delivering on promises… building a foundation for future...

Shire Pharmaceuticals Group plc Annual review and summary financial statement 2004

Delivering on promises…building a foundation forfuture growth

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MissionShire’s mission is to develop and marketmedicines that improve the quality of life for patients and their caregivers.

We focus on meeting our commitments andobligations to all our stakeholders: patients,physicians, employees, shareholders and the communities in which we live and work.

We maintain the highest professional andethical standards, building value-addedrelationships with physicians.

We focus resources and organize our workaround select therapeutic areas as wellas implementing effective processes foridentifying compounds and optimizing our drug development activities to bring the best drugs to market.

We galvanize the entire company aroundgrowing our business and executing our strategy, fostering a rewarding andenjoyable workplace for our employees.

Above all, we have an underlying passion for our work.

VisionWe will consistently be recognized asthe leading global company servingspecialist physicians and their patients through distinctive medicines and effective education programs.

Contents01 Financial highlights02 Chairman’s statement04 Chief Executive’s review06 Product portfolio08 Operating review24 CSR: Corporate and

social responsibility28 Financial review32 The Board of Directors34 The Executive Committee36 Directors’ remuneration

report46 Audit Committee report48 Corporate governance

statements

Financial statements53 Statement of Directors’

responsibilities54 Report of independent

registered public accounting firm

55 Consolidated balancesheets

56 Consolidated statements of operations

57 Consolidated statements of changes in shareholders’equity

58 Consolidated statements of comprehensive income

59 Consolidated statements of cash flows

61 Notes to the consolidatedfinancial statements

97 Five-year review98 Summary financial

statement103 Notes to the summary

financial statement

Other105 Shire head office and main

operating locations106 Shareholder information107 Shire Trade Marks

Cautionary statements

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Revenue growth $m2004: 1,363.22003: 1,211.6* +13%

+13% +5% +6%

Revenue$m2004: 1,363.22003: 1,211.6*

R&D spend$m2004: 196.32003: 187.7*

Operating income$m2004: 446.42003: 419.6*

Sources of revenue%

Sources of revenue$m

Revenue by reportingsegment %

04

03

04

03

04

03

–2% –2%

Diluted EPS:Ordinary shares

2004: 53.3¢2003: 54.2¢*

*2003 figures have been restated to reflect the disposal of the vaccines business.

1 ADDERALL XR 452 AGRYLIN 113 PENTASA 84 CARBATROL 45 Others 156 Royalties 17

1 ADDERALL XR 606.72 AGRYLIN 152.53 PENTASA 115.04 CARBATROL 54.35 Others 204.36 Royalties 230.4

1 US 692 International 153 Corporate 16

Diluted EPS:ADS

2004: 159.9¢2003: 162.6¢*

Revenue growth over lastfive years $m*

04

03

04

03

04 1,363.2

00

01

02

03

635.4

845.1

1,023.3

1,211.6*

1

3

2

6

1

23

4

51

23

6

4

5

Shire Pharmaceuticals Group plc Financial highlights

01

Financial highlights

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Shire Pharmaceuticals Group plc Project development pipeline

In 2004 we received 6 regulatoryapprovals and further regulatoryfilings are planned for 2005

Central nervous system ADHD1

ADHDADHDADHDADHD

MTS/METHYPATCHSPD503NRP104SPD465SPD483

Indication Product Pre-clinical Phase 1 Phase 2 Phase 3 Registration

Indication Product Pre-clinical Phase 1 Phase 2 Phase 3 Registration

Indication Product

General products HyperphosphatemiaET2

FOSRENOL®

XAGRID®

Approved – launch underway in Europe and USApproved – launch underway in Europe

SPD476SPD480

Gastro-intestinalIBD3

IBD

12345678

Attention Deficit Hyperactivity Disorder (ADHD)Essential Thrombocythemia (ET) Inflammatory Bowel Disease (IBD)Canadian marketing authorization is currently suspended Janssen Pharmaceutica N.V. (Janssen) (part of the Johnson & Johnson Group) Also distributed in other worldwide markets on Shire’s behalfThis is not a comprehensive list of trademarks for this product as various others are used in smaller marketsAlso distributed in other European markets on Shire’s behalf

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Shire Pharmaceuticals Group plc Marketed products

Shire has an established portfolio of marketed productsto serve specialist physicians and their patients

Centralnervoussystem

Products Principal indications Marketed by/relevant territory

ADDERALL XR® ADHD Shire/US and Canada4

ADDERALL® ADHD Shire/US

CARBATROL® Epilepsy Shire/US

EQUETRO™ Bipolar 1 disorder Approved 2004 – launch plannedQ2 2005

REMINYL® AlzheimerÕ s disease Shire/UK and Republic of IrelandJanssen5/Rest of the World

Royaltyrevenues


3TC®/EPIVIR® HIV Shire and GSK/Canada;GSK/Rest of the World

COMBIVIR® HIV Shire and GSK/Canada;GSK/Rest of the World

TRIZIVIR® HIV Shire and GSK/Canada;GSK/Rest of the World

ZEFFIX®/ Hepatitis B infection Shire and GSK/Canada;EPIVIR HBV®/ GSK/Rest of the WorldHEPTOVIR®7


PENTASA® Ulcerative colitis Shire/US

COLAZIDE® Ulcerative colitis Shire/UK8

Generalproducts

Gastro-intestinal

Future expansion and growth opportunities


AGRYLIN® Thrombocythemia secondary Shire/US and Canada6

to a myeloproliferative disorder

XAGRID Thrombocythemia Shire/Germany, France, UK andsecond line treatment in ET2 Republic of Ireland7

FOSRENOL Hyperphosphatemia in end-stage Shire/USrenal disease

PROAMATINE®/ Symptomatic orthostatic Shire/US and CanadaAMATINE® hypotension

CALCICHEW® Adjunct in osteoporosis Shire/UK and Republic of Ireland

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Shire Pharmaceuticals Group plc Chairman’s statement

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of our head office, and Wayne, Pennsylvania in the US. These geographies give us a firmpresence in two of the world’s largestpharmaceutical markets.

In line with this strategy, we are also welladvanced in implementing a new organizationalstructure that allows Shire to operate ‘cross-functionally’ through dedicated, global teams.These teams are accountable for deliveringresults in each of our main therapeutic areas –Central Nervous System (CNS), Gastro-Intestinal(GI) and General Products (GP). This structureenables people from different geographic andfunctional areas to work together closely andcollaboratively to solve problems and to createnew and better products. More importantly, it provides Shire with the flexibility andnimbleness required for continued growth in an industry marked by rapid change and ever-increasing competition.

During the year, renewed emphasis has also beenplaced on business development activities (M&A).We have a newly charged global team with a clear mandate to examine all opportunities forpartnership that fit our strategic focus. It is ourintention to fill our earlier-stage pipeline with in-licensed projects that we will then manage throughto approval and launch over the next few years.

2004 resultsShire’s highly focused growth strategy producedsolid results in 2004. Revenues were up 13% to $1,363.2 million. Net income of $269.0 million(2003: $276.1 million) was impacted by the$44.2 million loss on disposal of the vaccinesbusiness and $48.5 million of reorganization costs.

Shire’s cash position remained strong with net cash of $1,457.5 million, compared with$1,037.7 million in 2003. This cash will be used for future expansion.

Corporate governanceGood corporate governance and prudententerprise-wide risk management have taken on critical importance for corporations the worldover. Shire understands the key risks that it facesand has taken appropriate steps to manage themas our business has grown in size and thereforecomplexity. Our implementation of a rigorous risk management process has added and willcontinue to add value to our business.

The pharmaceutical environment continues to be more challenging than in the past. In what some have called ‘the perfect storm’, big pharma companies have faced significantchallenges including technical, regulatory andeconomic issues.

Rather than inhibiting Shire’s future, thisenvironment has actually provided an attractiveplatform for Shire to occupy. Under the leadershipof our Chief Executive Officer, Matthew Emmens,we have a strategy that differentiates us frombig pharma: we concentrate our resources onspecialist physicians who treat serious diseases.The ability to develop and register distinctiveproducts and then deploy small-scale salesforces helps us build relationships with highprescribers in niche markets and achievesignificant market shares.

Additionally, our Company is focusing on fewer,later-stage, low-risk projects that have the bestchances of reaching the market. We intend tomaximize our return on Research & Development(R&D) investments and optimize our sales networkby extending our global reach. Accordingly, we have established leading strategic functionsat two main sites: Basingstoke in the UK, location

Dr James CavanaughChairman

2004 was dedicated to creating the structure that will enable us to grow the Company


Shire Pharmaceuticals Group plc Chairman’s statement

03

Shire’s highly focused strategycontinued to producesolid results in 2004and the Company isset for future growth

Talented peopleShire’s accomplishments over the past few years speak volumes about its talented team of employees worldwide, who have firmlyembraced the Company’s vision. They are to be thanked and congratulated for their manycontributions and ongoing support.

We had 1,833 employees as of December 31,2004, with strong skills sets spanningpharmaceutical research, sales and marketing,operations and management and administration,among others. As many as 300 new peoplejoined Shire this year to work in our newlyestablished US Corporate Headquarters inPhiladelphia. In addition, over 100 employeesrelocated from our offices in Kentucky andMaryland. We believe that our new operatingmodel, designed to build an integrated andglobal company based on therapeutic areas,makes Shire an attractive new type ofpharmaceutical company in which people canpursue their careers. Consequently we were able to recruit a wide range of very high-caliber people – many from well-establishedindustry players. Our model will further enhanceopportunities for our employees within Shire. We are currently developing consistent andcompetitive policies and programs to positionShire as one of the top global pharmaceuticalcompanies and FTSE 100 companies for whichto work. We are continuing to ensure that wehave the right resources to manage the excitingproducts and projects that we have underway or will be bringing on board.

A bright futureShire has considerable strengths: a mosttalented group of employees, a growingpresence in the world’s key pharmaceuticalmarkets and a leading portfolio of products with many more in the pipeline. Over the next few years, we intend to build on our strengthsand successes through the disciplinedimplementation of our growth strategy. In addition to growing our current franchises, we will continue to search for and develop new products that deliver significant value forshareholders, physicians, patients and otherstakeholders. The ultimate goal is to become amore globally focused and integrated companywith a number of successful global products.More than ever, I am confident that we willachieve this goal.

Our Board is committed to the highest standardsof corporate governance. As a FTSE 100company, we are subject to the UK Listing Rules and The Combined Code on CorporateGovernance. We are required by the UK ListingRules to report annually on our compliance with the Combined Code and on our riskmanagement practices generally. Where we failto comply with the provisions of the CombinedCode, we are required to explain why. Shire’scompliance with the provisions of the CombinedCode is described in the corporate governancestatements on pages 48 to 52.

As a NASDAQ company, we are subject to therules of the Sarbanes-Oxley Act, implemented in 2002. In order for Shire to comply with Section404 of Sarbanes-Oxley, Shire, along with allSecurities Exchange Commission (SEC) regulatedcompanies, must review its material financialreporting processes and then document, reviewand test all internal controls over financialreporting to ensure that these operate effectively.In 2004, Shire completed a global review of itssystems of internal control over financial reportingso as to enable compliance with Section 404 by the end of 2004. Shire undertook this reviewduring a year of considerable internal changeas a result of the restructuring exercise. I am particularly pleased, therefore, that thisprocess has run smoothly and that no materialweaknesses were identified.

Shire’s Board is comprised of eight members fromboth Europe and North America with extensiveknowledge and experience in business and thepharmaceutical industry. We are continuing tostrengthen our Board; during 2004 David Kapplerjoined as a non-executive Director and assumedchairmanship of the Audit Committee. Mr Kapplerwas formerly Chief Financial Officer of CadburySchweppes plc. Wilson Totten, Chief ScientificOfficer, left Shire during 2004 and has resignedfrom the Board. I would like to take thisopportunity to thank him for his many years of valuable contributions to Shire, including the successful development and registration of FOSRENOL in both Europe and the US.


Chief Executive’s reviewShire Pharmaceuticals Group plc

04

Key milestonesWe achieved a lot this year. Our operating profitswere good and we made real progress with our new business strategy, which I outlined in thissection of last year’s report. In particular:

– we increased product sales and received more income from royalties;

– we turned in a solid financial performance, with revenues up 13%;

– we paid our first dividend;

– we moved our pipeline forward and achieved six new product approvals or line extensions in Europe and the US; and

– we made the business more focused,strengthened the management team andincreased our R&D capabilities.

You may remember that last year I describedhow we intended to change the structure of theCompany so that we could work more laterallyand internationally across the organization,rather than in isolated silos. We wanted simplerreporting lines and a business model thatbrought our drug development and commercialactivities closer together – and that is what wenow have. As a result, we are more competitive,more accountable and more attuned to theparticular needs of the specialist doctors who are our main customers. Our technological andR&D efforts are now concentrated on high-potential treatments that are in the latter stagesof development, which significantly reduces our risk profile. As a result, we had six projects in registration at the end of the first quarter 2004,two more in Phase 3 of development and two in Phase 2 and by the end of the year we’dreceived six drugs approvals in Europe and in the US, including:

– FOSRENOL in both the US and in Europe;– PENTASA 500mg in the US;– ADDERALL XR for adult patients in the US;– EQUETRO in the US; and– XAGRID in Europe.

Matthew EmmensChief Executive Officer

Everything that we have done thisyear has positioned us to leverageon our strengths and create anorganization with sustainable growth


Chief Executive’s reviewShire Pharmaceuticals Group plc

05

We will add to currenttherapeutic areas aswell as pursue newopportunities to growour business in theUS and Europe

Corporate social responsibility We take a practical and contemporary approachto corporate social responsibility and this is an area where a lot has been achieved in the last year, for instance:

– we appointed a global Environment and Health and Safety Officer for the Company;

– we completed a risk management exercise;and

– we took on a range of community initiatives in both Philadelphia and Basingstoke.

Angus Russell, our Chief Financial Officer, leads the committee that looks after corporatesocial responsibility and monitors the progresswe’re making. As last year, we will be issuing a separate report on this whole area which youcan download from the website or request fromour Corporate Communications department.

The future In last year’s report I said that we were going toreinforce our position in the market and makeShire one of the leading specialty pharmaceuticalcompanies in the world. That’s what we’ve doneand will strive to maintain.

Our profits are very strong, the business isgrowing and that’s despite all the work done to reorganize the Company this year. This time last year I predicted a promising future and wecan see the proof of this in six product approvals and the strength and depth of our pipeline.

Our strategy is simple but it is compelling and it is working. This is largely due to the dedicationand professionalism of all Shire employees, andthis report gives me the chance to thank them all.

Shire has a particularly strong portfolio of late-stage projects. Methylphenidate transdermalsystem (MTS)/METHYPATCH for ADHD is now in registration and we plan to register three more products in the US by 2006: SPD503/guanfacine and SPD465/longer-actingADDERALL XR, both for the treatment of ADHD and SPD476 for ulcerative colitis.

Shire’s strategy We are a specialty pharmaceutical company that focuses on meeting the needs of thespecialist physician. Geographically, our keymarkets are the US and the larger Europeanmarkets of the United Kingdom, France,Germany, Italy and Spain.

We deliberately concentrate our R&D resourceson products that are in the late stages ofdevelopment. This is where we expect to get the optimum combination of better returns, more predictability and lower risk. We are quiteopen about the fact that we don’t compete with the very large pharmaceutical companies –the products we want are those that couldachieve sales of between US$150 million andUS$500 million at their peak. In practice we do this by seeking to add new projects to thepipeline every year. We look for projects wherewe can exploit the intellectual property involvedfully, which means that we actively look forlicensing opportunities. This is why I stepped upour business development efforts this year, bybringing in Barbara Deptula to head up businessdevelopment. In addition, Eliseo Salinas joined us to head up the R&D function.

Patent challengesIn today’s markets, we know that manufacturersof generic drugs will challenge our portfolio. But as I said last year, we are determined to defend our intellectual property vigorously and we will continue to file new patents on ourprojects and products.


Product portfolioShire Pharmaceuticals Group plc

06

CARBATROL®

CARBATROL (carbamazepine extended-release capsules) is marketed for thetreatment of epilepsy, combining provenmedication with advanced drug deliverytechnology to enable a convenient twice-daily treatment.

VANIQA®

VANIQA (eflornithine 11.5% cream) is indicated for the treatment of facialhirsutism in women. VANIQA inhibits anenzyme involved in the production of the hair shaft by the hair follicle. VANIQA has been shown to reduce the rate of facial hair growth.

With the approvals secured in 2004,a number of new products entered the portfolio. FOSRENOL and XAGRIDare Shire’s first global products

ADDERALL XR®

ADDERALL XR (mixed amphetamine salts)is indicated for the treatment of ADHD andis a once-daily formulation of ADDERALL. It offers convenience to patients andcaregivers, and the potential for improvedpatient compliance.

AGRYLIN®

AGRYLIN (anagrelide hydrochloride) is indicated for the treatment ofthrombocythemia, secondary to amyeloproliferative disorder. Researchindicates that a key benefit of AGRYLINis its platelet selectivity, targeting only those cells that develop into platelets.

REMINYL®

REMINYL (galantamine hydrobromide) is indicated for the symptomatic treatmentof mild to moderately severe dementia of the Alzheimer type. REMINYL differsfrom other compounds in its class in that it has a dual mechanism of action.

SOLARAZE®

SOLARAZE (diclofenac sodium 3% gel) is indicated for the treatment of actinickeratosis, a pre-cancerous skin condition.


Product portfolioShire Pharmaceuticals Group plc

07

EQUETRO™EQUETRO (carbamazepine extended-release capsules) is indicated for thetreatment of acute manic and mixedepisodes associated with bipolar 1disorder. Advanced drug deliverytechnology enables the convenience of twice-daily dosing.

FOSRENOL®

FOSRENOL (lanthanum carbonate) is indicated to reduce serum phosphate in patients with end-stage renal disease.Approved in 2004, FOSRENOL will become one of the first global products for Shire.

XAGRID®

XAGRID (anagrelide hydrochloride) is indicated for the reduction of elevatedplatelet counts in at-risk essentialthrombocythemia patients who areintolerant to their current therapy or whoseelevated platelet counts are not reduced toan acceptable level by their current therapy.

ZEFFIX®

ZEFFIX (lamivudine) is indicated for the treatment of chronic hepatitis B infection associated with evidence ofhepatitis B viral replication and acute liver inflammation.

3TC®

3TC (lamivudine), also marketed as EPIVIR®, in combination with other anti-retroviralagents is indicated for the treatment of human immuno-deficiency virus (HIV)infection. Lamivudine is a component of the combination HIV treatments,COMBIVIR® and TRIZIVIR®.

PENTASA®

PENTASA (mesalamine) is indicated forthe induction of remission and treatmentof patients with mild to moderately activeulcerative colitis, using a unique deliverymechanism.


Centralnervoussystem

Shire Pharmaceuticals Group plc Operating review: CNS

08

Simon TullochSenior Vice President and CNS Strategic Therapeutic Area Leader



09

Shire will continue to build upon itssuccessful ADHDplatform, therebyhelping thousands of patients sufferingfrom the disease



10

for delivering results for those products. The newstructure allows people from different geographicand functional areas to work together to solveproblems collaboratively. The new STAT structurealso puts us in a better position to focus onmaking a global success of our products and to build truly global franchises.

Shire’s CNS STAT is already delivering solidresults. During the year considerable progresswas made in finalizing the CNS team structureand in rolling out the CNS business plan. We have achieved major successes with our key CNS marketed products and projects underdevelopment, such as receiving US marketingapproval for EQUETRO only ten months after its New Drug Application (NDA) submission.

ADHD: a core business for ShireADDERALL XR (mixed amphetamine salts),Shire’s patented novel formulation of ADDERALLthat provides all-day treatment for ADHD withone daily dose, continues to build market sharesince being launched in late 2001. In July 2004, it became the most prescribed ADHD treatmentin the United States with a 25% share of the USprescription ADHD market. Sales of ADDERALLXR for the year to December 31, 2004 were US $606.7 million compared with $474.5 millionin 2003, an increase of 28%.

The size of the US ADHD market increased by 17% in 2004 and it is anticipated to continuegrowing as awareness of the condition increasesin pediatric, adolescent and adult populations.ADDERALL XR has developed a strongreputation among doctors for being highlyeffective. ADDERALL XR has been supported by a focused marketing strategy, implementedby our specialist sales force that calls on keypsychiatrists, pediatricians and neurologists. Our sales force targets the highest prescribingspecialists and is backed by a well-structured andcomprehensive professional education program.Educating the medical community about ADHDand the various treatments available is a criticalsuccess factor for Shire in this field.

In October 2004, the United States Food & DrugAdministration (FDA) granted an additional sixmonths’ US market exclusivity to ADDERALL XR,until April 11, 2005, under the Hatch-Waxmanregulations. ADDERALL XR is also protected by

Disorders of the CNS are a very importantsegment of the global pharmaceutical market –one that is still relatively underserved. Shire hasdeveloped a strong heritage in this area bysuccessfully finding, developing and marketingdrugs that meet the needs of specialistphysicians in treating patients suffering fromdisorders such as attention deficit hyperactivitydisorder (ADHD) and bipolar 1 disorder.

Shire has a world-class team of researchers and scientists focused on the later stages ofproduct development and a strong businessdevelopment group with global reach activelyseeking new opportunities to bring marketed anddevelopment products into Shire’s portfolio. TheCompany can add significant value to potentialpartners with its expertise in drug development,its knowledge of regulatory processes and its excellent sales and marketing capability. By leveraging these strengths and employing our considerable financial resources we have the ability to take on both new projects orexisting products and maximize their potential,for example in new indications or populations. One example of product optimization in CNSis ADDERALL XR which was developed as along-acting version of ADDERALL for children,then later developed for the treatment of adults with ADHD.

Our business strategy going forward is tocontinue to optimize our current portfolio of products and to in-license projects in clinical development which have meaningfulcommercial value to Shire by virtue of theirclinical uniqueness and hence their benefit for patients, strong patent protection andsignificant market opportunity.

A responsive organizationOur new organizational structure based around Strategic Therapeutic Area Teams(STATs), supported by strong functions such as marketing, business development and R&D, will allow Shire to better manage our existingproducts and identify and add innovative newproducts to our pipeline. The STAT structureshould also enable us to respond quickly andmore effectively to changing market dynamics.Within each of the STATs we have dedicatedcross-functional global teams organized byproduct who are responsible and accountable

Our business strategy going forward is to continue to optimize our current portfolio of products and to in-licenseprojects in clinical development

“My experience withADDERALL XR has been very positive. I have an adult patient with ADHD who has only responded to ADDERALL XR. In myopinion it is a valuable tool in managing patientswith ADHD.”

Dr David BaronProfessor and Chair,Department of Psychiatry,Temple University School of Medicine



11

with clinically beneficial products. Accordingly,we are developing the following drugs:

– SPD503 (a modified release formulation ofguanfacine): a non-scheduled, non-stimulantproduct. Thanks to progress in developmentduring 2004, Shire could file an NDA forregistration in the US for SPD503 in 2005,subject to agreement with the FDA.

– Methylphenidate transdermal system(MTS)/METHYPATCH: a transdermal deliveryproduct for the methylphenidate market; Shire is on track to submit a response to theApril 2003 non-approvable letter from theFDA, including new clinical data, in mid-2005.

– NRP104, a prodrug of amphetamine: in January 2005, Shire signed a collaborativeagreement with New River PharmaceuticalsInc. (New River) for the global commercializationof NRP104, a product in Phase 3 developmentfor the treatment of ADHD and other potentialindications. Shire expects the NDA for NRP104to be filed for US registration in late 2005 to early 2006. NRP104 is a new chemical entity – an amphetamine prodrug where anamphetamine is linked to a specific amino acid.NRP104 is intended to provide better overdoseprotection and a reduced potential for abusethan currently marketed amphetamineproducts, while providing effective treatment of ADHD symptoms when taken as directed.

patents that expire in 2018. As Shire haspreviously announced, a number of generic drugmanufacturers have filed abbreviated NDAs withthe FDA, seeking to market generic versions of ADDERALL XR. Litigation proceedings are inprogress against some of these manufacturersand are described in more detail in Note 20 in the consolidated financial statements. Shireremains committed to protecting its patents.

In February 2005, Health Canada announced thesuspension of sales of ADDERALL XR in Canada.The FDA subsequently issued a statement inwhich it advised that after consultation with theCanadian authorities regarding the basis for theiraction, it did not feel that any immediate changeswere warranted in the FDA labelling or approveduse of ADDERALL XR, based on its preliminaryunderstanding of Health Canada’s analysis of adverse event reports and the FDA’s ownknowledge and assessment of those reports.Although Shire is complying with HealthCanada’s suspension request, the Companystrongly disagrees with the conclusions drawn by Health Canada, and has lodged an appealand taken other actions to preserve its legalrights and obligations.

The US ADHD market is segmented into threetypes of treatments – amphetamine-basedproducts, methylphenidate products, and non-stimulant products. As we look to the future, Shireintends to serve each of these therapeutic needs

Shire intends to serve each of the ADHD areas with clinically beneficial products

ADDERALL XR(mixed amphetamine salts)is indicated for the treatment of ADHD and is a once-dailyformulation of ADDERALL. It offers convenience topatients and caregivers, andthe potential for improvedpatient compliance



12

proper diagnosis and treatment can usually alter the course of the illness. Each year it isestimated that more than two million Americanadults, about 1% of the population aged 18 and older, are afflicted with bipolar disorder. The market for pharmaceuticals to treat bipolardisorder in the United States is currently valuedat about $1.9 billion and is expected to grow to $2.4 billion by 2007.

Shire intends to grow its market share in thishigh-potential treatment area. The FDA approvedEQUETRO (carbamazepine extended-releasecapsules), previously known as SPD417 and Bipotrol, for the treatment of acute manic and mixed episodes associated with bipolar 1disorder, in December 2004. The US marketingapproval from the FDA came just ten monthsafter submission, which represents a significantachievement. In addition, the unique three-beadextended-release delivery system of EQUETROprovides for convenient twice-daily administration.

EQUETRO has patents around its formulation,and will have at least three years of marketexclusivity under the US Hatch-Waxman Act. It will be available for prescribing in the US in the second quarter of 2005. Shire has obtained a dedicated sales force to promoteEQUETRO in the US.

Epilepsy: an existing business for Shire with CARBATROLEpilepsy is one of the most common chronicneurological disorders, affecting approximately2.5 million people in the US alone. CARBATROL,Shire’s extended-release formulation ofcarbamazepine, uses the patented MICROTROL®

delivery system technology. This twice-dailyextended-release formulation is more patient-friendly than immediate-release formulations onthe market, which require three to four doses aday. CARBATROL can also be sprinkled on food.In 2004, US prescription growth of 11% wasachieved and CARBATROL had a 46% share of the total US extended-release carbamazepineprescription market. Litigation relating to anapplication by a generic drug manufacturer to market a generic version of CARBATROL is in progress. More detail is provided in Note 20 to the consolidated financial statements.

In March 2005, New River published the resultsof a Phase 2 trial with NRP104. A total of 52children aged 6-12 with ADHD were enrolled ina double-blind, placebo- and active-controlled,randomized, crossover study that comparedNRP104’s efficacy, duration and incidence of adverse events to placebo.

– The primary efficacy endpoint in this study wasthe SKAMP-Deportment (Swanson, Kotkin,Agler, M.Flynn and Pelham) rating scale. In thestudy, patients treated with NRP104 showed astatistically significant improvement on primaryendpoint compared to placebo across all threedoses (p values <0.0001).

– The significant therapeutic effects of NRP104continued throughout the last assessment time point (i.e. 12 hours post-morning dose),compared to placebo, suggesting a 12-hourduration of drug action.

– NRP104 was generally well tolerated, withadverse events of a nature consistent withthose in the approved labelling for ADDERALLXR and other stimulant therapies.

– SPD465: a long-acting amphetamine product.Shire is developing a longer-acting amphetamineproduct for patients such as adults who needtherapeutic coverage throughout a long day.Clinical testing is underway.

Shire will continue to build and strengthen its position as the leading ADHD specialtypharmaceutical company in the US by optimizingits existing portfolio and adding to its pipeline.We will also be working to explore ways to builda successful ADHD franchise in Europe, wherethe market is evolving. A number of our projectsin development have the potential to serve theemerging European ADHD market.

Bipolar disorder: a new CNS disease areafor Shire with EQUETROBipolar disorder is a leading neuropsychiatricdisorder according to the World HealthOrganization (WHO). Also known as manicdepression, it is characterized by episodes ofmania and depression with periods of normalmood in between. The disorder can havedevastating effects on an individual’s life but

Shire will continue to strengthen its US ADHD franchise and explore ways to build a successfulEuropean ADHD franchise

“EQUETRO is an extended-release preparation of carbamazepine which is better tolerated thanimmediate release forms. I expect EQUETRO to be a significant advance in the pharmacotherapy of bipolar disorder.”

Wade Berrettini MD, PhDKarl E RickelsProfessor of PsychiatryUniversity of PennsylvaniaSchool of MedicineDirector, Center forNeurobiology and Behavior



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During 2004/5 the National Institute for ClinicalExcellence (NICE) has been reviewing itsguidance for the drug treatment of Alzheimer’sdisease, which includes the three acetyl-cholinesterase inhibitors donepezil, rivastigmineand galantamine.

NICE published a preliminary AppraisalConsultation Document in March 2005. Thisdocument states that donepezil, rivastigmine and galantamine are not recommended for use in the treatment of mild to moderateAlzheimer’s disease by the National HealthService in England and Wales for new patients,due to NICE’s economic assessment.Pharmaceutical manufacturers, physicians,patients and parliamentarians have alreadyvoiced their objection to this proposal. It isexpected that NICE’s final recommendation will be published by June 1, 2005.

Alzheimer’s disease: the first CNS success for Shire with REMINYLAlzheimer’s disease, one of the most commonforms of dementia, affects approximately18 million people worldwide, mainly thoseaged 65 and over. It is a progressive disorder that gradually robs individuals of their ability toremember, learn new information and performbasic activities of daily living.

REMINYL slows the progression of the symptomsof Alzheimer’s disease for up to four years.REMINYL is an acetylcholinesterase inhibitor withan additional nicotinic mode of action. It is one of the fastest-growing products for treating mildto moderately severe dementia of the Alzheimertype. Developed by Johnson & JohnsonPharmaceutical Research and Developmentunder a co-development and licensing agreementwith Shire, it is licensed for use in 69 countries.

With the exception of the UK and the Republic ofIreland, REMINYL is marketed by Janssen-Cilag worldwide. Janssen-Cilag pays Shire a royalty on its net sales of REMINYL. Shire and Janssen-Cilag co-promoted REMINYL in the UK andRepublic of Ireland until May 2004, when fullmarketing and promotion rights in these countrieswas acquired by Shire. Shire is seeking to expandits REMINYL franchise, including the introductionof a once-a-day formulation, during the first half of 2005.

Each year it is estimated that more than two millionAmerican adults are afflictedwith bipolar disorder

EQUETRO (carbamazepineextended-release capsules)is indicated for the treatmentof acute manic and mixedepisodes associated withbipolar 1 disorder. Advanceddrug delivery technologyenables the convenience of twice-daily dosing


Generalproducts& royaltyrevenues

Shire Pharmaceuticals Group plc Operating review: General products & royalty revenues

David MiltonSenior Vice President andGeneral Products StrategicTherapeutic Area Leader

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s


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“I found FOSRENOLa much moreconvenient product to take comparedto my previoustreatments, not onlybecause I had to take fewer tablets but also becauseFOSRENOL was far more palatable.These benefits helped me to dealwith my illness moreeasily until I receiveda successful kidneytransplant.”

Simon JenkinsFOSRENOL patient

FOSRENOL (lanthanumcarbonate) is indicated toreduce serum phosphate in patients with end-stagerenal disease. Approved in 2004, FOSRENOL will become one of the firstglobal products for Shire


FOSRENOL is strategically very important to our businessand nearly 2,000 patients have taken the drug so far


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FOSRENOL is the first Shire compound takenfrom the laboratory bench to approval andcommercialization and it is strategically veryimportant for our business. The drug has beenstudied more extensively than any otherphosphate-binder prior to launch and up to fiveyears of pharmacological data has already beencollected. Nearly 2,000 patients have taken thedrug so far.

Starting in the first quarter of 2005, FOSRENOLis available in the US in 250mg and 500mgstrengths. It is formulated as a chewable tabletthat does not need water to be swallowed, an important benefit for ESRD patients who have to restrict fluid intake. The launch in the UShas already showed promising signs of success.According to IMS data, FOSRENOL captured a share of 13.8% of the new prescriptions writtenfor phosphate binders in ESRD patients in theUS market by April 1, 2005, only four monthsafter launch.

FOSRENOL is reaching the market as rates of ESRD in the US and Europe are forecast tosoar, largely as a result of the growing worldwideincidence of diabetes – one of the leading causes of renal disease. The WHO estimates the incidence of diabetes worldwide will rise from171 million affected people in 2000 to about 366 million by 2030.

Approximately 70% of ESRD patients undergoingregular dialysis suffer from hyperphosphatemia(elevated concentrations of phosphate in theplasma). Changes in mineral metabolism and theuse of calcium containing phosphate-bindershave been associated with the deposition ofcalcium and phosphates.

Calcification of the heart, heart valves and coronary arteries is frequently observed in patients with ESRD. Hyperphosphatemia is associated with significant clinical problems,including the development of cardiovasculardisease, which accounts for nearly 50% of alldeaths in ESRD patients. Patients withhyperphosphatemia have a 52% higher relativerisk of dying from coronary artery disease, a 34% higher relative risk of dying from othercardiac diseases and a 26% higher relative risk of sudden death.

Shire aims to deliver superior results bydeveloping and marketing products that meetthe needs of specialist physicians and theirpatients. It does so by leveraging its extensiveexpertise in R&D and regulatory affairs, as well asits dedicated sales forces strategically located inNorth America and Europe. Our diverse portfolioincludes specialist products and projects that fit well into this strategic model and to which webelieve we can add considerable value.

