Shire Pharmaceuticals Group plc Annual review and summary financial statement 2003

Shire: a focused globalpharmaceutical company

Focusing on a bright future

Shire Pharmaceuticals Group plc The Shire mission

Our mission is to become the leadingcompany in meeting the needs of thespecialist physician.

We want to achieve this by developing andmarketing products of the highest qualityfor the treatment of serious diseases,which are treated by medical specialists.

We aim to provide high quality and effectiveproducts that enhance the health andquality of life of people around the worldand contribute to the long-term businesssuccess of our Company, to the benefit of all our stakeholders.

We are driven by the needs of all ourstakeholders: patients, their families andcaregivers, doctors and medical specialists,employees and partner companies, thecommunity in which we live and work and,of course, our shareholders.

We also want to be the employer of choicein our sector, attracting and retaining highlyskilled and talented people, who play an active part in the development of ourCompany, by rewarding excellence andrecognising individual contributions.

Contents01 Financial highlights02 Chairman’s statement04 Chief Executive Officer’s review06 Product portfolio07 Product development pipeline08 Operating review22 CSR: Corporate and social

responsibility24 Financial review28 Board of Directors30 The Executive Committee32 Directors’ remuneration report44 Corporate governance

statement

Financial Statements48 Statement of Directors’

responsibilities – Report ofindependent auditors

49 Consolidated balance sheets50 Consolidated statement

of operations51 Consolidated statements of

changes in shareholders’ equity52 Consolidated statements

of cash flows53 Notes to the consolidated

financial statements87 Five-year review88 Summary financial statement93 Notes to summary

financial statement

Other94 Shire head office and main

operating locations95 Shareholder information96 Trade marks – Cautionary

statements

01

+19%

Shire Pharmaceuticals Group plc Financial highlights

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

Revenue growth $m2003: 1,237.12002: 1,037.3

Revenue $m2003: 1,237.12002: 1,037.3 +19%

Diluted EPSordinary shares2003: 54.2 cents2002: 49.0 cents +11%

Sources of revenue %

Sources of revenue $m

Revenue by reportingsegment %

Diluted EPS: ADS

2003: 162.6 cents2002: 147.1 cents +11%

Revenue growth over lastfive years

R&D spend $m2003: 215.82002: 189.2 +14%

Operating income $m2003: 394.62002: 327.0 +21%

03

02

03

02

03

02

03

02

00 $647.7m

99 $515.4m

02 $1,037.3m

03 $1,237.1m

01 $853.0m

03

02

1. ADDERALL/ADDERALL XR 432. AGRYLIN 113. PENTASA 84. CARBATROL 45. PROAMATINE 46. CALCICHEW 27. OTHERS 118. ROYALTIES 17

1. ADDERALL/ADDERALL XR 535.62. AGRYLIN 132.53. PENTASA 99.34. CARBATROL 52.45. PROAMATINE 49.36. CALCICHEW 28.97. OTHERS 135.58. ROYALTIES 203.6

1. US 692. International 143. Biologics 24. Corporate 15

1

234

567

8

1

234

567

8

1

2

34

02 Shire Pharmaceuticals Group plc Chairman’s statement

The international pharmaceutical industry haschanged considerably during the last decade and this continued in 2003. Our view at Shire is that, whatever their size, successfulpharmaceutical companies now require focus,particularly in their product markets, customerbase, research and development and cost control.Unsurprisingly, these are areas that we focusedon in 2003 and will continue to do so in thecurrent year. We have achieved clear success to date and through greater focus expect more to follow in 2004 and beyond.

Within his short time as Chief Executive Officer,Matthew Emmens has shaped Shire for its future. Our newly deployed strategic model is designed to optimise the opportunities for us and deal with future challenges within theindustry. Shire will position itself as the leadingcompany in meeting the needs of the specialistphysician with a focus on fewer, later stage andlower risk projects. This means that we don’tinvent products but acquire them. Therefore weare focusing on not only the type of deals thatgive us a good pipeline, but how to best developthem with ultimate market success in mind. We will continue to enhance our positions in the key areas of Central Nervous System (CNS),Gastrointestinal (GI) and renal medicine, whileremaining alert for new therapeutic areas thatwould benefit from our expertise.

Shire’s sales force continues to deliver impressiveresults and its reputation amongst specialistphysicians makes it a partner of choice when it comes to potential acquisitions and in-licensingprojects and products. Our strong cash positiongives us considerable flexibility in looking at potential mergers and acquisitions (M&A)opportunities and we have identified a smallnumber of highly attractive targets.

2003 resultsIn 2003, Shire once again produced strongfinancial results. Income from continuingoperations, before income taxes and equitymethod investees, increased 17% to US$384.5million. Revenues were up 19% to US$1,237.1million. Diluted earnings per ordinary share was 54.2 cents.

Significantly, Shire’s cash position remained strongwith net cash of US$1,036 million, an increase of US$230 million on 2002, which will be used for future expansion.

The BoardWe continue to develop the Shire Board to match the demands of what is now a large,international business in a changingpharmaceutical marketplace.

In line with newly published regulations oncorporate governance, Shire has talked to arange of shareholders and taken advice on howto best meet these guidelines. A programme ofimplementation is underway and more detail canbe found in the corporate governance statementof this document on page 44.

In March 2003, Matthew Emmens was appointedas Chief Executive Officer. He has a strong track record of success over an internationalpharmaceutical career spanning nearly 30 years.Matthew was a founder of the joint venture AstraMerck Inc. in the US, and later its President andChief Executive. Before joining Shire, he wasPresident of the global pharmaceutical businessof Merck KGaA in Germany.

We have achieved clear success to date andthrough greater focus expect more to followthrough 2004 and beyond

Dr James CavanaughChairman

Shire Pharmaceuticals Group plc Chairman’s statement 03

We are confident of delivering sustainedgrowth in 2004 and beyond, following themomentum we developed in 2003

In July 2003, Shire’s Board appointed RobinBuchanan as a new non-executive Director. He is a member of the Company’s RemunerationCommittee. Robin is the Senior Partner of theLondon office of business consultants Bain & Company and a member of the firm’sworldwide management committee. Since joiningBain & Company in 1982, he has been involvedin strategy development and organisation advicefor Bain’s clients in most industry sectors,including healthcare.

On 10 March 2004, we announced that David Kappler will join the Shire Board as a non-executive Director in April and will takeover the Chairmanship of the Audit Committee in July 2004. David recently retired as ChiefFinancial Officer of Cadbury Schweppes plc, the FTSE and NYSE listed global confectioneryand beverages group, where he held a range of senior finance positions during his almost 40-year career with the group.

While welcoming Matthew, Robin and David, I would also like to thank Francesco Bellini and Gérard Veilleux for the contribution they have made to the Board, having completed their two-year contracts with Shire.

PeopleShire had 1,815 employees worldwide as of 31 December 2003. We believe strongly in the importance of hiring well-qualified,experienced staff with proven records of success.The Group’s future progress depends upon its ability to attract and retain such individuals.Shire will continue to apply and develop a strongfocus on staff recruitment and development at all levels.

Current trading and future prospectsThe Company is trading in line with ourexpectations. Shire has well-established positionsin growing markets, a well defined strategy, strongcash resources and a promising pipeline of latestage drugs. Consequently, we are confident of delivering sustained growth in 2004, followingthe momentum we developed in 2003.

04 Shire Pharmaceuticals Group plc Chief Executive Officer’s review

In 2003, Shire once again delivered a very strong financial performance. During the summer,we began implementing a new strategy aimed at ensuring continued future growth. Since itsinception, Shire has grown through acquisitions,subsequent product development and effectivemarketing. This idea remains the foundation of our model. Some could say that it is ‘back to the future’ in that we will search (take the ‘re’from research), and then develop and market.But at this point in our history, this would beover-simplification. The Group has migrated from this simple idea, and making this proven conceptviable in today’s larger organisation has kept us very busy.

Starting in July, we began exiting certainbusinesses, changing our organisational structure,and reshaping our leadership. It is critical that we simplify, create a unified culture and, mostimportantly, integrate our drug development andcommercial activities. I believe that these actionsare the fundamental underpinnings that will enablethe organisation to create value in the longer term.

Our goal is clear – we plan to lead where wechoose to compete. Our opportunities lie inaddressing underserved markets and growingproducts beyond what the consensus of opinionmight be. We have done this consistently in the past. We have learned that with the rightproducts, small, agile and focused sales forcescan deliver impressive results.

Strategic actions in 2003 Focused R&DWe have re-focused our Research and Development(R&D) resources and technology to concentrateon areas where we have a commercial presenceand on a concentrated number of high-potential,late-stage products. After a thorough evaluationof our pipeline, we currently have six products inregistration, two in Phase III and two in Phase IIof development. This strategy aims to deliver the combined benefit of increased returns andlower risk.

Our model emphasises the ‘D’ in R&D. Therefore,our ‘R’ is based on finding products invented by others. I believe this is a sound idea because‘in house’ R&D has not met the needs of thelarger companies. During 2003, slightly less thanone-half of all products marketed by largepharmaceutical companies were not inventedthere. This percentage has increased steadilyover the last decade. Conversely, approximately70% of all Phase III* projects were developed by non-major pharmaceutical companies. Our conclusion is that pre-clinical research is becoming less predictable and the creativitymay lie in a diffuse cross-section of smallercompanies or in products that are too small to contribute in a meaningful way to the majorcompanies. Therefore, we are focusing ourlicensing efforts on products or projects in thelater stages of development with potential peaksales of US$150 million to US$500 million. This seems to keep us below what is relevant to large Pharma, but meaningful to us.

