of Immunosystems, in the amount of 37.3 million Italian Lira ($18.1 million) as of December 31, 2000. As the risk and rewards of ownership had not transferred to the management group, BioChem continued to carry the assets on its balance sheet. The assets, classified as net assets of a business transferred under contractual arrangements, had a carrying value of $35.8 million (the same value of the debenture) at the time of the merger between Shire and BioChem.

On consummation of the merger, Shire management was concerned as to the recoverability of the debenture (the repayment terms of which were contingent on the future cash flows of the underlying Immunosystems business). Additionally, they were also concerned that they would be required, at some stage, to make a cash payment pursuant to the third-party guarantee. While the liability related to the third-party guarantee was in substance already recognized by Shire (i.e. it formed part of the carrying value of the net assets of $35.8 million), the Company was concerned over a potential cash outflow of $18.1 million, combined with the legal fees necessary to pursue collection on the debenture. This concern was substantial, resulting in Shire management’s revisiting all agreements with the management-led group which bought the Immunosystems operations. As a result of these negotiations, the following was agreed:

– The debenture was eliminated in full; – Shares representing a 19.9% interest in Immunosystems were legally transferred back to the Company; and – Shire was released from the guarantee of the third-party debt.

Based on these negotiations, the Company recorded an impairment of $28.7 million, (i.e. 80.1% of the carrying value of the assets classified as ‘Net assets of a business transferred under contractual arrangement).’ The remaining balance of $7.1 million was reclassified to cost investments.

The Company subsequently recorded an impairment of $2.1 million against the carrying value of the retained interest of 19.9% based on its estimate of the fair value thereof.

24 Retirement benefits a) Personal defined contribution pension plans The Company makes contributions to defined contribution retirement plans that together cover substantially all employees. For the defined contribution retirement plans, the level of the Company’s contribution is fixed at a set percentage of employee’s pay.

Company contributions to personal defined contribution pension plans totaled $16.1 million, $6.8 million and $4.9 million for the years ended December 31, 2003, 2002 and 2001, respectively, and were charged to operations as they became payable. b) Defined benefit pension plan Roberts, a company with whom the Company merged in December 1999, operated a defined SERP for certain US employees, which was established in 1998. This plan was available to former employees of Roberts who met certain age and service requirements.

As part of the restructuring of the Company following the Roberts merger, the SERP was closed to new members and contributions ceased being paid into the plan for existing members. As part of this arrangement, the Company paid a lump sum contribution into the plan of $18.0 million, the result of which is that the Company has no future contributions under the plan.

In accordance with EITF 97-14, the asset and liability of $12.0 million and $8.9 million, respectively, are shown on the balance sheet within the categories ‘Other non-current assets’ and ‘Other non-current liabilities’. See notes 12 and 16 above. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 81 In thousands of US dollars, except where indicated

25 Income taxes The components of income before income taxes and equity in net (loss)/income of associates for the years ended December 31 are as follows:

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 UK (76,267) (50,520) (101,756) US 285,221 218,139 190,068 Other jurisdictions 175,507 161,441 9,495 Income from continuing operations before income taxes and equity in net (losses)/income of associates and discontinued operations 384,461 329,060 97,807 Income before income taxes attributable to discontinued operations – 9,696 6,748 Total income before income taxes and equity in net (losses)/income of associates 384,461 338,756 104,555

The provision for income taxes by location of the taxing jurisdiction for the years ended December 31, consisted of the following:

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Current income taxes: UK corporation tax – –– US federal tax (101,174) (67,686) (40,818) US state and local taxes (4,313) (9,561) (8,988) Other jurisdictions (18,792) (19,864) (16,746) Total current taxes (124,279) (97,111) (66,552) Deferred taxes UK corporation tax (9,696) –– US federal tax (3,647) (1,136) (20,586) US state and local taxes (180) (34) (618) Other jurisdictions 30,449 9,931 19,975 Total deferred taxes 16,926 8,761 (1,229) Total income taxes attributable to continuing operations (107,353) (88,350) (67,781) Total incomes taxes attributable to discontinued operations – (4,812) (3,963) Total income taxes (107,353) (93,162) (71,744)

The reconciliation of income from continuing operations before income taxes and equity in net (losses)/income of associates and discontinued operations to the provision for income taxes is shown in the table below:

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Income from continuing operations before income taxes and equity in net (losses)/income of associates and discontinued operations 384,461 329,060 97,807 Corporation tax rate 30% 30% 30% Income tax expense at corporation tax rate (115,338) (98,718) (29,342) Adjustments to derive effective rate: Non-deductible items: Goodwill amortization – – (3,309) Permanent differences (4,404) (4,280) (32,268) Other items: Change in valuation allowance (28,663) (13,948) (27,395) Difference in taxation rates 45,580 36,450 27,662 Prior year adjustment (8,544) (2,317) 2,958 Other 4,016 (5,537) (6,087) Provision for income taxes on continuing operations (107,353) (88,350) (67,781) Provision for income taxes on discontinued operations – (4,812) (3,963) Provision for income taxes (107,353) (93,162) (71,744) 82 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

25 Income taxes continued The significant components of deferred income tax assets and liabilities and their balance sheet classifications, as of December 31, are as follows:

December 31, December 31, 2003 2002 $’000 $’000 Deferred tax assets: Accrued expenses not currently deductible 3,340 7,847 Losses carried forward 248,239 188,937 Provisions 11,299 5,347 Other 1,876 6,517 Gross deferred tax assets 264,754 208,648 Less: valuation allowance (168,176) (139,513) 96,578 69,135 Excess of tax value over book value of assets (33,446) (28,070) Net deferred tax assets 63,132 41,065 Balance sheet classifications: Deferred tax assets - current 64,532 34,849 Deferred tax (liabilities)/assets - non-current (1,400) 6,216 63,132 41,065

The approximate net operating loss carry-forwards as of December 31, are as follows:

December 31, December 31, 2003 2002 $’000 $’000 Approximate net operating loss carry-forwards against future US federal tax liabilities 23,468 33,386 Approximate net operating loss carry-forwards against future US state tax 130,755 132,480 Approximate net operating loss carry-forwards against future foreign tax liabilities 800,509 507,276 Total 954,732 673,142

The tax losses shown above have the following expiration dates:

December 31, 2003 $’000 2004 – 2005 – 2006 646 2007 40,854 2008 65,478 2009 28,320 2010 – Available indefinitely 819,434 954,732

As of December 31, 2003, the Company had a valuation allowance of $168.2 million to reduce its deferred tax assets to estimated realizable value. The valuation allowance relates to the deferred tax assets arising from overseas tax operating loss carry-forwards and capital loss carry-forwards, which have no expiration date. The utilization of operating loss carry forwards is, however, restricted to the taxable income of the subsidiary generating the losses. In addition, capital loss carry-forwards can only be offset against capital gains. As of December 31, 2003, based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are anticipated to reverse, and reasonable and feasible tax-planning strategies, management believes it is more likely than not that the Company will realize the benefits of these deductible differences, net of the valuation allowances. However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of taxable income are revised.

The Company recognizes a deferred tax liability related to the undistributed earnings of subsidiaries when the Company expects that it will recover those undistributed earnings in a taxable manner, such as through receipt of dividends or sale of the investments. The Company does not, however, provide for income taxes on the unremitted earnings of certain other subsidiaries located outside the UK, where, in management's opinion, such earnings have been indefinitely reinvested in these operations, will be remitted in a tax free liquidation, or will be remitted as dividends with taxes substantially offset by foreign tax credits. Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 83 In thousands of US dollars, except where indicated

26 Equity in (losses)/earnings of equity method investees

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 GSK 3,495 2,592 1,985 CADx/Qualia (4,552) (924) – (1,057) 1,668 1,985

The Company has accounted for its commercialization partnership with GSK (through which the products 3TC and ZEFFIX are marketed in Canada) using the equity method of accounting. The Company owns, but does not exercise control over, a 50% share of the partnership.

On December 31, 2003, the Company sold its investment in Qualia Computing Inc. to iCAD Inc. During 2003 the Company had applied the equity method of accounting as the Company owned, but did not exercise control over its 50% share of the joint venture.

27 Stock incentive plans The Company has adopted the disclosure only provisions of SFAS No. 123, but applies APB No. 25 and related interpretations in accounting for its plans. In the years ended December 31, 2003, 2002 and 2001 the Company recognized a (credit)/charge under APB No. 25 of ($0.02) million, ($0.2) million and $2.3 million, respectively.

The fair value of stock options used to compute pro forma net income and per share disclosures is the estimated present value at grant date using the Black-Scholes option-pricing model with the following weighted average assumptions:

2003 2002 2001 Year ended December 31, $’000 $’000 $’000 Risk-free interest rate 1.89 - 3.40% 1.90 - 5.33% 3.43 - 5.22% Expected dividend yield 0% 0% 0% Expected life 5 years 5 years 5 years Expected volatility 60.0% 55.2% 59.5%

Directors and employees have been granted options over ordinary shares under the following eight stock option plans:

(i) Shire Pharmaceuticals Executive Share Option Scheme - Parts A and B (Executive Scheme) Options granted under the Executive Scheme are subject to performance criteria and cannot be exercised in full, unless Shire’s share price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period. If Shire’s share price increases at a compound rate of 14.5% per annum over a minimum three-year measurement period, 60% 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.

On February 28, 2000, the Remuneration Committee of the Board exercised its powers to amend the terms of the Executive Share Option Scheme so as to include a cliff vesting provision. It is intended that no further options will be granted under the Executive Scheme.

(ii) Shire Pharmaceuticals Group plc 2000 Executive Share Option Scheme (2000 Executive Scheme) Options granted under the 2000 Executive Scheme vest six weeks prior to the expiry date. Options granted under this scheme are subject to performance criteria. In respect of any option granted prior to August 2002, if Shire’s share price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period, the option will be exercisable in full. If it increases by at least 14.5% per annum over the same three year period, the option may be exercised up to 60% of the shares covered by the option. If these conditions are not met after the initial three-year measurement period, they will thereafter be tested quarterly by reference to compound annual share price growth over an extended period.