During 2004, we focused on the impending marketlaunches of two key products in our GeneralProducts portfolio – FOSRENOL for the treatmentof hyperphosphatemia in end-stage renal disease(ESRD) and XAGRID in essential thrombocythemia(ET) – which are poised to become our first trulyglobal products. The new General ProductsStrategic Therapeutic Area Team (STAT) is allowingus to harness Shire’s resources in the mosteffective way, by having global, cross-functionalleadership responsible and accountable for drug development through to commercialization. It will ensure successful campaigns on bothsides of the Atlantic for these exciting new products and others to follow in future.

Renal: FOSRENOL set for launchAfter nine years of R&D, clinical studies andregulatory reviews, Shire has already startedlaunching FOSRENOL (lanthanum carbonate) in 2005. FOSRENOL is a new phosphate-binderthat reduces elevated blood levels of phosphatein patients with ESRD.

The FDA approved FOSRENOL in October 2004,seven months after Shire received approval forthe drug from the Swedish regulatory authorities.Following FDA approval, Shire immediatelystarted promoting FOSRENOL at the AmericanSociety of Nephrology annual conference in St.Louis, Missouri, where it received considerableattention. With FDA approval, we are escalatingour efforts to ensure a successful US launch andto realize the full value of this product through the establishment of specialized sales teamsin the US, backed by comprehensive educationaland promotional campaigns. Regulatoryapprovals in a number of other EU memberstates have been sought pursuant to the mutualrecognition process. Following the conclusion of pricing and reimbursement discussions withindividual countries, the launch of FOSRENOL will begin in European territories during 2005.

“Hyperphosphatemia is a very serious condition for ESRD patients. Effectivereduction of phosphate levels in patients withkidney disease could make a real impact on their lives. In my opinion, existingtherapies have numerousshortcomings – from long-term safety issues to high pill burdens and poorintestinal tolerability. I believeFOSRENOL moves us closerto the ideal phosphate binder,since it can be integratedeasily into patients’ day today schedules and has aproven efficacy and safetyprofile from a number of well-designed clinical trials.”

Dr Alastair HutchinsonConsultant Nephrologist andClinical Director of the RenalUnit at The Royal Infirmary,Manchester, UK



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at the beginning of 2005. XAGRID is alsomarketed in the US under the trade nameAGRYLIN (anagrelide hydrochloride), andtherefore the product is the second truly globalproduct for Shire. Shire sales teams are in placeor being established to commercialize theproduct, backed by comprehensive educationaland promotional activities.

XAGRID has been designated an orphanmedicinal product, providing it with up to tenyears’ market exclusivity in Europe. Shireestimates that over 40,000 patients suffer from ET across the European Union. XAGRID is the only platelet-selective treatment withapproval throughout the European Union, Iceland and Norway.

AGRYLIN is also being sold successfully in Israel,South Africa, Brazil and the Pacific Rim and has also been available on a ‘named patient’basis in a number of European countries forseveral years. Shire, therefore, already has anestablished business base and a product profilefor XAGRID among key opinion leaders. With the recent EU approval, it has been successfullylaunched in six EU countries as well asSwitzerland. Promotional and educationalactivities are well underway to further build our franchise.

Hyperphosphatemia also causes persistent and severe hyperparathyroidism (hormoneimbalance) that in turn causes changes in mineralbalance associated with bone disease (renalosteodystrophy). Bone disease is common inpatients with chronic ESRD and is associatedwith bone pain, skeletal deformity, boneweakness and fractures.

FOSRENOL has been shown in numerous clinical studies to offer a promising option forhyperphosphatemia management compared withcalcium-based phosphate-binders. These studiesconfirm that it is an effective and well-toleratedphosphate-binder, lowering serum phosphate totarget levels within eight weeks and maintainingthis long term, with some patients treated for three years or more. We are therefore hopeful thatFOSRENOL will become a widely used treatmentfor hyperphosphatemia in ESRD patients.

XAGRID/AGRYLINXAGRID (anagrelide hydrochloride) – Shire’streatment for ET – received approval from theEuropean Medicines Evaluation Agency in 2004 for second-line, monotherapy treatment in patients suffering from ET, in the EuropeanUnion, Iceland and Norway. ET is a chronicdisorder of bone marrow associated with theincreased production of blood platelets. TheXAGRID launch commenced across Europe

In the past eight years in the US, AGRYLIN has developed a proven track record for lowering the platelet count in patients suffering frommyeloproliferative disorders

“AGRYLIN lets me get on with my life.”

Teresa AdcockAGRYLIN patient

AGRYLIN (anagrelidehydrochloride) is indicated for the treatment ofthrombocythemia, secondaryto a myeloproliferativedisorder. Research indicatesthat a key benefit of AGRYLINis its platelet selectivity,targeting only those cells that develop into platelets



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VANIQAIn 2004, VANIQA, an innovative new productdesigned to slow unwanted facial hair growth in women, was launched by Shire in the UK, the Republic of Ireland, Germany, France, Italyand Spain. The market response to date hasbeen promising.

Anti-infectives: HIV and hepatitis BShire receives royalties from GlaxoSmithKline plc (GSK) on the worldwide sales of 3TC(lamivudine), a key component in most of the HIV combination treatment regimes, such asCOMBIVIR and TRIZIVIR. In Canada, Shiremarkets 3TC jointly with GSK. Lamivudine is alsomarketed for the treatment of chronic hepatitis Bas HEPTOVIR in Canada, EPIVIR HBV in the US,and ZEFFIX elsewhere in the world. Shire alsoreceives royalties on sales of lamivudine by GSK for hepatitis B. In 2004, royalty income forlamivudine, including ZEFFIX and 3TC, totalled$183.2 million.

In July 2004, global research, development andmarketing rights for TROXATYL® (troxacitabine)were out-licensed to Structural GenomiX Inc. In addition, in January 2005, Shire out-licensedits HIV compound, SPD754, to Avexa Limited, apublicly-listed Australian specialty anti-infectivescompany. These transactions represented some of the final steps in our divestment programdesigned to ensure focus on later-stage pipelineinvestment in our core therapeutic areas.

VaccinesShire completed the sale of its vaccines businessto ID Biomedical Corporation (IDB) in September2004 for proceeds of $120 million ($60 million incash and $60 million in IDB subscription receipts).The subscription receipts were redeemed by IDB for $60 million in cash in January 2005. Shireconsiders IDB to be the ideal company to take the vaccines business into its next stage ofdevelopment. Shire decided to exit the vaccinesbusiness, because it is no longer core to ourglobal strategy of focusing on therapeuticproducts meeting the needs of specialist doctors.

In the past eight years in the US, AGRYLIN has developed a proven track record for lowering the platelet count in patients sufferingfrom myeloproliferative disorders. Platelets areinvolved in blood clotting and lowering theelevated count helps decrease symptoms suchas blood vessel blockages and bleeding events.Sales continued to grow in 2004, totalling$152.5 million, up 15% from the previous year.$34 million of 2004 AGRYLIN sales wereattributed to Europe.

Orphan drug exclusivity for AGRYLIN in the US expired in March 2004 and a subsequent six-month US market exclusivity period grantedby the FDA Pediatric Board (ending September2004) has also expired. Shire is thereforeanticipating the launch of generic versions of the product in the US market.

Other general products

SOLARAZE SOLARAZE is a leading topical treatment foractinic keratosis (AK) which, if left untreated,could lead to squamous cell carcinoma, a form of skin cancer. It is marketed by Shire in fiveEuropean countries and marketed in anotherseven countries through Shire distributors.SOLARAZE gel offers an alternative to existingtreatment options, which may cause burning or peeling during the treatment of AK lesions. It is particularly useful for patients with AK on the face or scalp, where other treatments such as cryotherapy (freezing) would be too painful or risk leaving scarring.

CALCICHEWShire markets the CALCICHEW range of calciumand calcium/vitamin D supplements in the UKand the Republic of Ireland as adjuncts in thetreatment of osteoporosis, a disease characterizedby a progressive loss of bone mass that rendersbone fragile and liable to fracture. More thanthree million people in the UK are estimated tosuffer with this condition. Osteoporosis affectsboth sexes but is more rapid and profound in women, largely as a result of the decline inestrogen production following menopause.

“XAGRID is platelet selective,targeting only those cellsthat develop into platelets;it is well tolerated by mostpatients and is a welcomeaddition to the drugs we have available to treat ET.”

Dr Claire HarrisonConsultant Hematologist at Guy’s and St Thomas’Foundation Trust



XAGRID – European launch early 2005

XAGRID (anagrelidehydrochloride) is indicated for the reduction of elevatedplatelet counts in at-riskessential thrombocythemiapatients who are intolerant to their current therapy or whose elevated plateletcounts are not reduced to an acceptable level bytheir current therapy


Gastro-intestinal

Shire Pharmaceuticals Group plc Operating review: Gastro-intestinal

Greg FlexterExecutive Vice President &General Manager, NorthAmerica and GI StrategicTherapeutic Area Leader

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The worldwidediagnosed populationfor ulcerative colitisis expected to reach1.3 million by 2012



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“The commitment to patientsand gastroenterology thatShire has demonstrated isexemplary. The use ofPENTASA in patients withinflammatory bowel diseasesuch as ulcerative colitisallows many of them to enjoy a better quality of life.With proper managementmany patients and physicianshave seen lower incidence of complications. Shire’scommitment to research in gastroenterology willexpand the medicalarmamentarium to combatthese devastating diseases.”

Gary R Lichtenstein, MDDirector – InflammatoryBowel Disease ProgramDivision of GastroenterologyUniversity of Pennsylvania,Philadelphia

convenient and less burdensome formulation, aswell as allowing physicians another prescribingoption. Shire also markets COLAZIDE(balsalazide), an oral mesalamine formulation forthe treatment of ulcerative colitis, in the UK andother European markets. Both productsperformed according to expectations in 2004,with PENTASA holding a 17.6% share of the USmesalamine market and COLAZIDE a 6% shareof the UK market.

A growing pipeline: SPD476 and SPD480SPD476, a novel system for the delivery of anunprecedented 1.2g mesalamine, is in Phase 3clinical development and nearing completion of pivotal clinical trials. This technology uses a proprietary system for targeting the release ofhigh concentrations of mesalamine throughoutthe length of the colon, with the potential toreduce the burden for ulcerative colitis patients of having to take large numbers of tablets. In May 2002 Shire announced the in-licensing of the rights to this technology in North America,Europe (excluding Italy) and Japan under anagreement with Giuliani S.p.A. (this wasextended to the Pacific Rim, Australia and NewZealand in 2003). Filings for regulatory approvalof SPD476 are scheduled to be made in the USand Europe in the second half of 2005, and it willbe Shire’s third global product after FOSRENOLand XAGRID/AGRYLIN.

Although mesalamine is an existing and well-known treatment for ulcerative colitis, we believeSPD476 may improve its ease of use by beingavailable in a once-daily or twice-daily formulation.This will help patients adhere to their medicationand live better lives.

SPD480 is a rectally administered mesalamineaerosol foam for the treatment of certain types of ulcerative colitis and is also in the advancedstages of development (Phase 2). This formulation,in-licensed from Giuliani S.p.A., may also assistpatients to adhere to their medication, as it maybe more acceptable and easier to use thanconventional liquid enema treatments.

In addition to developing SPD476 and SPD480,Shire is actively evaluating a variety of GIlicensing and acquisition opportunities that willexpand our GI product portfolio and contribute to our future growth.

The gastro-intestinal (GI) therapeutic area is aspecialty market with high, unmet needs. Its size,in terms of both revenue and the number ofspecialist physicians practicing in the area,makes this an attractive market that fits well withShire’s specialty-driven model. We can add valuein this sector by using our particular capabilities,resources and expertise to bring specialistprojects through the development andregistration phases quickly. Our focused salesand marketing network, which targets specialistGI physicians, is well positioned to ensure market success in the commercialization phase.

Shire already has a long and successful history of working in GI therapeutic areas with PENTASAin the US and COLAZIDE in Europe and we areplanning to expand our presence in GI medicine.The establishment of a Strategic TherapeuticArea Team (STAT) dedicated to this segment willenable us to work better and more collaborativelyacross borders to meet common goals. Inaddition to bringing a more global focus to ourproduct strategy, it will also be conducive tofaster product development, registration andcommercialization. At the same time, it willenable Shire to evaluate potential GI products for their multinational potential more effectively.

We intend to extend and optimize new uses forour products through the STAT, both in existingand in new territories and to build a truly globalfranchise in this promising market segment.

Ulcerative colitis: PENTASA and COLAZIDEUlcerative colitis is a chronic, relapsing type ofinflammatory bowel disease in which part, or all,of the large intestine becomes inflamed andoften ulcerated. Patients experience intermittentattacks separated by periods of remission, andcan suffer from diarrhoea, bleeding and abdominalpain. About 30% of people with ulcerative colitiseventually undergo surgery, typically after 15 to 25 years of disease.

The mainstay treatment for inflammatory boweldisease is mesalamine (5-ASA) products. Our leading ulcerative colitis product, PENTASA,delivers mesalamine throughout the small andlarge bowel. In the US, Shire markets PENTASAas a 250mg capsule and in 2004 introduced a500mg capsule to offer patients a more



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“With symptoms under control, I canget on with my life.”

Shire believes SPD476 may improvethe ease of use of mesalamine for patients by being available in aonce-daily or twice-daily formulation

PENTASA (mesalamine)is indicated for the induction of remission and treatmentof patients with mild tomoderately active ulcerativecolitis, using a uniquedelivery mechanism


Shire Pharmaceuticals Group plc CSR: Corporate social responsibility

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Customer focus We are customer driven, focusing on quality and the needs of both the internal and externalcustomer.

Global teamwork We achieve better outcomes as a team. The entire company is focused on growing ourbusiness and executing our strategy as a team.

Openness and innovationWe believe that anything is possible and thatprudent risks are worth taking.

Excellence in executionPersonal ownership and great processes lead to excellence in decision-making and execution.

These values guide our daily behaviors and serve as principles for our approach to CSR.

The CSR CommitteeThe Shire CSR Committee (‘the Committee’)continues to steer and monitor the Company’soverall approach to CSR in line with the agreedpolicy that is available on the Shire website.

Chaired by Chief Financial Officer Angus Russell,the Committee comprises individuals whose dailyresponsibilities involve leadership or managementof functions that can have significant impact onimplementation of our CSR policy.

During the year, Shire established several new global functions and the CSR Committee,recognizing that some of these functions werehighly relevant to CSR, invited the heads of these new functions to join the Committee.These included global human resources, facilitiesmanagement, environment and occupationalhealth and safety (EHS). Shire’s divestment of its vaccines business and internal restructuringmeant that two prior members of the Committeewere no longer Shire employees.

The Committee met three times in 2004. As anExecutive Committee and Board Member, AngusRussell reports matters of CSR relevance to boththe Executive Committee and the Board andoffers guidance and where necessary, detailedbriefings to Board members.

Our business touches many people’s lives: our employees, our shareholders, the physicianswho prescribe our products and most importantlythe patients whose lives benefit from Shire’smedicines.

As a corporation, we work with many supplierswho provide invaluable services that enable us to complete our day to day tasks and we haveoperations in communities where it is importantto us to be respected and recognized.

We know that maintaining trust among thepeople and communities in which we operate is essential to the success and sustainability of Shire as a whole.

This is what Corporate Social Responsibility(CSR) means to us.

As a leading healthcare provider, we recognizeour responsibilities to the people who depend on our products and to the communities in whichwe operate. We are and will remain committed to sound CSR principles and practices.

We are again producing a stand-alone CSRreport that will provide more detail of the social and environmental activities that wereundertaken during 2004 – this will be available as a printed report as well as online from ourwebsite later in the year.

Shire valuesAt the core of our approach to CSR are ourvalues. During 2004 we undertook an exercise to restate and update these values, in line with our global restructuring and new strategic focus. In consultation with groups of employees from all parts of the business, we agreed andadapted new descriptions for our values with an emphasis on teamwork and global working.

Integrity and respectRelationships are the foundation of our business.They are based on unwavering ethics andrespect for individuals.

We know that maintainingtrust among the people andcommunities in which weoperate is essential to thesuccess and sustainability of Shire as a whole

Our business touches manypeople’s lives



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All-employee meetings havetaken place at our major siteswith the chief executive officerand executive committeemembers leading each meeting

The Committee’s main responsibilities are to:

– facilitate an effective and cross-functionalimplementation of Shire’s CSR policy;

– advise and inform the Board on business risksrelated to Social, Environmental and Ethical(SEE) matters;

– evaluate Shire’s compliance with and thecontinuing appropriateness of the Company’sCSR policy; and

– review and approve Shire’s CSR disclosures.

CSR riskDuring 2004, the CSR Committee initiated areview of the Company’s approach to identifying,assessing and mitigating CSR-related risks. The main purposes were to continue enhancingpractices and performance and furtherembedding the processes within Shire’s riskmanagement framework.

The exercise is underway with input from externalspecialist consultants. The CSR Committee willreport to the Board and Executive Committee onthis in 2005.

Engagement with stakeholdersIn 2004 employee communications received a new emphasis in order to help facilitate Shire’sinternal restructuring. All-employee meetingshave taken place at our major sites with the Chief Executive Officer and members of theExecutive Committee leading each meeting. In addition, global teleconferences have takenplace each quarter with the Company’s top 150managers where business issues are discussedand executive management share their views on progress and achievements. Global emailshave been issued regularly and face-to-facedialogue has been encouraged with linemanagers. We have also produced two newShire videos articulating our global ‘One Shire’culture and focus during the year.



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Some of the patient groups that we havesupported and/or had regular dialogue withduring 2004 include:

CHADD, CADDRA, Alzheimer’s Society, Marie Curie, National Osteoporosis Society,Crohns Society, Crohn’s and Colitis Foundationof America, Susan G Komen BreastCancerFoundation, American College ofGastroenterology, Epilepsy Foundation ofAmerica and the National Kidney Foundation.

As a global business, we work with manysuppliers. These relationships are important to us and the appointment of a new Global Head ofProcurement in 2004 will enable us to introduce amore disciplined approach to this important area.

CSR objectivesThe Committee set specific CSR objectives in2004 and we will report on them in full in our fullCSR report. To summarize, the areas of focus in 2004 in each of the Company’s key impactareas were as follows:

WorkplaceLiving up to what we believe in; encouraging the widest possible diversity in our workplace;giving people the chance to develop theircareers; managing people better.

Example: new performance management system introduced with Shire’s corporate valuesas a performance measure.

MarketplaceHelping to educate patients and healthprofessionals about the treatments we make andthe diseases in which we specialize; providingmedicines for those who cannot afford them;making sure our marketing and selling is donein an ethical and appropriate way.

Example: Shire participated in the AmericanSociety of Nephrology (ASN) Conference, held in St Louis, Missouri, USA, from October 29 until November 1, 2004 in advance of FOSRENOL launch

Divesting our vaccines business was a key partof Shire’s new business strategy. All employeesof the vaccines business were offeredemployment with the new owner, ID BiomedicalCorporation and many have bright and attractive careers ahead with a new focused and committed owner whose core business is the development of vaccines.

Shareholders have been kept informed of Shire’sperformance through regular communicationsand disclosures. Senior management has alsoregularly presented at investor conferences andengaged in face-to-face meetings.

The establishment of our new US headquartersin Philadelphia was a major focus in 2004. We have become members of the PhiladelphiaChamber of Commerce and have engaged in a varied series of activities in the Philadelphiacommunity where we were seeking to attractnew employees and establish our presence and reputation. A full report of all these initiativeswill be found in the 2004 CSR report.

Specialist doctors are our key customers and we focus intently on the development of strongrelationships with them through the provision of data and information on the therapeutic areasin which we specialize.

Patients are the ultimate beneficiaries of Shire’sbusiness. It is knowing that medicines have an impact on patients’ lives that motivates manyof Shire’s employees. We have continued a strong dialogue with the patient groups andkey opinion leaders who lead and influence thetherapeutic areas in which we have products.

Patients are the ultimatebeneficiaries of Shire’sbusiness. It is knowing thatmedicines have an impact onpatients’ lives that motivatesmany of Shire’s employees


Community: Getting involvedwith our local communities;talking more about ourcommunity activities insidethe Company; collecting all the information about our community involvementin one place


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CommunityGetting involved with our local communities;talking more about our community activitiesinside the Company; collecting all the informationabout our community involvement in one place.

Examples: Sponsorship of Franklin Institute‘Shire Day’ – free entrance for children;participation by CSR Chairman in the Business in the Community’s (BITC’s) Seeing is Believingprogramme and subsequent donation to theKid’s Company, a charitable organization thatprovides refuge and help for children whoseyoung lives have been blighted by fear, violenceand neglect.

EnvironmentIntegrating a single Environmental Health & Safetymanagement system across the Companyglobally; encouraging suppliers to improve theirHealth & Safety practices; developing practicalguidelines for our offices.

Example: Appointment of a Global Head ofEnvironment, Health & Safety (EHS); creation of EHS principles as part of a Mission Statementfor distribution to Shire employees and suppliers;establishment of a global EHS network (amongst suppliers) to ascertain and implementbest practices.

CSR indicesShire continues to be a constituent of theFTSE4Good Index despite the introduction oftougher criteria in 2004. The Company has takenpart, for the second year running, in the BITCCorporate Responsibility Index. Feedback,following BITC’s assessment of Shire in 2003,has been taken into account and led to anincreased focus on training and internalawareness programmes for Shire employeesduring 2004 and beyond.

Shire completed a return for The Giving List,published by The Guardian newspaper and was ranked broadly in line with its position in the FTSE 100. Shire is taking part in the LondonStock Exchange’s pilot online CSR Index – thisdatabase will enable the Company to monitorand track data gathered from across theorganization in order to provide information ona more regular basis to the numerous externalresearchers and assessors who contact thecompany with CSR questionnaires.

Looking aheadWe are pleased with the steady progress we are making with our approach to CSR and how we are gaining more recognition for ourinitiatives following the issue of our first CSRReport for 2003. Shire is committed to CSR butnot complacent – we are aware that there aremany ways in which we can improve or enhance our activities.

We welcome feedback and suggestions and will be happy to receive emails to our dedicatedaddress: [email protected]

We are pleased with the steadyprogress we are making with ourapproach to CSR

GuardianGiving List


Shire Pharmaceuticals Group plc Financial review

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The following review should be read in conjunction with the Company’s consolidated financial statements and related notes appearing elsewhere in this annual review

ADDERALL XRSales of ADDERALL XR for the year to December31, 2004 were $606.7 million, an increase of 28%compared to prior year (2003: $474.5 million).ADDERALL XR held a 25% share of the total US ADHD market in December 2004 (December2003: 23%) and at that date was the leadingbrand in the US ADHD market. As previouslydisclosed, legal proceedings relating to genericcompetitors seeking to market generic versionsof ADDERALL XR are in progress. Furtherinformation can be found in Note 20 to theconsolidated financial statements. AlthoughShire rigorously defends its patent rights against generic and other challenges, the loss or expiration of patent protection on this productcould have a material adverse effect on Shire’sfinancial condition and results of operations.

AGRYLINSales of AGRYLIN for the year to December 31,2004 were $152.5 million, an increase of 15%compared to the prior year (2003: $132.5 million).US sales were up 13% in the year and AGRYLINhad a 28% share of the total US AGRYLIN,hydrea and generic hydroxyurea prescriptionmarket in December 2004 (December 2003: 27%).

US pediatric exclusivity expired in September2004 and in August 2004 Shire filed a Citizens’Petition with the FDA. Shire has petitioned thatany generic anagrelide product should bedemonstrated to be bio-equivalent to AGRYLIN.

Results of operationsThe Company (in this Financial review meaningthe consolidated group) recorded net income of$269.0 million (2003: $276.1 million) and dilutedearnings per ordinary share of 53.3¢ (2003:54.2¢). Net income for 2004 was impacted by both the loss on disposal of the vaccinesbusiness of $44.2 million and the $48.5 million of reorganization costs recorded in 2004.

Total revenuesFor the year to December 31, 2004, totalrevenues increased by 13% to $1,363.2 millioncompared to $1,211.6 million in 2003.

Revenue is primarily derived from sales ofpharmaceutical products and royalties earned on products out-licensed to third parties. For the year to December 31, 2004, 82% ofrevenues were in respect of pharmaceuticalproduct sales (2003: 83%). Royalties comprised17% of total revenues in both 2003 and 2004.Income from out-licensing product rights has increased slightly as a proportion ofrevenues and represented 1% of revenues in 2004.

(a) Product sales For the year to December 31, 2004, theCompany’s product sales increased by 11%to $1,112.5 million compared to $1,004.3 millionin the prior year. The main products driving thisgrowth are shown in the table below:

Product highlightsSales Sales US Rx1, 2 US market

Product $million growth1 growth share2

ADDERALL XR 606.7 +28% +21% 25%

AGRYLIN (US market) 105.7 +13% +6% 28%

AGRYLIN (International market) 46.8 +20% n/a n/a

PENTASA 115.0 +16% +2% 18%

CARBATROL 54.3 +4% +11% 46%

1 Compared to 2003.

2 IMS Prescription Data – Product specific at December 31, 2004 – IMS Health is a leading globalprovider of business intelligence for the pharmaceutical and healthcare industries.

Angus Russell Chief Financial Officer



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The Company is anticipating the launch ofgeneric versions of AGRYLIN in the US marketbut no generic products have come to market to date. The launch of generic versions of AGRYLIN may negatively affect the sales of AGRYLIN in the future.

International sales (all sales outside of the US)reported in US dollars were up 20%, due tostrong growth in Canadian and Europeanmarkets and, because these sales revenues areearned in currencies other than the US dollar, the benefit of favorable translation effects. Salesoutside the US for the year to December 31,2004 were $46.8 million (2003: $38.9 million).

AGRYLIN gained EU approval in November 2004 and trades under the name XAGRID. The product will have up to ten years marketexclusivity in accordance with current orphanmedicinal product legislation in the EU.

PENTASASales of PENTASA for the year to December 31,2004 were $115.0 million, an increase of 16%compared to prior year (2003: $99.3 million).PENTASA had an 18% share of the total US oralmesalamine/olsalazine prescription market inDecember 2004 (December 2003: 18%).

CARBATROLSales of CARBATROL for the year to December31, 2004 were $54.3 million, an increase of 4%compared to prior year (2003: $52.4 million).CARBATROL had a 46% share of the total USextended release carbamazepine prescriptionmarket in December 2004 (December 2003:43%). As previously disclosed, legal proceedingsrelating to CARBATROL are in progress. Further information can be found in Note 20 to the consolidated financial statements.

(b) RoyaltiesRoyalty revenue increased 13% to $230.4 millionfor the year to December 31, 2004, compared to $203.6 million in 2003.

Shire receives royalties from GlaxoSmithKline plc (GSK) on worldwide sales of 3TC andZEFFIX. Other royalties are primarily in respect of REMINYL (galantamine hydrobromide), aproduct marketed in the US and the rest of theworld by Janssen Pharmaceutica NV (Janssen),

with the exception of the UK and the Republic of Ireland where Shire acquired the exclusivemarketing rights in May 2004.

Cost of sales and net operating expensesFor the year to December 31, 2004, the cost ofproduct sales amounted to 13% of product sales(2003: 14%). The decrease can be attributed toproduct mix, with a greater proportion of salescoming from higher margin products.

R&D expenditure increased from $187.7 million in 2003 to $196.3 million in 2004, with savingsfrom the closure of the Canada-based LeadOptimization business in 2003 partially re-invested to fund late stage Phase 3 trials. Shire’spipeline is now well advanced with four projectsin late stage development or registration. Inaddition, five projects were approved during thesecond half of 2004. Expressed as a percentageof total revenues, R&D expenditure was 14% forthe year to December 31, 2004 (2003: 15%).Shire has historically invested between 17-20%of revenues in R&D. With the refocusing of theproject pipeline this year and the successful out-licensing of certain products, this percentagefell in 2004. Shire anticipates that the level ofR&D spend will be approximately 15% (excludingthe impact of payments relating to NRP104)going forward.

Selling, general and administrative (SG&A)expenses increased from $409.7 million in 2003to $516.6 million in 2004, an increase of 26%.This is primarily due to an increase in marketingexpenses, related to new product launchesincluding FOSRENOL, XAGRID and ADDERALLXR (adult), and sales costs, due to therecruitment in Q4 2004 of a sales force of about85 people exclusively to promote FOSRENOLin the US. As a percentage of product sales,SG&A expenses were 41% (2003: 37%). Thedepreciation charge for the year to December 31,2004 was $19.8 million (2003: $11.5 million). The increase was primarily due to a shortening of the useful economic lives on certain property,plant and equipment as a result of the US siterationalization. Amortization charges were$38.7 million for the year to December 31, 2004(2003: $26.4 million), with the increase due to thepurchase of $49.2 million of intangible assets in2004 and the reassessment of the usefuleconomic lives of certain intangibles.



30

– increased investment in trade debtors andstock levels which may arise as sales levelsincrease;

– competitive and technological developments;

– the timing and cost of obtaining requiredregulatory approvals for new products; and

– the continuing revenues generated from salesof key products.

As of December 31, 2004, the Company hadcash, restricted cash and short-term investments of $1,457.5 million (2003: $1,414.0 million). Total long-term debt excluding capital leasesas of December 31, 2004 was $116,000 (2003: $370.2 million) in respect of guaranteedconvertible notes.

During the third quarter of 2004, Shire redeemed$370.1 million of the $400 million 2% guaranteedconvertible notes due 2011 (2003: $29.8 million).

Treasury policies and financial riskmanagementShire’s principal treasury operations aremanaged by the corporate treasury functionbased in the UK. All treasury operations areconducted within a framework of policies andprocedures approved by the Board. As a matter of policy, the Company does notundertake speculative transactions that wouldincrease currency or interest rate exposure. TheBoard reviews and agrees policies for managing these risks and they are summarized below.

Foreign currency riskThe Company is exposed to movements inforeign exchange rates against the US dollar for trading transactions and the translation of net assets and earnings of non-US subsidiaries. The main trading currencies of the Companyare the US dollar, the Canadian dollar, Poundssterling and the Euro. The financial statements of foreign entities are translated using theaccounting policies described in Note 2(k) to the consolidated financial statements.

The Company reports its results in US dollars. As the majority of the Company’s transactions are also denominated in US dollars, this reduces the impact of currency movements on theCompany’s results.

Intangible asset impairments for the year toDecember 31, 2004 were $13.5 million (2003:$27.5 million) (see Note 12 to the consolidatedfinancial statements for further information).

During the year to December 31, 2004,$48.5 million of reorganization costs wererecorded relating to the US site consolidation.The costs related to employee severance($20.0 million), relocation ($13.8 million) and othercosts associated with the reorganization($14.7 million). During the year to December 31,2003 the Company recorded reorganizationcosts of $23.9 million. These related to$13.2 million of costs in connection with theclosure of the Lead Optimization division,primarily for employee severance ($6.4 million)and the write-off of property, plant andequipment ($6.0 million). In addition, theCompany made the decision to close certainproperties; a write-down of $10.7 million wasmade to record the assets at fair value.

Discontinued operationsThe Company completed the disposal of itsvaccines business to ID Biomedical Corporation(IDB) on September 9, 2004. The vaccinesbusiness impacted operating profit with losses of$20.1 million for the year to December 31, 2004(2003: $21.9 million). In addition the Companyrecorded a loss on the disposal of the vaccinesbusiness of $44.2 million in the year to December31, 2004. See Note 3 (ii) to the consolidatedfinancial statements for further information.

Capital structureThe Company has financed its operations sinceinception through private and public offerings of equity securities, the issuance of loan notesand convertible notes, collaborative licensingand development fees, product sales andinvestment income.

The Company’s funding requirements depend on a number of factors, including:

– the Company’s product developmentprograms, business and product acquisitions;

– the level of resources required for theexpansion of marketing capabilities as theproduct base expands;


Financial reviewShire Pharmaceuticals Group plc

31

The exposure to foreign exchange risk ismanaged and monitored by the treasuryfunction. Exposures are generally managedthrough natural hedging via the currencydenomination of cash balances. As of December31, 2004, the Company had two outstandingforward foreign exchange contracts with a totalprincipal amount of $39 million hedginginvestments held in its Canadian subsidiary.There were no material gains or losses on these contracts.

Market risk of investmentsAs of December 31, 2004 the Company had$63.3 million (2003: $73.0 million) of investmentscomprising equity investment funds, privatecompanies and public quoted companies. Thepublic quoted companies are exposed to marketrisk. No financial instruments or derivatives havebeen employed to hedge this risk.

Interest rate risk The majority of the Company’s debt was repaidduring the year to December 31, 2004 andconsequently it has limited exposure to interestrate movements.

In the year to December 31, 2004 the averageinterest rate received on cash and liquidinvestments was approximately 1.44% perannum. The largest proportion of investmentswas in US dollar liquidity funds.

TaxationFor the year to December 31, 2004 the tax chargeincreased by $21.7 million to $129.1 million.

A reconciliation of the current tax charge for2004 to the profit before tax for the year at thestatutory tax rate of 30% is given in Note 26 to the consolidated financial statements.

Cash flowsAs of December 31, 2004, cash, restricted cash and short-term investments totalled$1,457.5 million, an increase of $43.5 million from $1,414.0 million at December 31, 2003.Short-term investments consisted of moneymarket fund balances and investment grade securities.

For the year to December 31, 2004 net cashprovided by operating activities amounted to$520.7 million compared to $379.1 million in 2003.

During the year to December 31, 2004 net cashgenerated from operations was used primarily to fund the Company’s tax payments, capitalexpenditures including the purchase of intangibleassets and property, plant and equipment, andthe repayment of debt.

Capital expenditure Expenditure on intangible assets of $30.2 million(2003: $47.0 million) comprised payments made to acquire additional rights for REMINYLand FOSRENOL.

Capital expenditure on property, plant andequipment in the year to December 31, 2004 was$57.6 million (2003: $44.7 million). This expenditureincluded the ongoing implementation of anEnterprise Resource Planning system by theCompany ($9.1 million) and further upgrades to the US manufacturing facility ($19.5 million).