Exiting BusinessesAs we announced in August, we intend to exitour vaccines business. We have had numerousexpressions of interest and are currentlyexamining the options which will best suit our shareholders and the Company’s interests. In pursuing these options we expect to havecompleted the process by the middle of 2004.We have closed our early stage research (leadoptimisation) unit in Canada and closed USmanufacturing and distribution sites.

Mergers and acquisitions and out-licensingIn addition, as a result of exiting oncology andanti-infective research, we announced that wewould examine opportunities to out-license the oncology project, TROXATYL and to seek a partner for the HIV project, SPD754 – bothPhase II projects. We continue to expect both to be completed in the middle of 2004.

Our geographic focus is on the US and Europe.Therefore, we successfully out-licensed theJapanese marketing and development rights to AGRYLIN and FOSRENOL to two companieswith an established presence in this market.

Furthermore, we have significantly enhanced our M&A effort by targeting acquisitions in theUS, including larger scale transactions.

Matthew EmmensCEO

Our opportunities lie in addressing underservedmarkets and growing products beyond whatthe consensus of opinion might be

Shire Pharmaceuticals Group plc Chief Executive Officer’s review 05

Shire is stronger than ever, I am confidentthat the implementation of our strategicinitiatives will position us well for growth

Re-organisationGiven Shire’s merger history and rapiddevelopment, it was inevitable that a complexstructure had developed. In order to betterintegrate, co-ordinate and rationalise ourbusiness activities, we have embarked on a widereaching strategic change programme. The aim is to move the Group from a silo structure to a globally integrated organisation composed ofcross-functional teams with clear accountabilityfor delivering results. The business will also beserviced by support functions that will be globalin their outlook. I have changed our managementmodel to accomplish this. This resulted in changesto the composition of the Executive Committeeand the addition of two management components– The Portfolio Review Committee (PRC) and Portfolio Teams. I chair both the ExecutiveCommittee and the PRC and the Portfolio Teams report to the PRC.

The US is the world’s largest pharmaceuticalsmarket, where we already generate 69% of ourrevenues and where more than 50% of ouremployees are based. In recognition of this, we will establish a new corporate office in Wayne,Pennsylvania. In addition to the vaccine sites inCanada and the US that will be exited, we willclose our Newport, Kentucky and Rockville,Maryland sites.

The introduction of the Portfolio Teams and thehousing of R&D and US commercial functionsunder one roof will improve communication and focus, and speed up the process of makingdecisions. Other key corporate functions such as Business Development and Human Resourceswill also be located in the new US office.

Shire’s UK Basingstoke office will remain theCompany’s headquarters but all ExecutiveCommittee members will have offices in bothlocations to ensure management is spending timewhere the day-to-day business needs are greatest.The International division will continue to be ledfrom the UK and appropriate significant R&Dpresence will also be maintained in Basingstoketo serve the European markets.

We foresee having just four major North Americanfacilities by the end of 2005 compared with 14 at the beginning of 2003.

Patent challengesIt is inevitable that Shire will receive challenges,particularly from generic manufacturers, to its drugs portfolio – it is a reflection of today’spharmaceutical industry. Our position is clear: we will vigorously defend our IntellectualProperty, including patents.

Corporate social responsibility Our approach to corporate social responsibility(CSR) has also developed during the year withthe establishment of our CSR Committee led by our Chief Financial Officer Angus Russell, and the setting of 2004 objectives. We willcontinue to report regularly on these activities.

Future development Shire is stronger than ever and I am confidentthat the implementation of our strategic initiatives will position us well for future growth.The Company has a promising future with a strong product franchise, an energeticmanagement team and several very promisingprojects in the late stages of development thatshould be ready for launch in the near to midterm. Our aim during the forthcoming year is to continue to strengthen Shire’s position in its marketplaces and to develop the Companyinto one of the leading specialty pharmaceuticalcompanies in the world.

The year 2003 was exciting and challenging. The dedication and professionalism of ouremployees made our success possible. Their hard work and innovative approach willcontinue to ensure success for the Company in the years ahead.

*Source: IMS, R&D Focus January 2004.

06 Shire Pharmaceuticals Group plc Product portfolio

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

ADDERALL (mixed amphetaminesalts). ADDERALL is an immediate-release product indicated for thetreatment of attention deficithyperactivity disorder (ADHD).

ADDERALL XR (mixed amphetaminesalts). ADDERALL XR is indicated for the treatment of ADHD and is aonce-daily formulation of ADDERALL.It offers convenience to patients andcaregivers, and the potential forimproved compliance.

AGRYLIN (anagrelide hydrochloride).AGRYLIN is indicated for the treatmentof essential thrombocythaemia.Research indicates that a key benefitof AGRYLIN is its platelet selectivity,targeting only those cells that developinto platelets.

ADEPT (4% icodextrin solution).ADEPT is indicated for use as anintraperitoneal instillate for reduction of adhesions following abdominalsurgery. It acts by providing a temporaryseparation of peritoneal surfaces by hydroflotation.

ADDERALL® ADDERALL XR® ADEPT® AGRYLIN®

CARBATROL (carbamazepine).CARBATROL is marketed for thetreatment of epilepsy, combiningproven medication with advanceddrug delivery technology to enable a convenient twice-daily treatment.

CALCICHEW range (calcium carbonate).The CALCICHEW range of productsare calcium supplements (with orwithout vitamin D) used as adjunctivetreatments for osteoporosis.

PROAMATINE (midodrinehydrochloride). PROAMATINEis indicated for the treatment ofsymptomatic orthostatic hypotension.

PENTASA (mesalamine). PENTASAis indicated for the induction ofremission and treatment of patientswith mild to moderately activeulcerative colitis, using a uniquedelivery mechanism.

CALCICHEW® CARBATROL® PENTASA® PROAMATINE®

REMINYL(galantamine hydrobromide).REMINYL is indicated for thesymptomatic treatment of mild tomoderately severe dementia of theAlzheimer type. REMINYL differs fromother compounds in its class in that it has a dual mechanism of action.

SOLARAZE (diclofenac sodium 3%).SOLARAZE is indicated for thetreatment of actinic keratosis, a pre-cancerous skin condition.

ZEFFIX (lamivudine). ZEFFIXis indicated for the treatment of chronic hepatitis B infectionassociated with evidence of hepatitis B viral replication and acute liver inflammation.

3TC (lamivudine). 3TC, also marketedas EPIVIR®, in combination with otherantiretroviral agents is indicated for thetreatment of human immunodeficiencyvirus (HIV) infection. Lamivudine is acomponent of the combination HIVtreatments, COMBIVIR® and TRIZIVIR®.

REMINYL® SOLARAZE® ZEFFIX® 3TC®

07Shire Pharmaceuticals Group plc Project development pipeline

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

Indication Product Preclinical Phase I Phase II Phase III Registration

CNSBipolar disorder BIPOTROL®/SPD417Adult ADHD ADDERALL XRADHD METHYPATCH®

ADHD SPD503ADHD SPD473ADHD SPD465ADHD SPD483

GastrointestinalIBD* PENTASA 500mgIBD* SPD476IBD* SPD480

Strategic ProductsEssential XAGRID®

thrombocythaemiaHyperphosphataemia FOSRENOL®

Projects available for out-licensingAcute myeloid TROXATYL®

leukaemia/Pancreatic cancerHIV SPD754HIV SPD756Hepatitis C SPD760

*IBD: Inflammatory bowel disease

CARBATROL benefited from a re-launch in the US epilepsy marketin early 2003. A 5% prescriptionincrease over 2002 resulted.

REMINYL continued to perform well in 2003 with a 63% prescriptiongrowth in the UK, and 60% in the US over 2002.

08 Shire Pharmaceuticals Group plc Operating review

Operating review: Shire had an excellentand development portfolios. Continuedproducts and a number of progressions in

Product Highlights

PROAMATINE’s US prescriptiongrowth was 2% in 2003 following loss of US market exclusivity duringthe last quarter of 2003.

ADDERALL XR is one of the mostwidely prescribed ADHD treatments in the US with a 23% market share and 49% prescription growth over2002, despite increasing competitivepressures in this market.

2003 prescriptions for AGRYLIN(anagrelide hydrochloride), for reduction of elevated plateletcount, grew 7% over 2002.

PENTASA for the treatment ofulcerative colitis represented 10% ofShire’s product sales and maintainedan 11% share of the mesalamine/olsalazine market in 2003.

FOSRENOL (lanthanum carbonate) a phosphate-binder for use in patientswith end-stage renal disease (ESRD)received its first European approvalfrom Reference Member State (RMS),Sweden, in March 2004. ‘Approvable’letters were also received from theFDA for FOSRENOL and the expandedindication for use of ADDERALL XRin adults with attention deficithyperactivity disorder (ADHD).

Shire Pharmaceuticals Group plc Operating review

year in 2003 across both marketed prescription growth for the key marketedthe development portfolio were achieved

Project Highlights

Clinical programmes were initiated for ADDERALL XR andAGRYLIN to satisfy requests for data leading to a possible grant of six-months paediatric exclusivity.Data for AGRYLIN were submitted in March 2004.

SPD476 a high strength mesalaminebased formulation for the treatmentof ulcerative colitis entered Phase IIIof development.

SPD503 and SPD473, both non-stimulant treatments for ADHD,entered Phase III and II ofdevelopment respectively.

XAGRID (anagrelide hydrochloride), for reduction of elevated plateletcount received a Positive Opinionfrom the Committee for ProprietaryMedicinal Products (CPMP) for use in Europe.

09

Early in 2004 a regulatory filing was made to the US Food and DrugAdministration (FDA) for BIPOTROL(carbamazepine), previously knownas SPD417, an extended releaseformulation of carbamazepine for the treatment of bipolar disorder.