The performance criteria were reviewed in 2002 to ensure the criteria reflected the market in which Shire operates. Given Shire’s development, it was considered appropriate that an earnings per share (EPS) based measure should be adopted in place of share price growth targets. Therefore, the performance criteria was amended so that an option would only become exercisable in full if Shire’s fully diluted EPS growth over a three year period from the date of award exceeds the UK Retail Prices Index (RPI) on average a year for the following tranches of grants:

Options with a grant value of up to 100% of salary RPI plus 3% per annum (directors, RPI plus 5%) Between 101% and 200% of salary RPI plus 5% per annum Between 201% and 300% of salary RPI plus 7% per annum Over 301% of salary RPI plus 9% per annum 84 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

27 Stock incentive plans continued The new EPS performance criteria apply to options granted under the 2000 Executive Scheme from August 2002. After consultation with some of its institutional shareholders, the Company has decided that for options granted under the scheme from 2004 onwards, the performance condition should be retested once only, at five years after the grant. The retest will be applied only where Shire’s EPS growth has fallen short of the minimum annual average percentage increase over the three year period from grant. Hence the level of EPS growth in the next two years needs to be consequentially higher to meet the test.

(iii) Shire Pharmaceuticals Sharesave Scheme (Sharesave Scheme) Options granted under the Sharesave Scheme are granted with an exercise price equal to 80% of the mid-market price on the day before invitations are issued to employees. Employees may enter into three or five-year savings contracts.

(iv) Shire Pharmaceuticals Group plc Employee Stock Purchase Plan (Stock Purchase Plan) Under the Stock Purchase Plan, options are granted with an exercise price equal to 85% of the fair market value of a share on the enrolment date (the first day of the offering period) or the exercise date (the last day of the offering period), whichever is the lower. The offering period is for 27 months.

(v) Pharmavene 1991 Stock Option Plan (SLI Plan) Options issued under the SLI Plan were originally granted over shares in SLI, formerly Pharmavene Inc., a company acquired by the Company on March 23, 1997. Exercise of these options results in the option holder receiving ordinary shares in Shire. As a result of the acquisition of SLI, and in accordance with the terms of the original share option plan, all options granted under that plan became immediately capable of exercise. It is intended that no further options will be granted under the SLI Plan.

(vi) Roberts Stock Option Plans (Roberts Plans) Options issued under the Roberts Plans were originally granted over shares in Roberts, a company acquired by the Company on December 23, 1999. Exercise of these options results in the option holder receiving ordinary shares in Shire. As a result of the acquisition of Roberts, and in accordance with the terms of the original Roberts plans, all options granted under the Roberts Plans became immediately capable of exercise. It is intended that no further options will be granted under the Roberts Plans.

(vii) BioChem Stock Option Plan (BioChem Plan) Following the acquisition of BioChem Pharma, Inc. on May 11, 2001, the BioChem Stock Option Plan was amended such that options over BioChem’s common stock became options over ordinary shares of Shire. All BioChem options, which were not already exercisable, vested and became exercisable as a result of the acquisition. It is intended that no further options will be granted under the BioChem Stock Option Plan.

In a period of ten years, not more than 10% of the issued share capital of Shire 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:

– 2000 Executive Scheme: the maximum number of shares over which incentive options may be granted under Part 3 of the scheme is 25,000,000. – Stock Purchase Plan: up to 2,000,000 ordinary shares.

Options outstanding at December 31, 2003 under the various plans are as follows:

Scheme Number of options Expiry period from date of issue Vesting period Executive Scheme 3,698,397 10 years 3 years, subject to performance criteria 2000 Executive Scheme 16,123,388 10 years 3 years, subject to performance criteria Sharesave Scheme 272,411 6 months after vesting 3 or 5 years Stock Purchase Plan 838,906 On vesting date 27 months SLI Plan 11,287 10 years Immediate on acquisition by Shire Roberts Plans 138,338 6 years Immediate on acquisition by Shire BioChem Plan 4,912,816 10 years Immediate on acquisition by Shire Total 25,995,543

A summary of the status of the Company’s stock option plans as of December 31, 2003, 2002 and 2001 and of the related transactions during the periods then ended is presented below:

Weighted average exercise price Year ended December 31, 2003 $ Number of shares Outstanding as of beginning of period 11.55 20,051,297 Granted 6.30 9,407,852 Exercised 5.12 (1,039,439) Forfeited 11.28 (2,424,167) Outstanding as of end of period 10.92 25,995,543 Exercisable as of end of period 12.79 8,989,450 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements 85 In thousands of US dollars, except where indicated

27 Stock incentive plans continued 8,819,199 options were granted under the 2000 Executive Scheme. These options were issued with exercise prices equivalent to the market value on the date of grant.

182,639 options were granted under the Sharesave Scheme at a price of £3.86 (approximately $6.91). These options were granted with an exercise price equal to 80% of the mid-market price on the day before invitations were issued to employees.

406,014 options were granted under the Stock Purchase Plan at a price of £4.09 (approximately $7.32). These options were granted with an exercise price equal to 85% of the mid-market price on the day before invitations were issued to employees.

The average fair value of options granted in the year ended December 31, 2003 is $6.39.

Weighted average exercise price Year ended December 31, 2002 $ Number of shares Outstanding as of beginning of period 10.80 16,249,844 Granted 8.49 6,179,894 Exercised 3.52 (1,940,546) Forfeited 11.07 (437,895) Outstanding as of end of period 11.55 20,051,297 Exercisable as of end of period 9.24 8,491,051

4,539,529 options were granted under the 2000 Executive Scheme. These options were issued with exercise prices equivalent to the market value on the date of grant.