Dividend policyHistorically, the Company has not paid anydividends. Given the stage of development andsize of the Company and related strong cashflows, the Board announced its intention to beginpayment of dividends to shareholders in 2004.An interim dividend for the first half of 2004 ofone penny (sterling) (1.82¢) per ordinary sharewas paid in October 2004 and an interimdividend for the second half of 2004 of twopence (sterling) (3.85¢) per ordinary share waspaid in April 2005. Shire intends to pursue aprogressive dividend policy. It is expected thatthe first interim payment each year will bemaintained at a consistent level and any growthwill typically come through increasing the secondinterim dividend in a financial year. Any paymentof dividends is at the discretion of the Board of Directors and will be made in Pounds sterlingto ordinary shareholders, US dollars to holders of American depositary shares and Canadiandollars to exchangeable shareholders.


The Board of DirectorsShire Pharmaceuticals Group plc

32

The Board of Directors

Dr James Cavanaugh (68)Chairman Dr James Cavanaugh joined the Board of Shire on March 24,1997 and was appointed asChairman with effect from May 11, 1999. Dr Cavanaugh isa General Partner of HealthCarePartners, the General Partner ofHealthCare Ventures, a venturecapital fund devoted exclusivelyto healthcare. Formerly he was president of SmithKline & French Laboratories, the US pharmaceutical division of SmithKline BeechamCorporation. Prior to that, hewas president of SmithKlineBeecham Corporation’s clinical laboratory business and, before that, President of Allergan International. Prior to his industry experience, Dr Cavanaugh served as DeputyAssistant to the President of theUS on the White House Staff in Washington, DC. He is non-executive Chairman of DiversaCorporation and Vicuron, Inc.and a non-executive director ofMedImmune Inc. and AdvancisPharmaceutical Corporation. Dr Cavanaugh was a memberof the Remuneration Committeeuntil April 2004 and a memberof the Audit Committee untilNovember 2004. He acted asChairman of the NominationCommittee throughout 2004.

Mr Angus Russell (49)Chief Financial Officer andExecutive Vice President of Global Finance Angus Russell joined Shire in 1999 as Chief FinancialOfficer. Mr Russell previouslyworked for ICI, Zeneca andAstraZeneca. His last positionwas Vice President – CorporateFinance at AstraZeneca plc.Prior to this, he held a numberof positions within the ZenecaGroup from 1993 until 1999including Group Treasurer, andbefore that in ICI from 1980until 1992. Mr Russell is achartered accountant, havingqualified with Coopers &Lybrand, and is a fellow of the Association of CorporateTreasurers. Mr Russell is amember of the ExecutiveCommittee. He is also a non-executive director of the City of London Investment Trust plc.

Dr Barry Price (61)Non-executive DirectorDr Barry Price joined the Boardof Shire on January 16, 1996having spent 28 years withGlaxo holding a succession of executive positions withGlaxo Group Research. He isChairman of Antisoma plc andalso Biowisdom Ltd and ison the board of directors ofPharmagene plc. Dr Price wasChairman of the RemunerationCommittee and a member ofboth the Audit Committee andthe Nomination Committee in2004. Dr Price is Shire’s seniornon-executive Director.

Mr Matthew Emmens (53)Chief Executive Officer Matthew Emmens joined Shireas Chief Executive Officer and member of the Board ofShire on March 12, 2003. Mr Emmens began his career in international pharmaceuticalswith Merck & Co, Inc. in 1974.There he held a wide range of sales, marketing andadministrative positions beforevolunteering in 1992 to helpestablish Astra Merck, the joint venture between Merckand Astra AB of Sweden. He later became President and Chief Executive Officer. In 1999 he joined Merck KGaA and established EMDPharmaceuticals, thecompany’s US prescriptionpharmaceutical business. He was later promoted toPresident of the globalprescription business and livedin Germany. Mr Emmens is agraduate of Fairleigh DickinsonUniversity (New Jersey, USA)with a BS in BusinessManagement. Mr Emmens is a member of the Board of Directors, and Chairman of the Executive and PortfolioReview Committees.


Mr Robin Buchanan (52)Non-executive DirectorRobin Buchanan joined theBoard of Shire on July 30,2003. He is the Senior Partnerof the UK operations anddirector of the global businessconsultants Bain & CompanyInc. and a member of the firm’sworldwide managementcommittee. Prior to his careerwith Bain & Company Inc.,Mr Buchanan worked forAmerican Express InternationalBanking Corporation in NewYork, McKinsey & Companyand Deloitte & Touche where he qualified as a charteredaccountant (FCA). MrBuchanan currently serves as a non-executive director of Liberty International plc. Mr Buchanan has an MBA withDistinction (Baker Scholar) from Harvard Business School.Mr Buchanan was a member ofthe Remuneration Committeein 2004.

The Hon James Grant, P.C., C.M., Q.C. (67)Non-executive DirectorThe Hon James Grant joinedthe Board of Shire on May 11,2001 as a non-executiveDirector. Prior to its merger with Shire, Mr Grant had been a director of BioChem PharmaInc. since 1986. He is a partnerand Chair Emeritus with the law firm Stikeman Elliott inMontreal. Mr Grant sits on theboards of two Canadian publiccorporations, in addition toother private corporations andfoundations and councils thatare not-for-profit organizations.He attended McGill University,receiving a BA in Arts in 1958and a BCL in Law in 1961. Mr Grant was a member of theNomination Committee in 2004.

The Board of DirectorsShire Pharmaceuticals Group plc

33

Mr Ronald Nordmann (63)Non-executive DirectorRonald Nordmann joined theBoard of Shire on December 23,1999 having previously servedas a non-executive director of Roberts PharmaceuticalCorporation since May 1999. Mr Nordmann has been afinancial analyst in healthcareequities since 1971. FromSeptember 1994 to January2000 he was an analyst and partner at DeerfieldManagement. He is currentlyCo-President of Global HealthAssociates and has held seniorpositions with PaineWebber,Oppenheimer & Co., F Eberstadt & Co., and Warner-Chilcott Laboratories, a division of Warner-Lambert.Mr Nordmann received hisundergraduate degree from The Johns Hopkins Universityand an MBA from FairleighDickinson University. MrNordmann is also a director ofGuilford Pharmaceuticals Inc.,Neurochem Inc. and ParPharmaceuticals, Inc. MrNordmann was Chairman of the Audit Committee until July2004 and he remains a memberof that Committee. He was a member of the NominationCommittee throughout 2004and he became a member ofthe Remuneration Committee in April 2004.

Mr David Kappler (57)Non-executive DirectorDavid Kappler joined the Boardof Shire as a non-executiveDirector on April 5, 2004. MrKappler retired as Chief FinancialOfficer of Cadbury Schweppesplc, the FTSE and NYSE listedglobal confectionery andbeverages group in April 2004,having held that position since1995. He worked for theCadbury Schweppes groupbetween 1965 and 1984 andrejoined it in 1989, following theacquisition of the Trebor Groupof which he was FinancialDirector. From 1989 to 1995 he held a number of seniorpositions in CadburySchweppes, including directorof Corporate Finance. Mr Kapplerhas served on a number of otherboards around the world inwhich Cadbury Schweppes heldinterests. He was a director ofCamelot Group plc from 1996 to 2002 and he currently servesas a non-executive director andChairman of the Audit Committeeat HMV Group plc andIntercontinental Hotels Groupplc. Additionally, he is non-executive Chairman at PremierFoods plc. Mr Kappler is a fellowof the Chartered Institute ofManagement Accountants. MrKappler became a member ofShire’s Audit Committee uponhis appointment to the Boardand took over the Chairmanshipof that Committee in July 2004.


The Executive CommitteeShire Pharmaceuticals Group plc

34

The ExecutiveCommittee

Mr Greg FlexterExecutive Vice President and General Manager, North America joined Shire in April 2001 from NovartisPharmaceuticals, where he wasVice President and Head of theNeuroscience Business Unitwith accountability for USMarketing, Sales and MedicalResearch. Mr Flexter broughtwith him over 22 years’experience in global anddomestic marketing, businessdevelopment, and R&D, and is also a qualified pharmacist.

Mr Greg Flexter

Ms Barbara DeptulaExecutive Vice President of Business Developmentjoined Shire in September 2004from Sicor Inc, where she wasPresident of the biotechnology division. Prior to joining Sicor, Ms Deptula was Senior VicePresident for commercial andproduct development at ColeyPharmaceutical Group inWellesley, Massachusetts, withresponsibility for key operationsand business developmentactivities. She has held varioussenior management positionsfocused on licensing andbusiness development with USBioscience, Schering-Plough,American Cyanamid, andGenetics Institute.

Dr Eliseo SalinasChief Scientific Officer andExecutive Vice PresidentGlobal R&D joined Shire in June2004 from Wyeth Research, one ofthe world’s leading pharmaceuticalcompanies, where he was Head ofGlobal Central Nervous Systemsand Vice President for RegionalClinical Research & Development.Eliseo graduated from the MedicalSchool of the University of BuenosAires, Argentina and performed a residency in psychiatry in Paris,where he lived for 18 years. Hebegan his career in the pharma-ceutical industry at SynthelaboResearch in Paris.

Dr Eliseo SalinasMs Barbara DeptulaMr Matthew Emmens Mr Angus Russell

Mr Angus RussellChief Financial Officer andExecutive Vice PresidentGlobal Finance joined Shire in 1999 as Chief FinancialOfficer. Mr Russell previouslyworked for ICI, Zeneca andAstraZeneca. His last positionwas Vice President – CorporateFinance at AstraZeneca plc.Prior to this, he held a numberof positions within the ZenecaGroup from 1993 until 1999including Group Treasurer, andbefore that in ICI from 1980until 1992. Mr Russell is achartered accountant, havingqualified with Coopers &Lybrand, and is a fellow of the Association of CorporateTreasurers. Mr Russell is amember of the ExecutiveCommittee. He is also a non-executive director of the City of London Investment Trust plc.

Mr Matthew Emmens Chief Executive Officer andChairman of the ExecutiveCommittee joined Shire as Chief Executive Officer and member of the Board of Shire on March 12, 2003. Mr Emmens began his career in international pharmaceuticalswith Merck & Co, Inc. in 1974.There he held a wide range of sales, marketing andadministrative positions beforevolunteering in 1992 to helpestablish Astra Merck, the joint venture between Merckand Astra AB of Sweden. He later became President and Chief Executive Officer. In 1999 he joined Merck KGaA and established EMDPharmaceuticals, thecompany’s US prescriptionpharmaceutical business. He was later promoted toPresident of the globalprescription business and livedin Germany. Mr Emmens is agraduate of Fairleigh DickinsonUniversity (New Jersey, USA)with a BS in BusinessManagement. Mr Emmens is a member of the Board of Directors, and Chairman of the Executive and PortfolioReview Committees.


The Executive CommitteeShire Pharmaceuticals Group plc

35

Ms Anita GrahamExecutive Vice PresidentGlobal Human Resourcesjoined Shire in January 2004from Cytyc Corporation, whereshe was Vice President ofHuman Resources. Prior to this,she held senior HR positionswith Serono, Inc. and ScudderKemper Investments, Inc. (now part of Deutsche Bank).Her experience spans allaspects of HR includingmanaging mergers andacquisitions, organizationaldevelopment, employeerelations and compensationand benefits. She has workedboth in Europe and in theUnited States.

Ms Anita Graham Ms Tatjana May

Mr Joseph RusExecutive Vice President and General Manager,International joined Shire in 1999 following more than25 years’ experience with other leading internationalpharmaceutical companies,both in Canada and abroad.With the merger of ShirePharmaceuticals and BioChemPharma in May 2001, he wasappointed President and CEO of Shire BioChem Inc.

Mr John LeeExecutive Vice PresidentGlobal Supply Chain & Qualityjoined Shire in April 2000 fromSchwarz Pharma, where hewas Vice President, Operations.Prior to this he held supplychain responsibilities for CentralPharmaceuticals, The VitarineCompany (now Eon), andGlenwood Laboratories. He brought with him 31 years’ experience in thepharmaceutical industry.

Ms Tatjana MayGeneral Counsel, CompanySecretary and Executive Vice President Global LegalAffairs joined Shire in May2001 from AstraZeneca plcwhere she was AssistantGeneral Counsel in CorporateHeadquarters. Prior to joiningAstraZeneca in 1995, Ms Mayworked at Slaughter and May.

Mr John Lee Mr Joseph Rus


Shire Pharmaceuticals Group plc Directors’ remuneration report

36

Directors’ remuneration report

Dear ShareholderDuring the year ended 31 December 2004 the RemunerationCommittee continued its work, on behalf of the Board, onDirectors’ remuneration.

The Company operates in a highly competitive multinationalenvironment. In 2004 approximately 90% of Shire’s revenues and more than 80% of its employees were based outside the UK. Indeed most of Shire’s revenues come from the US and most of its employees are located there.

Shire largely completed a major internal reorganisation in 2004which resulted in the introduction of a new organisational structure and in the consolidation of its US sites from 14 to 6.During the year, the Committee initiated a review of theCompany’s compensation and benefits philosophy and practice to ensure that remuneration arrangements support the needs ofthe Company as it adapts to its new business model. This reviewis ongoing. The Committee will consult with its major shareholderson the outcomes of the review later in the year. The importance of the US to the growth of the Company, coupled with the fact that most of its senior executives are based in the US, presentsthe Committee with particular challenges. While the Committeedoes not espouse a US pay policy, it does take this operatingenvironment into account.

As part of the compensation review, the Committee has alreadydecided to phase out the Deferred Bonus Plan and to modify thestructure of the Annual Incentive Plan. The changes are describedbelow. The modified incentive structure enables Shire to operate a common framework for the senior executive team, irrespectiveof location, and to be competitive in both the UK and US. Underthe revised Annual Incentive Plan, target incentives will be earnedonly where executives have achieved Board-approved corporateobjectives and Committee-approved individual objectives.

The Remuneration Committee is committed to a continuingdialogue with shareholders and we strive to accommodate yourviews. We hope that this report provides helpful context andexplanation about the policies and practical considerations thatinfluence our decisions.

Dr Barry PriceChairman of the Remuneration Committee

This Report sets out the Company’s approach to Directors’remuneration. It complies with:

– the 2003 Combined Code on Corporate Governance;

– the Directors’ Remuneration Report Regulations 2002; and

– the requirements of the Listing Rules of the Financial ServicesAuthority.

Unaudited information

The Remuneration CommitteeThe Remuneration Committee is responsible for all elements of the executive Directors’ remuneration, as well as theirperformance management.

The constitution of the Committee was reviewed in 2004 andchanges were made to ensure compliance with the 2003Combined Code. The Company considers all members of theCommittee to be independent.

The Chief Executive Officer attends meetings of the Committee at its invitation, but is not involved in any decisions relating to hisown remuneration.

The members of the Remuneration Committee during 2004 were:

– Dr Barry Price, the Senior Independent Director of the Companyand Chairman of the Committee;

– Mr Robin Buchanan, an independent non-executive Director;

– Mr Ronald Nordmann, an independent non-executive Director,who joined the Committee in April 2004; and

– Dr James Cavanaugh, the Chairman of the Company, whostepped down as a Committee member in April 2004.

Details of the number of Committee meetings in 2004 and theattendance at those meetings is set out in the section headedCorporate governance statements.

The Remuneration Committee was materially assisted in 2004 by Mrs Anita Graham, EVP Global Human Resources, Ms TatjanaMay, EVP, General Counsel and Mr Matthew Emmens, the ChiefExecutive Officer. No individual is involved in the determination of their own remuneration. The following external advisers wereappointed by and materially assisted the Committee:

– Towers Perrin; and

– Slaughter and May, who provided general legal advice to the Company.

Remuneration policyThe Remuneration Committee considers that an effectiveremuneration policy is an important contributor to the Company’ssuccess. It directly impacts the Company’s ability to recruit, retainand motivate high calibre executives who embody the Company’svalues and deliver value to shareholders.

5977 Accounts 2004.qxd 5/9/05 5:26 PM Page 36


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The Remuneration Committee is responsible for developing,reviewing and overseeing the implementation of the Company’scompensation and benefits policy. The effectiveness of the currentpolicy is regularly monitored by the Remuneration Committee.

The existing policy is based on the following principles, which are currently under review:

– Base pay is market-driven and is targeted at or around themedian relative to the appropriate comparator groups.

– The Annual Incentive Plan is performance-based and is linked to the achievement of an appropriate mix of corporate andindividual performance targets.

– The Committee currently aims for the performance-relatedelements of executive Director compensation to represent overhalf of total remuneration.

– Share-based compensation is a key element of the Company’sremuneration policy as it aligns the interests of the Company’sexecutives with the interests of its shareholders.

The remuneration packageThe main elements of the remuneration package for executiveDirectors and senior management are:

1 Salary

2 Annual Incentive Plan

3 Long-term incentives(a) Share options(b) Long Term Incentive Plan(c) Deferred Bonus Plan

4 Pension and other benefits

1 SalaryThe Remuneration Committee reviews salaries annually. In doingso, it looks at a range of factors such as competitive market data provided by independent external consultants, local marketconditions, performance-related pay increases across theCompany and individual skills and performance. The RemunerationCommittee’s policy is for salary to be targeted at or aroundthe median of the relevant comparator groups, with appropriatedifferentiation based upon skills and experience as well asindividual performance.

2 Annual Incentive PlanShire operates an Annual Incentive Plan which rewardsperformance dependent on achievement of pre-defined Board-approved corporate objectives and Committee approvedindividual objectives. The objectives are determined at the start ofeach financial year to ensure alignment. The corporate objectivesapply to all employees participating in the Company’s AnnualIncentive Plan. Each objective, whether corporate or individual, is weighted and is described in specific and measurable termswith allocated deadlines. Performance standards are set for each objective so that target incentives are awarded only whenexacting levels of performance have been achieved. Objectivesmeasured by the Company’s financial performance are assessedon the Company’s results, as reported in the Company’s Form

10-K under US GAAP. The detailed objectives and performancestandards contain commercially sensitive information andtherefore are not summarised here. However, the 2004 corporateobjectives included specific targets in the following areas:

– growth in revenue;

– growth in net income;

– progression of R&D portfolio;

– operational objectives, including the sale of Shire’s vaccinesbusiness; and

– minimising disruption to the business while implementing the Company’s internal reorganisation.

The Remuneration Committee assesses performance againstobjectives in the first quarter of the following year. The annualincentive is payable in cash and is not pensionable. The targetincentive is paid where executive Directors have fully achievedtheir individual objectives and the corporate objectives have been met in full. The maximum incentive is paid only if theRemuneration Committee determines that individual and/orcorporate performance has been exceptional. Maximum incentivepayments for 2004 were capped at 100% of salary for the ChiefExecutive Officer and 75% of salary for the Chief Financial Officer.

Target Maximum Weighting of targetincentive incentive incentive objectives(as a % (as a %

of salary) of salary) Corporate Individual

Mr Matthew EmmensChief Executive Officer 55% 100% 80% 20%

Mr Angus RussellChief Financial Officer 50% 75% 60% 40%

The incentive payments awarded to each executive Director for 2004reflects the corporate and individual achievements and amountedto 80% of salary for Mr Emmens and 75% of salary for Mr Russell.These incentive awards are consistent with the overall performanceof the Company in 2004 which included achieving 13% revenuegrowth, 12% growth in income from continuing operations and the highly successful implementation of all objectives focused onthe realignment of the Company’s business model.

As part of the broader compensation and benefits review which iscontinuing into 2005, the Annual Incentive Plan has been modified.For the financial year 2005, the target incentive amounts for theChief Executive Officer and the Chief Financial Officer arerespectively 65% and 55% of salary and the maximum incentiveamounts are respectively 115% and 100% of salary. The levels of target and maximum incentives have been set to becompetitive in both the UK and US and to enable Shire to operatea common framework for the senior executive team irrespective of location. The weighting between corporate and individualobjectives remains the same for the Chief Executive Officer andshifts from 60% corporate and 40% individual to 70% corporateand 30% individual for the Chief Financial Officer.



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3 Long-term incentives(a) Share optionsExecutive Directors are eligible to participate in the Company’s2000 Executive Share Option Scheme. Share options, whichform part of the executive Directors’ long-term compensation, are used to align Directors’ interests with those of shareholdersand to promote sustained long-term Company performance.

The grant of options to executive Directors is wholly at thediscretion of the Remuneration Committee. The face value ofannual option grants under the Scheme is capped at three timessalary per year for executive Directors and senior managers. Thisannual grant level is consistent with the Company’s emphasis onperformance-linked share-based remuneration for its executives.The Committee recognises that the total expected value of Shire’s long-term incentive arrangements is above upper quartilein the UK. However it is satisfied with this on the basis thatexecutive Directors will only benefit from the arrangementswhen shareholder interests have been met.

The current performance measure for the vesting of options wasintroduced in 2002 following consultation with major institutionalshareholders. The performance tests for executive Directors’options were toughened following this consultation process. Theperformance tests are based on real growth in diluted earningsper share (EPS) as measured by ‘diluted EPS’ and as reported in the Company’s Form 10-K under US GAAP. This measure is favoured by the Remuneration Committee because it istransparent and is a relevant indicator of financial performance.

The minimum performance test attaching to the exercise of shareoptions for executive Directors is higher than for other employees.No options vest unless Shire’s EPS meets the minimum growththreshold set of 15% in excess of the Retail Price Index (RPI)(or 5% on average a year) in the three years following the date ofgrant. In the case of an annual grant of options worth three timessalary, Shire’s EPS must grow by 21% in excess of RPI (or onaverage 7% a year) in the three years following the date of grantfor all the options to vest.

Options with a value on grant as a % of salary Three-year EPS growth

Up to 100% Retail Price Index (RPI) plus 15%(for executive Directors)(RPI plus 9% for all other employees)

101% to 200% RPI plus 15%

201% to 300% RPI plus 21%

Over 301% RPI plus 27%

The 2000 Executive Share Option Scheme, which was approvedby shareholders in 2000, contains an unlimited retesting featurefrom the date of grant. The Remuneration Committee decided,after consultation with some of the Company’s major institutionalshareholders in 2003, that for options granted under the schemefrom 2004 onwards, the performance condition should be retestedonce only, at five years after the grant. The retest will be appliedonly where Shire’s EPS growth has not met the minimumperformance test described above. The annual average growthrequired over the first three years must be achieved over theextended performance period. Hence the level of EPS growth in the next two years needs to be consequentially higher to meet the test.

Retesting has been retained so far on this limited basis in order tomaintain the Scheme’s international competitiveness. In particular,the Committee is conscious of the fact that performance tests are not attached to the vesting of options in many markets,including the US, and that phased vesting of options is alsocommon in the US.

Any new share option scheme established in the future will not contain a retesting feature.

The table below sets out the share options that were granted to executive Directors during 2004.

Number of ExerciseExecutive Director and ordinary priceshare option scheme Date of grant shares £

Mr Matthew Emmens2000 Executive Scheme 25.03.04 315,777 5.26

Mr Angus Russell2000 Executive Scheme 25.03.04 195,285 5.26

Where accounting changes have an impact on the calculation of EPS, the Remuneration Committee will seek at all times toensure consistency of measurement when determining whetherperformance tests have been met.

Details of the Company’s share option schemes are set out inNote 28 to the consolidated financial statements. Performanceconditions attaching to previous executive option grants aredetailed on page 44 in the audited section of this report.

(b) Long Term Incentive PlanThe Long Term Incentive Plan (the ‘Plan’) was adopted at theCompany’s 1998 Annual General Meeting and amended in 2000.Under the Plan, the Remuneration Committee has discretion to make awards of shares, subject to a maximum of 100% of salary a year. Awards are made to executive Directors andsenior managers.

The performance condition attached to the vesting of the shareawards made under the Plan is Shire’s Total Shareholder Return(TSR) relative to the FTSE 100 Index over a three-year period. The Committee considers that this measure is a reliable andappropriate measure of the Company’s performance and that theFTSE 100 is an appropriate benchmark given that the Company is a member of the Index.

Under the current Plan:

– all shares vest if Shire’s TSR is in the top 10% of the FTSE 100;

– 20% of the shares vest if Shire’s TSR is at the median of theFTSE 100, with vesting between these points on a linear basis;and

– no shares vest if Shire’s TSR is below the median of theFTSE 100.



39

The Remuneration Committee determines whether and to whatextent the performance condition has been met on the basis ofdata provided by an independent third party. To date, all awardsmade under the Plan have been made as a ‘conditional allocation’,thereby allowing, at the Remuneration Committee’s discretion, for a cash equivalent to be paid on maturity of the award. Whilstthe performance period is measured over three years, an award is normally transferred after the fourth anniversary of grant, to theextent the performance condition has been met.

Directors were granted awards under the Plan in 2004 as a ‘conditional allocation’ (as defined in the Plan), as follows:

Earliest dateon which

Value of an awardconditional Total can be

award at number of transferredDate of grant date ordinary to aaward £ shares Director

Mr Matthew Emmens 25.03.04 563,136 105,259 25.03.08

Mr Angus Russell 25.03.04 348,258 65,095 25.03.08

(c) Deferred Bonus PlanThe Deferred Bonus Plan, in which executive Directors canparticipate, provides for participants to use up to 50% of theirannual incentive to buy shares in the Company. The Company will match any shares bought, but the matched shares will vest, for executive Directors, only if the Company’s EPS (as measuredby ‘diluted EPS’ and as reported in the Company’s Form 10-Kunder US GAAP) grows by more than 15% in excess of RPI over a three-year period (9% in excess of RPI for other eligibleemployees). Diluted EPS was chosen since it is consistent with the minimum performance test that applies to the vesting ofoptions – see above.

This Plan was designed to deliver value to shareholders byencouraging executive share ownership. However, recent fiscal changes in the US have made the Plan less attractive toparticipants and the Remuneration Committee has determinedthat it will discontinue the Plan after bonus awards for the 2004financial year.

The Committee is reviewing the design and implementation of itscurrent long term incentive plans as part of its compensation andbenefits review. Shareholders will be consulted on this during thecourse of the year.

4 Pension and other benefitsThe Company’s policy is to ensure that pension benefits arecompetitive in the markets in which Shire operates. Shirecontributes 30% of the Chief Executive Officer’s annual salary to a SERP and 401(k) Plan in the US. In the UK, Shire operates a defined contribution scheme. The Company contributes 25% of salary for the Chief Financial Officer to pension benefits. Theimplications of the forthcoming UK pension tax reforms whichbecome effective in 2006 will be considered during the course of the year and the Committee will agree any policy changesnecessary in respect of the pension arrangements of the Chief Financial Officer and other UK executives.

In addition to salary, the executive Directors receive certainbenefits in kind, principally a car or car allowance, life insurance,private medical insurance and dental cover. These benefits are not pensionable.

Service contractsThe Remuneration Committee continues to believe that executive Directors’ service contracts should be for a rolling term and, for UK contracts, incorporate notice periods of 12 months. The Committee also believes that the Companyshould retain the right to make a payment in lieu of notice to a Director. The contracts contain obligations on the executiveDirectors in respect of intellectual property, together with post-termination restrictions. The Committee’s view is that, in the event of early termination, executive Directors should be treatedfairly but paid no more than is necessary. Moreover, there should be no element of reward for failure.

The executive Directors’ contracts of employment, which were revised following consultation with some of the Company’s major shareholders in 2003, are dated 10 March 2004 in the case of Mr Russell and 12 March 2004 in the case of Mr Emmens. Mr Russell’s contract requires him to give the Company12 months’ notice and expires on him 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 12 months’ notice of termination, other than if termination is for cause, whereas it is not obliged to give Mr Emmens any notice.

In the event of termination of employment within 12 months of a change of control, the amount payable is one year’s salary and the cash equivalent of one year’s pension, car and othercontractual benefits. Any incentive payable is at the discretion ofthe Remuneration Committee and is capped at the contractualmaximum incentive.

The amount of incentive payable upon termination of employmentin any other circumstances, other than for cause, is at thediscretion of the Remuneration Committee and is capped at thecontractual target incentive.



40

Non-executive Directors and the ChairmanEach non-executive Director is paid a fee for serving as a Directorand additional fees are paid for membership or chairmanship of the Audit, Remuneration and Nomination Committees. TheChairman of the Company receives an inclusive fee. Fees aredetermined by the Board, with the exception of the Chairman’sfee, which is determined by the Remuneration Committee andconfirmed by the Board. Fees are benchmarked against non-executive Director fees of comparable companies. The fees paid to non-executive Directors are not performance-related.Details of fees paid to the Chairman and non-executive Directorsin 2004 are set out in the table on page 41.

The non-executive Directors are not eligible to join the Company’spension scheme.

Non-executive Directors do not participate in any of the Companyshare schemes or other employee benefit schemes and nooptions have been granted to non-executive Directors in theircapacity as non-executive Directors of Shire. On the merger ofShire with BioChem Pharma Inc. in 2001, options were granted to The Hon James Grant in replacement for Mr Grant’s BioChemPharma options. The grant of these replacement options and theoriginal BioChem Pharma option grant were made on the sameterms as applied to other employees at the time, including thatthese options are not subject to any performance conditions.

The Chairman and the non-executive Directors have letters ofappointment detailing their specific terms of engagement which,other than for Dr Price, are for a two-year term which may berenewed. Dr Price’s re-appointment in January 2005 is for a one-year term which may be renewed. Details of the unexpired termsof the letters of appointment and notice periods are as follows:

Date of Date of NoticeDirector appointment term expiry period

Dr James Cavanaugh 24.03.05 23.03.07 3 months

Dr Barry Price 25.01.05 24.01.06 3 months

The Hon James Grant 11.05.03 10.05.05 3 months

Mr Ronald Nordmann 23.12.03 22.12.05 3 months

Mr Robin Buchanan 30.07.03 29.07.05 3 months

Mr David Kappler 06.04.04 05.04.06 3 months

Related party transactionsDetails of transactions relating to The Hon James Grant, who is apartner of a Canadian law firm with which the Company incurredprofessional fees during the year, and with Mr Ronald Nordmannand Dr Francesco Bellini, a former non-executive Director, aregiven in Note 21 to the consolidated financial statements.

Performance graph The graph below sets out the Total Shareholder Return (TSR) forthe five years ending 31 December 2004. The graph comparesthe performance of a holding of the Company’s shares with that of a holding of shares in the FTSE UK Pharma and Biotech Index over the relevant period, calculated in accordance withthe Directors’ Remuneration Report Regulations 2002. The FTSE UK Pharma and Biotech Index has been selected to showshareholders how Shire’s TSR has performed relative to othercompanies in its sector over a five-year period.

Termination paymentsDr Wilson Totten stepped down as Chief Scientific Officer in May2004. He remained an employee of the Company responsible for special corporate projects, including M&A and the continueddevelopment of FOSRENOL until his contract was terminated by the Company. No change was made to Dr Totten’s terms andconditions of employment on his ceasing to be a Director and he was paid no compensation for loss of his office as a Director.

Dr Totten’s employment ended on 31 August 2004. Payment was made to him in accordance with the payment in lieu of noticeprovisions in his contract of employment, amounting to £639,265.

Details of Dr Totten’s options, LTIP awards, emoluments for 2004and pension contributions are set out in the next part of thisreport, under Audited Information.

Other remunerationMr Emmens was appointed a non-executive director of VertexPharmaceuticals Inc. during 2004. In this capacity he was paid$14,000 in 2004, which he will retain.

Mr Russell is a non-executive director of The City of LondonInvestment Trust plc (and its associated companies, The City ofLondon European Trust Limited, The City of London InvestmentsLimited and The City of London Finance Company Limited). In this capacity, he was paid £16,500 in 2004, which he will retain.

Five-Year Historical TSR Performance. Change in theValue of a Hypothetical £100 Holding Over Five Years.FTSE UK Pharma and Biotech Index Comparison Basedon Spot Values.

Valu

e of

Hyp

othe

tical

£10

0 H

old

ing

£200

£150

£100

£50

Dec 1999 Dec 2000 Dec 2001 Dec 2002 Dec 2003 Dec 2004

Shire Pharmaceuticals Group plcFTSE UK Pharma and Biotech Index



41

Audited information

Aggregate Directors’ remunerationThe total amounts for Directors’ remuneration were as follows:

2004 2003£’000 £’000

Emoluments 2,592 2,256Money purchase pension contributions 278 4,676Gains on exercise of share options 118 114Amounts receivable under long-term incentive schemes 86 276Compensation for loss of office – 1,335

3,074 8,657

Directors’ emoluments Cash Non-cash

benefits benefits Total TotalSalary Incentive Fees in kind in kind 2004 2003

Director £’000 £’000 £’000 £’000 £’000 £’000 £’000

ExecutiveMr Matthew Emmens 545(i) 437 – 437(ii) – 1,419 699Mr Angus Russell 342 257 – 11 4 614 499Dr Wilson Totten(iii) 142 107 – 4 3 256 531Mr Rolf Stahel(iv) – – – – – – 311

1,029 801 – 452 7 2,289 2,040

Non-executiveDr James Cavanaugh(v) – – 75 – – 75 54Dr Barry Price – – 60 – – 60 43The Hon James Grant – – 40 – – 40 35Mr Ronald Nordmann – – 54 – – 54 45Mr Robin Buchanan – – 40 – – 40 16Mr David Kappler(vi) – – 34 – – 34 –Dr Francesco Bellini(vii) – – – – – – 11Mr Gerard Veilleux(vii) – – – – – – 12

– – 303 – – 303 216

Total 1,029 801 303 452 7 2,592 2,256

Notes(i) Paid in US$, Mr Emmens’ annual salary in 2004 was $999,319.

(ii) The Company underwent a major internal reorganisation in 2004, which resulted in the Company selecting Philadelphia as its US corporate headquarters. Mr Emmens was paid £420,339 in connection with costs associated with his relocation to thePhiladelphia area.

(iii) Dr Totten stepped down as a Director of the Company on 25 May 2004.

(iv) Mr Stahel stepped down as a Director of the Company on 19 March 2003.

(v) The Chairman’s fee in 2004 was £100,000. Dr Cavanaugh elected to receive £75,000.

(vi) Mr Kappler was appointed a non-executive Director on 6 April 2004.

(vii) Dr Bellini and Mr Veilleux stepped down as non-executive Directors of the Company on 10 May 2003.

Cash benefits in kind represent expense allowances (including dental costs and, in the case of Mr Emmens, relocation costs) and non-cash benefits represent emoluments. Non-cash benefits in kind consist of private medical insurance.

Details of the exercise of share options are disclosed on page 43. Non-executive Director remuneration is to/from the date of resignation/appointment.