10 Shire Pharmaceuticals Group plc Operating review: CNS

11Shire Pharmaceuticals Group plc Operating review: CNS

Central nervous system (CNS): Shire hasestablished itself as a specialist leader in the development and commercialisationof CNS therapiesA strong ADHD franchiseShire continues to build its portfolio of productsfor the treatment of attention deficit hyperactivitydisorder (ADHD), one of the most commonchildhood psychiatric disorders.

Approximately 3 to 7% of male and femalechildren in the US are affected by ADHD. These children are often inattentive, impulsive or hyperactive, difficulties that affect their abilityto function normally in home, academic or socialsettings. Moreover, as many as two-thirds ofchildren with ADHD may continue to exhibitsymptoms into adulthood. While there is no curefor ADHD, it can usually be successfully managedwith a combination of treatments, includingeducational approaches, psychological andbehavioural therapies, and medication.

ADDERALL and ADDERALL XR (mixedamphetamine salts) constitute the market-leadingfranchise for prescriptions in ADHD. Immediate-release ADDERALL was launched in the US in 1996 and was Shire’s ADHD brand leader until the end of 2001. Applying Shire’s patentedMICROTROL® extended release technology, Shiredeveloped and launched ADDERALL XR in 2001,a novel formulation of ADDERALL, to provide an all-day treatment, with one morning dose.ADDERALL XR has a rapid onset of action,controlling symptoms throughout the day.ADDERALL XR has since become one of themost widely prescribed ADHD treatments in theUS with approximately 11 million prescriptions*and a 23% share* of the US prescription ADHD

market. Combined, over 35.3 millionprescriptions* have been written for ADDERALLand ADDERALL XR over the franchise’s eight-year history. ADDERALL XR also receivedmarketing approval in Canada in early 2004 and is now available on prescription.

The success of ADDERALL XR has been built on a thorough understanding of ADHD patientneeds, a strong heritage of assessing the safetyand efficacy of potential treatments, continuedinvestment in development, and a highly focusedcommercial organisation. In addition, Shire hascultivated and sponsored a national faculty of keyphysician educators and led initiatives to helpphysicians diagnose, treat, and optimise therapyfor patients with ADHD. Several studies werepresented and published during 2003; details canbe requested from Shire. All of these activitiesresulted in a 49% increase in US ADDERALL XRprescriptions over 2002, despite increasingcompetitive pressures in this market.

ADDERALL XR Adult: Shire can foresee significantopportunities in this relatively untreated sector of the market. According to the National Institutefor Mental Health, an estimated 8.2 million adultssuffer from ADHD, but only 600,000 are treated.Currently, an estimated 17% of ADDERALL XRprescriptions are for patients older than 18 years.After submitting a supplemental New DrugApplication (sNDA) for use of ADDERALL XR in adults, Shire received an ‘Approvable’ letterfrom the Food and Drug Administration (FDA) in October 2003.

I’ve worked with many differentpharmaceutical companies overthe last 18 years, but none as responsive and supportiveas Shire. Whether it’s topmanagement, or therepresentative who looks afterour centre, you can see thatthey really care about the qualityof their products, and about thequality of the information theyprovide about them.

We particularly rely onADDERALL and ADDERALL XRto treat young people at ourdevelopmental centre.

I’ve seen hundreds of kids makehuge strides as a result of takingthis drug – they do better atschool, they relate to peoplebetter, and their families find it much easier to live a normalhome life.

Dr Frank LopezNeuro-development PaediatricianChildren’s Developmental Centre, Maitland, Florida

ADDERALL XRADDERALL XR has becomeone of the most widelyprescribed ADHD treatments in the US.

*IMS Health data, January 2004

12 Shire Pharmaceuticals Group plc Operating review: CNS

Responses to the FDA’s letter were submitted in February 2004. A six-month review period is anticipated. Upon approval the adult indicationis expected to qualify for three-years Hatch-Waxman marketing exclusivity.

ADDERALL XR Paediatric Exclusivity: Shire is evaluating ADDERALL XR in adolescents in response to a paediatric ‘Written Request’received from the US FDA in 2003. This clinicalprogramme could extend the existing Hatch-Waxman marketing exclusivity from October2004 to April 2005.

Strengthening our ADHD portfolioShire continues to grow its existing ADHDportfolio while developing new products that will complement its ADDERALL franchise:

SPD503 (guanfacine), currently in Phase IIIdevelopment for children and adolescents, is an established non-stimulant, non-scheduledcompound that has been re-formulated by Shirefor use in ADHD. It may offer potential in thetreatment of adult ADHD.

METHYPATCH (methylphenidate): In early 2003, Shire acquired the worldwide sales andmarketing rights to METHYPATCH, a transdermaldelivery system for the once-daily treatment ofADHD, from Noven Pharmaceuticals Inc. (Noven).Subsequently, Noven received a ‘Not Approvable’letter from the FDA in response to its New DrugApplication (NDA). Shire and Noven are toundertake further clinical investigations to assistin addressing the questions raised by the FDA.

Additional life cycle projects for the ADHDfranchise were introduced in early 2003. SPD465,currently in Phase I development, is targeted tooffer an augmented duration of effect. SPD483,another ADHD candidate, is in the Pre-clinicalPhase of development.

SPD473 a Phase II proof-of-concept study in ADHD is underway. This non-stimulant mixedmonoamine re-uptake inhibitor has a uniquemode of action, affecting three neurotransmittersthat may be implicated in ADHD (noradrenaline,serotonin and dopamine). This makes it anattractive candidate for ADHD treatment.

Alzheimer’s diseaseAlzheimer’s disease is the most common cause of dementia, affecting approximately 20 million people worldwide, mainly those aged65 or older. It is a progressive disorder thatgradually robs individuals of their ability toremember, learn new information and performbasic activities of daily living.

CNS/ADHD: Shire continues to strengthenits ADHD portfolio

13Shire Pharmaceuticals Group plc Operating review: CNS

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

REMINYL is one of the fastest-growing productsfor treating mild to moderately severe dementiaof the Alzheimer type, with approvals in morethan 25 countries. REMINYL was developed byShire and Johnson & Johnson PharmaceuticalResearch & Development under a co-developmentand licensing agreement. Currently available in both tablet and oral solution, Shire receivesroyalties on sales of REMINYL from JanssenPharmaceutica NV worldwide, except in the UKand Ireland where Shire obtained full marketingrights in April 2004. In 2003 REMINYL continuedto perform well in the UK with a 63% prescriptiongrowth over 2002.

EpilepsyEpilepsy is estimated to affect approximately 2.3 million people in the US, making it one of the most common neurological disorders.Carbamazepine is a widely prescribed anti-epileptic drug, and is a mainstay oftreatment for partial seizures. In 1998, Shirelaunched CARBATROL, an extended releaseformulation of carbamazepine that uses thepatented MICROTROL delivery systemtechnology. It is a twice-daily extended-releaseformulation which makes it more patient-friendlythan immediate release formulations on themarket, which require dosing three or four times a day. CARBATROL can be administered as a capsule or sprinkled on food. CARBATROLbenefited from a re-launch in the US early in 2003, in addition a 100mg dosage strengthwas launched in January 2004. Increasedpromotional efforts and better dosing flexibilityresulted in a 5% increase in prescriptions.

Bipolar disorderBipolar disorder, also known as manic depression,is a mood disorder that can cause extreme swingsbetween high (mania) and low (depression)moods. The high and low phases of the illness arecalled ‘episodes’ and can be so extreme that theycan result in hospitalisation. This condition hashistorically been under-diagnosed and under-treated. An estimated 1.5 million people in theUS suffer from bipolar disorder, yet only 650,000are undergoing treatment.

In February 2004 Shire made a NDA filing for BIPOTROL (previously known as SPD417), an extended release carbamazepine formulation,for use in bipolar disorder. BIPOTROL has shownclear potential as a mood stabilizer with a highlyfavourable side-effect profile, and upon approvalwould be the first carbamazepine-based productindicated for the acute treatment of manic andmixed episodes in patients with bipolar disorder.In the US, BIPOTROL is expected to receivethree-years exclusivity under the US Hatch-Waxman Act.

Discontinued research projectsDuring 2003 development of SPD451, a potential Parkinson’s disease treatment, was discontinued.

Carbamazepine is still the bestthing on the market for mostpeople with partial epilepsy.

CARBATROL combines thebest features of carbamazepine in a form that’s very effectiveand has very few side effects. I think most doctors wouldchoose it.

Dr David FickerAssistant Professor of Neurology/University of CincinnatiMedical Center. Director of Epilepsy Monitoring Unit at University Hospital Cincinnati, Ohio

CARBATROLCARBATROL is an extendedrelease carbamazepineformulation for the treatment of epilepsy. The reduced dosingfrequency compared to othercarbamazepine products makes it more patient-friendly.

14 Shire Pharmaceuticals Group plc Operating review: Renal

Hyperphosphataemia: A serious diseasePatients with end-stage renal disease (ESRD)often suffer from hyperphosphataemia, highphosphate levels in the blood caused by theinability of the kidneys (and dialysis) to filter out excess phosphate absorbed from the diet.Even with a low-phosphate diet as many as 80% of the 225,000 European and the 275,000US dialysis patients develop hyperphosphataemiaand need treatment with a phosphate-binder. The most well known consequences ofhyperphosphataemia are a range of bonediseases that can cause bone pain, skeletaldeformities and fractures. Hyperphosphataemiais also associated with the development ofcardiovascular disease, which accounts fornearly 50% of all deaths in dialysis patients.Some of the currently available phosphate-binders may worsen these complications.