186,052 options were granted under the Sharesave Scheme at a price of £5.02 (approximately $8.08). These options were granted with an exercise price equal to 80% of the mid-market price on the day before invitations were issued to employees.

18,342 and 1,435,971 options were granted under the Stock Purchase Plan at a price of £3.19 and £5.44 (approximately $5.14 and $8.76), respectively. These options were granted with an exercise price equal to 85% of the mid-market price on the day before invitations were issued to employees.

The average fair value of options granted in the year ended December 31, 2002 is $8.91.

Weighted average exercise price Year ended December 31, 2001 $ Number of shares Outstanding as of beginning of period 7.83 24,790,322 Granted 17.24 4,405,089 Exercised 6.29 (11,443,831) Forfeited 13.86 (1,501,736) Outstanding as of end of period 10.80 16,249,844 Exercisable as of end of period 7.50 9,054,150

All options granted under the Executive Scheme, 2000 Executive Scheme and BioChem Plan were issued with exercise prices equivalent to the market value on the date of grant.

81,888 options were granted under the Sharesave Scheme at a price of £8.41 (approximately $12.24). These options were granted with an exercise price equal to 80% of the mid-market price on the day before invitations were issued to employees.

301,656, 120,819 and 6,551 options were granted under the Stock Purchase Plan at a price of £8.06, £9.10 and £9.74 (approximately $11.73, $13.24 and $14.18), respectively. These options were granted with an exercise price equal to 85% of the mid-market price on the day before invitations were issued to employees.

The average fair value of options granted in the year ended December 31, 2001 is $17.51. 86 Shire Pharmaceuticals Group plc Notes to the consolidated financial statements In thousands of US dollars, except where indicated

27 Stock incentive plans continued Options outstanding as of December 31, 2003 have the following characteristics:

Weighted average Weighted average Weighted average exercise price of No. of options exercise price of No. of options outstanding Exercise prices $ remaining life options outstanding exercisable options exercisable 11,287 1.01 – 2.00 1.6 1.3 11,287 1.3 31,861 2.01 – 3.00 0.5 2.2 31,861 2.2 76,893 3.01 – 4.00 1.2 3.4 76,893 3.4 214,954 4.01 – 5.00 0.9 4.8 211,906 4.8 81,006 5.01 – 6.00 0.8 5.4 62,664 5.3 9,063,662 6.01 – 7.00 8.3 6.1 838,746 6.2 463,014 7.01 – 8.00 2.0 7.3 39,806 7.6 1,545,436 8.01 – 9.00 4.5 8.5 986,337 8.5 4,658,484 9.01 – 10.00 7.7 9.4 17,563 9.6 256,823 10.01 – 11.00 5.0 10.7 168,205 10.7 186,961 11.01 – 12.00 3.0 11.3 186,961 11.3 3,979,218 12.01 – 13.00 3.2 12.7 3,979,218 12.7 47,789 13.01 – 14.00 4.2 13.5 47,789 13.5 217,112 14.01 – 15.00 3.4 14.5 144,953 14.5 25,104 15.01 – 16.00 2.2 15.1 – – 317,990 16.01 – 17.00 6.1 16.2 317,990 16.2 307,753 17.01 – 18.00 7.9 17.8 – – 1,404,079 18.01 – 19.00 3.5 18.4 1,278,048 18.4 3,102,117 22.01 – 23.00 7.2 22.5 585,223 22.6 4,000 23.01 – 24.00 6.9 23.6 4,000 23.6 25,995,543 8,989,450

Quarterly results of operations (unaudited) The following table presents summarized unaudited quarterly results for the years ended December 31, 2003 and 2002.

The 2002 results for all quarterly periods presented have been restated to reflect the OTC divestment which has been accounted for as a discontinued operation.

First Second Third Fourth quarter quarter quarter quarter 2003 $’000 $’000 $’000 $’000 Total revenues 304,517 298,988 289,442 344,154 Operating income 89,192 94,217 88,812 122,393 Net income 63,066 65,485 64,619 82,881 Earnings per share – basic 12.6¢ 13.1¢ 13.1¢ 16.7¢ Earnings per share – diluted 12.3¢ 12.8¢ 12.8¢ 16.3¢

First Second Third Fourth quarter quarter quarter quarter 2002 $’000 $’000 $’000 $’000 Total revenues 236,982 248,084 249,720 302,512 Operating income 70,293 75,109 80,990 100,646 Net income 56,802 59,307 63,585 70,875 Earnings per share – basic 11.3¢ 11.8¢ 12.6¢ 14.1¢ Earnings per share – diluted 10.9¢ 11.4¢ 12.1¢ 13.8¢ Shire Pharmaceuticals Group plc Five-year review 87