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Dr Totten Dr Totten stepped down as the Chief Scientific Officer on 25 May2004. The table above details Dr Totten’s emoluments for theperiod of 2004 while he was a Director of the Company. Theseemoluments include incentive. The Remuneration Committeeawarded Dr Totten the maximum incentive, of 75% of salary, forthat part of 2004 he worked both as a Director and then as anemployee in recognition of Dr Totten’s significant contribution tothe Company. £106,690 of this incentive is included in the tableabove. Dr Totten continued as an employee of the Companyresponsible for special corporate projects, including the continueddevelopment of FOSRENOL, from 25 May until 31 August 2004, at which point the Company terminated his employment inaccordance with his service contract. No change was made to Dr Totten’s terms and conditions of employment on his ceasing tobe a Director or whilst he remained an employee. Upon terminationof Dr Totten’s employment, the total amount paid to Dr Totten,in accordance with the payment in lieu of notice provisions in his contract of employment, was £639,265. This comprises oneyears’ salary and contractual benefits and target incentive of 50%of salary, which the Remuneration Committee determined, inaccordance with the terms of Dr Totten’s contract, to award him.

Directors’ pension entitlementsThe following Directors are members of money purchaseschemes. Contributions paid by the Company in respect of 2004were as follows:

2004 2003Name of Director £’000 £’000

Mr Matthew Emmens 156 138

Mr Angus Russell 86 80

Dr Wilson Totten 36 85(stepped down as a Director on25 May 2004)

Mr Rolf Stahel – 4,347(stepped down as a Director on19 March 2003)

Dr Francesco Bellini – 26(stepped down as a non-executiveDirector on 10 May 2003)

278 4,676

Directors’ shareholdings* Directors who held office at the end of the year had interests in theshare capital of the Company as follows:

31 December 31 December2004 2003

Number of Number ofName of Director shares shares

Dr James Cavanaugh(i) 412,849 8,806,368

Mr Matthew Emmens – –

Mr Angus Russell – –

Dr Barry Price 31,350 31,350

The Hon James Grant(ii) 36,410 4,551

Mr Ronald Nordmann 46,966 46,966

Mr Robin Buchanan – –

Mr David Kappler 5,000 –

*All interests are beneficial unless otherwise stated.

Notes(i) Dr Cavanaugh is a general partner of HealthCare Ventures LLC,

which is the management company for a number of limitedpartnerships. On 11 November 2004 investment partnershipsmanaged by HealthCare Ventures LLC distributed to theirgeneral and limited partners 8,666,090 ordinary shares of theCompany. 7,125,560 of these shares were purchased from timeto time from 1993 to 1996. An additional 1,534,530 shares were purchased in 1998. Dr Cavanaugh and members of hisfamily received 296,571 of the shares distributed. None of the270,277 shares received by Dr Cavanaugh in the distribution have been sold.

(ii) On 15 June 2004, The Hon James Grant exercised an optiongranted to him under the BioChem Stock Option Plan for 31,859shares at the option price of £1.24 per share.

Directors’ share optionsAggregate emoluments disclosed above do not include anyamounts for the value of options to acquire ordinary shares in theCompany granted to or held by the Directors.

Directors and employees have been granted options over ordinaryshares under the Shire Pharmaceuticals Group plc 2000 ExecutiveShare 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 ShirePharmaceuticals Executive Share Option Scheme (Parts A and B)(Executive Scheme), the Shire Pharmaceuticals SharesaveScheme (Sharesave Scheme), the Shire Pharmaceuticals Groupplc Employee Stock Purchase Plan (Stock Purchase Plan), theRoberts Stock Option Plan (Roberts Plan) and the BioChem StockOption Plan (BioChem Plan).



43

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

Market price Gains on Gains onExercise at exercise exercise exercise

Number of price date 2004 2003Director Scheme options £ £ £’000 £’000

The Hon James Grant BioChem Plan 31,859 1.25 4.1750 – 9331,859 1.24 4.9550 118 –

118 93

Mr Rolf Stahel Executive Scheme A 13,761 2.18 3.6800 – 21

Total 118 114

Details of options exercised after ceasing to be a Director are as follows:

Dr Wilson Totten Executive Scheme B 141,138 3.385 5.2000 256 –301,775 3.38 5.1592 537 –

793 –

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

Number of ordinary shares Exercise dates

At At Exercise1 January 31 December price

Director Scheme 2004 Granted Exercised Lapsed 2004* £ Earliest Latest

Mr Matthew Emmens 2000 945,010 – – – 945,010 3.6825 18.03.06 17.03.13ExecutiveScheme B(iii) – 315,777 – – 315,777 5.2600 25.03.07 24.03.14

StockPurchase Plan(v) 2,098 – – – 2,098 4.0900 22.11.05 22.11.05

947,108 315,777 – – 1,262,885

Mr Angus Russell ExecutiveScheme 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 12.12.06Scheme B 6,422 – – – 6,422 10.2750 01.03.03 28.02.07

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

– 195,285 – – 195,285 5.2600 25.03.07 24.03.14

Sharesave(ii) 1,882 – – – 1,882 5.0200 01.12.05 31.05.06

526,015 195,285 – – 721,300

Dr Wilson Totten(vi) ExecutiveScheme A(i) 8,862 – – – 8,862 3.3850 06.02.01 05.02.08

Executive(i) 141,138 – – – 141,138 3.3850 06.02.01 05.02.05Scheme 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(iii) 63,242 – – – 63,242 12.8000 03.08.03 02.08.10Executive 73,986 – – – 73,986 12.5700 05.06.04 04.06.11Scheme B 122,368 – – – 122,368 5.0650 04.03.05 03.03.12

301,775 – – – 301,775 3.3800 04.03.06 03.03.13– 203,612 – – 203,612 5.2600 25.03.07 24.03.14

Sharesave(ii) 1,882 – – – 1,882 5.0200 01.12.05 31.05.06

755,248 203,612 – 958,860

*or date of ceasing to be a Director, if earlier.



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At At Exercise1 January 31 December price

Director Scheme 2004 Granted Exercised Lapsed 2004* £ Earliest Latest

The Hon James Grant BioChem(iv) 31,859 (31,859) – – 1.2400 14.05.01 26.06.0431,859 – – – 31,859 2.5000 14.05.01 06.06.0531,859 – – – 31,859 6.2600 14.05.01 04.06.062,275 – – – 2,275 6.2000 14.05.01 05.05.072,275 – – – 2,275 6.9400 14.05.01 20.04.087,964 – – – 7,964 5.7000 14.05.01 10.06.09

13,653 – – – 13,653 6.5800 14.05.01 23.05.10

121,744 – (31,859) – 89,885

*or date of ceasing to be a Director, if earlier.

For those options which remained unexercised during the year, no payment was made by any Director in consideration of the grantaward. There have been no variations to the terms and conditions or performance criteria for share options during 2004, except asstated in note (iii) below as regards retesting.

Notes (i) Options granted under the Executive Scheme are subject to performance criteria and cannot be exercised in full, unless the

Company’s share price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period.If the Company’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 quarterlyby reference to share price growth over the extended period. If the share price does not meet these conditions at any time, none ofthe options will become exercisable.

(ii) Options granted under the Sharesave Scheme are granted with an exercise price equal to 80% of the mid-market price on the daybefore invitations are issued to employees. Employees may enter into three or five-year savings contracts. The exercise of optionsunder this Scheme is not subject to any performance criteria.

(iii) Options granted under the 2000 Executive Scheme vest six weeks prior to the expiry date. Options granted under this scheme aresubject to performance criteria. In respect of any option granted prior to August 2002, if Shire’s share price increases at a compoundrate of at least 20.5% per annum over a minimum three-year measurement period, the option will be exercisable in full. If it increasesby at least 14.5% per annum over the same three-year measurement period, the option may be exercised on 60% of the sharescovered by the option. If these conditions are not met after the initial three-year measurement period, they will thereafter be testedquarterly 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’sdevelopment it was considered appropriate that an EPS based measure should be adopted in place of share price growth targets.Therefore, the performance criteria were amended so that an option would become exercisable in full only if Shire’s EPS growth over athree-year period from the date of award exceeds the UK Retail Price 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% (Directors, RPI plus 5%)Between 101% and 200% of salary RPI plus 5%Between 201% and 300% of salary RPI plus 7%Over 301% of salary RPI plus 9%

The new EPS performance criteria apply to options granted under the 2000 Executive Scheme from August 2002. After consultationwith 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 EPSgrowth 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. The EPS used will be the fully diluted EPScalculated under US GAAP reporting.

(iv)Following the acquisition of BioChem on 11 May 2001, the BioChem Plan was amended such that options over BioChem’s commonstock became options over ordinary shares of the Company. All BioChem options, which were not already exercisable, vested andbecame exercisable as a result of the acquisition and were not subject to any performance conditions.

(v) Under the Stock Purchase Plan, options are granted with an exercise price equal to 85% of the fair market value of a share on theenrolment 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. The exercise of options under this plan is not subject to any performance condition.



45

(vi) In connection with the termination of Dr Totten’s employment, the Remuneration Committee agreed to exercise its discretion underthe Rules of the respective option schemes to allow Dr Totten to retain these options for up to 24 months following his termination.

The market price of the ordinary shares at 31 December 2004 was £5.47 and the range during the year was £4.36 to £5.71.

Long Term Incentive Plan (LTIP)Long Term Incentive Plan maturities during the year 2004 are as follows:

Market price Actual Market price Value atInitial award at grant date performance- at maturity maturity Date of

Director Date of award made £ related award £ £ maturity

Mr Angus Russell(i) 01.03.00 1,789 10.06 1,296 5.515 7,147 01.03.04

Dr Wilson Totten(i) (ii) 01.03.00 19,881 10.06 14,398 5.515 79,405 01.03.04

Total 86,552

Notes(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 conditionmeasured against the diluted EPS of the Company for the financial year ended before the commencement of the performance periodand the diluted EPS of the Company for the financial year ended on or before the end of the performance period. For awards madeon 1 March 2000, the Committee determined that 44.84% of the part of the award subject to TSR performance measures and 100%of the part of the award subject to EPS performance measures could be transferred, resulting in 72.42% of the total award beingtransferred to participants. These calculations were verified by external advisers.

(ii) On Dr Totten’s termination of employment, the Remuneration Committee determined in accordance with the LTIP Rules, that the2001, 2002, 2003 and 2004 awards would lapse and no payment would be made to Dr Totten in respect of them.

Details of current and outstanding awards under the Long Term Incentive Plan for Directors who served during the year are as follows:

Ordinary shares Value of award Ordinary shares Earliest date onat 1 January Award made at grant date at 31 December which an award

Name of Director 2004 Date of award 25.03.04 £’000 2004 can be made

Mr Matthew Emmens 80,960 20.03.03 – 290 80,960 20.03.07– 105,259 563 105,259 25.03.08

80,960 105,259 853 186,219

Mr Angus Russell 11,535 05.06.01 – 134 11,535 05.06.0519,078 04.03.02 – 127 19,078 04.03.0644,667 20.03.03 160 44,667 20.03.07

65,095 348 65,095 25.03.08

75,280 65,095 769 140,375

The above awards made during the year were all at the price of £5.35 per share. Performance conditions attaching to awards madeunder the Long Term Incentive Plan are detailed on pages 38 to 39.

ApprovalThis report was approved by the Board of Directors on 1 March 2005 and signed on its behalf by:

Dr Barry PriceChairman of the Remuneration Committee


– ensure clarity of disclosure in financial reporting and thepresentation of a balanced and understandable assessment of the Company’s financial position;

– have the primary responsibility for making a recommendation(to be put to shareholders for approval at the Annual GeneralMeeting) in relation to the appointment, re-appointment, removal and remuneration of the external auditor and to assess at least annually, the objectivity and independence of the external auditor;

– review and discuss issues and recommendations arising fromthe external audit, and any matters the external auditor may wishto discuss;

– set and apply a formal policy in relation to the provision of non-audit services by the external auditor with a view to preservingthe external auditor’s independence and objectivity;

– establish procedures for the receipt, retention and treatment of complaints received by the Company regarding accounting,internal accounting controls or auditing matters;

– review at least annually the effectiveness of the Company’sinternal control system in the overall context of the Company’srisk management system;

– oversee the Company’s anti-fraud programmes and controls and to oversee the investigation and remediation of any alleged or suspected fraud; and

– monitor and review the internal operational audit programme,consider the findings of internal operational audit reviews andmanagement’s response to them.

The Audit Committee reports to the Board on any matter on whichit considers that action is required and makes recommendationsfor steps to be taken. The Terms of Reference of the Committeegive it authority to investigate any activity within its Terms ofReference and to be responsible for the resolution ofdisagreements between management and the auditor regardingthe Company’s financial reporting. The Committee is alsoauthorised to seek any information it requires from any employeeof the Company in order to perform its duties and to call anyemployee to be questioned at a meeting of the Committee.

The Audit Committee met on 4 occasions in 2004. Each meetingwas attended by all members of the Committee. At the invitationof the Chairman, the Chief Executive Officer, the Chief FinancialOfficer, the Group Financial Controller and the Chief Risk Officerattended all of the Committee’s meetings in 2004, save that theGroup Financial Controller was unable to attend one meeting due to a previous commitment.

In accordance with its Terms of Reference, the Committee metwith the external and internal auditors during the course of theyear without any executive member of the Board in attendance.

Auditor servicesThe Audit Committee has adopted a formal policy in relation to the provision of non-audit services by the external auditor, whichwas most recently revised in March 2004. The Sarbanes-OxleyAct 2002 (and accordingly the Committee’s policy) prohibits theprovision of certain non-audit services to the Company by theexternal auditor, including:

Shire Pharmaceuticals Group plc Audit Committee report

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Audit Committee report

Audit Committee membershipThe members of the Audit Committee as at 31 December 2004were David Kappler (Chairman), Ronald Nordmann and BarryPrice. They are all independent non-executive Directors for thepurposes of The UK Combined Code on Corporate Governance(the ‘Combined Code’). Dr James Cavanaugh (the Chairman ofthe Company) was a member of the Audit Committee until hestood down on 30 November 2004. Dr Cavanaugh stepped downas in his capacity as Chairman of the Company, he is no longerconsidered to be ‘independent’ under the new Combined Code.

Mr Ronald Nordmann chaired the Audit Committee until July 2004,after completion of the preparation of the Company’s secondquarter results. Mr David Kappler, who joined Shire’s Board andbecame a member of Shire’s Audit Committee on 5 April 2004,took over the chairmanship of the Audit Committee from Mr Nordmann. The Board is satisfied that both Mr Nordmann and Mr Kappler, in their capacity as Chairmen of the Committee,have recent and relevant financial experience. The Board hasdetermined that Mr Kappler is the Audit Committee financial expertfor the purposes of the Sarbanes-Oxley Act 2002. Mr Kapplerretired as Chief Financial Officer of Cadbury Schweppes plc, theFTSE and NYSE listed global confectionery and beverages groupin April 2004 having held that position since 1995. He worked for the Cadbury Schweppes group between 1965 and 1984 andrejoined it in 1989, following the acquisition of the Trebor Group of which he was Finance Director. From 1989 to 1995 he held a number of senior positions in Cadbury Schweppes, includingDirector of Corporate Finance. Mr Kappler has served on a numberof other boards around the world in which Cadbury Schweppesheld interests. He was a director of Camelot Group plc from 1996to 2002 and he currently serves as a non-executive Director and Chairman of the Audit Committee at HMV Group plc andIntercontinental Hotels Group plc. Additionally, he is non-executiveChairman at Premier Foods plc. Mr Kappler is a fellow of theChartered Institute of Management Accountants.

The members of the Committee are chosen from amongst the non-executive Directors of the Company who are independent for the purposes of the Combined Code and the NASDAQ rules and are selected on the basis of their knowledge andexperience of financial matters and financial reporting. Committeemembers hold office for an initial period of two years, subject to continuing as a Director of the Company, for such duration as determined by the Board. Details of the fees paid to membersof the Committee are set out in the Directors’ remuneration reporton page 41.

Role of Audit CommitteeIn the latter part of 2004, the Terms of Reference of the AuditCommittee were reviewed and updated. The amended Terms of Reference were approved by the Board on 22 February 2005.The revised Terms of Reference of the Audit Committee areavailable for review on Shire’s website. The key functions of theAudit Committee under the revised Terms of Reference are to:

– monitor the integrity of the financial statements of the Company,including its annual and quarterly reports, preliminary resultsannouncements and any other Board announcement relating to its financial performance or other financial information to bemade public;


Shire Pharmaceuticals Group plc Audit Committee report

47

– bookkeeping or other services related to the accounting recordsor financial statements of the Company;

– design and implementation of financial information systems;

– appraisal or valuation services, fairness opinions or contribution-in-kind reports; and

– actuarial or internal audit outsourcing services.

The Committee’s policy requires all audit and permissible non-auditservices proposed to be provided by the Company’s auditor to be approved by the Audit Committee. Certain audit and non-auditservices have been pre-approved by the Audit Committee and maytherefore be provided by the auditor provided that managementdoes not need to exercise any discretion in determining whether a proposed service falls within one of the pre-approved categories.In all cases, the Audit Committee is notified of any pre-approvedservice provided. Certain services have been pre-approved by the Audit Committee as part of its pre-approval policy, including:

– audit services and audit related services, such as audit workperformed in the preparation of financial statements, work that generally only the auditors can reasonably be expected to provide, including comfort letters, statutory audits andconsultation regarding financial accounting and/or reportingstandards, due diligence related to mergers and acquisitions,employee benefit plan audits and special procedures required to meet certain regulatory requirements;

– tax services, such as tax compliance services, tax advice on the tax consequences of proposed transactions and tax adviceon employee remuneration strategies, and

– advice on internal reorganisations, group financingarrangements, share schemes and VAT compliance.

Any services proposed to be provided by the auditor which is not a pre-approved service must be approved in advance by the AuditCommittee, which will consider whether the skills and experienceof the auditor make it a suitable supplier of the proposed audit or non-audit service.

Audit Committee activitiesDuring 2004, the business discussed by the Audit Committeeincluded the matters set out below.

1 Financial statementsThe financial disclosures contained in the Company’s annual andquarterly reports to shareholders were discussed by the AuditCommittee each quarter and at year-end. Various accountingmatters were also discussed by the Audit Committee, includingthe application of the critical accounting policies applied by theCompany. The application of new accounting standards was also discussed, where appropriate, during these meetings.

Quarterly reports from the external auditors were received by the Audit Committee and discussed. The reports addressedthe following key additional areas:

– auditor responsibility and independence;

– significant accounting estimates and judgements made by management;

– audit adjustments proposed and whether they were correctedby management; and

– significant accounting policies and unusual transactions.

2 Internal financial control and risk management systemsThe Audit Committee reviewed the risk management strategy, thecorporate risk schedules, the internal audit strategy and plan andprogress in complying with Section 404 of the Sarbanes-Oxley Act 2002 and the effectiveness of the system of internal controlduring the year. The risk management and internal financial controlsystems were the subject of significant focus at all the meetingsheld throughout the year, with in depth discussions held betweenthe Audit Committee, Shire management, internal audit and theexternal auditors.

In addition and as part of the work in this area, a revised treasurypolicy was approved in July and reports on the treasuryinvestments were discussed each quarter. At the same Julymeeting the Audit Committee also approved the insurancerenewal programme for 2004/5.

The Audit Committee also received reports from management, the internal audit function, and the external auditor on theeffectiveness of the Company’s system of internal controls.

3 External auditorThe Audit Committee reviewed the performance of the externalauditor following the completion of the 2003 audit process,which resulted in the Audit Committee resolving to recommendthat the Company submit a resolution to the 2004 Annual GeneralMeeting to re-appoint Deloitte & Touche LLP as the Company’sexternal auditor. At forthcoming meetings in 2005, the AuditCommittee will conduct a formal review of the performance of theexternal auditor and the effectiveness of the audit process inconnection with the 2004 financial year audit.

In March 2004 the Audit Committee revised its pre-approvalprocess of all audit services and permitted non-audit servicesundertaken by the external auditor. The Audit Committeeapproved all non-audit services during 2004 and there is now a standing agenda item at Audit Committee meetings covering the operation of the procedures.

Throughout the year, the Audit Committee has kept the objectivityand independence of the external auditor under review and has obtained reports from the Company’s external auditordescribing all relationships between the auditor and the Company.The Audit Committee has remained satisfied that the level of non-audit services or the nature of the work performed by theexternal auditors has not in any way impaired their objectivity andindependence. The detail of the fees paid to the external auditorsis disclosed in Note 4 to the summary financial statements.

David KapplerChairman of the Audit Committee


Corporate governance statements

The Company is committed to high standards of corporate governanceThe Board is committed to high standards of corporategovernance and supports the provisions and principles set out inThe Combined Code on Corporate Governance issued by the UKFinancial Reporting Council in July 2003 (the ‘Combined Code’).The Combined Code took full effect for the first time for theCompany for the year ended 31 December 2004.

Statement of compliance with the Combined CodeThroughout the year ended 31 December 2004 the Company has, in the Directors’ opinion, complied with the provisions set out in Section 1 of the Combined Code, save that the Chairman of the Company, Dr James Cavanaugh, sat on the RemunerationCommittee until 28 April 2004 and on the Audit Committee until30 November 2004. Provisions B.2.1 and C.3.1 of the CombinedCode require each of these committees to be comprised entirelyof independent directors and under the Combined Code asrevised, a Chairman is no longer considered to be ‘independent’.Dr Cavanaugh sat on the Audit and Remuneration Committeesfor part of 2004 pending the appointment of an additional non-executive Director (which occurred in April with David Kappler’sappointment). He remained on the Audit Committee for atransitional period to ensure a smooth handover of responsibilities.

The BoardThe Board comprises the Chairman, two executive and five non-executive Directors and meets at least six times a year. Thenon-executive Directors bring judgement which is independent of management to Board deliberations. The executive Directorshave responsibility for day-to-day business operations.

The Board has overall responsibility for managing the Companyand its strategic direction and seeks to provide effective leadershipand the control required for a listed company. The Board hasformally reserved specific matters to itself for determination whichinclude strategic issues, budgeting, changes in share capital,approval of the Company’s financial statements and entry intomaterial contracts. Matters not formally reserved to the Board are delegated to the Executive Committee and to various otherBoard committees whose functions are described below.

The Board members receive detailed information from executiveDirectors, the Company Secretary and other senior managers to enable them to discharge their responsibilities efficiently and effectively.

All Directors have access to the advice and guidance of theCompany Secretary and are encouraged to seek independentadvice at the Company’s expense, where they feel it is appropriate.The Board is of the opinion that each of its members has theknowledge, aptitude and experience to perform the functionsrequired of a director of a listed company.

Biographical details of the members of the Board are shown on pages 32 to 33.

Independent DirectorsThe Board considers Dr Barry Price, Mr Ronald Nordmann, The Hon James Grant, Mr Robin Buchanan and Mr David Kapplerto be independent non-executive Directors. The Board views each of these non-executive Directors to be independent ofmanagement, independent in judgement and character and freefrom any business or other relationship which could materiallyinterfere with the exercise of their independent judgement.

Shire Pharmaceuticals Group plc Corporate governance statements

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The Board has taken into consideration that The Hon James Grantis a partner of Stikeman Elliot, a Canadian law firm which, from timeto time, provides legal advice to the Group. The Board considersMr Grant to be independent notwithstanding his position as he isnot involved in the provision of legal advice to the Company and is not engaged in marketing the services of Stikeman Elliott to theCompany. Stikeman Elliott is one of a range of legal and otherprofessional advisors engaged by the Company from time to time.Accordingly, the Board does not consider the relationship betweenthe Company and Stikeman Elliott to be material and accordinglythe fact that Mr Grant is a partner at that firm does not, in theBoard’s assessment, affect his independence. Mr Grant was aBoard member of BioChem Pharma Inc. prior to its merger with theCompany in 2001. Mr Grant has an extensive knowledge of Shire’sbusiness and he brings a wealth of expertise to the Board.

Board and Committee changesThere were changes to the Board and to certain of the BoardCommittees in 2004. Dr Wilson Totten, the Company’s former ChiefScientific Officer, stepped down from the Board on 25 May 2004.Mr David Kappler joined the Board as a non-executive Director and a member of the Audit Committee on 5 April 2004. With effect from July 2004, Mr Kappler took over the Chairmanship of the Audit Committee from Mr Ronald Nordmann. Mr RonaldNordmann joined the Remuneration Committee in place of Dr James Cavanaugh on 28 April 2004. Dr James Cavanaughstepped down from the Remuneration Committee on 28 April2004 and from the Audit Committee on 30 November 2004.

Board meetingsDuring 2004, there were 11 Board meetings of which six wereface-to-face meetings and five held by telephone. Board meetingsare well attended. The record of attendance by Directors at Boardmeetings is set out below:

Number ofmeetings Out of Attendance

Directors attended possible %

James Cavanaugh 11 11 100(Chairman)

Matthew Emmens 11 11 100(Chief Executive Officer)

Angus Russell 11 11 100(Chief Financial Officer)

Barry Price 10 11 91(Senior non-executive Director)

The Hon James Grant 10 11 91(non-executive Director)

Ronald Nordmann 11 11 100(non-executive Director)

Robin Buchanan 10 11 91(non-executive Director)

David Kappler (non-executive Director) 8 8 100(appointed 5 April 2004)

Wilson Totten (Chief Scientific Officer) 5 5 100(stepped down as a Director on25 May 2004)

The Chairman and the non-executive Directors met during theyear without the executive Directors being present.



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Chairman and Chief Executive OfficerThe offices of Chairman and Chief Executive Officer are heldseparately. The Chairman, Dr James Cavanaugh, is responsible for the conduct of the Board and ensures that Board discussionsare conducted in such a way that all views are taken into account,so that no individual Director or small group of Directorsdominates proceedings. The Chief Executive Officer has thegeneral responsibility for running the business on a day-to-daybasis and chairs the Executive Committee.

The roles and responsibilities of the Chairman and the ChiefExecutive Officer are clearly defined, separate and have beenapproved by the Board.

Senior non-executive DirectorDr Barry Price is the Senior independent non-executive Director. Dr Price is the Company’s longest-serving Director and as such he has significant knowledge of the Company and its business. Dr Price’s in-depth knowledge of the Company in particular andthe pharmaceutical industry in general is acknowledged by theBoard and he is consulted by other non-executive Directors onmatters pertaining to the Company. Dr Price chairs meetings heldby the non-executive Directors during the year in the absence of the executive Directors and the Chairman. Dr Price is availableas required for consultation with major shareholders on any matter of concern.

Supply of informationThe executive Directors and the Company Secretary areresponsible for ensuring that detailed information is provided toBoard members in advance of any scheduled Board meeting.Before decisions are made, consideration is given to the adequacyof information available to the Board and, if necessary, decisionsare deferred if further information is required.

Re-election of DirectorsNon-executive Directors are appointed for a term of two years,subject to shareholder approval. Re-appointment of non-executiveDirectors following the expiry of such two-year period is subject to satisfactory performance and to Board approval.

At each Annual General Meeting, any Director who has beenappointed by the Board is required to seek re-election, togetherwith, but not exceeding, one third of the other Directors.Accordingly, no Director should serve for more than three yearswithout being subject to re-election by shareholders.

At the Annual General Meeting to be held in 2005, Mr RonaldNordmann and Mr Matthew Emmens will retire by rotation andoffer themselves for re-election. In addition, in accordance withthe provisions of the Combined Code, Dr Barry Price, who hasnow served on the Board for nine years, will offer himself forannual re-election by shareholders.

Dr Price is the Company’s longest-serving Director and as such he has significant knowledge of the Company and its business. In addition to his experience at Shire, Dr Price has many years ofexperience in the pharmaceutical industry, including 28 years withthe Glaxo group. The Board, when making its determination onthe independence of Dr Price, gave particular consideration to thefact that Dr Price has been a serving member of the Board for nineyears, that the Combined Code suggests that length of service ofnine years or more is relevant to a determination of independenceand that re-appointment should be subject to rigorous review. The Board were also mindful of the need to ensure progressive

refreshening of the Board. In this regard it should be noted thatthere have been substantial changes to the Board membershipover this period of time, including the appointments since 2003 of Mr Buchanan, Mr Kappler and Mr Emmens. In addition, therehave been recent significant changes to the Company’s ExecutiveCommittee, such that most of its members have been appointedin the last two years. Having deliberated carefully on the issue, and taken into account recent performance evaluationsconducted with the assistance of an external consultant, theBoard has no hesitation in asking Dr Price to remain on the Board.Dr Price’s commitment to the Company is undiminished and hisperformance continues to be effective.

Further information concerning the Directors standing for re-election at the Annual General Meeting, including theirbiographies, will be included in the Notice of Meeting toShareholders.

The terms of appointment of each of the non-executive Directors will be made available for inspection at the Company’sAnnual General Meeting in 2005.

Performance appraisalsThe Company conducted evaluations of the performance of the Board, its committees and each of its Directors in 2004. An external consultant was engaged to facilitate this process. The consultant designed and conducted a series of one-on-oneappraisal interviews with each Director and presented the resultsto the Chairman and the Board. It was concluded that each of the members of the Board had demonstrated commitment to hisrole and that the performance of each Director continues to beeffective. As a result of the evaluation the Board discussed areaswhere improvement could be made and these areas will be thesubject of focus in 2005.

Committees of the BoardThe Board has established the Audit Committee, theRemuneration Committee, the Nomination Committee and theExecutive Committee. Each committee has its own written termsof reference that have been approved by the Board. The Terms of Reference of the Audit, Nomination and RemunerationCommittees are available on the Company’s website. Details of each committee are as follows:

1 Audit CommitteeThe Audit Committee has been established for the purpose of overseeing the accounting and financial reporting processes of the Company and the audit of its financial statements. Forfurther information about the Audit Committee, its membershipand activities for the year ended 31 December 2004, pleaserefer to the Audit Committee Report on pages 46 and 47.

2 Remuneration CommitteeThe Remuneration Committee determines on behalf of the Boardthe policy for the setting of remuneration and incentivisation of the executive Directors and other senior executives and the fixingof the terms of their employment. The remuneration of the non-executive Directors is determined by the Board. The remunerationof the members of the Executive Committee, other than theexecutive Directors, is determined by the Chief Executive Officerfollowing discussion with the Remuneration Committee and isdependent on performance. The remuneration of the executiveDirectors and the Chairman is determined by the RemunerationCommittee and confirmed by the Board.


Directors’ remunerationThe Company’s remuneration policy is described in the Directors’remuneration report on pages 36 to 45. The report details the levelof remuneration for Directors and the basis upon which executiveremuneration is fixed.

Relations with shareholdersThe Company is committed to maintaining constructiverelationships with shareholders. The Chief Executive Officer andthe Chief Financial Officer, supported by other senior executives,arrange individual and group meetings with major shareholdersthroughout the year to discuss the Company’s strategy andperformance and to understand the views of major shareholders,which are then communicated to the Board as a whole. TheChairman and the Senior independent non-executive Director also are available to meet with major shareholders.

The Company maintains a flow of information to its shareholdersthrough the announcement of quarterly results and the provisionof annual reports. The Company’s website at www.shire.com alsoprovides information about the Company and its business and isregularly updated. The Company’s Investor Relations departmentacts as a contact point for investors throughout the year.

The Company holds its Annual General Meeting in Londonat which shareholders are given the opportunity to ask questionsof the Directors.

Balanced and timely assessment of positions and prospectsThe Company strives to give timely assessments of matters that impact on its business and financial position and to presentscientific and other price-sensitive data in a balanced way.

Corporate Social Responsibility (CSR)The Company recognises the impact that its business may haveon people and the environment as well as the social implicationsof its operations on the general community. The Companytherefore attaches great importance to social and environmentalissues and to ethical business practices. Accordingly, ultimateresponsibility for them is taken at the highest levels. The Boardreviews and is satisfied with the Company’s approach tocorporate social responsibility generally. The Board also reviewsthe specific business risks related to Social, Environmental andEthical (‘SEE’) matters annually.

The Board receives advice and information from the CorporateSocial Responsibility Committee (CSR Committee) to make thisassessment. The CSR Committee, which is chaired by the ChiefFinancial Officer, meets three times a year and is responsible for setting the policies and procedures that manage SEE issues,risks and opportunities. SEE risks are managed within the overallframework of risk management, explained below under theheading ‘internal control’.

This year the Company has again decided to produce a stand-alone report on Corporate Social Responsibility. This is available on request or from the Shire website.

Code of EthicsThe Company is committed to the maintenance of high ethicalstandards in its dealings with all persons with whom it is involved.The Group’s Code of Ethics applies to all Directors and employeesand is available for review on the Company’s website.

The Remuneration Committee may engage external consultants to advise on any aspects of remuneration.

The Remuneration Committee met on 11 occasions in 2004. Dr Barry Price chaired the Remuneration Committee throughoutthe year and Mr Robin Buchanan was a member of this committeethroughout 2004. Dr James Cavanaugh was a member until hestepped down on 28 April 2004. Mr Ronald Nordmann joined theRemuneration Committee on 28 April 2004. Mr Buchanan wasunable to attend one of the 11 Remuneration Committee meetingswhich took place in 2004 due to a previous commitment, butotherwise all members attended all meetings.

For further information about the Remuneration Committee, its membership and activities for the year ended 31 December2004, please refer to the Directors’ remuneration report on pages 36 to 45.

3 Nomination CommitteeThe Nomination Committee is responsible for identifying andnominating, for the approval of the Board, candidates to fillvacancies to the Board. Before any appointment is made, theNomination Committee evaluates the balance of skills, knowledgeand experience on the Board and, in light of this evaluation,identifies the capabilities required for a particular appointment.The Committee is required to consider candidates from a widerange of backgrounds, on merit and against objective criteria. It is also required to ensure that candidates have sufficient time to devote to the position. This Committee meets as required and in 2004 was chaired by Dr James Cavanaugh. Mr RonaldNordmann, The Hon James Grant and Dr Barry Price also served on this Committee in 2004. All members participated in all discussions of this Committee in 2004.

The Nomination Committee retains the services of executivesearch consultants to assist it in the identification and nominationof new Board candidates.

4 Executive CommitteeThe Board has delegated the day-to-day management of theCompany to the Executive Committee, which operates within clear and formal parameters. The Executive Committee meets at least 11 times per year. The Chief Executive is the Chairman ofthe Executive Committee, which on 31 December 2004 consistedof nine Executive Vice Presidents including the two executiveDirectors. The Executive Committee reports to and seeks guidancefrom the Board on a regular basis.