FOSRENOL Shire is developing FOSRENOL as a phosphate-binder in ESRD patients who receive dialysis.FOSRENOL works by binding to dietaryphosphate in the gastrointestinal tract; oncebound, the FOSRENOL phosphate complexcannot readily pass through the intestinal lininginto the blood stream and is eliminated from the body. As a consequence, overall phosphateabsorption from the diet is decreasedsignificantly. Shire has conducted an extensiveclinical research programme for FOSRENOLinvolving more than 1,750 patients, some ofwhom have been treated for up to four years.

This programme has demonstrated thatFOSRENOL is an effective phosphate-binder with a proven safety profile for long-term use.FOSRENOL is formulated as a convenientchewable tablet, which eliminates the need forwater to aid in swallowing, an important factor forESRD patients due to their restricted fluid intake.

In March 2004, Shire announced that it hadacquired the rights to the global patents forFOSRENOL, excluding Japan, from AnorMEDInc. for a consideration of up to US$31 million. The agreement also provides a 12-month option to purchase the Japanese patents forUS$6 million, to be paid upon approval of theproduct in Japan.

‘Approval’ letter Following a Marketing Authorisation Application(MAA) in Sweden, Shire received a regulatoryapproval in March 2004. Further Europeanapprovals will be sought during the year via the Mutual Recognition Procedure (MRP).Assuming a positive response from theseregulatory authorities product launches areplanned throughout Europe during the secondhalf of 2004.

‘Approvable’ letterIn early 2003 in response to its NDA Shirereceived an ‘Approvable’ letter. Shire supplied the FDA with responses in January 2004. A six-month review period is anticipated. Launch of FOSRENOL in the US is hoped for during the second half of 2004.

Renal: Making a difference – FOSRENOL’sextensive clinical research programmeinvolved more than 1,750 patients

One of the long-term side-effects of kidney disease is that the kidneys find itincreasingly difficult to filter out phosphates in the blood.This can cause real problems,including bone disorders, and heart disease, which is actually one of the maincauses of death in dialysispatients. A patient with this condition has to take a ‘phosphate-binder’ to

stop the phosphate beingabsorbed into the blood-stream. Other currentlyavailable products, such as aluminium and calciumcontaining binders, have been problematic. FOSRENOLis part of a new generation of aluminium and calcium free binders which hasundergone extensive clinicalstudies and has a proven safety and efficacy profile.

Dr Hartmut MallucheProfessor and Chief of Nephrology University of Kentucky, Lexington, Kentucky

15Shire Pharmaceuticals Group plc Operating review: Renal

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

Through a wide variety of activities Shire’s Global Marketing teams are actively laying the groundwork for a successful launch ofFOSRENOL, including working with opinionleaders in renal medicine. Shire has also beenworking to ensure that the results of studies on the efficacy and safety of FOSRENOL are disseminated.

During 2003, data reported by Shire from theongoing clinical programme for FOSRENOL,showed that continued, long-term (one-year)treatment with FOSRENOL controls levels of blood phosphate, which are frequently raisedin ESRD patients (data presented at the NationalKidney Foundation Annual Meeting, April 2003).Sustained efficacy and a good safety profileduring three years of treatment has also beendemonstrated (World Congress of Nephrology,June 2003).

Results of the first-ever multicentre paired bone-biopsy study investigating the effects ofphosphate-binders on bone in dialysis patientsshowed that after one year of treatment ESRDpatients treated with FOSRENOL had normalisedmarkers of bone disease (Kidney International,June 2003). FOSRENOL has also been shown to rapidly initiate significant reductions in bloodphosphate within one week of starting therapy.Blood phosphate was effectively controlled totarget levels and FOSRENOL was a well-tolerated therapy (American Journal of KidneyDiseases, June 2003).

FOSRENOL has also been shown to significantlyreduce and maintain blood phosphate levels in a study of Chinese ESRD patients withhyperphosphataemia (American Society ofNephrology 36th Annual Meeting, November 2003).

Out-licensed in JapanIn December 2003, the rights to develop, marketand sell FOSRENOL in Japan were out-licensedto Bayer Yakuhin, in line with Shire’s strategy tofocus its presence in North America and Europe.Bayer Yakuhin in Japan already has an activeprogramme to manage renovascular disease and expects to launch another major drug inJapan that will be sold in dialysis centres oneyear or more ahead of FOSRENOL.

FOSRENOLFirst European approvalreceived in March 2004.

16 Shire Pharmaceuticals Group plc Operating review: Gastrointestinal

Gastrointestinal (GI): developing a worldwideportfolio – The GI therapeutic area is one of Shire’s core areas of strategic focus

Shire Pharmaceuticals Group plc Operating review: Gastrointestinal 17

Gastrointestinal: ulcerative colitis isestimated to affect more than 1.2 millionpeople worldwide

Ulcerative colitisUlcerative colitis (UC), a type of inflammatorybowel disease, is a chronic, relapsing disease in which part, or all, of the large intestinebecomes inflamed and often ulcerated. This condition is estimated to affect more than1.2 million people worldwide. Patients experienceintermittent attacks separated by periods ofremission. Clinical features include diarrhoea,bleeding and abdominal pain and within 10 yearsof diagnosis approximately 25% of patients arerequired to undergo surgery.

The mainstay treatment for inflammatory bowel disease is mesalamine (5-ASA) products.In the US, Shire markets PENTASA as a 250mgcapsule that delivers mesalamine throughout thesmall and large bowel. A 500mg PENTASAcapsule was filed with the FDA in March 2004.Upon approval this new therapeutic option willreduce the current capsule burden required forthe 250mg dosage strength and may offergreater convenience and patient compliance.Shire also markets COLAZIDE® (balsalazide), an oral mesalamine formulation for the treatmentof UC in the UK and other European markets.

Growing the franchiseShire has a well-established pipeline, strong salesforce, and an aggressive business developmentstrategy to strengthen its GI franchise. Shire isactively looking to expand its GI product offeringand continues to develop its product line for UCand, potentially, other forms of InflammatoryBowel Disease (IBD).

Shire holds the key worldwide rights from Giuliani S.p.A. to develop and market SPD476,which Shire took into Phase III developmentduring 2003. This novel proprietary formulationtargets the release of mesalamine to the bowelthat enables even delivery of high doses ofmesalamine to the colon. Based on this profile,SPD476 may offer a reduced tablet burden forUC patients, which may promote greater patient-compliance and offer a better quality of life.

Shire also acquired from Giuliani S.p.A. rightsto develop, manufacture and market in keyterritories worldwide SPD480, a rectallyadministered mesalamine aerosol foam for thetreatment of certain types of UC. This formulationmay be more acceptable and easier to use thanconventional liquid enema treatments, therebyoffering the potential for improved patientcompliance. SPD480 has reached Phase II of development.

When you’re treating someonewith ulcerative colitis you needa drug that can do three things:it has to be able to deal with thewhole colon area, not just part

of it, it needs to produce minimalside-effects, and it has to behighly effective in an oral form,since that makes it easy to takeand easier for patients to stick to.

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

PENTASAA new 500mg PENTASAstrength was filed with the FDA in March 2004.

18 Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio

Anti-InfectivesHIVLamivudine forms a key component in most of the HIV combination treatment regimes.Discovered by Shire BioChem Inc., Shire receivesroyalties from GlaxoSmithKline plc (GSK) on theworldwide sales of lamivudine and any productscontaining lamivudine (COMBIVIR and TRIZIVIR),with the exception of Canada where there is amarketing partnership with GSK.

Hepatitis BLamivudine is also indicated for the treatment of chronic hepatitis B (HBV) associated with evidence of hepatitis B viral replication, and is marketed as ZEFFIX and various othertrade marks around the world. In an agreementsimilar to that for lamivudine for the treatment of HIV, Shire receives royalties on sales oflamivudine by GSK for HBV, except in Canadawhere Shire has a commercialisation partnershipwith GSK.

Oncology/HaematologyAGRYLINAGRYLIN is marketed in a number of countries,including the US, where it is the only productspecifically approved for the treatment of patientswith elevated platelet counts secondary tomyeloproliferative disorders (MPDs) such as essential thrombocythaemia (ET). For morethan six years AGRYLIN has been safely andeffectively used by patients to lower the plateletcount. Platelets are involved in blood clotting.Lowering the elevated platelet count helpsdecrease the symptoms associated with MPDs,including blood vessel blockages and bleedingevents. In March 2004 Shire submitted clinicaldata to the FDA in response to a paediatricWritten Request (WR). The data are currentlyunder review by the FDA. Satisfying theconditions of the WR would lead to a six-monthextension of the existing exclusivity period, to September 2004.

In December 2003, Shire granted rights to the Pharmaceutical Division of Kirin BreweryCompany Ltd (Kirin), to develop, market and sellAGRYLIN in Japan, where AGRYLIN has beendesignated as an orphan product (ie a productused to treat rare illnesses). With a leading sharein the Japanese haematology market, as well as a strong clinical development arm, Kirin is the ideal company to take Shire’s productforward in this major world market.

Additional Shire portfolio: Marketedproducts – Shire markets a diverseportfolio to meet the needs of thespecialist physician

AGRYLINFor more than six yearsAGRYLIN has been safely and effectively used by patientsto lower platelets which areinvolved in blood clotting.

Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio 19

Additional Shire portfolio: Marketedproducts – Shire made good progress in2003 with ADEPT, which is now marketedin 19 countries internationallyVaccinesIn line with Shire’s business strategy announcedin July 2003 to focus on fewer, later stage and lower risk projects, Shire intends to exit its vaccines business by the middle of 2004.Shire is currently evaluating a number of options,to gain maximum benefit for Shire and for its stakeholders.