2003 2002 2001 2000 1999 Year ended December 31, $’000 $’000 $’000 $’000 $’000 Statement of Operations: Revenues 1,237,101 1,037,298 852,956 647,654 515,447 Operating expenses (842,487) (710,260) (709,848) (507,379) (559,911) Operating income/(loss) 394,614 327,038 143,108 140,275 (44,464) Interest and other, net (10,153) 2,022 (45,301) 111,842 23,064 Income/(loss) before income taxes and discontinued operations 384,461 329,060 97,807 252,117 (21,400) Income taxes (107,353) (88,350) (67,781) (43,564) (18,695) Equity method investees (1,057) 1,668 1,985 (3,809) – Income/(loss) from continuing operations 276,051 242,378 32,011 204,744 (40,095) Income/(loss) from discontinued operations, net of tax – 6,108 6,748 6,983 (7,337) Gain on disposition of discontinued operations, net of tax – 2,083 – – – Net income/(loss) 276,051 250,569 38,759 211,727 (47,432) Earnings/(loss) per share – basic Income from continuing operations 55.4¢ 48.4¢ 6.5¢ 42.4¢ (8.3)¢ Income from discontinued operations – 1.6¢ 1.4¢ 1.4¢ (1.5)¢ 55.4¢ 50.0¢ 7.9¢ 43.8¢ (9.8)¢ Earnings/(loss) per share – diluted Income from continuing operations 54.2¢ 47.4¢ 6.4¢ 41.4¢ (8.3)¢ Income from discontinued operations – 1.6¢ 1.3¢ 1.4¢ (1.5)¢ 54.2¢ 49.0¢ 7.7¢ 42.8¢ (9.8)¢

Weighted average number of shares: Basic 498,212,826 500,687,594 492,594,226 482,890,070 484,358,876 Diluted 518,967,395 522,418,246 504,875,587 494,691,805 484,358,876

As a consequence of the adoption of SFAS No. 142 with effect from January 1, 2002, the amortization expense shown for 2003 and 2002 in the selected consolidated financial data presented below is not on a consistent basis of accounting with earlier periods. The impact of this is shown in note 11 of the Company’s consolidated financial statements included herein.

2003 2002 2001 2000 1999 December 31, $’000 $’000 $’000 $’000 $’000 Balance Sheet: Total current assets 1,787,707 1,467,096 1,140,555 695,853 520,023 Total assets 2,578,780 2,208,623 1,910,731 1,548,495 1,351,791 Total current liabilities 253,675 214,504 231,616 227,850 233,818 Total liabilities 655,654 635,457 647,742 374,109 471,905 Total shareholders’ equity 1,923,126 1,573,166 1,262,989 1,174,386 879,886 88 Shire Pharmaceuticals Group plc Summary financial statement For the year ended 31 December 2003

General Directors The summary financial statement does not contain sufficient The Directors who served during the year were as follows: information to allow for a full understanding of the results and state of affairs of the Company or Group. The summary financial Dr James Cavanaugh, Chairman and non-executive Director statement is prepared under UK GAAP. For further information, (Chairman of Nomination Committee) the full UK statutory accounts, the auditors’ report on those accounts and the Directors’ report should be consulted. Mr Matthew Emmens, Chief Executive Officer Appointed 12 March 2003 In accordance with Section 239 of the Companies Act 1985 shareholders have a right and can elect to obtain the full report Mr Angus Russell, Chief Financial Officer and accounts free of charges by writing to: Dr Wilson Totten, Group R&D Director The Company Secretary Shire Pharmaceuticals Group plc Dr Barry Price, Senior non-executive Director Hampshire International Business Park (Chairman of the Remuneration Committee) Chineham Basingstoke The Hon James Grant, non-executive Director Hampshire RG24 8EP Mr Ronald Nordmann, non-executive Director (Chairman of the Audit Committee) The full UK statutory annual accounts are signed on behalf of the Board by AC Russell, Chief Financial Officer. Mr Robin Buchanan, non-executive Director Appointed 30 July 2003 The Company’s auditors have given an unqualified report on the statutory accounts for the year ended 31 December 2003. Mr Rolf Stahel, Former Chief Executive The report did not contain any statement under Section 237 (2) Resigned 19 March 2003 or (3) of the Companies Act 1985. Mr Gérard Veilleux, non-executive Director Results and dividends Resigned 10 May 2003 The loss on ordinary activities before taxation of the Group was £298.3 million (2002: £526.8 million). The net assets of the Group Dr Francesco Bellini, non-executive Director as at 31 December 2003 were £2,308.5 million (2002: £2,747.7 Resigned 10 May 2003 million). The Directors do not recommend the payment of a dividend.

Business review A review of the Group’s business and important events during the year and likely future developments is set out in the Chairman’s statement, the Chief Executive Officer’s review, the financial review and the Directors’ remuneration report in the full UK statutory annual accounts, which are similar to the statements contained in the annual review at the front of this document which form part of this summary financial statement. Shire Pharmaceuticals Group plc Summary financial statement 89 For the year ended 31 December 2003

Independent Auditors’ Statement to the Members Basis of opinion of Shire Pharmaceuticals Group plc: We conduct our work in accordance with bulletin 1999/6 We have examined the summary financial statement which The Auditors’ Statement of Summary Financial Statement comprises the summary Directors’ report, consolidated profit and issued by the United Kingdom Auditing Practices Board. loss account, consolidated balance sheet, consolidated cash flow statement, the consolidated statement of total recognised gains Opinion and losses and notes 1 to 3 of the summary financial statement. In our opinion, the summary financial statement is consistent with the full annual accounts, the Directors’ report and the Directors’ This statement is made solely to the Company’s members, remuneration report of Shire Pharmaceuticals Group plc for the as a body, in accordance with section 251 of the Companies year ended 31 December 2003 and complies with the applicable Act 1985. Our work has been undertaken so that we might state requirements of Section 251 of the Companies Act 1985 and the to the Company’s members those matters we are required to regulations made thereunder. state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditors The Directors are responsible for preparing the Annual review and summary financial statement in accordance with applicable United Kingdom law and accounting standards. Our responsibility is to report to you our opinion on the consistency of the summary financial statement with the full annual accounts, the Directors’ report and the Directors’ remuneration report, and its compliance with the relevant requirements of Section 251 of the Companies Act 1985 and the regulations made thereunder. We also read the other information contained in the Annual review and summary financial statement as described in the contents section, and Deloitte & Touche LLP consider the implications for our report if we become aware Chartered Accountants and Registered Auditors of any apparent misstatements or material inconsistencies with Reading the summary financial statement. 12 March 2004 90 Shire Pharmaceuticals Group plc Summary financial statement For the year ended 31 December 2003