The Members of the Executive Committee as at 31 December2004 were Matthew Emmens (Chief Executive Officer), AngusRussell (Chief Financial Officer and Executive Vice President ofGlobal Finance), Tatjana May (General Counsel and Executive VicePresident of Global Legal Affairs), Anita Graham (Executive VicePresident of Human Resources), Eliseo Salinas (Executive VicePresident of Global R&D), Greg Flexter (Executive Vice Presidentof Sales and Marketing, North America), Joseph Rus (ExecutiveVice President of Sales and Marketing, International), BarbaraDeptula (Executive Vice President of Business Development), John Lee (Executive Vice President of Supply Chain and Quality).

The Executive Committee normally meets once a month todeliberate on major business issues. It also considers thosematters that are of a size and significance as to require referral to the Board before such matters are referred to the Board forfinal consideration and decision.


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Dividends The Company announced in July 2004 its intention to commencethe payment of a semi-annual dividend with the aim to grow thetotal dividend paid for each year progressively. As a result of theadoption of this dividend policy, the Company intends to declareinterim dividends twice per year, with the first payment madearound September/October, following determination of first-halfresults, and the second payment around April/May of each year,following finalisation of the full-year results. If the Company wasto delay payment of the second-half final dividend by seekingshareholder approval for the payment at the Annual GeneralMeeting (which is held in June each year), the Company would not be able to maintain an even payment cycle at approximatelysix month intervals unless first-half dividend payments were also delayed. Accordingly, the Company does not intend to put aresolution to shareholders at the Annual General Meeting approvingthe payment of the second-half dividend. This is beneficial for theCompany, both from a cash flow planning and from an accountingperspective and beneficial for shareholders as dividends are paidpromptly and a smooth payment cycle is maintained.

Financial disclosure, internal control and the role of the auditorsThe Board has, through the Audit Committee, established formaland transparent arrangements for financial reporting, internalcontrol and external auditing. The Audit Committee’s terms of reference extend to the Company’s risk management activities as a whole and not just the financial aspects of internal control.

All employees can raise any concerns in any of these areas withthe Chairman of the Audit Committee in the strictest confidence.The Company operates a whistle-blowing policy, which is theframework for a confidential process through which all employeesare able to report concerns relating to financial disclosure, internalcontrol and other compliance issues in good faith without fear of discrimination or reprisal. In addition, the Audit Committee has introduced a procedure for the receipt and monitoring ofcomplaints relating to internal controls.

1 Financial reportingThe Board has ultimate responsibility for the preparation ofaccounts and for the monitoring of systems of internal financialcontrol. The Board strives to present a balanced andunderstandable assessment of the Company’s position and itsprospects and endeavours to present scientific and other price-sensitive information in a balanced way. The Company publishesquarterly financial reports so that its shareholders can monitor the Company’s financial position regularly.

On behalf of the Board, the Audit Committee has the responsibilityfor reviewing the effectiveness of the system of internal financialcontrols and the audit process. The Audit Committee hasindependent access to the auditor throughout the year in addition to presentations from the auditor on a quarterly basis.Any significant findings or identified risks are closely examinedand are reported to the Board with recommendations for action.

The Company has established a Disclosure Committee, which ischaired by the Chief Financial Officer. Its membership comprisessenior managers from the legal, finance and risk departments. Its responsibility is to establish and maintain controls and otherprocedures to ensure that information disclosed to investors isrecorded, summarised and reported accurately and to monitor theeffectiveness of these procedures. The Disclosure Committee alsohas the responsibility for review and oversight of the Company’speriodic reporting.

Following the enactment of the Sarbanes-Oxley Act 2002 in theUnited States, the Chief Executive Officer and the Chief FinancialOfficer are required to complete formal certifications, whichconfirm, inter alia, that:

– the annual report on Form 10-K in the United States does notcontain any material misstatements or omissions;

– financial information reported in Form 10-K fairly presents thefinancial condition, results of operations and cash flows of theCompany;

– the Chief Executive Officer and the Chief Financial Officer areresponsible for determining and maintaining disclosure controlsand procedures for the purposes of US financial reporting;

– the Chief Executive Officer and the Chief Financial Officer haveevaluated the effectiveness of those disclosure controls andprocedures;

– the Chief Executive Officer and the Chief Financial Officer haveindicated in Form 10-K whether there were any significantchanges in the Company’s internal control over financialreporting; and

– based on the evaluation of the Chief Executive Officer and theChief Financial Officer, all significant deficiencies and materialweaknesses in the design or operation of internal control overfinancial reporting which are reasonably likely to affect adverselythe Company’s ability to record, process, summarise and reportfinancial information included in Form 10-K have been disclosedto the Company’s auditors.

The Chief Executive Officer and the Chief Financial Officer havecompleted these certifications and they have been filed with theSEC in the United States as part of the Company’s annual reportin the United States on Form 10-K.

2 Risk management and internal controlThe Board, in accordance with the Turnbull Guidance on internalcontrol, recognises its overall responsibility to maintain a soundsystem of internal control to safeguard shareholders’ investmentsand the Company’s assets and to regularly review its effectiveness.Whilst the Board acknowledges its responsibility for the system of internal control, there are limitations in any system of internalcontrol and accordingly even the most effective system canprovide only reasonable and not absolute assurance. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against materialmisstatement or loss.

The Board has reviewed both the key risks faced by the Companyand the effectiveness of the Company’s internal control systems in 2004. Outside of its review, the Board delegates responsibility to the Audit Committee for more regular review of both key risksand internal controls and for monitoring the activities of theinternal audit function. The Audit Committee has kept these areasunder review in 2004.


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The Company has an integrated risk management and internalaudit strategy that was reviewed, updated and approved by theAudit Committee during 2004. Following this review, the roles of Chief Risk Officer and Director of Internal Audit were split. Thetwo positions, both of which have been confirmed by the AuditCommittee, report to the Chief Financial Officer but have directaccess to the Chairman, the Chairman of the Audit Committeeand the other members of the Audit Committee. They also bothattend and present regularly at Audit Committee meetings.

The Company’s risk management and internal audit strategy isbased on a risk and control framework containing the followingkey elements:

– an effective control environment;

– an effective process to identify, assess and manage risks;

– effective internal control procedures; and

– effective internal audit.

Effective control environmentThe key elements of the Company’s control environment are as follows: (i) the Board has overall responsibility to maintain theinternal control system and has delegated certain responsibilitiesto the Executive Committee and/or the Audit Committee; (ii) a framework of Corporate Values and Company-wide Code of Ethics which sets appropriate standards of ethical behaviour is operational throughout the Group; (iii) the internal structureof the organisation is well documented with clear reporting lines and clear limits of authority for different matters; (iv) a range of corporate policies and procedures have been implemented; (v) the internal audit department, overseen by the Director ofInternal Audit, carries out regular reviews of control activities and report findings to management; (vi) the Audit Committeeconsiders the major findings of any internal investigations andmanagement’s response to them.

Effective identification, assessment and management of risksThe management of business risk is essential for ensuring that theCompany creates and preserves shareholder value. Accordingly,the Company has an ongoing process for identifying, evaluatingand managing the significant risks that it faces. This process hasbeen in operation throughout the period under review and up tothe date of the signing of the accounts. All risks are recorded on a corporate risk schedule which allocates specific responsibility to members of the Executive Committee. This schedule has beenreviewed by the Audit Committee during 2004.

Effective internal control proceduresThe Company has a system of control procedures. Compliancewith these procedures is monitored through a system of internalreview and regular reports on financial performance. Anysignificant issues arising are reported to the Audit Committee.During 2004, the Company has made a significant investment in its internal financial control procedures as part of compliancewith s404 Sarbanes-Oxley Act requirements. This has included the review, documentation and testing of all key internal financialcontrols. The conclusion of this exercise is that the Company had an effective system of internal controls over its US GAAPForm 10-K financial reporting at 31 December 2004.

Effective internal auditThe internal review of the Company’s control procedures andcompliance with them is mostly undertaken through internal audit.The Audit Committee monitors and reviews the internal auditprogramme, considers the findings of internal audit reviews andmanagement’s response to them, and ensures efficient co-ordination between the Company’s internal and external auditors.The Company’s internal audit function, comprising a mixture ofinternal and out-sourced resource, was operational throughout2004. A new Director of Internal Audit was appointed in 2004 andthis appointment was approved by the Audit Committee. Themajority of internal audit work during 2004 has been concentratedon internal financial controls and on achieving compliance withSarbanes-Oxley Act requirements. The Audit Committee, which isresponsible for monitoring the activity of the internal audit function,has reviewed the effectiveness of the internal audit during 2004.

3 External auditing The Audit Committee has the primary responsibility fordetermining the remuneration of and overseeing the work of any accounting firm engaged to conduct the external audit. TheAudit Committee assesses at least annually the objectivity andindependence of the external auditor taking into account relevantregulatory requirements. The Audit Committee reviews andapproves the annual external audit plan each year and ensures it is consistent with the scope of the auditors’ engagement. TheAudit Committee also considers whether the skills and experienceof the external audit firm make it a suitable supplier of non-auditservices. The Audit Committee set and apply a formal policy in relation to the provision of non-audit services by the externalauditor specifying the types of non-audit work: (i) for which theexternal auditors are excluded; (ii) for which the external auditorscan be engaged without referral to the Committee; and (iii) forwhich a case by case decision is necessary, with a view topreserving the auditors’ independence and objectivity. The AuditCommittee also considers the fees paid to the external auditorsand whether the fee levels for non-audit services, individually andin aggregate, relative to the audit fee are appropriate to enable aproper audit to be conducted.

Going concern basisAfter making enquiries, the Directors have formed a judgement, at the time of approving the financial statements, that there is areasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason the Directors continue to adopt the going concernbasis in preparing the financial statements.


Shire Pharmaceuticals Group plc Statement of Directors’ responsibilities

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Statement of Directors’ responsibilities

United Kingdom company law requires the Directors to preparefinancial statements for each financial year which give a true andfair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of theGroup for that period. In preparing those financial statements, the Directors are required to:

– select suitable accounting policies and then apply themconsistently;

– make judgments and estimates that are reasonable and prudent; and

– state whether applicable accounting standards have beenfollowed.

The Directors are responsible for keeping proper accountingrecords which disclose with reasonable accuracy at any time thefinancial position of the Company and enable them to ensure thatthe financial statements comply with the Companies Act 1985.They are also responsible for the system of internal control, forsafeguarding the assets of the Company and hence for takingreasonable steps for the prevention and detection of fraud andother irregularities.

Controls and procedures

Disclosure controls and proceduresThe Company, under the supervision and with the participation of the Company’s management, including the Chief ExecutiveOfficer and the Chief Financial Officer, has performed anevaluation of the effectiveness of the Company’s disclosurecontrols and procedures, as of December 31, 2004. TheCompany’s management necessarily applied its judgement inassessing the costs and benefits of such controls and procedures,which by their nature can provide only reasonable assuranceregarding management’s control objectives. Based on thisevaluation, the Company’s Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosurecontrols and procedures are effective at the reasonable level ofassurance for gathering, analyzing and disclosing the informationthat the Company is required to disclose in the reports it filesunder the Securities Exchange Act of 1934, within the time periodsspecified in the SEC’s rules and forms.

Management’s report on internal control over financial reportingThe Company’s management is responsible for establishing andmaintaining adequate internal control over financial reporting as defined in Rule 13(a) to 15(f) or 15(d) to 15(f) promulgated underthe Securities Exchange Act of 1934.

Because of its inherent limitations, internal control over financialreporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as ofDecember 31, 2004. In making this assessment, the Company’smanagement used the criteria set forth by the Committee ofSponsoring Organizations of the Treadway Commission (COSO)in Internal Control-Integrated Framework.

Based on its assessment, management believes that, as ofDecember 31, 2004, the Company’s internal control over financialreporting is effective based on those criteria.

Deloitte & Touche LLP, an independent registered publicaccounting firm, has issued an audit report on management’sassessment of the Company’s internal control over financialreporting. This report appears on page 54 of this Annual Review.

Changes in internal control over financial reportingIn 2004, the Company commenced the implementation of a newintegrated information system covering financial processes,production, logistics and quality management. As of December 31,2004, a number of the Company’s business units were using thenew system. Further implementations have already been made in 2005 and more are planned for 2006. The implementations have involved changes in the Company’s information systems that included aspects of the Company’s internal control over financial reporting and, accordingly, these changes haverequired changes to the Company’s internal control over financial reporting. The Company has reviewed each system as it is being implemented and the controls affected by theimplementation of the new systems and made appropriatechanges to affected internal controls as it implemented the newsystems. Management believes that the controls as modified are appropriate and functioning effectively.

In addition, during the first quarter of 2005 the Company’s Finance Shared Services operations in Newport, Kentucky will be moved to Philadelphia, as part of the relocation of the majorityof the Company’s US operations to Philadelphia. As part of thistransition, the Company’s internal control over financial reportingwill be reviewed and changes may be made.


Shire Pharmaceuticals Group plc Report of independent registered public accounting firm

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Report of independent registered public accounting firm

To the Board of Directors and Stockholders of Shire Pharmaceuticals Group plc, Basingstoke, EnglandWe have audited the accompanying consolidated balance sheets of Shire Pharmaceuticals Group plc and subsidiaries (the‘Company’) as of December 31, 2004 and 2003, and the relatedconsolidated statements of operations, stockholders’ equity,comprehensive income and cash flows for each of the three years in the period to December 31, 2004. We also have auditedmanagement’s assessment, included in the accompanyingManagement Report on Internal Controls over Financial Reporting,that the Company maintained effective internal control overfinancial reporting as of December 31, 2004, based on criteriaestablished in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. The Company’s management is responsible forthese financial statements and the financial statement schedule,for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control overfinancial reporting. Our responsibility is to express an opinion onthese financial statements and the financial statement schedule,an opinion on management’s assessment, and an opinion on the effectiveness of the Company’s internal control over financialreporting based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financialstatements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in allmaterial respects. Our audit of financial statements includedexamining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management,and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting includedobtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing andevaluating the design and operating effectiveness of internalcontrol, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

A company’s internal control over financial reporting is a processdesigned by, or under the supervision of, the company’s principalexecutive and principal financial officers, or persons performingsimilar functions, and effected by the company’s board ofdirectors, management, and other personnel to providereasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposesin accordance with generally accepted accounting principles. A company’s internal control over financial reporting includesthose policies and procedures that (1) pertain to the maintenanceof records that, in reasonable detail, accurately and fairly reflectthe transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recordedas necessary to permit preparation of financial statements inaccordance with generally accepted accounting principles andthat receipts and expenditures of the company are being madeonly in accordance with authorizations of management and

directors of the company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financialreporting, including the possibility of collusion or impropermanagement override of controls, material misstatements due to error or fraud may not be prevented or detected on a timelybasis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subjectto the risk that the controls may become inadequate because ofchanges in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

In our opinion, the consolidated financial statements referred toabove present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and theresults of its operations and its cash flows for each of the threeyears in the period ended December 31, 2004, in conformity withaccounting principles generally accepted in the United States ofAmerica. Also, in our opinion, such financial statement schedule,when considered in relation to the basic consolidated financialstatements taken as a whole, presents fairly, in all materialrespects, the information set forth therein. Also, in our opinion,management’s assessment that the Company maintainedeffective internal control over financial reporting as of December 31,2004, is fairly stated, in all material respects, based on the criteriaestablished in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the TreadwayCommission. Furthermore, in our opinion, the Companymaintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on thecriteria established in Internal Control – Integrated Frameworkissued by the Committee of Sponsoring Organizations of theTreadway Commission.

Deloitte & Touche LLPReading, EnglandMarch 15, 2005


Shire Pharmaceuticals Group plc Consolidated balance sheets (in thousands of US dollars, except share data)

55

RestatedDecember 31, December 31,

2004 2003Notes $’000 $’000

AssetsCurrent assets:Cash and cash equivalents 1,111,477 1,063,362Restricted cash 21,627 46,474Short-term investments 9 324,411 304,129Accounts receivable, net 6 222,546 194,583Inventories 7 41,230 43,128Deferred tax asset 26 70,387 64,532Prepaid expenses and other current assets 8 137,271 53,814

Current assets from continuing operations 1,928,949 1,770,022Current assets from discontinued operations 3 – 24,096

Total current assets 1,928,949 1,794,118

Investments 10 63,267 72,975Property, plant and equipment, net 11 131,351 94,495Goodwill 12 235,396 221,231Other intangible assets, net 12 309,297 307,882Deferred tax asset 26 7,724 –Other non-current assets 13 38,895 22,420

Long-term assets from continuing operations 785,930 719,003Long-term assets from discontinued operations 3 – 72,070

Total assets 2,714,879 2,585,191

Liabilities and shareholders’ equityCurrent liabilities:Current installments of long-term debt 17 – 290Accounts payable and accrued expenses 14 311,231 205,779Loan facility 16 43,162 –Other current liabilities 15 77,558 37,127

Total current liabilities from continuing operations 431,951 243,196Current liabilities from discontinued operations 3 – 10,479

Total current liabilities 431,951 253,675

Long-term debt, excluding current installments 17 116 376,017Deferred tax liability 26 – 1,400Other non-current liabilities 18 32,159 30,194

Long-term liabilities from continuing operations 32,275 407,611Long-term liabilities from discontinued operations 3 – 779

Total liabilities 464,226 662,065

Shareholders’ equity:Common stock of 5p par value; 800,000,000 shares authorized; and484,916,034 shares issued and outstanding (2003: 477,894,726) 40,064 39,521Exchangeable shares: 4,226,476 shares issued and outstanding (2003: 5,839,559) 195,830 270,667Treasury stock (264) –Additional paid-in capital 1,072,407 983,356Accumulated other comprehensive income 131,939 79,007Retained earnings 810,677 550,575

Total shareholders’ equity 2,250,653 1,923,126

Total liabilities and shareholders’ equity 2,714,879 2,585,191

The balance sheet for December 31, 2003 has been restated to reflect the disposal of the vaccines business that has been accountedfor as a discontinued operation.

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


Shire Pharmaceuticals Group plc Consolidated statements of operations (in thousands of US dollars, except share data)

56

Restated Restated2004 2003 2002

Year to December 31, Notes $’000 $’000 $’000

RevenuesProduct sales 1,112,457 1,004,307 845,340Royalties 230,364 203,573 174,812Licensing and development 13,479 3,677 3,064Other revenues 6,907 13 34

Total revenues 1,363,207 1,211,570 1,023,250

Costs and expensesCost of product sales 141,909 143,160 120,435Research and development 196,265 187,677 173,380Selling, general and administrative 516,645 409,717 361,699Intangible asset impairment 12 13,477 27,489 18,777Reorganization costs 3 48,469 23,940 –

Total operating expenses 916,765 791,983 674,291

Operating income 446,442 419,587 348,959Interest income 21,901 16,856 19,536Interest expense (12,294) (9,451) (9,169)Other income/(expense), net 24 3,845 (20,645) (12,499)

Total other income/(expense), net 13,452 (13,240) (2,132)

Income from continuing operations before income taxes, equity in earnings/(losses) of equity-method investees and discontinued operations 459,894 406,347 346,827Income taxes 26 (129,103) (107,353) (88,350)Equity in earnings/(losses) of equity-method investees 27 2,508 (1,057) 1,668

Income from continuing operations 333,299 297,937 260,145Loss from discontinued operations (net of income tax expense of $nil,$nil and $3,588 respectively) 3,5 (20,135) (21,886) (11,659)(Loss)/gain on disposition of discontinued operations (net of incometax expense of $nil, nil and $1,224 respectively) 3,5 (44,157) – 2,083

Net income 269,007 276,051 250,569

Earnings per share – basic 22

Income from continuing operations 67.2¢ 59.8¢ 51.9¢Loss from discontinued operations (4.1¢) (4.4¢) (2.3¢)(Loss)/gain on disposal of discontinued operations (8.9¢) – 0.4¢

54.2¢ 55.4¢ 50.0¢

Earnings per share – diluted 22

Income from continuing operations 65.9¢ 58.4¢ 50.8¢Loss from discontinued operations (4.0¢) (4.2¢) (2.2¢)(Loss)/gain on disposal of discontinued operations (8.6¢) – 0.4¢

53.3¢ 54.2¢ 49.0¢

Weighted average number of sharesBasic 496,306,604 498,212,826 500,687,594Diluted 511,267,432 518,967,395 522,418,246

The results for the years to December 31, 2003 and 2002 have been restated to reflect the disposal of the vaccines business in 2004.The results for the year to December 31, 2002 reflect the disposal of the Over-The-Counter (OTC) business in 2002, that was accountedfor as a discontinued operation.



Shire Pharmaceuticals Group plc Consolidated statements of changes in shareholders’ equity (in thousands of US dollars, except share data)

57

Accumulatedother

Common Exchangeable compre-stock shares Additional hensive Total

Common number Exchangeable number Treasury paid-in income/ Retained shareholders’stock shares shares shares stock capital (losses) earnings equity$’000 ’000s $’000 ’000s $’000 $’000 $’000 $’000 $’000

As of December 31, 2001 39,861 481,817 277,386 5,979 – 1,014,796 (93,009) 23,955 1,262,989Net income – – – – – – – 250,569 250,569Foreign currency translation – – – – – – 50,314 – 50,314Issue of common stock forconversion of loan note 21 268 – – – 1,479 – – 1,500Exchange of exchangeable shares 22 315 (4,863) (105) – 4,841 – – –Options exercised 147 1,944 – – – 5,861 – – 6,008Stock option compensation – – – – – (166) – – (166)Tax benefit associated with exercise of stock options – – – – – 688 – – 688Unrealized holding gain onavailable-for-sale securities – – – – – – 1,264 – 1,264

As of December 31, 2002 40,051 484,344 272,523 5,874 – 1,027,499 (41,431) 274,524 1,573,166Net income – – – – – – – 276,051 276,051Foreign currency translation – – – – – – 114,116 – 114,116Redemption 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 – – 5,195Stock option compensationand warrants – – – – – (24) – – (24)Tax benefit associated withexercise of stock options – – – – – 692 – – 692Unrealized holding gain on available-for-sale securities – – – – – – 6,322 – 6,322

As of December 31, 2003 39,521 477,895 270,667 5,840 – 983,356 79,007 550,575 1,923,126Net income – – – – – – – 269,007 269,007Foreign currency translation – – – – – – 46,801 – 46,801Exchange of exchangeable shares 344 4,839 (74,837) (1,614) – 74,493 – – –Options exercised 191 2,098 – – – 13,225 – – 13,416Stock option compensation and warrants – – – – – 216 – – 216Tax benefit associated withexercise of stock options – – – – – 354 – – 354New shares issued 8 84 – – – 763 – – 771Treasury stock (51,286 shares) – – – – (264) – – – (264)Unrealized holding gain onavailable-for-sale securities – – – – – – 27,011 – 27,011Realized gain on available-for-salesecurities – – – – – – (20,880) – (20,880)Dividends – – – – – – – (8,905) (8,905)

As of December 31, 2004 40,064 484,916 195,830 4,226 (264) 1,072,407 131,939 810,677 2,250,653



Shire Pharmaceuticals Group plc Consolidated statements of comprehensive income (in thousands of US dollars)

58

2004 2003 2002Year to December 31, $’000 $’000 $’000

Net income 269,007 276,051 250,569Other comprehensive income:Foreign currency translation 46,801 114,116 50,314Unrealized holding gains on available-for-sale securities 27,011 6,322 1,264Realized gain on available-for-sale securities (20,880) – –

Comprehensive income 321,939 396,489 302,147

The components of accumulated other comprehensive income as of December 31, 2004 and 2003 are as follows:

December 31, December 31,2004 2003$’000 $’000

Foreign currency translation 118,222 71,421Unrealized holding gains on available-for-sale securities 13,717 7,586

Accumulated other comprehensive income 131,939 79,007

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



Shire Pharmaceuticals Group plc Consolidated statements of cash flows (in thousands of US dollars)

59


Year to December 31, $’000 $’000 $’000

Cash flows from operating activitiesNet income from continuing operations 333,299 297,937 260,145

Adjustments to reconcile net income to net cash provided by operating activitiesDepreciation and amortization 61,253 38,192 33,093Increase/(decrease) in provision for sales reductions 50,746 20,357 (3,436)Stock option compensation 216 (24) (166)Movement in deferred taxes (14,979) (22,193) (9,904)Equity in (earnings)/losses of equity-method investees (2,508) 1,057 (1,668)Investments (552) 15,616 7,686Movements in long-term assets 14,601 44,035 20,153Other – 1,468 –Changes in operating assets and liabilities, net of acquisitions:(Increase)/decrease in accounts receivable (28,066) (45,408) 70,588Decrease/(increase) in inventory 2,185 6,261 (3,924)Decrease/(increase) in prepayments and other current assets 2,509 (11,765) 11,666Increase in property plant and equipment held for sale – 12,470 –Decrease in other assets 13,520 291 3,618Increase/(decrease) in accounts and notes payable and other liabilities 76,793 (890) (14,635)Increase/(decrease) in deferred revenue 6,151 19,372 (11,394)Dividends received from investments 5,493 2,289 –

Net cash provided by operating activities 520,661 379,065 361,822

Cash flows from investing activitiesNet (increase)/decrease in short-term investments (20,282) 11,997 407,653Movements in restricted cash 24,847 5,531 (52,005)Loans made to IDB (56,838) – –Purchase of subsidiary undertakings – – (17,300)Purchase of long-term investments (6,124) (5,643) (5,933)Purchase of property, plant and equipment (57,603) (44,681) (18,881)Purchase of intangible assets (30,209) (47,049) (24,032)Proceeds from sale of a business 34,912 – 71,000Proceeds from sale of long-term investments 26,733 1,000 4,108Proceeds from sale of property, plant and equipment 3,527 1,262 721Proceeds from sale of intangible assets 3,701 – –Proceeds from sale of assets held for sale 11,289 – –

Net cash (used in)/provided by investing activities (66,047) (77,583) 365,331

Cash flows from financing activitiesRedemption of 2% convertible loan notes (370,109) (29,775) –Repayment of long-term debt, capital leases and notes (6,079) (231) 172Proceeds from issue of common stock, net 771 – –Proceeds from exercise of options 13,416 5,195 6,008Tax benefit of stock option compensation, charged directly to equity 354 692 688Payments for redemption of common stock (264) (52,392) –Payment of dividend (8,905) – –

Net cash (used in)/provided by financing activities (370,816) (76,511) 6,868

Effect of foreign exchange rate changes on cash and cash equivalentsfrom continuing operations 7,567 25,133 6,957

Net increase in cash and cash equivalents 91,365 250,104 740,978Cash flows used in discontinued operations (43,250) (31,883) (13,689)

Net increase in cash and cash equivalents 48,115 218,221 727,289Cash and cash equivalents at beginning of period 1,063,362 845,141 117,852

Cash and cash equivalents at end of period 1,111,477 1,063,362 845,141


Shire Pharmaceuticals Group plc Consolidated statements of cash flows (in thousands of US dollars)

60

Supplemental information associated with continuing operations:Restated Restated

2004 2003 2002Year to December 31, $’000 $’000 $’000

Interest paid 4,849 7,716 8,101Income taxes paid 123,510 118,527 101,779

Non-cash activitiesProceeds from sale of a business:4,931,864 shares of IDB 60,000 – –Escrow funds 30,000 – –Common stock issued on conversion of zero-coupon note – – 1,500Capital leases assumed on acquisition of subsidiaries – – 6,266

The results for the years to December 31, 2003 and 2002 have been restated to reflect the disposal of the vaccines business in 2004.The results for the year to December 31, 2002 reflect the disposal of the Over-The-Counter (OTC) business in 2002, that was accountedfor as a discontinued operation.



Shire Pharmaceuticals Group plc Notes to the consolidated financial statements (in thousands of US dollars, except where indicated)

61

1 Description of operations

GeneralShire Pharmaceuticals Group plc and its subsidiaries (collectively referred to as ‘Shire’ or the ‘Company’) is a global pharmaceuticalcompany 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 focused on the development of late-stage projects and marketing products in the areas of Central Nervous System (CNS), Gastro-Intestinal (GI)and General Products (GP).

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

Strategic review and reorganizationIn 2003, the Company conducted a detailed strategic review resulting in revised strategic priorities, namely that the Company will:

– search, develop and market but not invent;

– seek to acquire products with substantive patent protection rather than just three years Hatch-Waxman exclusivity;

– focus its in-licensing and merger and acquisition efforts on the US market and obtain European rights whenever possible.

As part of this process, Shire refocused its R&D efforts and technology to concentrate on areas where it had a commercial presence and to create the flexibility to add new therapeutic areas based on product acquisition opportunities. This approach aimed to deliver the combined benefit of increased returns and lower risks.

In connection with the refocused R&D efforts, the Company decided to exit from early-stage therapeutic research (Lead Optimization) in 2003, to dispose of certain facilities in Canada (see Note 3) and announced the planned disposal of the vaccines business.

During 2004, the Company announced that it would continue to focus on its new business strategy, including taking the following actions:

– a North American site consolidation, decreasing the number of operational sites from 14 to 6 in 2004 and the opening of a newUS headquarters in Wayne, Pennsylvania;

– the disposal of the Company’s vaccines business to ID Biomedical Corporation (IDB), a Canadian biotechnology company, which was completed in the third quarter of 2004 (see Note 3); and

– the out-licensing of non-core projects including the acute myelogenous leukemia treatment TROXATYL (troxacitabine) to StructuralGenomiX Inc. during the third quarter of 2004 and SPD754 for the treatment of HIV to Avexa Limited in January 2005.

These changes have had implications for both Shire’s organizational structure and operating sites. The Company has a new globalmanagement structure aimed at close interaction between development, marketing and sales, and new people in key positionsreporting directly to the Chief Executive Officer.

The Company expects to complete the North American site consolidation in 2005. To date the Company has recorded $48.5 million ofcosts associated with this site consolidation. Substantial progress has been made and the Company anticipates completing the remainingactions in 2005. Remaining costs associated with the reorganization are estimated to be approximately $12 million (see Note 3).

There are inherent risks associated with any significant organizational change, including the possibility of disruption to the Company’sbusiness or the loss of key personnel. Although a project team has been set up to actively manage the process and the associated risks,delays to R&D projects, failure to attain sales targets or other disruption to the business could occur as a result of the reorganization.



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1 Description of operations (continued)

MarketsThe Company’s principal sources of revenue from its primary markets include:

– in the US, ADDERALL XR for the treatment of ADHD, AGRYLIN for the treatment of elevated blood platelets, PENTASA for thetreatment of ulcerative colitis and CARBATROL for the treatment of epilepsy. In addition, the Company receives royalties on sales of REMINYL for the treatment of Alzheimer’s disease, marketed by Janssen Pharmaceutica NV (Janssen), and on EPIVIR,COMBIVIR and TRIZIVIR for the treatment of HIV/AIDS, marketed by GSK;

– in the UK and the Republic of Ireland, the CALCICHEW range, used primarily as adjuncts in the treatment of osteoporosis, andREMINYL, which was co-promoted with Janssen-Cilag until May 3, 2004. On May 3, 2004, the Company acquired from Janssen-Cilagthe exclusive commercialization rights to REMINYL in the UK and Ireland;

– in Canada, 3TC and COMBIVIR for the treatment of HIV/AIDS, HEPTOVIR for the treatment of hepatitis (all marketed in partnershipwith GSK) and AGRYLIN for the treatment of elevated blood platelets; 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 Janssen.

In addition to the above, the Company has a number of products that have been recently approved and projects that are currently in registration or late-stage development. These include:

Recently approved– PENTASA for the treatment of ulcerative colitis. On July 8, 2004 Shire received FDA approval to market the 500mg dosage strength

of PENTASA in the US;

– ADDERALL XR for the treatment of adults with ADHD. On August 12, 2004, the FDA approved a once-daily treatment for adults with ADHD;

– FOSRENOL for the treatment of high blood phosphate levels associated with end-stage renal disease. On October 26, 2004 Shirereceived FDA approval to market FOSRENOL in 250mg and 500mg dosage strength in the US. Approval was also gained in Swedenon March 19, 2004, and further regulatory approvals have been sought in a number of other EU Member States pursuant to the Mutual Recognition Process. Following pricing and reimbursement discussions with individual countries, the launch of FOSRENOL in Europe will be phased during 2005;

– ADDERALL XR for the treatment of ADHD. On October 28, 2004 the FDA granted an additional six months of market exclusivity in the US under the Hatch-Waxman regulations. The additional exclusivity period will expire on April 11, 2005. The extension followedsubmission of data from a clinical program examining the effects of ADDERALL XR in adolescent pediatric patients. This data wassubmitted in response to a Written Request by the FDA;

– XAGRID (trade name for AGRYLIN in EU) for the treatment of elevated blood platelets. EU approval was received in November 2004;launch commenced in January 2005 and will be phased through certain countries in Europe in 2005; and

– EQUETRO (previously called SPD417 and BIPOTROL) for bipolar disorder. FDA approval was granted in December 2004.

Registration – MTS/METHYPATCH, a transdermal delivery system for the once-daily treatment of ADHD. In April 2003 Shire received a ‘not

approvable’ letter from the FDA. A program has been agreed with the FDA to address issues raised in this letter and this work iscurrently ongoing; and

– ADDERALL XR adolescent. In September 2004 a supplemental new drug application for the use of ADDERALL XR in the adolescentpopulation was submitted to the FDA. It is anticipated that a response to this submission will be received during the second half of 2005.

Late-stage development– SPD503 (guanfacine) for ADHD, which is in Phase III clinical trials;

– SPD476 for ulcerative colitis, which is in Phase III clinical trials;

– SPD465 for ADHD, which is in Phase II clinical trials;

– SPD480, which is a 5-ASA based product formulated in a single dose, 2g and 4g, foam for rectal delivery in the treatment of ulcerativecolitis. Rights to key global markets were licensed from Giuliani SpA in October 2002. This product will provide an alternative treatmentfor distal/rectal ulcerative colitis and has reached Phase II development; and

– NRP104 for ADHD which is in Phase III clinical trials.



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2 Summary of significant accounting policies

(a) Basis of preparationThe accompanying consolidated financial statements include the accounts of Shire and all of its subsidiary undertakings afterelimination of intercompany accounts and transactions.