FLUVIRAL® S/F, a split-virion influenza vaccine forthe prevention of influenza infection is marketedin Canada. During 2003, Shire Biologics wonadditional flu vaccine volumes from the Canadiangovernment, giving it as much as a 75% share of the national requirement, guaranteed for fiveyears. Shire’s ability to increase its national marketshare from 50% in a relatively short period of timeis the result of the high quality of its FLUVIRALproduct, outstanding service levels, andcompetitive pricing.

Other specialist productsThe launches of ADEPT and SOLARAZE acrossEurope have helped develop capabilities forselling innovative products into the SecondaryCare sector as well as providing valuableexperience in local and national pricing and re-imbursement planning.

ADEPTADEPT is a novel solution for the prevention ofadhesions, which occur in up to 95% of patientsundergoing abdominal surgery. Adhesions areinternal scars formed post-trauma from complexprocesses involving tissues that have beendamaged during surgery. They are a major causeof pain, infertility, small bowel obstruction and are a potentially fatal complication of abdominalsurgery. Shire made good progress in 2003 withADEPT, which is now marketed in 19 countriesinternationally.

SOLARAZESOLARAZE is now marketed by Shire in nineEuropean countries, including successfullaunches in Italy and France in 2003, and isestablished as the leading topical treatment forActinic Keratosis (AK), which if left untreated couldlead to squamous cell carcinoma, a form of skincancer, in up to 16% of patients. SOLARAZE geloffers an alternative to existing treatment options,which may cause burning or peeling during thetreatment of AK lesions. It is particularly useful for patients with AK on the face or scalp whereother treatments like cryotherapy (freezing) would be too painful or risk leaving scarring.

ADEPTand SOLARAZEThe launches of ADEPT andSOLARAZE across Europe havehelped develop capabilities forselling innovative products.

What sets Shire apart, for me,is their determination to raiseawareness of essentialthrombocythaemia and othermyeloproliferative disorders(MPDs). These are rare illnesses,or so-called ‘orphan diseases’.Essential thrombocythaemia,where the levels of platelets

in the blood are too high, can cause strokes, bleedingand miscarriages. AGRYLINhelps lower the platelet countand, unlike some othertherapies, it is selective forplatelets. AGRYLIN can also be used in the treatment of other MPDs.

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

20 Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio

CALCICHEWThe CALCICHEW range of calcium andcalcium/vitamin D supplements are marketed as adjuncts in the treatment of osteoporosis, a disease characterised by a progressive loss of bone mass that renders bone fragile and liableto fracture. More than three million people in theUK are estimated to suffer with this condition.Osteoporosis affects both sexes but is morerapid and profound in women, largely as a resultof the decline in oestrogen production followingthe menopause.

PROAMATINEShire markets midodrine hydrochloride, asPROAMATINE in the US, AMATINE® in Canadaand MIDON® in the Republic of Ireland, for thetreatment of symptomatic orthostatic hypotension,which is due to a marked fall in blood pressureon standing, causing dizziness, weakness andunconsciousness. In September 2003, the seven-year marketing exclusivity period in the USexpired and generic copies of the drug havesince been launched.

Drug delivery technologiesShire Laboratories, Inc. (SLI), a subsidiary of the Shire Group, is a specialist provider of innovative oral drug delivery technologies.SLI’s oral controlled-release technologies includeMICROTROL, which consists of beadlets that can be coated to provide customised releaseprofiles such as extended delivery (MICROTROLXRTM), pulsed delivery (MICROTROL PRTM) or delayed delivery (MICROTROL DRTM);SOLUTROLTM, a proprietary matrix tablet whichcan provide extended release of highly solubleand pH dependent compounds; and ENSOTROL®

osmotic tablet technology which can facilitateabsorption of poorly soluble and solublecompounds. These technologies can be appliedalone or in combination with SLI’s bioavailabilityenhancement systems. The bioavailabilityenhancement technologies include PROSCREEN®,OPTISCREEN®, RAPITROL™ and EMUTROLTM.

MICROTROL technology was applied to bothCARBATROL, the twice-daily formulation of carbamazepine and ADDERALL XR, the once-daily formulation of ADDERALL.

Additional Shire portfolio: Marketedproducts and drug delivery technologies

Shire Pharmaceuticals Group plc Operating review: Additional Shire portfolio 21

Additional Shire portfolio: Development projects

Oncology/HaematologyXAGRIDAnagrelide hydrochloride is being developed inEurope (XAGRID) for the reduction of elevatedplatelet count in the chronic disorder essentialthrombocythaemia (ET). During 2003, a positiveopinion was received from the Committee forProprietary Medicinal Products (CPMP), the scientific committee of the European MedicinesEvaluation Agency (EMEA). XAGRID has OrphanDrug designation in Europe and, upon marketingauthorisation approval, is expected to receive up to 10 years marketing exclusivity in Europe.

VaccinesShire intends to exit its vaccines business by the middle of 2004. The current portfolio includesfive projects ranging from Phase I to Phase III of development.

Projects available for partnering Anti-infectivesSPD754Shire holds the worldwide rights to SPD754, a nucleoside analogue reverse transcriptaseinhibitor (NRTI) that selectively blocks HIV-1replication. Granted fast track review status by the FDA, it has demonstrated activity against HIV strains resistant to other nucleosideanalogues, including AZT and 3TC. Resistance to SPD754 appears to develop slowly. Currently in Phase II development, clinical studies to datehave shown it to display potent antiviral activityand to be well tolerated. As announced in July2003, Shire intends to seek a partner for SPD754.A number of opportunities have been investigatedand Shire aims to complete this process by themiddle of 2004.

SPD756 (HIV) and SPD760 (Hepatitis C) are alsonow available for partnering.

Oncology/HaematologyTROXATYLTROXATYL (troxacitabine) is a dioxolanenucleoside analogue in development for thetreatment of pancreatic cancer and acutemyelogenous leukaemia. Phase II is the highestdevelopment phase reached. In 2003, Shireannounced that it is seeking to out-licenseTROXATYL.

22 Shire Pharmaceuticals Group plc CSR: Corporate social responsibility

For Shire, CSR has always been inherent in the way we run and manage our business day-to-day. As a healthcare company, providingtreatments that improve and prolong people’slives, we have always taken our responsibility tosociety very seriously. This responsibility extendsto all areas of society which our business canaffect: the communities in which we run ourbusiness, the supplier companies that we partnerwith, our employees, the doctors and physicianswho prescribe our medicines and, of course, the patients whose lives we directly impact aswell as their care providers and support groups.Recognising that our shareholders and CSRopinion leaders wish to know more detail aboutour CSR related activities, this year we areproducing a standalone CSR report which will be available in printed and online versions.

Development of Shire CSR CommitteeWe believe that a good CSR reputation is a reflection of good management and sound business practices. Our CSR Committee,which was established during the year, thereforecomprises line managers who represent thefunctions that have most direct influence on, and involvement with, our daily businessmanagement. This has proved to be a mosteffective way of ensuring that the Company bothreports on its CSR achievements and understandsany challenging CSR risks that may arise.

The CSR Committee is led by Angus Russell, the Company’s Chief Financial Officer and Boardmember. As part of his role he regularly reportsmatters of relevance to the Executive Committeeand to the Board and offers guidance, informationand, where necessary, detailed briefings to Boardmembers. The CSR Committee’s mainresponsibilities 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; and

– review and approve Shire’s CSR disclosures.

The understanding, assessment and reporting of SEE risks is embedded within the organisation’soverall framework of risk management and furtherdetails can be found in the full CSR Report underthe heading ‘internal control’.

Progress made in 2003During the course of 2003, Shire has engaged in continuous improvement of its managementpractices, and has introduced structural changesas part of its strategic review. These have beenhandled sensitively and with awareness of thesocial impact on the communities involved. The day-to-day values adopted by the Companyset standards for behaviour and are an activeguide for all business managers and employees. Shire rewards individuals who have especially demonstrated how they have lived any one, or all, of the four values (dynamism, integrity,caring and innovation).

We have made progress against the objectivesthat we set in 2003. Full details are in theseparate CSR report, however, these are some of the highlights:

Strengthening our engagement withstakeholders:– We conducted an all employee survey

during the year and gathered important andhelpful information on how we are managingtheir careers.

– Relationship management is at the heart of the Shire marketing and selling model –during the year we proved the strength of these relationships in the US with the resilience of ADDERALL XR’s performance, despite the launch of a competitor product.

– During the year 2003, Matthew Emmens the Chief Executive Officer, Angus Russell the Chief Financial Officer and Cléa Rosenfeldthe Investor Relations Head met investors face to face, at conferences and answered a range of questions. In addition, Barry Price,the Company’s senior non-executive Director and Chairman of the Remuneration Committee,met and consulted with a range of majorinstitutional shareholders.

CSR: Corporate social responsibility report

Shire prevents undue environmental pollution throughits state of the art equipment in place at its manufacturingsite in Owing Mills.

Shire believes in partnering with the NHS to help supportimproved patient care andaccess to important therapies.Over 2002/3 Shire thereforeinvested almost £500K to support localised improvementplans in dementia service provision. The majority of thisinvestment went into supportingthe provision of 21 specialist‘DementiaLink Nurses’ aroundthe country, who would workwithin a local service structureto help shape and develop that service to improve patient care.

Shire Pharmaceuticals Group plc CSR: Corporate social responsibility 23

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

Setting up Group and site environmental andhealth and safety objectives and targets– Environmental health and safety objectives

were made part of the Shire US Manufacturingfacility’s overall goals and inserted into eachand every departmental goal, not only in 2003but for every year forward.

– An overall environmental health and safetystrategy encompassing regulatory, individual andsite issues was developed and implemented.The goal is zero reportable accidents andmaintenance of total regulatory compliance.