Consolidated profit and loss account

2003 2002 £’000 £’000 Turnover: Group and share of joint venture 764,662 697,314 Less: share of joint venture’s turnover (3,594) (762) Continuing operations 761,068 696,552 Discontinued operations – 15,975 Group turnover 761,068 712,527 Cost of sales (102,384) (95,042) Gross profit 658,684 617,485 Net operating expenses (2003: including £426,362,000 exceptional goodwill impairment, 2002: £613,983,000) (958,619) (1,150,630) Other operating income 698 – Operating loss (299,237) (533,145)

Continuing operations – Group (299,237) (541,603) Discontinued operations – 8,458 (299,237) (533,145)

Share of joint venture’s operating loss (2,806) (559) Finance charges, net 3,702 6,931 Loss on ordinary activities before taxation (298,341) (526,773) Tax on loss on ordinary activities (65,014) (61,626) Retained loss for the year transferred from reserves (363,355) (588,399)

Loss per share Basic (72.9)p (117.5)p Diluted (72.9)p (117.5)p

Consolidated statement of total recognised gains and losses

Year ended Year ended 31 December, 31 December, 2003 2002 £’000 £’000 Loss for the year (363,355) (588,399) Translation of the financial statements of overseas subsidiaries (47,157) (62,739) Total recognised gains and losses relating to the year (410,512) (651,138) Shire Pharmaceuticals Group plc Summary financial statement 91

Consolidated balance sheet

31 December 31 December 2003 2002 £’000 £’000 Fixed assets Intangible assets – intellectual property 171,548 183,404 Intangible assets – goodwill 1,365,583 1,900,896 Tangible assets 97,054 84,001 Fixed asset investments 33,269 37,345 Investment in joint ventures – share of gross assets – 5,082 – share of gross liabilities – (342) 1,667,454 2,210,386

Current assets Stocks 25,282 30,571 Debtors – due within one year excluding deferred tax 141,046 106,125 – due within one year – deferred tax 36,049 21,646 – due after more than one year excluding deferred tax 9,224 9,535 – due after more than one year – deferred tax – 3,861 Current asset investments 169,895 196,364 Cash at bank and in hand 621,670 558,432 1,003,166 926,534 Creditors: Amounts falling due within one year (141,722) (131,885) Net current assets 861,444 794,649 Total assets less current liabilities 2,528,898 3,005,035 Creditors: amounts falling due after more than one year Convertible debt (202,659) (243,547) Deferred tax (782) – Other creditors (16,957) (13,782) (220,398) (257,329) Net assets 2,308,500 2,747,706 Capital and reserves Called-up share capital 23,895 24,217 Share premium 3,218,695 3,214,512 Exchangeable shares 190,425 191,552 Capital reserve 3,135 2,755 Other reserves 24,247 24,247 Profit and loss account (1,151,897) (709,577) Equity shareholders’ funds 2,308,500 2,747,706 92 Shire Pharmaceuticals Group plc Summary financial statement For the year ended 31 December 2003

Consolidated cash flow statement

2003 2002 £’000 £’000 Net cash inflow from operating activities 280,275 302,321 Returns on investments and servicing of finance: Interest and other income received 13,165 15,434 Interest paid (9,404) (8,458) Interest element of finance lease rentals (59) (45) Net cash inflow from returns on investments and servicing of finance 3,702 6,931 Taxation: Overseas corporation tax paid (66,874) (73,145) Capital expenditure and financial investments: Purchase of long-term investment (3,447) (2,957) Purchase of intangible fixed assets (30,238) (15,470) Purchase of tangible fixed assets (31,400) (15,014) Proceeds from sale of a business 559 44,103 Proceeds from sale of tangible fixed assets 1,060 542 Net cash inflow for capital expenditure and financial investments (63,466) 11,204 Acquisitions and disposals: Purchase of subsidiary undertaking – (11,647) Expenses of acquisitions – (235) Net cash acquired with subsidiary undertakings – 33 Net cash outflow from acquisitions – (11,849) Cash inflow before management of liquid resources and financing 153,637 235,462 Management of liquid resources: Increase in cash placed on short-term deposit 17,848 254,561 Financing: Exercise of share options 3,114 3,985 Repurchase of ordinary share capital (31,808) – Capital element of finance leases (160) (74) Net decrease in debt during the year (18,053) (832) Net cash (outflow)/inflow from financing (46,907) 3,079 Increase in cash in the year 124,578 493,102 Shire Pharmaceuticals Group plc Notes to the summary financial statement 93 For the year ended 31 December 2003

1 Basis of preparation The summary financial statement has been prepared in accordance with the accounting policies set out in the full UK statutory annual accounts for the year ended 31 December 2003.