(b) Use of estimates in consolidated financial statementsThe preparation of consolidated financial statements, in conformity with US generally accepted accounting principles, requiresmanagement 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 expensesduring the reporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relationto provisions for sales deductions, valuation of intangible assets and fixed asset investments, contingent liabilities and the valuation of tax assets and liabilities.

(c) Revenue recognitionThe 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 salesRevenue for the sales of products is recognized upon shipment to customers or at the time of delivery 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 customersbased on historical experience to estimate the amount of reduction to revenue.

(ii) Licensing and development feesLicensing and development fees represent revenues derived from product out-licensing agreements and from contract R&Dagreements.

Initial license fees received in connection with product out-licensing agreements, even where such fees are non-refundable and notcreditable against future royalty payments, are deferred and recognized over the period of the license term, or the period of theassociated 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.

Revenue from contract R&D agreements is recognized as the services are performed.

(iii) Royalty incomeRoyalty income relating to licensed technology is recognized when the licensee sells the underlying product. The Company receivessales information from the licensee on a monthly basis. For any period that the information is not available, the Company estimatessales 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 refundobligations.

(iv) MilestonesDuring the term of certain R&D agreements and licensing agreements, the Company receives non-refundable milestones as certaintechnical targets are achieved. Revenues are recognized on achievement of such milestones.

The Company also receives non-refundable clinical milestones when certain targets are achieved during the clinical phases ofdevelopment, such as the submission of clinical data to a regulatory authority. These clinical milestones are recognized when receivable(i.e. on completion of the relevant phase). If milestone payments are creditable against future royalty payments, the milestones aredeferred and released over the period in which the royalties are anticipated to be paid.



64

2 Summary of significant accounting policies (continued)

(d) Cost of product salesCost of sales includes both the cost of purchasing finished product for sale, together with the cost of raw materials and manufacturingfor those products that are manufactured by Shire. Royalties that are payable on those products that Shire does not own the rights toare also included in cost of sales.

(e) R&DR&D expenditures include funded and unfunded expenditures and are charged to operations in the period in which the expenseis incurred.

(f) Leased assetsThe costs of operating leases are charged to operations on a straight-line basis over the lease term, even if rental payments are notmade on such a basis.

Assets acquired under capital leases are included in the balance sheet as property, plant and equipment are depreciated over the shorterof the period of the lease or their useful lives. The capital elements of future lease payments are recorded as liabilities, while the interestelement is charged to operations over the period of the lease to produce a level yield on the balance of the capital lease obligation.

(g) Finance costs of debtFinance 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 interestexpense in the consolidated statements of operations.

(h) Income taxesThe Company provides for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.109, ‘Accountingfor Income Taxes’. Deferred tax assets and liabilities are provided for differences between the carrying amounts of assets and liabilitiesin 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 thedifferences 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 someportion or all of the deferred tax assets will not be realized.

(i) Earnings per shareEarnings per share is computed in accordance with SFAS No.128, ‘Earnings per Share’. Basic earnings per share is based upon netincome available to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the period.Diluted earnings per share is based upon adjusted net income available to ordinary shareholders divided by the weighted averagenumber of ordinary share equivalents outstanding during the period, adjusted for the effect of all dilutive potential ordinary shares thatwere outstanding during the year. Such potentially dilutive shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.

(j) Advertising expenseThe Company expenses the cost of advertising as incurred. Advertising costs amounted to $47.6 million, $40.7 million, and $45.6 millionfor the years to December 31, 2004, 2003 and 2002 respectively.

(k) Foreign currencyMonetary 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 exchangeruling 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 duringthe 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 to December 31, 2004, 2003 and 2002, amounted to a $2.5 million loss, $6.7 million loss and $0.3 million loss, respectively.



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(l) Employee stock plansThe 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) and its related interpretations. Accordingly, compensation cost ofstock options is measured as the excess, if any, of the quoted market price of Shire’s ordinary shares at the measurement date over theoption exercise price and is charged to operations over the vesting period. For plans where the measurement date occurs after the grantdate, referred to as variable plans, compensation cost is re-measured on the basis of the current market value of Shire’s ordinary sharesat the end of each reporting period. The Company 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 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, 2004, the Company had six stock-based employee compensation plans, which are described more fully in Note 28.

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

2004 2003 2002Year to December 31, $’000 $’000 $’000

Net income, as reported 269,007 276,051 250,569

AddStock-based employee compensation charge/(credit) included in reported net income, net of related tax effects 216 (24) (166)

DeductTotal stock-based employee compensation expense determined under fair value-based method for all awards (32,966) (31,956) (24,084)

Pro-forma net income 236,257 244,071 226,319

2004 2003 2002Year to December 31, ¢ ¢ ¢

Earnings per shareAs reported – basic 54.2 55.4 50.0As reported – diluted 53.3 54.2 49.0Pro-forma – basic 47.6 49.0 45.2Pro-forma – diluted 46.9 48.0 44.4

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

Year to December 31, 2004 2003 2002

Risk-free interest rate 2.46-4.19% 1.89-3.40% 1.90-5.33%Expected dividend yield 0%; 0.6% 0% 0%Expected life 5 years 5 years 5 yearsExpected volatility 48.8% 60.0% 55.2%

(m) Cash and cash equivalentsCash and cash equivalents are defined as short-term highly liquid investments with original maturities of 90 days or less.

(n) Short-term investmentsShort-term investments 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’ (SFAS No.115), and based on the Company’s intentions regardingthese instruments, the Company has classified all short-term investments as of December 31, 2004, as available-for-sale.

Institutional and managed cash funds are short-term money market instruments, including bank and building society term deposits andother debt securities from a variety of companies with strong credit ratings.

(o) InventoriesInventories 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, includingtransport. Net realizable value is based on estimated normal selling price less further costs expected to be incurred to completion and disposal.



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(p) InvestmentsThe Company has certain investments in pharmaceutical and biotechnology companies.

Investments are accounted for using the equity-method of accounting if the investment gives the Company the ability to exercisesignificant influence, but not control over, the investee. Significant influence is generally deemed to exist if the Company has anownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on theinvestee’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 investeesin the consolidated balance sheet as Investments – equity-method investments and its share of the investees’ earnings or lossestogether with other-than-temporary impairments in value as Equity in (losses)/earnings of equity-method investees in the consolidatedstatement of operations.

All other equity investments, which consist of investments for which the Company does not have the ability to exercise significantinfluence, are accounted for under the cost method or at fair value. Investments in private companies are carried at cost, less provisionsfor other-than-temporary impairment in value. For public companies that have readily determinable fair values, the Company classifiesits equity investments as available-for-sale and, accordingly, records these investments at their fair values with unrealized gains andlosses included in the consolidated statements of comprehensive income, net of any related tax effect. Realized gains and losses anddeclines in value judged to be other-than-temporary on available-for-sale securities are included in other expense, net (see Note 24). 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.

(q) Goodwill and other intangible assets(i) GoodwillIn a business combination, goodwill represents the excess of the fair value of the consideration given over the fair value of theidentifiable assets and liabilities acquired.

Goodwill and other intangibles with indefinite lives are not amortized to operations, but instead are reviewed for impairment, at least annually, or when there is an indicator of impairment. The Company has no intangible assets with indefinite useful lives, other than goodwill.

The Company has determined that there are no impairment losses for any of the reporting periods covered by these financialstatements.

(ii) Other intangible assetsOther 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 theestimated useful life of the related product, which ranges from 5 to 35 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 tooperations on acquisition.

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 bygovernment agencies;

– the effects of obsolescence, changes in demand, competing products and other economic factors, including the stability of themarket, 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.



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(r) Property, plant and equipmentProperty, plant and equipment is shown at cost, less accumulated depreciation and any impairment. The cost of significant assetsincludes capitalized interest incurred during the construction period. Depreciation is provided on a straight-line basis at rates calculatedto write off the cost less estimated residual value of each asset over its estimated useful life as follows:

Buildings 20-50 yearsOffice furniture, fittings and equipment 4-10 yearsWarehouse, laboratory and manufacturing equipment 4-10 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 arecapitalized. At the time property, plant and equipment is retired or otherwise disposed of, the cost and accumulated depreciation areeliminated from the asset and accumulated depreciation accounts. The profit or loss on such disposition is reflected in operating income.

(s) Valuation and impairment of long-lived assets other than goodwill and investmentsThe 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 determinationis made, management’s estimate of undiscounted cash flows to be generated by the assets is compared to the carrying value of theassets 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 thatthe carrying value exceeds the estimated fair value. This fair value is usually determined based on estimated discounted cash flows.

(t) Assets held for saleAn 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.

(u) Sales deductions(i) RebatesRebates primarily consist of statutory rebates to state Medicaid agencies and contractual rebates with health-maintenance organizations(HMOs). These rebates are based on price differentials between a base price and the selling price. As a result, rebates generally increaseas a percentage of the selling price over the life of the product (as prices increase). Provisions for rebates are recorded as reductions torevenue in the same period as the related sales, with estimates of future utilization derived from historical trends.

(ii) ReturnsThe Company estimates the proportion of recorded revenue that will result in a return, based on historical trends and, when applicable,specific factors affecting certain products at the balance sheet date. The accrual is recorded as a reduction to revenue in the sameperiod as the related sales are recorded.

(iii) CouponsThe Company uses coupons as a form of sales incentive. An accrual is established based on the Company’s expectation of the level of coupon redemption, using historical trends. The accrual is recorded as a reduction to revenue in the same period as the related salesare recorded.

(iv) DiscountsThe Company offers cash discounts to customers for the early payment of receivables. Those discounts are recorded as reductions to revenue and accounts receivable in the same period that the related sale is recorded.

(v) Wholesaler chargebacksThe Company has contractual agreements with third parties to supply certain products at predetermined prices. Wholesalers acting as intermediaries in these transactions are reimbursed by Shire, if this price is less than the price paid by the wholesaler to Shire.Provisions for wholesaler chargebacks based on historical trends are recorded as reductions to revenue in the same period as therelated sales are recorded.



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(v) Shareholders’ equity(i) Common stockThe authorized common stock of Shire as of December 31, 2004 was 799,999,965 ordinary shares and 17,500,000 special ordinaryvoting shares. The special ordinary voting shares are entitled to dividend and other rights that are economically equivalent to those of the ordinary shares.

(ii) DividendsUnder English law, Shire can pay dividends only out of its distributable profits, defined as the accumulated realized profits under UKgenerally accepted accounting principles, of the parent company Shire Pharmaceuticals Group plc (and not the consolidated group), so far as not previously utilized by distribution or capitalization, less accumulated realized and unrealized losses, so far as not previouslywritten off in a reduction or reorganization of capital duly made. The Company can make a distribution only if the distribution does not reduce net assets below the aggregate of the called-up share capital and undistributable reserves. Any payment of dividends is atthe discretion of the Board of Directors and will be made in Pounds sterling to Ordinary Shareholders, US dollars to ADS holders andCanadian dollars to Exchangeable Shareholders. At December 31, 2004, Shire’s distributable profits were £86.4 million ($165.9 million).

(iii) Treasury stockThe Company records the purchase of its own shares as a reduction of shareholders’ equity based on the price paid for the shares.

(w) Concentration of riskRevenues are mainly derived in the US (69% of total revenues) from agreements with major pharmaceutical companies andrelationships with pharmaceutical wholesale distributors and retail pharmacy chains. Significant customers are disclosed in Note 23.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 strongcredit ratings. These investments typically bear minimal credit risk.

A significant proportion of revenue is derived from sales of ADDERALL XR and royalties received on 3TC. During 2004, revenues fromthese products were $606.7 million and $155.8 million, representing 45% and 11% of total revenues respectively. As a result, factorsaffecting 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.

(x) Non-monetary transactionsThe Company enters into certain non-monetary transactions that involve either the granting of a license over the Company’s patents or the disposal of an asset or group of assets in exchange for a non-monetary asset, usually equity. The Company accounts for thesetransactions at fair value where the Company is able to determine the fair value within reasonable limits. To the extent that the Companyconcludes that it is unable to determine the fair value of a transaction, that transaction is accounted for at the recorded amounts of theassets. Management is required to exercise its judgment in determining whether or not the fair value of the asset received or that givenup can be determined. In doing so, management considers, amongst other things, previous license agreements over similar intellectualproperty rights where there is monetary consideration. The Company has a limited number of comparable historical license agreements.Management has determined that for all non-monetary transactions recorded to date the fair value of the consideration is notdeterminable; consequently, such transactions have been recognized at recorded value. In the future, as Shire engages in furthertransactions, there may be a fair value assigned to similar transactions resulting in a different accounting treatment.

(y) ReclassificationsCertain amounts reported in previous years have been reclassified to conform to the 2004 presentation. In addition the 2002 and 2003financial statements have been restated to reflect the disposal of the vaccines business, which has been treated as a discontinuedoperation.

(z) New accounting pronouncements(i) Adopted in the current yearFIN 46RIn December 2003, the Financial Accounting Standards Board (FASB) issued a revision to FASB Interpretation No. 46 ‘Consolidation of Variable Interest Entities (VIE), an interpretation of Accounting Research Bulletin (ARB) No. 51’ (FIN 46R), which requires a VIE to beconsolidated by a Company that will absorb a majority of the VIE’s expected losses, receive a majority of the entity’s expected residualreturns, or both, as a result of ownership, contractual or other financial interest in the VIE.

Prior to the adoption of FIN 46R, VIEs were generally consolidated by companies owning a majority voting interest in the VIE. Theconsolidation requirements of FIN 46R applied immediately to VIEs created after January 31, 2003, however, the FASB deferred theeffective date for VIEs created before February 1, 2003 to the quarter ended March 31, 2004 for calendar-year companies. Adoption of the provisions of FIN 46R prior to the deferred effective date was permitted. The adoption of FIN 46R did not have a material impact on the Company.



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(z) New accounting pronouncements (continued)(ii) To be adopted in future periodsEITF 03-01In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on Issue 03-01, ‘The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments’ (EITF 03-01 or the Issue). EITF 03-01 is applicable to (a) debt and equity securitieswithin the scope of FAS No.115, (b) debt and equity securities within the scope of SFAS No.124 and that are held by an investor that reports a performance indicator, and (c) equity securities not within the scope of SFAS No.115 and not accounted for under theAccounting Principles Board Opinion 18’s equity-method (e.g. investments in private companies). EITF 03-01 provides a step model todetermine whether an investment is impaired and if an impairment is other-than-temporary. In addition, it requires that investors providecertain disclosures for investments in private companies and, if applicable, other information related specifically to investments in privatecompanies, such as the aggregate carrying amount of investments in private companies, the aggregate amount of investments in privatecompanies that the investor did not evaluate for impairment because an impairment indicator was not present, and the situations underwhich the fair value of an investment in a private company is not estimated. The disclosures relating to investments in private companiesshould not be aggregated with other types of investments. The effective date for the prospective application of EITF 03-01 impairmentmodel to all current and future investments has been delayed by FASB Staff Position EITF 03-01. The disclosure requirements are effective for annual periods for fiscal years ending after June 15, 2004, therefore December 31, 2004 in the case of the Company.

SFAS 123R In December 2004, the FASB issued SFAS No.123 (revised 2004), Share-Based Payment (SFAS No.123R). SFAS No.123R replacesSFAS No.123 and supersedes APB 25. SFAS No.123R requires that the cost resulting from all share-based payment transactions berecognized in the financial statements at fair value and that excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid. SFAS No.123R is effective for the Company from July 1, 2005. SFAS No.123R permits public companies toaccount for share-based payments using one of two methods: modified-prospective method or modified-retrospective method. Underthe modified-prospective method, from the effective date, compensation cost is recognized based on the requirements of SFAS No.123R for all new share-based awards and based on the requirements of SFAS No.123 for all awards granted prior to the effective dateof SFAS No.123R that remain unvested on the effective date. The requirements of the modified-retrospective method are as above, with the exception that companies are permitted to restate, based on the amounts previously recognized under SFAS No.123 for pro-forma disclosure purposes, either all prior periods presented or prior interim periods in the year of adoption. The SFAS No.123 pro-forma disclosures given in Note 2 above show the impact of the Company adopting SFAS No.123R in prior periods. The Company has yet to determine which method of transition will be adopted or the adoption date.

(aa) Statutory accountsThe consolidated financial statements as of December 31, 2004 and 2003 and for each of the three years in the period to December 31,2004 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 toDecember 31, 2003 and 2002 have been delivered to the Registrar of Companies for England and Wales. The auditors’ report on thoseaccounts was unqualified.

3 Reorganizations

Actions commenced in 2004(i) North American site consolidationAs previously disclosed, Shire began a consolidation of its North American sites in 2004, decreasing the number of sites from 14 to 6 and opening a new US headquarters office in Wayne, Pennsylvania. The Company recorded costs of $48.5 million in 2004 andestimates further costs of approximately $12 million in 2005. The site consolidation is expected to be complete by the end of 2005.

The primary costs associated with the site consolidation include:

– severance costs relating to 138 employees;

– retention payments to key employees;

– relocation costs relating to 85 employees who were moved to Wayne, Pennsylvania;

– costs of duplicate facilities (including lease exit costs); and

– other incremental costs associated with the site closures, such as legal, consultancy, the write-down of property, plant and equipmentand information technology costs.



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3 Reorganizations (continued)

Actions commenced in 2004 (continued)(i) North American site consolidation (continued)As of December 31, 2004, 107 employees had left the Company. The cost of the employee severance is being ratably recognized overthe period from the communication date to the termination date. In addition, all 85 employees had relocated. The cost of relocation isbeing recorded as it is incurred.

The following table presents the cost of the reorganization recorded to date and the total estimated costs of the reorganization. After the plan is finalized and actions are completed, the Company will continue to update its reorganization accruals based on changesin estimates.

Total costs Totalincurred to estimated

December 31, costs of2004 reorganization

$m $m

Employee severance 20.0 22Relocation costs 13.8 14Write-off of property, plant and equipment 1.2 1Consultancy costs 2.9 3Duplicate facilities 5.1 15.5Information technology costs 2.1 2Other costs 3.4 3

48.5 60.5

The charges have been reflected within reorganization costs in the statement of operations and within the reporting segments as follows:

US International Corporate R&D Total$m $m $m $m $m

Employee severance 7.2 5.1 2.0 5.7 20.0Relocation costs 9.8 – – 4.0 13.8Write-off of property, plant and equipment – – – 1.2 1.2Consultancy costs 1.7 – 1.2 – 2.9Duplicate facilities 2.6 – – 2.5 5.1Information technology costs 0.3 – 1.8 – 2.1Other costs 2.4 – 1.0 – 3.4

24.0 5.1 6.0 13.4 48.5

As noted above, certain of the costs associated with the reorganization will be paid in subsequent periods. The following provides a reconciliation of the liability to date:

Costs recorded Utilizationin year to in year to

Opening December 31, December 31, Closingliability 2004 2004 liability

$m $m $m $m

Employee severance – 20.0 (18.3) 1.7Relocation costs – 13.8 (13.8) –Write-off of property, plant and equipment – 1.2 (1.2) –Consultancy costs – 2.9 (2.9) –Duplicate facilities – 5.1 (2.6) 2.5Information technology costs – 2.1 (2.1) –Other costs – 3.4 (3.4) –

– 48.5 (44.3) 4.2

The employee severance costs will be paid in 2005. The duplicate facilities will be paid over the remaining life of the lease which is dueto terminate in 2009.



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Actions commenced in 2004 (continued)(ii) Disposal of the vaccines businessOn September 9, 2004, the Company completed its disposal of the vaccines business to IDB.

The total consideration for the sale was $120 million comprising $30 million of cash received at completion, $30 million of cash held in escrow and due on the first anniversary of closing and $60 million received at completion in the form of 4,931,864 subscriptionreceipts of IDB. Each subscription receipt entitled Shire to acquire, at any time during the period from January 10, 2005 to July 9, 2006,for no additional consideration, one fully paid common share of IDB. Prior to January 10, 2005, if IDB were to raise up to $60 million from equity-related issuances then they were required to repurchase the subscription receipts from Shire for $60 million in cash. OnDecember 21, 2004, IDB gave notification that it intended to complete a convertible debt issuance on January 7, 2005 and subsequentlyrepurchased the subscription receipts from Shire on January 7, 2005. In addition to the $120 million consideration, IDB was required to reimburse Shire in full for the net cost of operating the vaccines business from June 30, 2004 through consummation of the sale.

As part of the transaction, Shire entered into an agreement to provide IDB with a loan facility of up to $100 million, which can be drawndown over the four years following completion. It is expected that IDB will draw down the entire $100 million loan. This facility can beused by IDB to fund the development of injectable flu and pipeline products within the vaccines business acquired from Shire. Drawingsunder the loan facility will be segregated into two components:

(i) drawings for injectable flu development of up to $30 million. Such drawings under the loan facility will be repayable out of incomegenerated by IDB on future non-Canadian injectable flu products, subject to minimum annual repayments in respect of the $30 milliondrawing, to be made between 2007 and 2017; and

(ii) drawings for pipeline development from the balance of the $100 million loan facility of up to $70 million. Such drawings will berepayable out of income generated by IDB on future pipeline products and will have no fixed repayment schedule.

The combined drawings of the two components of the loan facility cannot exceed $100 million. As of December 31, 2004, IDB haddrawn down $56.8 million: $30.0 million for injectable flu development and $26.8 million for pipeline development.

The transaction gave rise to an overall loss on disposition of the vaccines business of $44 million, which comprises a gain on disposal of net assets of $26 million together with a provision for a loss of $70 million out of the $100 million loan facility available to IDB. Thisprovision is made on the basis that loan repayments based solely on the future sales of pipeline products in development provide nocertainty of recovery.

The historical consolidated financial statements have been restated to reflect the vaccines business as a discontinued operation for allperiods presented. The results of the discontinued operation have been removed from all periods on a line-by-line basis from productsales revenue to income from continuing operations. The net loss from the discontinued operation, together with the loss on disposal,are shown as separate line items.

Operating results of the discontinued operations are summarized below.2004 2003 2002

Year to December 31, $’000 $’000 $’000

RevenuesProduct sales 3,626 25,531 14,048

Total revenues 3,626 25,531 14,048

Costs and expensesCost of product sales 8,304 19,954 13,247Research and development 9,222 20,879 15,799Selling, general and administrative 5,614 9,671 6,923

Total operating expenses 23,140 50,504 35,969

Operating loss (19,514) (24,973) (21,921)Other (expense)/income, net (621) 3,087 4,154

Loss from discontinued operations (20,135) (21,886) (17,767)1Loss on disposition (44,157) – –

(64,292) (21,886) (17,767)

1 The loss from discontinued operations for the year to December 31, 2002 of $11.7 million comprises a loss from the vaccines businessof $17.8 million and a gain from the Over-the-Counter (OTC) business of $6.1 million.



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Actions commenced in 2004 (continued)(ii) Disposal of the vaccines business (continued)The operating results of the vaccines business represented the entire Biologics segment as well as certain parts of the International and R&D segments.

As a result of the disposal of the vaccines business, the Biologics segment is no longer an operating segment of the Company and the International and R&D segments have been restated accordingly.

The assets and liabilities of the discontinued vaccines operation are summarized below.December 31,

2003$’000

Current assetsCash and cash equivalents 245Accounts receivable, net 21,107Inventories, net 2,130Prepaid expenses and other current assets 614

Total current assets 24,096

Long-term assetsInvestments 178Property, plant and equipment, net 66,730Goodwill, net 4,629Other non-current assets 533

Total long-term assets 72,070

Total assets 96,166

Current liabilitiesCurrent installments of long-term debt 764Accounts payable and accrued expenses 9,715

Total current liabilities 10,479

Long-term debt, excluding current installments 764Other long-term liabilities 15

Total long-term liabilities 779

Total assets less total liabilities 84,908

At December 31, 2004 the assets and liabilities of the discontinued vaccines operation were $nil.

Actions commenced in 2003(i) Closure of Lead Optimization The closure of Lead Optimization resulted in:

– the severance of 134 employees. As of December 2004, all employees had left the Company;

– a $6.0 million write-off of tangible fixed assets. These assets, primarily laboratory equipment, were used by Lead Optimization for R&D and had no alternative use; and

– the cancellation, to the extent possible, of contracts directly relating to Lead Optimization.



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Actions commenced in 2003 (continued)(i) Closure of Lead Optimization (continued)The costs associated with these actions have been reflected in reorganization costs in the statement of operations in the year toDecember 31, 2003 and within the reporting segments as follows:

Allocation between segments

R&D International$’000 $’000

Employee severance 6,425 –Write-off of tangible fixed assets – 6,026Other costs 800 –

7,225 6,026

The following provides a roll-forward of the liability to December 31, 2004:Costs recorded Utilization

in year to in year toOpening December 31, December 31, Closing

liability 2004 2004 liability$’000 $’000 $’000 $’000

Employee severance 3,452 118 (3,570) –Other costs 325 9 (98) 236

3,777 127 (3,668) 236

The following provides a roll-forward of the liability as of December 31, 2003:Costs recorded Utilization

in year to in year toOpening December 31, December 31, Closing

liability 2003 2003 liability$’000 $’000 $’000 $’000

Employee severance – 6,425 (2,973) 3,452Write-down of tangible fixed assets – 6,026 (6,026) –Other costs – 800 (475) 325

– 13,251 (9,474) 3,777

(ii) Disposition of Canadian facilitiesSubsequent to the closure of Lead Optimization and the decision to dispose of the vaccines business, the Company began anassessment of its 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 to relocate the employees. The Company also decided to sell its building in Buffalo Grove. As ofDecember 31, 2003, the Company had obtained valuations of the properties and entered into sale negotiations with third parties on the Laval property and was 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 recorded an impairment charge of $10.7 million in the year ended December 31, 2003, which is included in reorganization costs in the consolidated statement of operations. The Company reclassified to prepaid expenses and other current assets the assets held for sale.



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4 Business combination: Shire US Manufacturing Inc. (SUMI) acquisition

On September 27, 2002, the Company completed its acquisition of SUMI from Niro Inc. for a 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 manufactureseveral 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 3,188Property, plant and equipment, net 11,620Current instalments of long-term debt (216)Accounts payable (1,367)Long-term debt, excluding current instalments (6,050)

Net assets acquired 7,175Goodwill 10,175

17,350

Represented byPurchase consideration 17,000Acquisition fees 350

17,350

The following unaudited consolidated pro-forma results of operations for the year to December 31, 2002 gave effect to the acquisition of SUMI as if it were completed at the beginning of the period. These pro-forma results reflect incremental financing costs resulting fromacquisition and the amortization of acquired intangible assets:

2002Year to December 31, $’000

Revenues 1,042,748Net income 248,983

Earnings per share – basic 49.7Earnings per share – diluted 48.7

This unaudited pro-forma financial information has been prepared for comparative purposes only and does not purport to representthe results of operations which would actually have occurred had the companies operated as one during the period, nor to predict theCompany’s results of future operations.

5 Disposal of the Over-The-Counter (OTC) business

In December 1999 the Company acquired a group of products, collectively referred to as the OTC portfolio, through its merger withRoberts 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 divestthe OTC portfolio. On December 27, 2002, the Company completed its divestment of the OTC business. The Company received saleproceeds of $71.0 million and recorded a gain on disposal of $2.1 million.

The historical consolidated financial statements were restated to reflect the OTC business as a discontinued operation for all periodspresented. Operating results of the discontinued operation for 2002 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 business. As the OTCbusiness functioned within the US, which itself essentially functions as an independent entity, no corporate costs were eliminated upondiscontinuance of the operation. Within the US, the OTC business had few dedicated resources. All of the products were manufacturedand packaged by third-party contract manufacturers. The products were distributed through a shared warehouse facility and soldthrough a small sales team.



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5 Disposal of the Over-The-Counter (OTC) business (continued)2002

Year to December 31, $’000

Product sales 24,010Cost of product sales (5,764)

Gross profit 18,246

Operating expensesSelling, general and administrative (8,550)

Operating income 9,696Income taxes (3,588)

Income from discontinued operations (net of tax) 6,1081

Gain on sale (net of tax) 2,083

8,191

1 The loss from discontinued operations for the year to December 31, 2002 of $11.7 million comprises a loss from the vaccines businessof $17.8 million and a gain from the OTC business of $6.1 million.

6 Accounts receivable, net

Trade receivables at December 31, 2004 of $222.5 million (December 31, 2003: $194.6 million), are stated net of a provision for doubtfulaccounts and sales discounts of $4.3 million (December 31, 2003: $7.9 million).

The movement in the provision for doubtful accounts and sales discounts is as follows:2004 2003 2002$’000 $’000 $’000

As of January 1 7,853 4,585 5,724Charged to operations 38,218 42,841 35,021Released to income (3,395) – –Utilization (38,412) (39,573) (36,160)

As of December 31 4,264 7,853 4,585

7 InventoriesDecember 31, December 31,

2004 2003$’000 $’000

Finished goods 22,349 26,226Work-in-process 11,831 10,104Raw materials 7,050 6,798

41,230 43,128

8 Prepaid expenses and other current assetsDecember 31, December 31,

2004 2003$’000 $’000

Prepaid expenses 31,401 26,158Assets held for sale (see Note 3) – 12,470Deferred financing costs (see Note 17) – 1,004Subscription receipts (see Note 3) 60,000 –Cash held in escrow (see Note 3) 30,000 –Value added taxes receivable 2,124 3,819Supplemental Executive Retirement Plan (SERP) investment (see Note 25) 1,784 –Other current assets 11,962 10,363

137,271 53,814



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9 Short-term investments December 31, December 31,

2004 2003$’000 $’000

Commercial paper 149,659 120,872Institutional and managed cash funds 174,752 183,257

324,411 304,129

10 InvestmentsDecember 31, December 31,

2004 2003$’000 $’000

Investments in private companies1 2,451 46,068Available-for-sale securities 29,970 21,879Equity-method investments1 30,846 5,028

63,267 72,975

1 Prior to the adoption of FIN 46R the Company accounted for its investments in the GeneChem Funds (described below) asinvestments in private companies and did not consolidate these investments as the impact on net assets, financial position and resultsof operations of the Company were individually and in the aggregate immaterial. These investments were appropriately reclassified toequity-method investments upon the adoption of FIN 46R.

The Company recorded impairments of $15.4 million on its investments during the year to December 31, 2004 (2003: $15.5 million; 2002 $8.7 million). See Note 24. All impairments in the three years presented were recorded in the International segment.

(a) Investments in private companies During the year to December 31, 2004 the Company recorded impairments of $9.8 million against these investments based on changesin the estimates of their fair value. This amount includes $4.2 million to reduce the value of an investment in a private company thatgained a listing on March 24, 2004; the initial listing price was below the anticipated flotation price used to value the investment atDecember 31, 2003 (see below) and the Company believes the decline in value was other-than-temporary. After the date of the listingthe investment was reclassified to available-for-sale securities and so any changes since the initial listing date have been recorded inother comprehensive income.

During the year to December 31, 2003, the Company recorded impairments of $15.5 million. An impairment of $6.2 million was recordedto reduce the carrying value of the investment in the private company seeking a listing (see above) to one based on the anticipatedflotation price for the share offering early in 2004. Also, an impairment of $8.5 million was recorded in relation to the GeneChem Fundsinvestment, following reviews of the Funds’ investment portfolios that identified other-than-temporary declines in the value of certainprivate and publicly quoted securities held by the Funds.

During the year to December 31, 2002, the Company recorded impairments of $6.6 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.

The changes in fair market value which resulted in the write-downs referred to above were based on the Company’s estimates of fairvalue. These estimates were derived from financial and other publicly available information such as press releases and recent capitalraising activities.

(b) Available-for-sale securities (i) Gain on saleDuring the year to December 31, 2004, the Company sold an investment in an available-for-sale security, valued at $11.9 million, realizinga gain on the sale of $14.8 million (2003: $nil). See Note 24.

(ii) Other-than-temporary impairmentThe Company recorded other-than-temporary impairments of $1.6 million, $nil and $1.4 million against its available-for-sale securities in the years to December 31, 2004, 2003 and 2002 respectively.

At December 31, 2004, the Company had no available-for-sale investments in a significant unrealized loss position for which other-than-temporary impairments have not been recognized.



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10 Investments (continued)

(c) Equity-method investmentsDecember 31, December 31,

2004 2003$’000 $’000

GSK 6,179 5,028GeneChem Funds 18,343 –Other 6,324 –

30,846 5,028

(i) GSKThe Company has accounted for its commercialization partnership with GSK (through which the products 3TC and ZEFFIX aremarketed 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.

(ii) GeneChem FundsThe GeneChem Technologies Venture Fund and the GeneChem Therapeutics Venture Fund (‘The Funds’) are Canadian limitedpartnerships investing in healthcare research and development companies, in which the Company owns 30% and 11% sharesrespectively. At December 31, 2004 the Funds’ net assets totalled approximately $107 million. The Company is involved as a limitedpartner and the general partner of the Funds; involvement in the Funds dates from between 1997 and 2000. The Company’s exposure to loss as a result of its involvement with the Funds is limited to the carrying value of the investment, $18.3 million at December 31, 2004(2003: $19.8 million, 2002: $20.0 million) and its commitment to further investment of $2.9 million (2003: $4.1 million, 2002: $1.9 million).

During the last six months of 2004, the Company recorded an impairment of $4.0 million against the investment in the Funds followingreviews of the Funds’ investment portfolios that identified other-than-temporary declines in the value of certain private and publiclyquoted securities held by the Funds.

11 Property, plant and equipment, netDecember 31, December 31,

2004 2003$’000 $’000

Land and buildings 80,631 66,314Office furniture, fittings and equipment 67,301 46,257Warehouse, laboratory and manufacturing equipment 34,823 55,186

182,755 167,757Less: Accumulated depreciation (51,404) (73,262)

131,351 94,495

Depreciation expense for the years to December 31, 2004, 2003 and 2002 was $22.5 million, $14.1 million and $11.5 million respectively.