– Key performance indicators were developedand are currently published monthly to the siteand management.

– Additional personnel were hired in theenvironment health and safety group and empowered.

Integrating CSR topics into the managementof our contractors and suppliers– A draft set of principles is under discussion

for inclusion in all supplier contracts.

Improving data gathering and reporting– Enhancement of the Group community

and health and safety data gathering and reporting processes.

Building up employee awareness and commitment to CSR– Through the employee survey, we have

been able to measure current levels of CSRawareness and have developed an action planfor 2004 to sustain and continuously improve it. In addition, CSR matters have featured in the Company induction scheme for newjoiners, within the Company newsletter and on the intranet.

Improving Shire’s ranking in key CSR indices– The Company continues to be a constituent

of the FTSE4Good index; took part for thesecond year in the Business in the CommunityCorporate Responsibility index; has hadimproved ratings awarded to it by Morley Fund Mangement and by PIRC and moved to fourth position in The Guardian newspaper’sGiving List index of top UK companiescharitable contributions.

Looking forwardThis year, the Committee has set a number of CSR objectives for 2004 for each area ofimpact: Workplace, Marketplace, Environmentand Community. These objectives provide the overall direction for Shire’s improvements and measurement of CSR related progress.These objectives are also embedded in therespective functional areas as part of theCompany’s own emphasis on continuousimprovement. You will find details of these in our standalone CSR report.

We are pleased with the progress made in CSRthis year but aware that there are still many waysin which we can improve further and we arecommitted to doing so.

We welcome comments and suggestions on our CSR approach as we are always looking at ways for continuous improvement and thisyear we have set up a dedicated email addressto encourage this process:

CSR@shire.com.

For copies of the full CSR report, please sendyour name and address details to this emailaddress, or contact us at the address listed at the back of this document.

Shire has a policy of contributingto funds raised by employees in charity sponsored events.Paula Anken was one of many of the Company’s employeeswho participated in such events.She ran the London Marathon in3hrs 49 mins and raised £2,400for the Wessex Cancer Trust.

In 2003 Shire waived its rightsto royalties on the sale of 3TC,the world’s most widely usedtreatment for HIV in sub-SaharanAfrica, as part of its agreementwith GlaxoSmithKline.

24 Shire Pharmaceuticals Group plc Financial review

The following review should be read in conjunctionwith the Group’s consolidated financial statementsand related notes appearing elsewhere in thisannual report.

Results of operationsThe Group recorded net income of $276.1 million(2002: $250.6 million) and diluted earnings perordinary share of 54.2¢ (2002: 49.0¢).

Total revenues For the year ended 31 December 2003, totalrevenues increased by 19% to $1,237.1 million,compared to $1,037.3 million in 2002.

Revenue is primarily derived from sales ofpharmaceutical products and royalties earned on products out-licensed to third parties. For theyear ended 31 December 2003, 83% of revenueswere in respect of pharmaceutical product sales(2002: 83%).

(a) Product sales For the year ended 31 December 2003, the Group’s product sales increased by 20% to $1,029.8 million, compared to $859.4 million in the prior year.

The following statements include references to prescription and market share data for keyproducts. The source of this data is IMS HealthDecember 2003. IMS Health is a leading globalprovider of business intelligence for thepharmaceutical and healthcare industries.

ADDERALL XRSales of ADDERALL XR for the year ended 31 December 2003 were $474.5 million, an increase of 49% compared to the prior year(2002: $317.9 million). ADDERALL XR had a 23%share of the total US Attention Deficit HyperactivityDisorder (ADHD) market in December 2003,compared with 18% in December 2002.

ADDERALL Sales of ADDERALL for the year ended 31 December 2003 were $61.1 million (2002:$109.8 million). ADDERALL had a 2% share of the total US ADHD market in December 2003,compared with 5% in December 2002. The fall in market share was anticipated and is the resultof the switch of patients to either ADDERALL XRor generic alternatives.

AGRYLIN Sales of AGRYLIN for the year ended 31 December 2003 were $132.5 million, an increase of 11% compared to the prior year (2002: $119.2 million). AGRYLIN had a 27% share of the total US AGRYLIN, Hydreaand generic hydroxyurea prescription market in December 2003 (December 2002: 27%).

PENTASA Sales of PENTASA for the year ended 31 December 2003 were $99.3 million, an increase of 14% compared to the prior year (2002: $87.2 million). PENTASA had a 17% share of the total US oral mesalamine/olsalazine prescription market in December 2003, compared with 18% in December 2002.

CARBATROLSales of CARBATROL for the year ended 31 December 2003 were $52.4 million, an increase of 16% compared to the prior year (2002: $45.3 million). CARBATROL had a 43% share of the total US extended releasecarbamazepine prescription market in December2003, compared with 36% in December 2002.

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

Angus RussellChief Financial Officer

Shire Pharmaceuticals Group plc Financial review 25

PROAMATINE Sales of PROAMATINE for the year ended 31 December 2003 were $49.3 million, a decrease of 3% compared to prior year (2002: $50.9 million). At the end of the thirdquarter of 2003, sales of PROAMATINE weresubject to generic competition, which causedthis reduction. PROAMATINE had a 15% share of the total US PROAMATINE and fludrocortisoneacetate prescription market in December 2003,compared with 25% in December 2002.

(b) RoyaltiesRoyalty revenue increased 16% to $203.6 millionfor the year ended 31 December 2003, comparedto $174.8 million in 2002.

Shire receives royalties from GSK on worldwidesales of 3TC and ZEFFIX. Other royalties areprimarily in respect of REMINYL, a productmarketed worldwide by Johnson & Johnson(J&J), with the exception of the UK, where a commercialisation partnership with J&J existed throughout 2003.

Cost of sales and net operating expensesFor the year ended 31 December 2003 cost of product sales amounted to 16% of productsales (2002: 16%).

Research and development expenditure increased14% to $215.8 million in 2003, representing17.5% of total revenues (2002: 18%). Shire’sstrategic priority is now the development of laterstage, lower risk products. As a result of thisfocus Shire closed its early stage therapeuticresearch unit in Canada.

Selling, general and administrative (SG&A)expenses increased from $332.2 million in 2002to $376.9 million in 2003, an increase of 13% in contrast with product sales growth of 20% for the period. SG&A expenses were 37% of product sales (2002: 39%).

The depreciation and amortisation charge for theyear ended 31 December 2003 was $86.7 million(2002: $55.2 million). Included within the 2003charge are $27.5 million of intangible assetimpairments and write-downs (2002: $18.8million) and $16.7 million of tangible fixed assetwrite-downs (2002: $nil).

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

The Group’s funding requirements depend on anumber of factors, including the Group’s productdevelopment programmes, business and productacquisitions, the level of resources required for theexpansion of marketing capabilities as the productbase expands, increased investment in tradedebtors and stock levels which may arise as saleslevels increase, competitive and technologicaldevelopments, the timing and cost of obtainingrequired regulatory approvals for new productsand the continuing revenues generated fromsales of key products.

During the year the Company purchased andsubsequently cancelled 7,592,778 ordinaryshares for a total consideration of £31.8 million($52.4 million), representing an average price per share of £4.12 ($6.78).

As of 31 December 2003, the Group had cashand marketable securities of $1,414.2 million(2002: $1,213.8 million), which consisted ofimmediately available money market fundbalances and investment grade securities. Total long-term debt, excluding capital leases as at 31 December 2003, was $370.7 million(2002: $401.0 million), of which $370.2 million(2002: $400.0 million) was in respect ofguaranteed convertible notes. These convertiblenotes, due 2011, were issued to internationalinstitutional investors and bear interest at a rateof 2% per annum.

Investors have the right to require the issuer to redeem the notes at par on 21 August 2004,2006 or 2008. Subject to certain conditions, theconvertible notes will be callable after 21 August2004. See note 15(i) to the consolidated financialstatements for further information.

During the second quarter of 2003, Shirerepurchased $29.8 million of the $400 million 2% guaranteed convertible notes due 2011.

26 Shire Pharmaceuticals Group plc Financial review

DividendsReflecting the Group’s stage of development and cash generative profile, the Board intends to declare the payment of the Company’s firstinterim dividend of one penny per share for the six-months ending June 2004, with a view to growing the dividend progressively.

Treasury policies and financial riskmanagementShire’s principal treasury operations are managedby the corporate treasury function based in the UK. All treasury operations are conductedwithin a framework of policies and proceduresapproved by the Board. As a matter of policy, the Group does not undertake speculativetransactions that would increase currency or interest rate exposure. The Board reviews and agrees policies for managing these risks and they are summarised below.

Foreign currency riskThe Group is exposed to movements in foreignexchange rates against the US dollar for tradingtransactions and the translation of net assets and earnings of non-US subsidiaries. The maintrading currencies of the Group are the US dollar,the Canadian dollar, pounds sterling and theeuro. The financial statements of foreign entitiesare translated using the accounting policiesdescribed in note 2(j) to the consolidatedfinancial statements.

The Group reports its results in US dollars. As the majority of the Group’s transactions arealso denominated in US dollars, this reduces the impact of currency movements on theGroup’s results.

A small proportion of debt is denominated innon-US dollar currencies. As at 31 December2003, a total of $1.5 million was outstanding (31 December 2002: $1.9 million) in respect of loans denominated in Canadian dollars.

The exposure to foreign exchange market risk is managed and monitored by the Group treasury function. The Group has not undertakenany foreign currency hedges through the use of forward foreign exchange contracts or foreignexchange derivatives during the year to 31 December 2003. Instead, exposures havebeen managed through natural hedging via the currency denomination of cash balances.