2 Directors’ remuneration Aggregate Directors’ remuneration The total amounts for Directors’ remuneration and other benefits were as follows:

2003 2002 £’000 £’000 Emoluments 2,256 2,300 Money purchase pension contributions 4,676 383 Gains on exercise of share options 114 2,962 Amounts receivable under long-term incentive schemes 276 – Compensation for loss of office 1,335 – 8,657 5,645

Directors’ emoluments

Cash Non-cash benefits benefits Total Total Salary Bonuses Fees in kind in kind 2003 2002 £’000 £’000 £’000 £’000 £’000 £’000 £’000 Executive Mr Matthew Emmens (ii) (i)446 235 – 14 4 699 – Mr Angus Russell 320 162 – 10 7 499 444 Dr Wilson Totten 340 163 – 11 17 531 481 Mr Rolf Stahel (iii) 154 124 – – 33 311 1,144 1,260 684 – 35 61 2,040 2,069 Non-executive Dr James Cavanaugh – – 54 – – 54 45 Dr Barry Price – – 43 – – 43 37 The Hon James Grant – – 35 – – 35 30 Mr Ronald Nordmann – – 45 – – 45 34 Mr Robin Buchanan (iv) – – 16 – – 16 – Dr Francesco Bellini (v) – – 11 – – 11 30 Mr Gérard Veilleux (v) – – 12 – – 12 32 The late Dr Bernard Canavan – – – – – – 23 – – 216 – – 216 231 Total 1,260 684 216 35 61 2,256 2,300

(i) Paid in US$, Mr Emmens’ annual salary in 2003 was $935,018 (ii) Appointed 12 March 2003 (iii) Stepped down on 19 March 2003 (iv) Appointed 30 July 2003 (v) Stepped down on 10 May 2003

3 Loss per share Loss per share has been calculated by dividing the loss on ordinary activities after taxation for each period by the weighted average number of shares in issue during those periods.

The weighted average number of shares used in calculating diluted earnings per share has been adjusted for the effects of all dilutive potential ordinary shares. No such amounts were included as their inclusion would be anti-dilutive in loss making periods. Similarly the $370 million convertible loan note (2002: $400 million) is excluded as it was not dilutive.

Basic and diluted 2003 2002 £’000 £’000 Loss for the financial year (363,355) (588,399)

The weighted average number of shares used in each year are as follows: 2003 2002 No. No. Total for basic and diluted EPS 498,212,826 500,687,594 94 Shire Pharmaceuticals Group plc Shire head office and main operating locations

Shire Pharmaceuticals Group plc Shire US, Inc. Chief Executive Officer: Matthew Emmens EVP and General Manager, North America: Hampshire International Business Park Greg Flexter Chineham, Basingstoke One Riverfront Place Hampshire RG24 8EP, UK Newport, KY 41071, USA Tel +44 (0)1256 894 000 Tel +1 800 828 2088 Fax +44 (0)1256 894 708 Tel +1 859 669 8000 Fax +1 859 669 8414 Shire Pharmaceuticals Limited Managing Director: John Freeman Shire US Manufacturing, Inc. Hampshire International Business Park EVP Global Supply Chain & Quality: John Lee Chineham, Basingstoke 11200 Gundry Lane Hampshire RG24 8EP, UK Owings Mills, MD 21117, USA Tel +44 (0)1256 894 000 Tel +1 410 413 1000 Fax +44 (0)1256 894 708 Fax +1 410 413 2000

Shire Pharmaceuticals Ireland Limited Shire Laboratories, Inc. Director and General Manager: Brian Martin President and Chief Executive Officer: 2nd Floor, Building 1A Jack Khattar Citylink Business Park 1550 East Gude Drive Old Naas Road Rockville, MD 20850, USA Dublin 12, Ireland Tel +1 301 838 2500 Tel + 353 1 429 7700 Fax +1 301 838 2501 Fax + 353 1 429 7701 Shire Pharmaceutical Development, Inc. Shire Pharmaceutical Contracts Limited Senior Vice President: Simon Tulloch (Singapore representative office) 1801 Research Blvd., Suite 600 Managing Director: Tony Ooi Rockville, MD 20850, USA LiFung Centre Tel +1 240 453 6400 58 Toh Guan Road # 03-09A Fax +1 240 453 6404 Singapore 608829 Tel +65 6665 2795 Shire Biologics Inc. Fax +65 6665 2797 Canada President: Randal Chase Shire Deutschland GmbH & Co KG 275, Armand-Frappier Blvd General Manager: Leonhard Terp Laval, Quebec, Canada H7V 4A7 Siegburger Strasse 126 Tel +1 450 978 7800 D-50679 Köln, Germany Fax +1 450 978 7755 Tel +49 221 88047 30 2323 du Parc Technologique Blvd Fax +49 221 88047 41 Sainte-Foy, Quebec, Canada G1P 4RB Tel +1 418 650 0010 Shire France S.A. Fax +1 418 650 0080 General Manager: Vincent Lucet 88, rue du Dôme Shire Biologics Inc. 92514 Boulogne-Billancourt US Cedex, Paris, France Senior Vice President R&D: Ronald Ellis Tel: +33 (1) 46 10 90 00 30 Bearfoot Rd Fax: +33 (1) 46 08 21 49 Northborough MA 01532, USA Shire Italia S.p.A Tel +1 508 351-9944 General Manager: Charles Marchetti Fax +1 508 351-9675 Via Provinciale Lucchese, 70 Sesto Fiorentino, 50019 Firenze, Italy Shire BioChem Inc. Tel +39 (0) 5530 250 50 275, Armand-Frappier Blvd Fax +39 (0) 5530 250 51 Laval, Quebec, Canada H7V 4A7 Tel +1 450 978-7800 Shire Pharmaceuticals Iberica SL Fax +1 450 978-7755 Managing Director: José Antonio Senz de Broto Paseo Pintor Rosales num. 40, Bajo Izda, 28008 Madrid, Spain Tel +34 915 500691 Fax +34 915 493 695 Shire Pharmaceuticals Group plc Shareholder information 95