12 Goodwill and other intangible assets, netDecember 31, December 31,

2004 2003$’000 $’000

Goodwill arising on businesses acquired 296,607 275,594Less: accumulated amortization (61,211) (54,363)

235,396 221,231

Other intangible assetsIntellectual property rights acquired 543,969 469,137Less: accumulated amortization (234,672) (161,255)

309,297 307,882

Total 544,693 529,113



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12 Goodwill and other intangible assets, net (continued)

The increase in the net book value of goodwill and other intangible assets for the year to December 31, 2004 is shown in the table below:

Other intangibleGoodwill assets

$’000 $’000

As of January 1, 2004 221,231 307,882Acquisitions – 49,189Amortization charged – (38,724)Asset impairments – (13,477)Disposals – (2,868)Foreign currency translation 14,165 7,295

As of December 31, 2004 235,396 309,297

The acquisition of other intangible assets is primarily related to the purchase of the exclusive commercialization rights of REMINYL in theUK and Ireland ($30.0 million), and milestone payments relating to FOSRENOL ($19.0 million). The weighted average amortization periodfor these additions is 9.5 years.

Amortization charged for the three years to December 31, 2004, 2003 and 2002 was $38.7 million, $26.4 million and $20.8 million,respectively. Goodwill was no longer amortized with effect from January 1, 2002 following the adoption of SFAS No.142, ‘Goodwill andOther Intangible Assets’ (SFAS No.142). The useful economic lives of other intangible assets continue to be amortized under SFAS No.142. Management estimates that the annual amortization charges in respect of intangible fixed assets held as of December 31, 2004 will average approximately $40 million for each of the five years to December 31, 2009. Estimated amortization expense can be affectedby various factors including future acquisitions, disposals of product rights and the technological advancement and regulatory approvalof competitor products.

During 2004, the Company recorded impairments of $13.5 million. These impairments resulted from a change of operationalmanagement and its views of the economic value and strategic worth of the products concerned, which decreased estimated futurecash flows. $1.5 million of these impairments were recorded in the US segment and $12.0 million in the International segment.

During 2003 the Company recorded asset impairments of $12.1 million (2002: $18.8 million) and an asset write-down of $15.4 million.The asset impairments of $12.1 million resulted from a decline in product prices, which decreased estimated future cash flows. The asset write-down of $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 were recorded in the US segment ($11.7 million) and the International segment ($15.8 million).

During 2002 the Company reviewed its existing product base. On completion of this review, management decided to cease supportingcertain 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 ondiscounted cash flow analyses. This resulted in the recording of an impairment loss of $18.8 million ($10.8 million in the US segment and $8.0 million in the International segment).

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

US International Corporate R&D TotalDecember 31, $’000 $’000 $’000 $’000 $’000

2004 205,386 30,010 – – 235,396

2003 193,023 28,298 – – 221,321

There were no changes in the allocation of goodwill in either period. All the movements relate to foreign exchange.



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13 Other non-current assets December 31, December 31,

2004 2003$’000 $’000

Deferred financing costs (see Note 17) – 6,441SERP investment (see Note 25) 7,698 12,042IDB loan (see Note 3) 30,000 –Other assets 1,197 3,937

38,895 22,420

Further details of the SERP investment are provided in Note 25. The amount shown above is the cash surrender value of life insurancepolicies which is backed by short-term investments. A liability of $5.5 million is included within Notes 15 and 18 (2003: $8.9 million).

14 Accounts payable and accrued expensesDecember 31, December 31,

2004 2003$’000 $’000

Trade accounts payable 35,008 21,301Accrued rebates – Medicaid 84,758 46,075Accrued rebates – Managed care 14,667 13,202Sales return reserve 22,530 8,343Accrued bonuses 23,171 18,920Accrued coupons 15,869 4,078R&D accruals 10,924 27,676Marketing accrual 26,095 16,045Accrued royalties 8,250 3,036Deferred revenue 14,472 4,132Reorganization accrual (see Note 3) 1,936 3,541Other accrued expenses 53,551 39,430

311,231 205,779

15 Other current liabilitiesDecember 31, December 31,

2004 2003$’000 $’000

Income taxes payable 12,597 19,102Deferred payments 18,980 –Interest on long-term debt (see Note 17) – 2,653Social security liabilities 3,062 2,216Value added taxes – 1,503SERP (see Note 25) 1,904 2,781Other accrued liabilities 41,015 8,872

77,558 37,127

16 Loan facility

As part of the transaction which disposed of the vaccines business Shire agreed to provide IDB with a loan facility of up to $100 million.A provision of $70 million was made against this facility (representing the pipeline products element). See Note 3. In the period toDecember 31, 2004, IDB drew down $26.8 million of this facility. An additional $43.2 million is available to IDB to draw down throughSeptember 2008.



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17 Long-term debt December 31, December 31,

2004 2003$’000 $’000

Total obligations 116 376,307Current maturities of long-term obligations – (290)

Total long-term debt 116 376,017

An analysis of total obligations by loan type is presented below:December 31, December 31,

2004 2003$’000 $’000

Convertible notes due 2011 116 370,225Capital leases – 6,082

116 376,307

(i) Convertible notes due 2011The guaranteed convertible notes due 2011 were issued in August 2001 by Shire Finance Limited (the Issuer), a wholly-owned financesubsidiary of Shire.

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

At the choice of investors, each $1,000 of nominal value notes was convertible 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 had the option to receiverepayment 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.

On August 21, 2004, upon exercise of the put option by substantially all of the convertible note holders and subsequently, the Companyredeemed $370.1 million at par from available funds (2003: $29.8 million, recording a gain of $0.5 million). The obligation to pay theremaining $0.1 million of the convertible loan notes outstanding as of December 31, 2004 is due in 2011.

The interest expense recorded in the year to December 31, 2004 was $12.2 million, including the write-off of $7.4 million of deferredfinancing costs (2003: $7.5 million, 2002: $8.0 million).

(ii) Capital leasesDuring the year to December 31, 2004 the Company served notice to buy out its remaining capital leases, totalling $5.7 million, relating to its manufacturing facility in Maryland. Repayment of the leases occurred in October 2004.

December 31,2003

Obligations under capital leases $’000

Current 290Non-current 5,792

6,082

The following is an analysis of the leased property under capital leases by major asset classes:December 31,

2003$’000

Land and buildings 6,645Office furniture, fittings and equipment 172

6,817Less: accumulated depreciation (888)

5,929



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18 Other non-current liabilitiesDecember 31, December 31,

2004 2003$’000 $’000

SERP (see Note 25) 3,591 6,102Long-term bonuses 4,425 3,117Deferred revenue 9,074 13,430Insurance provisions 9,274 5,770Reorganization accrual (see Note 3) 2,488 236Other accrued liabilities 3,307 1,539

32,159 30,194

Deferred revenue relates to amounts received from the out-licensing of AGRYLIN and FOSRENOL in Japan and the global out-licensingof TROXATYL.

19 Financial instrumentsThe estimated fair value of the Company’s financial instruments as of December 31, 2004 and 2003 is summarized below. Certainestimates and judgments were required to develop the fair value amounts. The fair-value amounts shown below are not necessarilyindicative of the amounts that the Company would realize upon disposition nor do they indicate the Company’s intent or ability todispose of the financial instrument.

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

– Short-term investments (commercial paper and institutional and managed cash funds) – the carrying value approximates fair valuebecause 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 suchinstruments 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 availableinterest rates or, where the debt instrument is traded, by reference to the market price.

– IDB subscription receipts – the carrying value equals the fair value as the subscription receipts were repurchased on January 7, 2005for $60 million.

The carrying amounts and corresponding fair values of financial instruments are as follows:Carrying amount Fair value

December 31, 2004 $’000 $’000

Financial assets:Commercial paper 149,659 149,659Institutional and managed cash funds 174,752 175,185Investments 29,970 29,970IDB subscription receipts 60,000 60,000

Financial liabilities:Long-term debt 116 117

Carrying amount Fair value December 31, 2003 $’000 $’000

Financial assets:Commercial paper 120,872 120,872Institutional and managed cash funds 183,257 183,257Investments 21,879 21,879

Financial liabilities:Long-term debt 376,017 378,005

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fairvalue because of the short-term maturity of these instruments.



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20 Commitments and contingencies

(a) LeasesFuture minimum lease payments presented below include principal lease payments and other fixed executory fees under leasearrangements as of December 31, 2004:

Operating leases$’000

2005 16,3742006 15,0042007 12,9282008 9,8392009 6,892Thereafter 37,708

98,745

(i) Operating leasesThe Company leases facilities, motor vehicles and certain equipment under operating leases expiring through 2015. Lease and rental expense included in selling, general and administrative expenses in the accompanying statements of operations amounted to $7.2 million, $12.2 million and $6.7 million for the years to December 31, 2004, 2003 and 2002, respectively.

During the year to December 31, 2004, Shire Inc., a wholly-owned subsidiary of Shire, signed an eleven year operating lease on a property in Wayne, Pennsylvania. Shire US, Inc., another wholly-owned subsidiary, acts as guarantor in respect of this lease. The future minimum lease payments under the lease agreement are $34.4 million in aggregate.

SUMI, a wholly-owned subsidiary of Shire, terminated certain operating leases in October 2004.

(ii) Restricted cash in respect of leasesAt December 31, 2004 the Company had $5.3 million of restricted cash held as collateral for certain equipment leases (2003: $5.3 million).

(b) Letters of credit and guarantees (i) As of December 31, 2004, the Company had outstanding an irrevocable standby letter of credit with Barclays Bank plc in the amount of $15.0 million providing security on the recoverability of insurance claims. The Company had restricted cash of $16.0 million in connection with this letter of credit.

(ii) The Company’s acquisitions, dispositions and other contractual arrangements contain representations and warranties, which havebeen determined to have de minimis potential liability.

(c) Commitments (i) As of December 31, 2004, the Company had outstanding commitments to subscribe for interests in companies and partnerships for amounts totalling $22.0 million (2003: $8.0 million) of which $4.2 million is committed to in 2005 and a further $13.7 million could be payable in 2005, depending on the timing of capital calls.

(ii) MTS/METHYPATCHIn connection with the Company’s purchase of MTS/METHYPATCH in 2003, the Company has an obligation to make certain paymentson the achievement of milestones. This will require $50 million upon regulatory approval of the product and up to $75 million linked to the future sales performance. The Company expects to meet these payments with cash from operations. The Company expects to resubmit MTS/METHYPATCH for approval in 2005.

(iii) FOSRENOL patent rights In connection with the Company’s purchase of the global patents for FOSRENOL, Shire agreed to pay AnorMED Inc. $6 million when it is approved in certain European countries and $6 million upon receipt of regulatory approval in Japan. The Company expects to meetthese payments with cash from operations.

(iv) Manufacturing facilityThe Company has committed to the expansion and modification of its manufacturing facility at Owings Mills, Maryland to facilitate the production of FOSRENOL. The Company has committed to spend a further $5.1 million by the end of 2005 and has an additionalcommitment of $4.4 million for the design and construction of a technology center at Owings Mills, Maryland, also expected to beincurred in 2005.

(v) Wayne, Pennsylvania fit-outThe Company is in the process of fitting out its new US headquarters at Wayne, Pennsylvania. As of December 31, 2004, the Companyhad an outstanding commitment of $20.4 million relating to this refurbishment, expected to be incurred in 2005.



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20 Commitments and contingencies (continued)

(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 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 developedsubstantially before the ultimate loss is known and the estimates are refined each accounting period in light of additional informationbeing 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 quarterlyand the estimates are changed when expectations are revised. Any outcome upon settlement that deviates from the Company’s bestestimate may result in an additional expense in a future accounting period.

(ii) PhentermineShire US Inc. (SUS), a wholly-owned subsidiary of Shire, is a defendant in 260 lawsuits still pending in both US federal and state courtswhich seek damages for, among other things, personal injury arising from phentermine products supplied for the treatment of obesity bySUS and several other pharmaceutical companies. SUS, formerly known as Shire Richwood Inc., has been sued as a manufacturer anddistributor 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 followingclaims: the defendants marketed phentermine and other products for the treatment of obesity and misled users about the products anddangers 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 thepublic about such risks and/or failed to provide appropriate warning labels. SUS has been named as a defendant in a total of 4,196 such phentermine lawsuits, in respect of which SUS has been dismissed as a defendant in 3,936 cases. Eight of the 4,196 cases nameShire as a defendant, but have not been served as required by state and federal rules of civil procedure. It is expected that Shire will bedismissed from the remaining cases based upon lack of product identification or agreement of the parties.

SUS became involved with phentermine through its acquisition of certain assets of Rexar Pharmacal Corporation (Rexar) in January1994. In addition to SUS potentially incurring liability as a result of its own production of Oby-Cap, a phentermine product, the plaintiffsmay additionally seek to impose liability on SUS as successor to Rexar. SUS intends to defend vigorously all the lawsuits. SUS deniesliability 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 intendsto defend vigorously any and all claims made against the Group in respect of phentermine. Legal expenses to date have been paid byEon Labs, Inc. (Eon), the supplier to SUS, or Eon’s insurance carriers but such insurance is now exhausted. Eon has agreed to defendand indemnify SUS in this litigation pursuant to an agreement dated November 30, 2000 between Eon and SUS.

(iii) ADDERALL XR(a) Barr Laboratories, Inc.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 US Hatch-Waxman Act seeking permission to market its generic versions of the 5mg, 10mg, 15mg, 20mg, 25mg and30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ’819 Patent. The notification alleged that the ’819 Patentis not infringed by Barr’s extended-release mixed amphetamine salt product, which is the subject of Barr’s ANDA. On February 24, 2003Shire Laboratories Inc. (Shire Laboratories) filed suit against Barr in the United States District Court for the Southern District of New Yorkalleging that Barr’s ANDA infringes the ’819 Patent. The Company is seeking a ruling that Barr’s ANDA infringes the ’819 Patent andshould not be approved before the expiration date of the ’819 Patent. The Company is also seeking an injunction to prevent Barr fromcommercializing its ANDA product before the expiration of the ’819 Patent, damages in the event that Barr should engage in suchcommercialization, as well as its attorneys’ fees and costs. Barr has counterclaimed for a declaration that its ANDA product will notinfringe 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 US Hatch-Waxman Act seeking permission to market itsgeneric versions of the 5mg, 10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XR prior to the expiration date of the ’300Patent and alleging that the ’300 Patent is invalid. In September 2003 Shire Laboratories filed a lawsuit in the United States District Courtfor 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, damagesin the event that Barr should engage in such commercialization, as well as 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.



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(d) Legal proceedings (continued)(iii) ADDERALL XR (continued)(a) Barr Laboratories, Inc. (continued)The lawsuits against Barr with respect to the ’819 and ’300 Patents were consolidated in December 2003 and a trial date scheduled forJanuary 2006. On September 27, 2004, Barr filed an amended Answer, Affirmative Defense and Counterclaim in which Barr added thefollowing counterclaims and affirmative defenses: invalidity of the ’819 Patent, non-infringement of the ’300 Patent and unenforceabilityof the ’819 and ’300 Patents due to inequitable conduct. Shire has asserted affirmative defenses, alleging, among other things, that Barrhas waived its right to assert the counterclaims set forth in its September 27, 2004 amended answers.

Barr may not launch a generic version of ADDERALL XR before it receives final approval of its ANDA from the FDA. The lawsuitstriggered 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 Barr receives a favorable decision before theexpiration of the stay, then Barr could be in a position to market its extended-release mixed amphetamine salt product, upon FDA finalapproval of its ANDA, following the expiration of the Hatch-Waxman exclusivity period. Hatch-Waxman exclusivity was originally due to expire in October 2004. However, on October 28, 2004 the FDA granted an additional six months exclusivity to ADDERALL XR basedupon pediatric studies carried out on the drug product, meaning that Barr may not market its ANDA products until after Hatch-Waxmanexclusivity expires on April 11, 2005.

(b) Impax Laboratories, Inc.In November 2003, Shire was notified that Impax Laboratories, Inc. (Impax) had submitted an ANDA under the US Hatch-Waxman Act seeking permission to market its generic version of the 30mg strength 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 amphetaminesalt 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 fromcommercializing 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 as its attorneys’ fees and costs. Impax’s affirmative defenses include non-infringement and invalidityof both the ’819 and ’300 Patents. Impax is also requesting that costs be assessed against the Company. A trial date of October 11,2005 has been set.

In December 2004, Shire received an additional notification from Impax advising of the filing of an ANDA for generic versions of the 5mg, 10mg, 15mg, 20mg and 25mg strengths of ADDERALL XR in addition to the 30mg strength, the subject of Impax’s initial ANDA. In January 2005, Shire Laboratories filed suit against Impax for infringement of the ’819 and ’300 Patents. The Company is seeking a ruling that Impax’s amended 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 amended ANDA productsbefore the expiration of the ’819 and ’300 Patents, damages in the event that Impax should engage in such commercialization, as wellas its attorneys’ fees and costs. Impax’s affirmative defenses include non-infringement, invalidity and unenforceability of both the ’819and ’300 Patents. Impax is also requesting that costs be assessed against the Company.

Impax may not launch a generic version of ADDERALL XR before it receives final approval of its ANDA from the FDA. The lawsuitstriggered stays of FDA approval of up to 30 months from the Company’s receipt of Impax’s notices to allow the court to resolve the suits.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 stays (May 2006 in the case of the 30mg strength and June 2007 in the case of the 5mg, 10mg, 15mg, 20mg and 25mg strengths)or a district court decision in its favor. In the event that Impax receives a favorable decision before the expiration of the stays, then Impaxcould be in a position to market its extended-release mixed amphetamine salt products upon FDA final approval of its ANDA followingthe expiration of the existing Hatch-Waxman exclusivity and upon the expiration of the first to file’s exclusivity rights. The FDA may grant180 days of market exclusivity to the ‘first to file’. Hatch-Waxman exclusivity was originally due to expire in October 2004. However, onOctober 28, 2004 the FDA granted an additional six months’ exclusivity to ADDERALL XR based upon pediatric studies carried out onthe drug product, meaning that Impax may not market its ANDA products until after Hatch-Waxman exclusivity expires on April 11, 2005.

(c) Colony Pharmaceuticals, Inc.In December 2004, Shire was notified that Colony Pharmaceuticals Inc. (Colony) had submitted an ANDA under the US Hatch-WaxmanAct seeking permission to market its generic version of the 5mg, 10mg, 15mg, 20mg, 25mg and 30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ’819 and ’300 Patents. Shire has decided not to sue Colony. In any event, Colony may not market its ANDA products until FDA final approval of its ANDA following the expiration of Shire’s existing Hatch-Waxman exclusivity on April 11, 2005 and upon the expiration of the first to file’s exclusivity rights. The FDA may grant 180 days of market exclusivity to the ‘first to file’.



85


(d) Legal proceedings (continued)(iii) ADDERALL XR (continued)(d) Teva Pharmaceuticals USA, Inc.In February 2005, Shire was notified that Teva Pharmaceuticals USA, Inc. (Teva) had submitted an ANDA under the US Hatch-WaxmanAct seeking permission to market its generic versions of the 10mg and 30mg strengths of ADDERALL XR prior to the expiration date of the Company’s ’819 and ’300 Patents. Shire is reviewing the content of the notice received from Teva and is considering what action,if any, it will take against Teva. In any event, Teva may not market its ANDA products until FDA final approval of its ANDA following the expiration of the existing Hatch-Waxman exclusivity on April 11, 2005 and upon the expiration of the first to file’s exclusivity rights.The FDA may grant 180 days of market exclusivity to the ‘first to file’.

(iv) CARBATROLIn August 2003 the Company was notified that Nostrum Pharmaceuticals, Inc. (Nostrum) had submitted an ANDA under the US Hatch-Waxman Act seeking permission to market its generic version of the 300mg strength of CARBATROL prior to the expiration date of theCompany’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 300mg 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, 2003Shire Laboratories filed suit against Nostrum in the United States District Court for the District of New Jersey for infringement of thesetwo patents. The Company was seeking a ruling that Nostrum’s ANDA infringes the ’013 and ’570 Patents and should not be approvedbefore the expiration date of the ’013 and ’570 Patents. The Company was also seeking an injunction to prevent Nostrum fromcommercializing its ANDA product before the expiration of the ’013 and ’570 Patents, damages in the event that Nostrum shouldengage in such commercialization, as well as its attorneys’ fees and costs. On January 23, 2004 the Company amended the Complaintto 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 byShire. On July 12, 2004 the United States District Court for the District of New Jersey dismissed Nostrum’s abuse of processcounterclaim for failure to state a claim upon which relief can be granted. On December 10, 2004 Nostrum filed a summary judgmentmotion seeking a declaration of non-infringement of the ’570 Patent. Shire’s opposition to this motion was filed on January 14, 2005. The case is now in the expert discovery phase. No trial date has been set.

Nostrum may not launch a generic version of CARBATROL before it receives final approval of its ANDA from the FDA. The lawsuittriggered 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 theexpiration of the stay (February 2006) or a district court decision in its favor. In the event that the Company does not prevail, thenNostrum could be in a position to market its 300mg extended-release carbamazepine product upon FDA final approval of its ANDA.

21 Related parties

(a) Professional feesThe Company incurred professional fees with Stikeman Elliott, a law firm in which The Hon James Grant, a director of Shire, is a partner,totalling $2.1 million for the year to December 31, 2004 ($0.8 million and $1.2 million for the years to December 31, 2003 and 2002).

(b) NeuroChem Inc.In April 2004 Shire BioChem Inc. (BioChem), a subsidiary of Shire, sold a Canadian property to NeuroChem Inc. for $7.8 million(CAN$10.5 million). Dr Bellini, a non-executive Director of BioChem and, until May 10, 2003, a non-executive Director of Shire, andMr Nordmann, a non-executive Director of Shire, are both directors of NeuroChem Inc. Dr Bellini had an indirect substantial interest in the issued share capital of NeuroChem Inc. at the time of the transaction.

(c) ViroChem Pharma Inc.In April 2004, BioChem contributed cash of $3.7 million (CAN$5.0 million) and equipment and intellectual property to the start-up of a new Canadian-based pharmaceutical R&D organization, ViroChem Pharma Inc., in return for an equity interest and royalties on the sale of certain products subsequently launched by ViroChem. BioChem has undertaken to invest an additional $8.3 million(CAN$10.0 million) in ViroChem in two equal tranches of CAN$5.0 million in April 2005 and April 2006. Dr Bellini, a non-executive Director of BioChem and, until May 10, 2003, a non-executive Director of Shire, had, at the time of the transaction, an indirect substantial interest in a company which is a co-investor in ViroChem Pharma Inc.



86

22 Earnings per share

The following table reconciles income from continuing operations and the weighted average ordinary shares outstanding for basic anddiluted earnings per share for the periods presented:


Year to December 31, $’000 $’000 $’000

Income from continuing operations 333,299 297,937 260,145Loss from discontinued operations, net of tax (20,135) (21,886) (11,659)(Loss)/gain on disposal of discontinued operations (44,157) – 2,083

Numerator for basic earnings per share 269,007 276,051 250,569Interest charged on convertible debt, net of tax 3,421 5,218 5,585

Numerator for diluted earnings per share 272,428 281,269 256,154

Year to December 31, 2004 2003 2002Weighted average number of shares outstanding Number of shares Number of shares Number of shares

Basic 496,306,604 498,212,826 500,687,594

Effect of dilutive shares:Share options 3,035,620 1,859,076 1,883,475Convertible debt 11,858,416 18,895,493 19,847,177Warrants 66,792 – –

14,960,828 20,754,569 21,730,652

Diluted 511,267,432 518,967,395 522,418,246

Basic earnings per share:Income from continuing operations 67.2¢ 59.8¢ 51.9¢Loss from discontinued operations, net of tax (4.1¢) (4.4¢) (2.3¢)(Loss)/gain on disposal of discontinued operations (8.9¢) – 0.4¢

54.2¢ 55.4¢ 50.0¢

Diluted earnings per share:Income from continuing operations 65.9¢ 58.4¢ 50.8¢Loss from discontinued operations, net of tax (4.0¢) (4.2¢) (2.2¢)(Loss)/gain on disposal of discontinued operations (8.6¢) – 0.4¢

53.3¢ 54.2¢ 49.0¢

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

2004 2003 2002Year to December 31, Number of shares Number of shares Number of shares

Share options 16,640,724 17,006,093 17,492,575Warrants – 1,346,407 1,346,407

16,640,724 18,352,500 18,838,982

During the year to December 31, 2004 the Company recorded a loss on redemption of the convertible loan notes of $7.4 million, whichresulted from the write-off of unamortized debt issuance costs. Diluted EPS would have been 53.9¢, or 0.6¢ higher, without this loss on redemption.



87

23 Segment reporting

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

The US segment represents the Company’s commercial operations in the United States and the International segment represents thecommercial operations in the Rest of the World. The R&D segment represents all direct R&D costs incurred by the Company throughoutthe world. Corporate represents the royalty business that is managed at the Corporate office and certain costs that are managed at thecorporate office and not allocated to the other segments.

The results for the year to December 31, 2003 and 2002 have been restated to reflect the disposal of the vaccines business, which hadpreviously been reported as the Biologics segment. The US and International reportable segments have also been restated as certaincomponents of the vaccines business previously formed part of these segments.

US International Corporate R&D TotalYear to December 31, 2004 $’000 $’000 $’000 $’000 $’000

External revenues:Product sales 926,460 185,997 – – 1,112,457Royalties – 11,645 218,719 – 230,364Licensing and development 11,299 2,180 – – 13,479Other revenues 2,406 4,501 – – 6,907

Total revenues 940,165 204,323 218,719 – 1,363,207

Cost of product sales 90,637 51,272 – – 141,909Research and development – – – 196,265 196,265Selling, general and administrative 289,726 97,718 70,688 – 458,132Depreciation and amortization1 39,005 28,638 4,347 – 71,990Reorganization costs 24,022 5,105 5,981 13,361 48,469

Total operating expenses 443,390 182,733 81,016 209,626 916,765

Operating income/(loss) 496,775 21,590 137,703 (209,626) 446,442


Total assets 1,114,395 582,982 944,993 72,509 2,714,879Long-lived assets 284,561 239,065 217,828 44,476 785,930Capital expenditure on long-lived assets 32,009 520 59,431 1,976 93,936

1 Included in depreciation and amortization are the write-downs of intangible assets of $13.5 million ($12.0 million in the Internationalsegment and $1.5 million in the US segment). Depreciation from manufacturing plants ($2.7 million) is included in cost of product sales.Depreciation and amortization relating to R&D assets are included in US and International segments.



88

23 Segment reporting (continued)Restated Restated Restated Restated Restated


External revenues:Product sales 846,438 157,869 – – 1,004,307Royalties 14 10,314 193,245 – 203,573Licensing and development 3,376 301 – – 3,677Other revenues 13 – – – 13

Total revenues 849,841 168,484 193,245 – 1,211,570

Cost of product sales 94,597 48,563 – – 143,160Research and development2 – – – 194,902 194,902Selling, general and administrative 234,091 80,968 56,755 – 371,814Depreciation and amortization1, 2 30,965 24,338 26,804 – 82,107


Operating income/(loss) 490,188 14,615 109,686 (194,902) 419,587


Total assets from continuing operations 697,460 413,134 1,269,300 109,131 2,489,025Long-lived assets 238,774 233,313 200,225 46,691 719,003Capital expenditure on long-lived assets 18,324 46,368 15,827 16,854 97,373

1 Included in depreciation and amortization are the write-downs of intangible assets of $27.5 million ($15.8 million in the Internationalsegment and $11.7 million in the US segment), property, plant and equipment of $6.0 million (Corporate segment) and assets held forresale of $10.7 million (Corporate segment). Depreciation from manufacturing plants ($2.6 million) is included within cost of productsales. Depreciation and amortization relating to R&D assets are included within US and International segments.

2 Costs associated with the closure of the Lead Optimization division and other related activities in the year to December 31, 2003 are:Research and development $7.2 million and depreciation and amortization $16.7 million. These amounts are reflected in reorganizationcosts in the statement of operations.

Restated Restated Restated Restated RestatedUS International Corporate R&D Total

Year to December 31, 2002 $’000 $’000 $’000 $’000 $’000

External revenues:Product sales 714,655 130,685 – – 845,340Royalties 215 8,999 165,598 – 174,812Licensing and development 2,661 403 – – 3,064Other revenues – 34 – – 34

Total revenues 717,531 140,121 165,598 – 1,023,250

Cost of product sales 63,356 57,079 – – 120,435Research and development – – – 173,380 173,380Selling, general and administrative 211,032 73,985 44,386 – 329,403Depreciation and amortization1 28,999 11,200 10,874 – 51,073


Operating income/(loss) 414,144 (2,143) 110,338 (173,380) 348,959


Total assets 818,383 376,485 894,136 50,124 2,139,128Long-lived assets 260,751 179,322 214,018 29,341 683,432Capital expenditure on long-lived assets 13,158 270 33,132 2,286 48,846

1 Included in depreciation and amortization are the write-downs of intangible assets of $18.8 million ($10.8 million in the US segment,$6.0 million in the International segment and $2.0 million in the Corporate segment). Depreciation from manufacturing plants is included within cost of product sales ($0.8 million). Depreciation and amortization relating to R&D assets are included within US andInternational segments.



89

23 Segment reporting (continued)

Material customersIn the periods set out below, certain customers, all within the US operating segment, accounted for greater than 10% of the Company’stotal revenues:

2004 2004 2003 2003 2002 2002Year to December 31, $’000 % revenue $’000 % revenue $’000 % revenue

Customer A 339,136 25% 274,771 23% 231,270 23%Customer B 303,965 22% 269,364 22% 197,184 19%Customer C 167,998 12% 175,856 15% 160,210 16%Customer D 156,578 11% 158,689 13% 149,613 15%

Amounts outstanding as of December 31, in respect of these material customers were as follows:2004 2003

December 31, $’000 $’000

Customer A 28,178 23,793Customer B 23,535 25,676Customer C 8,515 45,712Customer D 16,975 8,212

77,203 103,393

24 Other income/(expense), net2004 2003 2002

Year to December 31, $’000 $’000 $’000

SERP valuation adjustment (see Note 25) 264 175 (2,301)Impairment of long-term investments (see Note 10) (15,364) (15,540) (8,680)GeneChem Funds management fee 4,036 3,755 3,333Gain on sale of available-for-sale security (see Note 10) 14,805 – –Foreign exchange (2,467) (6,716) (344)Other 2,571 (2,319) (4,507)

3,845 (20,645) (12,499)

25 Retirement benefits

(a) Personal defined contribution pension plansThe Company makes contributions to defined contribution retirement plans that together cover substantially all employees. For thedefined 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 $9.0 million, $16.1 million and $6.8 million for the years to December 31, 2004, 2003 and 2002 respectively, and were charged to operations as they became payable.

(b) Defined benefit pension planRoberts, a company with which the Company merged in December 1999, operated a defined SERP for certain US employees, whichwas 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 contributionsceased being paid into the plan for existing members. As part of this arrangement, the Company paid a lump sum contribution into theplan of $18.0 million, the result of which is that the Company has no future contributions to make under the plan.

In accordance with EITF 97-14, the asset and liability of $7.7 million and $5.5 million, respectively, are shown on the balance sheet withinthe categories ‘Other non-current assets’, ‘Other current liabilities’ and ‘Other non-current liabilities’. See Notes 13, 15 and 18.



90

26 Income taxes

The components of pre tax income from continuing operations are as follows:2004 2003 2002

Year to December 31, $’000 $’000 $’000

UK (67,363) (76,267) (50,520)US 265,770 285,221 218,139 Other jurisdictions 261,487 197,393 179,208

Sub-total 459,894 406,347 346,827

Equity investees 2,508 (1,057) 1,668

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

2004 2003 2002Year to December 31, $’000 $’000 $’000

Current income taxes:UK corporation tax (746) – –US federal tax (98,668) (101,174) (67,686)US state and local taxes (5,107) (4,313) (9,561)Other jurisdictions (36,417) (18,792) (19,864)

Total current taxes (140,938) (124,279) (97,111)

Deferred taxes:UK corporation tax 482 (9,696) –US federal tax 12,171 (3,647) (1,136)US state and local taxes 104 (180) (34)Other jurisdictions (922) 30,449 9,931

Total deferred taxes 11,835 16,926 8,761

Total income taxes attributable to continuing operations (129,103) (107,353) (88,350)

Total incomes taxes attributable to discontinued operations – – (4,812)

Total income taxes (129,103) (107,353) (93,162)

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

2004 2003 2002Year to December 31, $’000 $’000 $’000

Income from continuing operations before income taxes and equity in net income/(losses) of associates and discontinued operations 459,894 406,347 346,827

UK corporation tax rate (30%) (30%) (30%)

Adjustments to derive effective rate:Non-deductible items:Permanent differences 2.0% (1.1%) (1.2%)Other items:Change in valuation allowance 3.3% (7.1%) (4.0%)Difference in taxation rates 0.6% 11.2% 10.5%Prior year adjustment (4.5%) (2.1%) (0.7%)Other 0.5% 2.7% (0.1%)

Provision for income taxes on continuing operations (28.1%) (26.4%) (25.5%)



91

26 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 31,2004 2003$’000 $’000

Deferred tax assets:Accrued expenses not currently deductible 9,708 3,340Losses carried forward 194,523 248,239Provisions 32,086 11,299Other 32,020 1,876

Gross deferred tax assets 268,337 264,754Less: valuation allowance (152,915) (168,176)

115,422 96,578Deferred tax liabilities:Excess of tax value over book value of assets (37,311) (33,446)

Net deferred tax assets 78,111 63,132

Balance sheet classifications:Deferred tax assets – current 70,387 64,532Deferred tax assets/(liabilities) – non-current 7,724 (1,400)

78,111 63,132

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

2004 2003$’000 $’000

US federal tax NOLs 25,416 23,468US state tax NOLs 93,542 130,755UK NOLs 246,966 146,164Canadian NOLs 438,523 465,476Foreign tax jurisdictions 100,808 188,869

The tax losses shown above have the following expiration dates:December 31,

2004$’000

Within 1 year 1,274Within 1-2 years 4,403Within 2-3 years 2,832Within 3-4 years 75,943Within 4-5 years 36,771Within 5-6 years 1,430Within 6-7 years 923After 7 years 95,493Available indefinitely 686,186

As of December 31, 2004, the Company had a valuation allowance of $153 million to reduce its deferred tax assets to estimatedrealizable value. The valuation allowance relates to the deferred tax assets arising from operating loss carry-forwards and capital losscarry-forwards, which have no expiration date. The utilization of operating loss carry-forwards is, however, restricted to the taxableincome of the subsidiary generating the losses. In addition, capital loss carry-forwards can be offset only against capital gains. As ofDecember 31, 2004, based upon the level of historical taxable income and projections for future taxable income over the periods in whichthe temporary differences are anticipated to reverse, and reasonable and feasible tax-planning strategies, management believes it ismore 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.