Market risk of investmentsAs at 31 December 2003, the Group had $73.2 million (2002: $72.0 million) of investmentson its books comprising equity investment funds,private companies and public quoted companies.The public quoted companies are exposed to market risk. No financial instruments orderivatives have been employed to hedge this risk.

Interest rate risk Due to the proportion of fixed rate debt, theGroup’s interest charge has limited exposure to interest rate movements.

Total debt, excluding capital leases, as of 31 December 2003 was $371.8 million (2002: $401.9 million). The main component was the $370.2 million (2002: $400.0 million) in guaranteed convertible notes due 2011.

The convertible notes bear interest of 2% perannum, payable semi-annually. This interest rateis fixed over the period of the debt, thus reducingany cash flow risk associated with movements in interest rates.

The interest rate risk that has been mitigated by obtaining a fixed rate debt is equivalent to a$3.7 million saving per 1% rise in interest ratesper annum. Conversely, a fall in interest rates by1% would effectively cost the Group $3.7 million.

In the year ended 31 December 2003, the average interest rate received on cash and liquid investments was approximately 1.18% per annum. The largest proportion ofinvestments was in US dollar liquidity funds.

Shire Pharmaceuticals Group plc Financial review 27

TaxationFor the year ended 31 December 2003, theincome tax charge increased by $19.0 million to $107.4 million.

A reconciliation of the current tax charge for2003, to the loss before tax for the year at thestatutory tax rate of 30%, is given in note 25 to the consolidated financial statements.

Cash flowsAs of 31 December 2003 cash and marketablesecurities totalled $1,414.2 million, an increase of $200.4 million from $1,213.8 million at 31 December 2002. Marketable securitiesconsisted of money market fund balances and investment grade securities.

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

During the year ended 31 December 2003, cashgenerated from operations was used primarily to fund the Group’s tax payments, capitalexpenditures including the purchase of intangibleand tangible fixed assets, repayment of debt anda share buy-back programme.

Capital expenditure Expenditure on intangible fixed assets of $47.0 million comprised various productacquisitions including the worldwide sales and marketing rights to METHYPATCH for $25.0 million.

Capital expenditure on tangible fixed assets in the year ended 31 December 2003 was $52.2 million. This expenditure included thepurchase of a new office building for Shire’s UKbased R&D operations, further upgrades to theUS manufacturing facility and a new enterpriseresource planning system (SAP).

28 Shire Pharmaceuticals Group plc Board of Directors

1. Dr James Cavanaugh (67)Chairman and non-executive Director Joined the Board of Shire on 24 March1997 and was appointed as non-executiveChairman with effect from 11 May 1999. Dr Cavanaugh is President of HealthCareVentures LLC. Formerly he was Presidentof SmithKline & French Laboratories, theUS pharmaceutical division of SmithKlineBeecham Corporation. Prior to that, he was President of SmithKline BeechamCorporation’s clinical laboratory businessand, before that, President of AllerganInternational. Prior to his industryexperience, Dr Cavanaugh served asDeputy Assistant to the President of the US for Health Affairs on the White HouseStaff in Washington, DC. He is non-executive Chairman of Diversa Corporationand Vicuron, Inc. and a non-executiveDirector of MedImmune Inc. and AdvancisPharmaceutical Corporation. Dr Cavanaughwas a member of the RemunerationCommittee and the Audit Committee and Chairman of the NominationCommittee in 2003.

2. Mr Matthew Emmens (52)Chief Executive OfficerJoined Shire as Chief Executive Officer and member of the Board of Shire on 12 March 2003. Mr Emmens began hiscareer in international pharmaceuticals with Merck & Co, Inc. in 1974. He held a wide range of sales, marketing andadministrative positions before volunteeringto help establish Astra Merck, the joint

venture between Merck and Astra AB of Sweden. He later became President and Chief Executive Officer. In 1999 hejoined Merck KGaA and established EMDPharmaceuticals, the Company’s USprescription pharmaceutical business andwas later promoted to President of theglobal prescription business and moved to Germany to run the prescription divisionof that company. Mr Emmens is a graduateof Fairleigh Dickenson University (NewJersey, US) with a BS in BusinessManagement. Mr Emmens is the Chairmanof the Executive Committee and PortfolioReview Committee.

3. Mr Angus Russell (48)Chief Financial OfficerJoined Shire in 1999 as Group FinanceDirector. Mr Russell previously worked forICI, Zeneca and AstraZeneca. His lastposition was Vice President – CorporateFinance at AstraZeneca plc. Prior to this, he held a number of positions within theZeneca Group from 1993 until 1999,including Group Treasurer, and before thatin ICI from 1980 until 1992. Mr Russell is a Chartered Accountant, having qualifiedwith Coopers & Lybrand, and is a fellow of the Association of Corporate Treasurers.Mr Russell is a member of the ExecutiveCommittee. He is also a non-executiveDirector of the City of London InvestmentTrust plc.

4. Dr Wilson Totten (48)Chief Scientific OfficerJoined Shire on 17 January 1998 as Group Research and DevelopmentDirector. Dr Totten is a medical doctor andhas wide experience in the pharmaceuticalindustry covering all phases of drugdevelopment. He has substantialexperience in the field of worldwide drugdevelopment. He was Vice President ofClinical R&D with Astra Charnwood from1995 to 1997, having previously worked for Fisons Pharmaceuticals from 1989 to 1995, and prior to that with 3M HealthCare and Eli Lilly. Dr Totten is a member of the Executive Committee and thePortfolio Review Committee.

5. Dr Barry Price (60)Senior non-executive DirectorJoined the Board of Shire on 16 January1996 having spent 28 years with Glaxoholding a succession of executive positionswith Glaxo Group Research. He isChairman of Antisoma plc and BiowisdomLtd. He is also on the Board of Directors of Pharmagene plc. Dr Price was Chairman of the Remuneration Committee and a member of both the Audit Committee and the Nomination Committee in 2003.

The Board of Directors

1. 2. 3. 4.

29Shire Pharmaceuticals Group plc Board of Directors

6. The Hon James Andrews Grant (66)Non-executive DirectorJoined the Board of Shire on 11 May 2001as a non-executive Director. Prior to itsmerger with Shire, Mr Grant had been a Director of BioChem Pharma Inc. since1986. He is a partner with the law firmStikeman Elliot in Montreal. Mr Grant sitson the Boards of two Canadian publiccorporations, in addition to other privatecorporations and foundations and councilsthat are not for profit organisations. He attended McGill University receiving a BA in Arts in 1958 and a BCL in Law in 1961. Mr Grant was a member of theNomination Committee in 2003.

7. Mr Ronald Nordmann (62)Non-executive DirectorJoined the Board of Shire on 23 December1999 having previously served as a non-executive Director of Roberts PharmaceuticalCorporation since May 1999. Mr Nordmannhas been a financial analyst in healthcareequities since 1971. From September 1994to January 2000 he was an analyst andpartner at Deerfield Management. He iscurrently Co-President of Global HealthAssociates and has held senior positionswith PaineWebber, Oppenheimer & Co., F Eberstadt & Co., and Warner-ChilcottLaboratories, a division of Warner-Lambert.

Mr Nordmann received his undergraduatedegree from The Johns Hopkins Universityand a MBA from Fairleigh DickinsonUniversity. Mr Nordmann is also a Director of Guilford Pharmaceuticals Inc., NeurochemInc. and Pharmaceutical Resources Inc. Mr Nordmann was Chairman of the AuditCommittee and a member of theNomination Committee in 2003.

8. Mr Robin Buchanan (51)Non-executive DirectorJoined the Board of Shire on 30 July 2003.He is the Senior Partner of the London officeof business consultants Bain & Companyand a member of the firm’s worldwidemanagement committee. Prior to his careerwith Bain & Company, Mr Buchananworked for American Express InternationalBanking Corporation in New York,McKinsey & Company and Deloitte &Touche where he qualified as a CharteredAccountant. Mr Buchanan currently servesas a non-executive Director of LibertyInternational plc. Mr Buchanan has an MBA with Distinction (Baker Scholar) fromHarvard Business School. Mr Buchananwas a member of the RemunerationCommittee in 2003.

Ex-Board MembersMr Rolf Stahel – Former Chief ExecutiveJoined Shire in March 1994 as Chief Executive from Wellcome plc where he worked for 27 years in Switzerland, Italy, Thailand, Singapore and the UK. As Regional Director of Wellcome based inSingapore, Mr Stahel was responsible for 18 PacificRim countries. From April 1990 until February 1994, he served as Director of Group Marketing reportingto the Chief Executive. A Business Studies graduateof KSL Lucerne, Switzerland, he attended the 97thAdvanced Managers Programme at Harvard BusinessSchool. On 15 March 2001 Mr Stahel received theChief Executive Officer of the Year Award 2001 forthe global pharmaceutical industry. Mr Stahel steppeddown as Chief Executive on 12 March 2003 and asa Director of the Company on 19 March 2003.

Dr Francesco Bellini – non-executive DirectorJoined the Board of Shire on 11 May 2001 as a non-executive Director. Dr Bellini is Chairman ofPicchio International Inc. and Neurochem Inc. and also on the Board of several companies andorganisations such as Molson Inc. and Industrial-Alliance Life Insurance Co. Formerly, he wasChairman and CEO of BioChem Pharma which he co-founded in 1986. He stepped down as a Director of the Company in May 2003.