Registered office address US Shareholders Hampshire International Business Park i) ADSs Chineham, Basingstoke The Company’s American Depository Shares Hampshire, RG24 8EP, UK (ADSs), each representing three ordinary shares Registered in England are listed on the Nasdaq national market under No. 2883758 the symbol ‘SHPGY’. The Company files reports and other documents with the Securities and Investor relations Exchange Commission (SEC) which are available Cléa Rosenfeld for inspection and copying at the SEC's public Tel + 44 (0)1256 892160 reference facilities or can be obtained by writing Fax + 44 (0)1256 894712 to the Company Secretary. Email [email protected] www.shire.com ii) ADR Depositary Morgan Guaranty Trust Company of New York Registrars and transfer office is the depositary for Shire Pharmaceuticals All administrative enquiries relating to Group plc ADSs. All enquiries concerning ADS shareholdings should be addressed to Lloyds records, certificates or transfer of ordinary shares TSB Registrars, clearly stating the registered into ADSs should be addressed to: shareholder's name and address. Morgan Guaranty Trust Company of New York Lloyds TSB Registrars PO Box 8205, Boston The Causeway, Worthing MA 02266-8205, USA West Sussex, BN99 6DA, UK Tel +1 781 575 4328 Fax +1 781 575 4088 96 Shire Pharmaceuticals Group plc Trade marks – Cautionary statements

Shire trade marks Cautionary statements ADDERALL XR® (mixed amphetamine salts) Statements included herein that are not historical ADDERALL® (mixed amphetamine salts) facts, are forward-looking statements. Such AGRYLIN® (anagrelide hydrochloride) forward-looking statements involve a number AMATINE® (midodrine hydrochloride) of risks and uncertainties and are subject to BIPOTROL® (carbamazepine) change at any time. In the event such risks or CALCICHEW® (calcium carbonate) uncertainties materialize, Shire’s results could CALCICHEW D3 FORTE® (calcium carbonate) be materially affected. The risks and uncertainties CARBATROL® (carbamazepine) include, but are not limited to, risks associated COLAZIDE® (balsalazide) with the inherent uncertainty of pharmaceutical EMUTROL™ research, product development, manufacturing ENSOTROL® and commercialization, the impact of competitive FLUVIRAL® S/F (split-virion influenza vaccine) products, including, but not limited to, the impact FOSRENOL® (lanthanum carbonate) on Shire’s attention deficit hyperactivity disorder METHYPATCH® (methylphenidate) (ADHD) franchise, patents, including but not MICROTROL® limited to, legal challenges relating to Shire’s MICROTROL DR™ ADHD franchise, government regulation and MICROTROL PR™ approval, including but not limited to the expected MICROTROL XR™ product approval dates of lanthanum carbonate MIDON® (midodrine hydrochloride) (FOSRENOL®), METHYPATCH®, XAGRID® OPTISCREEN® and the adult indication for ADDERALL XR®, PROAMATINE® (midodrine hydrochloride) the implementation of the planned reorganization PROSCREEN® and other risks and uncertainties detailed from RAPITROL™ time to time in Shire’s regulatory filings. SOLARAZE® (diclofenac sodium 3%) SOLUTROL™ The statements of the medical practitioners TROXATYL® (troxacitabine) appearing on pages 11, 13, 14, 17 and 19 of this VANIQA® document have been made by and represent the XAGRID® (anagrelide hydrochloride) views of the named individuals. These statements are not, and should not be interpreted to be, Third-party trade marks statements by Shire. 3TC® (lamivudine) (trade mark of GSK) ADEPT® (4% icodextrin solution) (trade mark of ML Laboratories plc) COMBIVIR® (trade mark of GSK) EPIVIR® (trade mark of GSK) EPIVIR-HBV® (trade mark of GSK) PENTASA® (mesalamine) (trade mark of Ferring AS) REMINYL® (galantamine hydrobromide) (trade mark of Johnson & Johnson) TRIZIVIR® (trade mark of GSK) ZEFFIX® (lamivudine) (trade mark of GSK) Designed and produced by Bostock and Pollitt Limited Shire Pharmaceuticals Group plc UK Head Office Hampshire International Business Park Chineham, Basingstoke Hampshire RG24 8EP T: +44 (0)1256 894 000 F: +44 (0)1256 894 708 www.shire.com