As of December 31, 2004 the Company has not made a UK tax provision on approximately $1.4 billion of unremitted earnings of theCompany’s international subsidiaries. The Company does not provide for income taxes on the unremitted earnings of subsidiarieslocated outside the UK, where such earnings have been retained indefinitely for reinvestment, or where it is management’s intention that the earnings will be remitted in a tax free liquidation, or as dividends with taxes substantially offset by foreign tax credits. It is notpractical to determine the amount of unrecognized deferred tax liabilities for temporary differences relating to these investments.



92

27 Equity in earnings/(losses) of equity-method investees2004 2003 2002

Year to December 31, $’000 $’000 $’000

GSK 4,433 3,495 2,592GeneChem Funds (see Note 10) 75 – –Other (2,000) (4,552) (924)

2,508 (1,057) 1,668

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

28 Stock incentive plans

The Company has granted options to directors and employees over ordinary shares under the following six 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 ordinaryshare price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period. If Shire’sordinary share price increases at a compound rate of 14.5% per annum over a minimum three-year measurement period, 60% of theoptions 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 willbecome exercisable.

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

(ii) Shire Pharmaceuticals Group plc 2000 Executive Share Option Scheme (2000 Executive Scheme)Options granted under this scheme are exercisable subject to certain performance criteria. In respect of any option granted prior to August 2002, if Shire’s ordinary share price increases at a compound rate of at least 20.5% per annum over a minimum three-yearmeasurement period, the option becomes exercisable in full. If it increases by at least 14.5% per annum over the same three-yearperiod, 60% of the options granted become exercisable. 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’sdevelopment, it was considered appropriate that an earnings per share based measure should be adopted in place of share pricegrowth targets. Therefore, the performance criteria were amended so that an option would become exercisable in full if Shire’s fullydiluted earnings per share growth over a three-year period from the date of award exceeds the UK Retail Price 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 annumBetween 201% and 300% of salary RPI plus 7% per annumOver 301% of salary RPI plus 9% per annum

The new earnings per share performance criteria apply to options granted under the 2000 Executive Scheme from August 2002. After consultation with certain of its institutional shareholders, the Company has decided that for options granted under the schemefrom 2004 onwards, the retest of the performance condition if Shire’s earnings per share growth has fallen short of the minimum annualaverage percentage increase over the three-year period from grant, has been changed. The performance condition will be retested onceonly, at five years after the grant. Hence the level of earnings per share growth in the next two years needs to be consequentially higherto meet the test.

Six weeks prior to the expiration date, any options that have not become exercisable at an earlier date, automatically vest withoutreference to the performance criteria.



93

28 Stock incentive plans (continued)

(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 daybefore 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 theenrolment 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 theCompany 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 becameimmediately capable of exercise. It is intended that no further options will be granted under the SLI Plan.

(vi) 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 optionsover BioChem Pharma Inc.’s common stock became options over ordinary shares of Shire. All BioChem Pharma Inc. options, whichwere not already exercisable, vested and became exercisable as a result of the acquisition. It is intended that no further options will begranted 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 sharescheme. In addition, the following terms apply to options that may be granted under the various plans:

– 2000 Executive Scheme: the maximum number of Shire ordinary 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 Shire ordinary shares.

The following stock options were outstanding as of December 31, 2004:

Expiration period Scheme Number of options from date of issue Vesting period

Executive Scheme 2,274,395 10 years 3 years, subject to performance criteria2000 Executive Scheme 20,233,565 10 years 3 years, subject to performance criteriaSharesave Scheme 319,432 6 months after vesting 3 or 5 yearsStock Purchase Plan 435,977 On vesting date 27 monthsSLI Plan 4,710 10 years Immediate on acquisition by Shire BioChem Plan 4,075,546 10 years Immediate on acquisition by Shire

27,343,625



94

28 Stock incentive plans (continued)

A summary of the status of the Company’s stock option plans as of December 31, 2004, 2003 and 2002 and of the related transactionsduring the periods then ended is presented below:

Weighted averageexercise price

Year to December 31, 2004 $ Number of shares

Outstanding as of beginning of period 10.92 25,995,543Granted 9.92 6,966,411Exercised 7.16 (2,097,716)Forfeited 14.62 (3,520,613)

Outstanding as of end of period 11.30 27,343,625

Exercisable as of end of period 16.70 8,728,709

6,665,144 options were granted under the 2000 Executive Scheme. These options were issued with exercise prices equivalent to themarket value on the date of grant.

94,861 options were granted under the Sharesave Scheme at a price of £3.74 (approximately $7.22). 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.

173,613 options were granted under the Stock Purchase Plan at a price of £3.92 (approximately $7.57). 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. In relation to a grant under the Stock Purchase Plan at a price of £8.06 in 2001, an additional 32,793 options were granted at a price of £4.58 on the 2004 maturity date.

The average fair value of options granted in the year to December 31, 2004 is $9.99.

Weighted averageexercise price

Year to December 31, 2003 $ Number of shares

Outstanding as of beginning of period 11.55 20,051,297Granted 6.30 9,407,852Exercised 5.12 (1,039,439)Forfeited 11.28 (2,424,167)




182,639 options were granted under the Sharesave Scheme at a price of £3.86 (approximately $6.91). These options were granted withan 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.




95

28 Stock incentive plans (continued)Weighted average

exercise priceYear to December 31, 2002 $ Number of shares

Outstanding as of beginning of period 10.80 16,249,844Granted 8.49 6,179,894Exercised 3.52 (1,940,546)Forfeited 11.07 (437,895)




186,052 options were granted under the Sharesave Scheme at a price of £5.02 (approximately $8.08). These options were grantedwith 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 beforeinvitations were issued to employees.


Options outstanding as of December 31, 2004 have the following characteristics:Weighted Weighted

Weighted average exercise Number of average exerciseExercise prices average price of options options price of options

Number of options outstanding $ remaining life outstanding exercisable exercisable

4,710 1.01-2.00 2.0 1.3 4,710 1.31 3.01-4.00 1.0 3.5 1 3.5

31,859 4.01-5.00 1.4 4.8 31,859 4.87,620 5.01-6.00 3.7 5.2 7,620 5.2

6,082,929 6.01-7.00 8.8 6.5 302,463 6.71,599,393 7.01-8.00 6.7 7.3 – –

45,500 8.01-9.00 3.0 8.1 30,306 8.13,415,615 9.01-10.00 8.1 9.5 719,837 9.18,373,989 10.01-11.00 9.5 10.2 36,945 10.7

188,592 11.01-12.00 5.6 11.6 110,592 11.7148,364 12.01-13.00 3.0 12.2 148,364 12.2

3,550,875 13.01-14.00 3.1 13.7 3,546,694 13.722,757 14.01-15.00 3.2 15.0 22,757 15.075,319 15.01-16.00 5.1 15.6 75,319 15.619,106 16.01-17.00 2.1 16.3 8,768 16.2

173,491 17.01-18.00 6.1 17.5 173,491 17.51,250,333 19.01-20.00 4.4 19.7 1,169,897 15.2

193,500 23.01-24.00 6.2 24.0 191,087 24.02,159,672 24.01-25.00 7.2 24.3 2,147,999 3.4

27,343,625 8,728,709

29 Subsequent event

NRP104In January 2005, the Company entered into an agreement with New River Pharmaceuticals Inc. to collaborate in developing,manufacturing, marketing and selling NRP104 in the US. In the rest of the world, the Company acquired the license to develop andcommercialize NRP104.

The Company paid an initial sum of $50 million on signing, and there is a further $50 million due upon acceptance of filing of the New Drug Application by the FDA and up to $300 million in milestone payments following the first commercial sale depending on thecharacteristics of the FDA approved product labeling. A $5 million milestone payment is payable following the first commercial sale in specified European countries. An additional $100 million milestone would be payable as a sales bonus upon achieving a significantsales target.

The Company may be entitled to refunds of amounts previously paid in the event of a delayed product approval.



96

Quarterly results of operations (unaudited)The following table presents summarized unaudited quarterly results for the years to December 31, 2004 and 2003.

The 2003 results for all quarterly periods and Q1, 2004 presented have been restated to reflect the disposal of the vaccines businesswhich has been accounted for as a discontinued operation. See Note 3 for further details.

Q1 Q2 Q3 Q42004 $’000 $’0001 $’000 $’000

Total revenues 323,600 320,960 344,909 373,738Operating income 114,230 110,214 113,054 108,944Net income 74,574 34,007 77,040 83,386

Earnings per share – basic 15.0¢ 6.9¢ 15.5¢ 16.8¢

Earnings per share – diluted 14.7¢ 6.8¢ 15.3¢ 16.7¢

Q1 Q2 Q3 Q42003 $’000 $’000 $’000 $’000

Total revenues 302,725 298,209 283,378 327,258Operating income 96,150 102,649 97,573 123,215Net 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¢

1 The results for Q2 2004 include the loss on disposal of $44.2 million relating to the vaccines business.

During Q3 2004 the Company recorded a loss on redemption of the convertible loan notes of $7.4 million, which resulted from thewrite-off of unamortized debt issuance costs. Diluted EPS would have been 15.4¢, or 0.1¢ higher, without this loss on redemption.


Shire Pharmaceuticals Group plc Five-year review

97

Restated Restated Restated Restated2004 2003 2002 2001 2000

Year to December 31, $’000 $’000 $’000 $’000 $’000

Statement of operations:Total revenues 1,363,207 1,211,570 1,023,250 845,062 635,423Total operating expenses1 (916,765) (791,983) (674,291) (663,389) (475,978)

Operating income 446,442 419,587 348,959 181,673 159,445Total other income/(expense), net2 13,452 (13,240) (2,132) (37,989) 10,899

Income from continuing operations before income taxes, equity in earnings/ (losses) of equity method investees and discontinued operations 459,894 406,347 346,827 143,684 170,344Income taxes (129,103) (107,353) (88,350) (67,781) (43,564)Equity in earnings/(losses) of equity-method investees 2,508 (1,057) 1,668 1,985 (3,809)

Income from continuing operations 333,299 297,937 260,145 77,888 122,971(Loss)/income from discontinued operations, net of tax (20,135) (21,886) (11,659) (39,129) 88,756(Loss)/gain on disposition of discontinued operations, net of tax (44,157) – 2,083 – –

Net income3 269,007 276,051 250,569 38,759 211,727

Earnings per share – basicIncome from continuing operations 67.2¢ 59.8¢ 51.9¢ 15.8¢ 25.4¢(Loss)/income from discontinued operations (4.1¢) (4.4¢) (2.3¢) (7.9¢) 18.4¢(Loss)/gain on disposal of discontinued operations (8.9¢) – 0.4¢ – –

54.2¢ 55.4¢ 50.0¢ 7.9¢ 43.8¢

Earnings per share – dilutedIncome from continuing operations 65.9¢ 58.4¢ 50.8¢ 15.4¢ 24.9¢(Loss)/income from discontinued operations (4.0¢) (4.2¢) (2.2¢) (7.7¢) 17.9¢(Loss)/gain on disposal of discontinued operations (8.6¢) – 0.4¢ – –

53.3¢ 54.2¢ 49.0¢ 7.7¢ 42.8¢

Weighted average number of shares:Basic 496,306,604 498,212,826 500,687,594 492,594,226 482,890,070Diluted 511,267,432 518,967,395 522,418,246 504,875,587 494,691,805

Restated Restated Restated Restated2004 2003 2002 2001 2000

December 31, $’000 $’000 $’000 $’000 $’000

Balance sheets:Total current assets 1,928,949 1,794,118 1,467,096 1,140,555 695,853Total assets 2,714,879 2,585,191 2,208,623 1,910,731 1,548,495Total current liabilities 431,951 253,675 214,504 231,616 227,850Total liabilities 464,226 662,065 635,457 647,742 374,109Total shareholders’ equity 2,250,653 1,923,126 1,573,166 1,262,989 1,174,386

1 Total operating expenses include reorganization costs of $48.5 million and $23.9 million in 2004 and 2003, respectively. These were in respect of the implementation of the new business model in 2004 and the closure of Lead Optimization together with the exit of certain properties in 2003. Included in 2001 were $29.7 million of asset impairment charges, $83.5 million of merger transactionexpenses and $10.2 million of costs in relation to the disposition of certain assets. All of these costs were in relation to the merger with BioChem in 2001.

2 Total other income, net includes $14.9 million on the sale of a portfolio investment in 2004. In 2001 there was a $55.7 million write-down of investments related to the BioChem merger.

3 As a consequence of the adoption of SFAS No.142, ‘Goodwill and Other Intangible Assets’ (SFAS No.142), with effect from January 1, 2002, the amortization expense shown for 2001 and 2000 in the selected consolidated financial data presented is not on a consistent basis of accounting with subsequent periods. Net income for 2001 and 2000 would have been $49.5 million and$223.0 million, respectively.


Shire Pharmaceuticals Group plc Summary financial statement for the year ended 31 December 2004

98

GeneralThe summary financial statement does not contain sufficientinformation to allow for as full an understanding of the results andstate of affairs of the Company or Group and of the policies andarrangements concerning directors’ remuneration, as would be provided by the full annual financial statements and reports.The summary financial statement is prepared under UK GAAP.For further information, the full UK statutory accounts, theauditors’ report on those accounts and the Directors’ reportshould be consulted.

In accordance with Section 239 of the Companies Act 1985shareholders have a right and can elect to obtain the full reportand accounts free of charges by writing to:

The Company SecretaryShire Pharmaceuticals Group plcHampshire International Business ParkChinehamBasingstokeHampshire RG24 8EP

The full UK statutory annual accounts are signed on behalf of theBoard by AC Russell, Chief Financial Officer.

The Company’s auditors have given an unqualified report on thestatutory accounts for the year ended 31 December 2004. Thereport did not contain any statement under Section 237 (2) or (3) of the Companies Act 1985.

Summary directors’ report

Results and dividendsThe profit on ordinary activities before taxation of the Group was£57.4 million (2003: loss of £298.3 million). The net assets of theGroup as at 31 December 2004 were £2,232.2 million (2003:£2,308.5 million).

Business reviewA review of the Group’s business and important events during theyear and likely future developments is set out in the Chairman’sstatement, the Chief Executive Officer’s review, the financial reviewand the Directors’ remuneration report in the full UK statutoryannual accounts, which are similar to the statements contained inthe annual review at the front of this document which form part ofthis summary financial statement.

Directors The Directors who served during the year were as follows:

Dr James CavanaughChairman, non-executive Director (Chairman of the Nomination Committee)

Mr Matthew EmmensChief Executive Officer

Mr Angus RussellChief Financial Officer

Dr Barry PriceSenior non-executive Director(Chairman of the Remuneration Committee)

The Hon James GrantNon-executive Director

Mr Ronald NordmannNon-executive Director (Chairman of the Audit Committee until July 2004)

Mr Robin BuchananNon-executive Director

Mr David Kappler(appointed 5 April 2004)Non-executive Director(Chairman of the Audit Committee with effect from July 2004)

Dr Wilson Totten(stepped down 25 May 2004)Chief Scientific Officer

Mr Angus RussellChief Financial Officer15 April 2005



99

Independent Auditors’ Statement to the Members of ShirePharmaceuticals Group plc:We have examined the summary financial statement whichcomprises the summary Directors’ report, consolidated profit andloss account, consolidated balance sheet, consolidated cash flowstatement, the consolidated statement of total recognised gainsand losses and Notes 1 to 4 of the summary financial statements.

This report is made solely to the Company’s members, as a body,in accordance with Section 251 of the Companies Act 1985. Our work has been undertaken so that we might state to theCompany’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assumeresponsibility to anyone other than the Company and theCompany’s members as a body, for our audit work, for this report, for our audit report, or for the opinions we have formed.

Respective responsibilities of Directors and auditorsThe Directors are responsible for preparing the annual review andsummary financial statement in accordance with applicable UnitedKingdom law. 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 relevantrequirements of Section 251 of the Companies Act 1985 and theregulations made thereunder. We also read the other informationcontained in the annual review and summary financial statementas described in the contents section, and consider the implicationsfor our report if we become aware of any apparent misstatementsor material inconsistencies with the summary financial statement.

Basis of opinionWe conducted our work in accordance with bulletin 1999/6 The Auditors’ Statement on the Summary Financial Statementissued by the Auditing Practices Board for use in the UnitedKingdom. We have not considered the effects of any eventsbetween the date on which we signed our report on the annualaccounts (24 March 2005) and the date of this statement.

OpinionIn our opinion, the summary financial statement is consistent withthe full annual accounts, the Directors’ report and the Directors’remuneration report of Shire Pharmaceuticals Group plc for theyear ended 31 December 2004 and complies with the applicablerequirements of Section 251 of the Companies Act 1985 and theregulations made thereunder.

Deloitte & Touche LLPChartered Accountants and Registered Auditors Reading18 April 2005



100

Consolidated profit and loss account2004 2003£’000 £’000

Turnover: Group and share of joint venture 752,362 749,853Less: share of joint venture’s turnover – (3,594)

Continuing operations 752,362 746,259Discontinued operations 2,169 14,809

Group turnover 754,531 761,068Cost of sales (84,477) (102,384)

Gross profit 670,054 658,684Net operating expenses (2004: including £81,185,000exceptional goodwill impairment, 2003: £426,362,000) (604,359) (958,619)

Operating profit/(loss) 65,695 (299,935)

Continuing operations – Group 76,353 (285,303)Discontinued operations (10,658) (14,632)

65,695 (299,935)

Share of joint venture’s operating loss – (2,806)Share of associate’s operating profit 37 –Profit on disposal of fixed asset investment 8,264 698Loss on sale of discontinued operations (23,191) –Finance income, net 6,630 3,702

Profit/(loss) on ordinary activities before taxation 57,435 (298,341)Tax on profit/(loss) on ordinary activities (70,866) (65,014)

Loss for the financial year (13,431) (363,355)Dividends paid (1 penny per share) (4,967) –Dividends proposed (2 pence per share) (9,952) –

Retained loss for the year transferred from reserves (28,350) (363,355)

Loss per shareBasic (2.7)p (72.9)pDiluted (2.7)p (72.9)p

Consolidated statement of total recognised gains and lossesYear ended Year ended

31 December 31 December2004 2003£’000 £’000

Loss for the financial year (13,431) (363,355)Translation of the financial statements of overseas subsidiaries (55,510) (47,157)

Total recognised gains and losses relating to the year (68,941) (410,512)



101

Consolidated balance sheet31 December 31 December

2004 2003£’000 £’000

Fixed assetsIntangible assets – intellectual property 160,033 171,548Intangible assets – goodwill 1,204,056 1,365,583Tangible assets 68,415 97,054Fixed asset investments 52,721 33,269

1,485,225 1,667,454

Current assetsStocks 21,475 25,282Debtors– due within one year excluding deferred tax 157,089 141,046– due within one year – deferred tax 40,097 36,049– due after more than one year excluding deferred tax 20,259 9,224– due after more than one year – deferred tax 4,023 –Current asset investments 169,199 169,895Restricted cash 11,265 25,962Cash at bank and in hand 581,500 595,708

1,004,907 1,003,166

Creditors: amounts falling due within one year (237,446) (141,722)

Net current assets 767,461 861,444

Total assets less current liabilities 2,252,686 2,528,898

Creditors: amounts falling due after more than one yearConvertible debt (60) (202,659)Other creditors (20,415) (17,739)

(20,475) (220,398)

Net assets 2,232,211 2,308,500

Capital and reservesCalled-up share capital 24,246 23,895Treasury shares (137) –Share premium 3,279,593 3,218,695Exchangeable shares 137,825 190,425Capital reserve 3,135 3,135Other reserves 24,247 24,247Profit and loss account (1,236,698) (1,151,897)

Equity shareholders’ funds 2,232,211 2,308,500



102

Consolidated cash flow statement2004 2003£’000 £’000

Net cash inflow from operating activities 273,732 280,275Returns on investments and servicing of finance:Interest and other income received 14,524 13,165Interest paid (7,856) (9,404)Interest element of finance lease rentals (38) (59)Distribution from investments 672 –

Net cash inflow from returns on investments and servicing of finance 7,302 3,702

Taxation:Foreign corporation tax paid (65,761) (66,874)

Capital expenditure and financial investments:Purchase of investments (4,818) (3,447)Purchase of intangible assets (16,299) (30,238)Purchase of tangible fixed assets (33,445) (31,400)Proceeds from sale of investments 15,074 –Proceeds from sale of intangible assets 1,918 –Proceeds from sale of tangible fixed assets 9,587 1,060

Net cash outflow for capital expenditure and financial investments (27,983) (64,025)

Acquisitions and disposals:Proceeds from sale of a business 17,106 559

Net cash inflow from disposals 17,106 559

Equity dividends paid (4,967) –Cash inflow before management of liquid resources and financing 199,429 153,637

Management of liquid resources:(Decrease)/increase in cash placed on short-term deposit (9,017) 17,848

Financing:Issue of ordinary share capital 423 –Exercise of share options 7,285 3,114Repurchase of ordinary share capital (137) (31,808)Capital element of finance lease rentals (3,364) (160)Net decrease in debt during the year (199,918) (18,053)

Net cash outflow from financing (195,711) (46,907)

(Decrease)/increase in cash in the year (5,299) 124,578


Shire Pharmaceuticals Group plc Notes to the summary financial statement for the year ended 31 December 2004

103

1 Basis of preparation

The summary financial statement has been prepared in accordance with the accounting policies set out in the full UK statutory annualaccounts for the year ended 31 December 2004.

2 Directors’ remuneration

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

2004 2003£’000 £’000

Emoluments 2,592 2,256Money purchase pension contributions 278 4,676Gains on exercise of share options 118 114Amounts receivable under long-term incentive schemes 86 276Compensation for loss of office – 1,335

3,074 8,657

Directors’ emoluments Cash Non-cash Total Total

Salary Bonus Fees benefits in kind benefits in kind 2004 2003Director £’000 £’000 £’000 £’000 £’000 £’000 £’000

ExecutiveMr Matthew Emmens 545(i) 437 – 437(ii) – 1,419 699Mr Angus Russell 342 257 – 11 4 614 499Dr Wilson Totten(iii) 142 107 – 4 3 256 531Mr Rolf Stahel(iv) – – – – – – 311

1,029 801 – 452 7 2,289 2,040

Non-executiveDr James Cavanaugh(v) – – 75 – – 75 54Dr Barry Price – – 60 – – 60 43The Hon James Grant – – 40 – – 40 35Mr Ronald Nordmann – – 54 – – 54 45Mr Robin Buchanan – – 40 – – 40 16Mr David Kappler(vi) – – 34 – – 34 –Dr Francesco Bellini(vii) – – – – – – 11Mr Gerard Veilleux(vii) – – – – – – 12

– – 303 – – 303 216

Total 1,029 801 303 452 7 2,592 2,256

Notes(i) Paid in US$, Mr Emmens’ annual salary in 2004 was $999,319.

(ii) The Company underwent a major internal reorganisation in 2004 which resulted in the Company selecting Philadelphia as its UScorporate headquarters. Mr Emmens was paid £420,339 in connection with costs associated with his relocation to the Philadelphia area.

(iii) Dr Totten stepped down as a Director of the Company on 25 May 2004.

(iv) Mr Stahel stepped down as a Director of the Company on 19 March 2003.

(v) The Chairman’s fee in 2004 was £100,000. Dr Cavanaugh elected to receive £75,000.

(vi) Mr Kappler was appointed a non-executive Director on 6 April 2004.

(vii)Dr Bellini and Mr Veilleux stepped down as non-executive Directors of the Company on 10 May 2003.


Shire Pharmaceuticals Group plc Notes to the summary financial statement for the year ended 31 December 2004

104

3 Loss per share

Basic EPS is based on the net profit or loss attributable to ordinary shareholders divided by the weighted average number of ordinaryshares outstanding during the year.

Diluted EPS is based on the net profit or loss attributable to ordinary shareholders divided by the weighted average number of ordinaryshares outstanding during the year and adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

Share options to purchase approximately 16.6 million ordinary shares for the year to 31 December 2004 were not dilutive and weretherefore excluded from the computation of loss earnings per share (2003: 17.0 million).

Warrants to purchase approximately 1.3 million ordinary shares for the year to 31 December 2003 were not dilutive and were thereforeexcluded from the computation of loss per share.

The $370 million convertible loan note is excluded from the calculation of weighted average number of shares for fully diluted loss pershare for the year to 31 December 2004 and 2003 as it was not dilutive.

Basic and diluted

2004 2003£’000 £’000

Loss for the financial year (13,431) (363,355)

The weighted average number of shares used in each year are as follows:2004 2003

Number Number

For basic and diluted EPS 496,306,604 498,212,826

4 Operating profit/(loss)

Operating profit/(loss) is stated after charging/(crediting):2004 2003£’000 £’000

Depreciation and amounts written off tangible fixed assets– owned 12,409 18,772– held under finance leases and hire purchase contracts 107 597Amortisation and amounts written off intellectual property 29,164 30,405Amortisation and amounts written off goodwill 158,283 533,115Research and development 112,534 131,654Reorganisation costs 26,529 14,597Government grants (14) (2,169)Operating lease rentals– plant and machinery 3,580 3,591– other 3,541 3,868Auditors’ remuneration for audit services– Group(1) 1,715 630– Company(1) 60 20Auditors’ remuneration for non-audit services– Group audit related(2) 1,172 1,015– Group tax(3) 2,583 1,145– Group other(4) 100 177– Company other(4) – 75

(1) Audit fees consisted of audit work only the Company’s auditors can reasonably be expected to perform, such as statutory audits, and in 2004 included the audit in relation to internal control over US GAAP Form 10-K financial reporting.

(2)Audit related fees consist of work generally only the Company’s auditors can reasonably be expected to perform, such as proceduresrelating to regulatory filings.

(3)Tax fees consisted principally of assistance with matters related to compliance, planning and advice in various tax jurisdictions.

(4)All other fees relate to assistance in CSR and executive remuneration.


Shire Pharmaceuticals Group plc Shire head office and main operating locations

105

Shire Pharmaceuticals Group plcChief Executive Officer: Matthew EmmensHampshire International Business ParkBasingstoke, Hampshire RG24 8EPUnited KingdomTel +44 (0)1256 894000Fax +44 (0)1256 894708

Shire Pharmaceuticals LtdManaging Director: John FreemanHampshire International Business ParkBasingstoke, Hampshire RG24 8EPUnited KingdomTel +44 (0)1256 894000Fax +44 (0)1256 894708

Shire Pharmaceuticals Ireland LtdGeneral Manager: Brian MartinBuilding 1A, Citylink Business ParkOld Naas Road, Dublin 12IrelandTel + 353 1 429 7700Fax + 353 1 429 7701

Shire Pharmaceutical Contracts Ltd(Singapore representative office)Managing Director: Tony OoiLiFung Centre5 B, Toh Guan Road East, # 03-09ASingapore 608829Tel +65 6665 2795Fax +65 6665 2797

Shire Deutschland GmbH & Co KGManaging Director: Leonhard TerpSiegburger Straße 126D-50679 KölnGermanyTel +49 221 8 80 47 30Fax +49 221 8 80 47 41

Shire France S.A.Managing Director: Vincent Lucet88, rue du Dôme92514 Boulogne-Billancourt CedexFranceTel +33 (0)146 10 90 00Fax +33 (0)146 08 21 49

Shire Italia S.p.A.Managing Director: Gian Piero ReverberiVia Provinciale Lucchese, 7050019 Sesto F. No (FI)ItalyTel +39 (0)55 3025050Fax +39 (0)55 3025051

Shire Pharmaceuticals Iberica SLManaging Director: José Antonio Senz de BrotoPº Pintor Rosales, nº 40, Bajo Izda.28008 MadridSpainTel +34 915 500 691Fax +34 915 493 695

Shire US Inc.President: Matthew Emmens725 Chesterbrook Blvd.Wayne, Pennsylvania 19087-5637USATel +1 484 595 8800Fax +1 484 595 8900

Shire US Manufacturing Inc.EVP Global Supply Chain & Quality: John Lee11200 Gundry LaneOwings Mills, Maryland 21117USATel +1 410 413 1000Fax +1 410 413 2000

Shire Laboratories Inc.President and Chief Executive Officer: Jack Khattar1550 East Gude DriveRockville, Maryland 20850USATel +1 301 838 2500Fax +1 301 838 2501

Shire Pharmaceutical Development Inc.Senior Vice President: Simon Tulloch725 Chesterbrook Blvd.Wayne, Pennsylvania 19087-5637USATel +1 484 595 8800Fax +1 484 595 8900

Shire BioChem Inc.Vice President and General Manager: Claude Perron2250 Alfred-Nobel Blvd., Suite 500Ville Saint-Laurent, Québec H4S 2C9CanadaTel +1 514 787 2300Fax +1 514 787 2427


Shire Pharmaceuticals Group plc Shareholder information

106

Registered office addressHampshire International Business ParkBasingstoke, Hampshire RG24 8EPUnited KingdomRegistered in EnglandNo. 2883758

Investor relationsEurope and Rest of the World: Cléa RosenfeldTel + 44 (0)1256 894160Fax + 44 (0)1256 894708Email [email protected]

North America: Brian PiperTel +1 484 595 8800Fax +1 484 595 8151Email [email protected]

www.shire.com

Registrars and transfer officeAll administrative enquiries relating to shareholdings should be addressed to Lloyds TSB Registrars, clearly stating the registered shareholder’s name and address.

Lloyds TSB RegistrarsCustomer Services, The CausewayWorthing, West Sussex BN99 6DAUnited KingdomTel +44 870 600 3970

US Shareholders(i) ADSsThe Company’s American Depository Shares (ADSs), eachrepresenting three ordinary shares, are listed on the NASDAQnational market under the symbol ‘SHPGY’. The Company filesreports and other documents with the Securities and ExchangeCommission (SEC) which are available for inspection and copying at the SEC’s public reference facilities or can be obtainedby writing to the Company Secretary.

(ii) ADS DepositaryMorgan Guaranty Trust Company of New York is the depositaryfor Shire Pharmaceuticals Group plc ADSs. All enquiriesconcerning ADS records, certificates or transfer of ordinary shares into ADSs should be addressed to:

Morgan Guaranty Trust Company of New YorkPO Box 8205Boston, Massachusetts 02266-8205USATel +1 781 575 4328Fax +1 781 575 4088

Canadian Shareholders(i) Exchangeable Shares of Shire Acquisition Inc.Exchangeable shares in Shire Acquisition Inc. are convertibleinto three ordinary shares of Shire or one ADS representing threeordinary shares of Shire. Exchangeable shares trade on theToronto Stock Exchange under the symbol ‘SHQ’. Shire’s ordinaryshares are listed on the London Stock Exchange and Shire’s ADSs are listed on the NASDAQ national market.

(ii) Trustee for Exchangeable ShareholdersNatcan Trust Company, a wholly owned subsidiary of the NationalBank of Canada, acts as Trustee for Exchangeable Shareholders.All enquiries concerning Exchangeable Share records orconversions of Exchangeable Shares into ordinary shares of Shire or ADSs should be addressed to:

Natcan Trust Company1100 University StreetSuite 900Montreal, Québec H3B 2G7CanadaTel +1 514 871 7171

+1 800 341 1419Fax +1 514 871 7442


Shire Pharmaceuticals Group plc Shire Trade Marks | Cautionary statements

107

Shire Trade MarksADDERALL XR® (mixed amphetamine salts)ADDERALL® (mixed amphetamine salts)AGRYLIN® (anagrelide hydrochloride)AMATINE® (midodrine hydrochloride)CALCICHEW® (calcium carbonate)CALCICHEW D3 FORTE® (calcium carbonate)CARBATROL® (carbamazepine)COLAZIDE® (balsalazide)EQUETRO™ (carbamazepine)FOSRENOL® (lanthanum carbonate)METHYPATCH® (methylphenidate)MICROTROL®

PROAMATINE® (midodrine hydrochloride)SOLARAZE® (diclofenac sodium 3%)TROXATYL® (troxacitabine)VANIQA® (eflornithine hydrochloride)XAGRID® (anagrelide hydrochloride)

Third-party Trade Marks3TC® (lamivudine) (trade mark of GSK)COMBIVIR® (trade mark of GSK)EPIVIR® (trade mark of GSK)EPIVIR-HBV® (trade mark of GSK)HEPTOVIR® (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)

Cautionary statementsStatements included herein that are not historical facts areforward-looking statements. Such forward-looking statementsinvolve a number of risks and uncertainties and are subject to change at any time. In the event such risks or uncertaintiesmaterialize, Shire’s results could be materially affected. The risksand uncertainties include, but are not limited to, risks associatedwith the inherent uncertainty of pharmaceutical research, productdevelopment, manufacturing and commercialization, the impact of competitive products, including, but not limited to, the impact of those on Shire’s Attention Deficit Hyperactivity Disorder (ADHD)franchise, patents, including but not limited to, legal challengesrelating to Shire’s ADHD franchise, government regulation andapproval, including but not limited to Health Canada’s suspensionof ADDERALL XR sales in Canada and the expected productapproval dates of METHYPATCH® (MTS) (ADHD), SPD503(ADHD), SPD465 (ADHD), SPD476 (ulcerative colitis), and NRP104 (ADHD), including its scheduling classification by theDrug Enforcement Agency in the United States, Shire’s abilityto secure new products for development, and other risks anduncertainties detailed from time to time in Shire’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2004.

The statements of the individuals and medical practitionersappearing in the operating review on pages 8 to 23 of thisdocument have been made by and represent the views of thenamed individuals. The views represented are those of the named medical practitioners and should not necessarily be taken to represent the views of Shire.


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The paper used in this publication is Elemental Chlorine Free (ECF) sourcedfrom sustainably managed forests. The mill is accredited to both ISO14001 and EMAS.


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Shire Pharmaceuticals Group plcHampshire International Business ParkBasingstoke, Hampshire RG24 8EPUnited KingdomTel +44 (0)1256 894000Fax +44 (0)1256 894708www.shire.com

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