Mr Gérard Veilleux – non-executive DirectorJoined the Board of Shire on 11 May 2001 as a non-executive Director. He was formerly a Director of BioChem since 1999. He is President of PowerCommunications Inc. and Vice President of PowerCorporation, a diversified management and holdingcompany. Mr Veilleux is a Director of several publicand private companies as well as a member of theBoard of Governors at McGill University. He has a Masters Degree in Public Administration fromCarleton University and a Bachelor of Commercefrom Laval University. Mr Veilleux was a member of the Remuneration Committee. He stepped downas a Director of the Company in May 2003.

5. 6. 7. 8.

30 Shire Pharmaceuticals Group plc The Executive Committee

1. Mr Matthew Emmens (52)Chief Executive OfficerBiography on page 28.

2. Mr Angus Russell (48)Chief Financial OfficerBiography on page 28.

3. Dr Wilson Totten (48)Chief Scientific OfficerBiography on page 28.

4. Mr Jeff DevlinExecutive Vice President of CorporateStrategy & IntegrationJoined Shire in January 2000 as Director of Corporate Affairs. Prior to joining Shirehe was a partner at Ernst & Young and also a member of its Global ExecutiveSteering Group for Life Sciences. He was previously with Arthur D Little,Management Consultancy, where he was a European Director in its Healthcareand Pharmaceuticals practice.

5. Ms Tatjana MayGeneral Counsel and Executive VicePresident of Global Legal AffairsTatjana joined Shire in May 2001 fromAstraZeneca Plc (formerly Zeneca Group)where she occupied the position ofAssistant General Counsel in CorporateHeadquarters. Prior to joining AstraZenecaTatjana worked at Slaughter and May.

6. Mr Greg FlexterExecutive Vice President and GeneralManager, North AmericaGreg joined Shire in April 2001, as SeniorVice President Marketing, Shire US,bringing over 22 years of experience in global and domestic marketing, businessdevelopment and R&D. Prior to joiningShire, Greg was Vice President and Headof the Neuroscience Business Unit forNovartis Pharmaceuticals, with accountabilityfor US Marketing, Sales and MedicalResearch. He began his career in theindustry with Marion Laboratories in clinicalresearch management, transitioning to a leadership role in New Product Marketing.In 1991 he served as Product GroupDirector, Global Commercial Developmentfor Marion Merrell Dow and subsequentlywas promoted to Vice President, GlobalMarketing and Medical Research withHoechst Marion Roussel. Greg is a pharmacist.

7. Mr Joseph RusExecutive Vice President and GeneralManager, InternationalJoseph joined Shire in 1999 as President of Shire Canada following more than 25 years experience with other leadinginternational pharmaceutical companiesboth in Canada and abroad. With themerger of Shire Pharmaceuticals andBioChem Pharma in May 2001, he wasappointed President and CEO of ShireBioChem Inc.

In 1972 Joseph began his career in saleswith Warner Lambert Canada and roserapidly to managerial positions in variousdepartments. Joseph was Vice President of the Canadian Pharmaceutical Division of Hoffmann-La Roche Ltd between 1994and 1998.

Educated in Romania and a graduate of theExecutive Marketing Management Programof the University of Western Ontario as wellas the International Program at the Instituteof Management and Development of theUniversity of Lausanne, Joseph is multi-lingual, speaking English, Romanian andHungarian with a knowledge of Italian,French and German.

The Executive Committee

4. 5. 6. 7.

31Shire Pharmaceuticals Group plc The Executive Committee

8. Mrs Anita GrahamExecutive Vice President of Human ResourcesAnita joined Shire in January 2004 as Executive Vice President of HumanResources. Anita has 10 years global HRexperience spanning the management ofmergers and acquisitions, organisationaldevelopment, employee relations andcompensation and benefits. Prior to joiningthe Shire team Anita led the global HumanResources function for Cytyc Corporation.Additionally, Anita held senior HR positionswith Serono, Inc. and Scudder KemperInvestments, Inc.

Anita has worked both in Europe and in the US. She is an MBA graduate and waseducated both at the New York Universityand Cornell University, New York.

9. Mr John Lee Executive Vice President Global SupplyChain & QualityJohn joined Shire in April 2000 as SeniorVice President, Operations having 31 yearsexperience in the Pharmaceutical Industry.John has previously held supply chainresponsibilities as Vice President,Operations for Schwarz Pharma, CentralPharmaceuticals, The Vitarine Company(now Eon) and Glenwood Laboratories.

John has held multi-plant responsibilitiesand led the Worldwide ManufacturingFunctional Excellence Program while at Schwarz Pharma. The Shire USManufacturing facility is the seventhpharmaceutical plant for which John has been responsible.

John is certified by the American Productionand Inventory Control Society in Productionand Inventory Management and has taughtcore elements of Supply Chain Managementwithin the APICS organisation

10. Mr Jack KhattarPresident and Chief Executive, SLIJoined Shire as President and CEO of Shire Laboratories Inc. in May 1999.Jack came to Shire from CIMA, a drugdelivery company, where he had last served as Executive Officer and theChairman of the Operative ManagementCommittee. Jack held several marketingand business development positions atMerck & Co., Novartis, Playtex and Kodakin the US, Europe and the Middle East. In 1985, he received his MBA from theWharton School of the University ofPennsylvania.

11. Mr Richard de SouzaDirector InternationalJoined Shire in September 2000 as Director International. Prior to this heworked as President, PharmaceuticalsEurope and Asia in Warner Lambert/Parke-Davis. He was previously with SmithKlineBeecham for 22 years, where he wasChairman, Pharmaceuticals Europe.

12. Mr Mark WebsterCommercial DirectorResponsible for Global BusinessDevelopment, Mergers & Acquisitions and Strategic Marketing. He has worked in the pharmaceutical industry for 20 yearsin a number of general management andsenior sales and marketing roles in the UK,Canada and the US. Mark worked forAbbott Laboratories for 13 years, whereimmediately before joining Shire he held the post of Vice-President and GeneralManager Anti-Virals, Abbott Labs USA. He has a BSc (Hons) in Chemistry fromDurham University.

Ex-Executive Committee memberMr Bill Nuerge – President and Chief Executive,Shire US Inc.Joined Shire US in 1994 as chief Operating Officer.Bill has over 25 years experience within the industryand has held several senior pharmaceutical positions.Bill holds a Bachelor of Science degree from PurdueUniversity and a MBA from Indiana WesleyanUniversity. He stepped down in March 2004.

8. 9. 10. 11. 12.

32 Shire Pharmaceuticals Group plc Directors’ remuneration report

Dear ShareholderDuring the year ended 31 December 2003 the RemunerationCommittee continued its work on behalf of the Board on Directors’remuneration. Following a process of consultation with some ofour major shareholders the Committee has made some changesto its remuneration policy. Among these changes are:

– the introduction of new employment contracts for its executiveDirectors which reduce the two-year termination provisionsfollowing a change in control to one year; and

– reducing to one the number of opportunities for re-testing theperformance conditions attached to the vesting of options.

The Company operates in a highly-competitive multi-nationalenvironment. In 2003 approximately 90% of Shire’s revenues and 80% of its employees were based outside the UK. Indeed,most of Shire’s revenues come from the US. The Committee has never espoused a US pay policy but it does need to take thisoperating environment into account. To give you a perspective onthe complexities we face, Matthew Emmens, who was appointedChief Executive Officer in March 2003, is American. Although hisprincipal base with Shire is in the US and his home is in the US,his remuneration is benchmarked against the UK market.

The Remuneration Committee is committed to a continuingdialogue with shareholders and we strive to accommodate your views. I hope that this report and our conversations providehelpful context and explanation about the policies and practicalconsiderations that influence our decisions.

In 2004, we will continue our work on remuneration policy. The Board will also review the Committee’s constitution to ensureall members of the Committee are deemed to be independent as defined by the new Combined Code.

Dr Barry PriceChairman of the Remuneration Committee

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

– the 1998 Combined Code’s Principles of Good Governance;– the Directors’ Remuneration Report Regulations 2002; and– the requirements of the Listing Rules of the Financial

Services Authority.

The Board has taken steps to ensure that it complies during 2004with the new Combined Code published in 2003.

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

The Company considers all members of the Committee to be independent, although the constitution of the Committee will be reviewed in light of the new Combined Code in 2004. The Chief Executive Officer attends meetings of the Committee at its invitation, but is not involved in any discussions on his own remuneration.

The members of the Remuneration Committee during 2003 were:

– Dr Barry Price, who is the Senior Independent Director of theCompany and Chairman of the Committee;

– Dr James Cavanaugh, who is Chairman of the Company;– Mr Robin Buchanan, who joined the Board and the Committee

in July 2003 as an independent non-executive Director; and– Mr Gérard Veilleux, who stepped down as a Board and

Committee member in May 2003.

The Remuneration Committee was materially assisted in 2003 by Mr Christian Proulx, Senior VP Global Human Resources, Mr Jeff Devlin, Director of Corporate Affairs and Ms Tatjana May,General Counsel. The following external advisers were appointedby, and materially assisted, the Committee:

– Towers Perrin, who also provided benefits advice in the UK and US;

– Slaughter and May, who provided general legal advice; and– Deloitte & Touche LLP, the Company’s auditors, who provided

advice in relation to the Company’s Long Term Incentive Plan and some aspects of Mr Stahel’s departure arrangements.

33Shire Pharmaceuticals Group plc Directors’ remuneration report

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 attract, retainand motivate high-calibre executives who embody the Company’svalues and deliver value to shareholders.

The Remuneration Committee is responsible for developing,reviewing and implementing the Company’s compensation and benefits policy. The current policy is intended to be durable and its effectiveness is regularly monitored by theRemuneration Committee.

The policy is based on the following principles:

– Compensation is market-driven and benchmarked against the FTSE 100, despite the fact that the majority of employees,including the Chief Executive Officer, are US-based.

– The annual incentive plan is performance-related and is linked to the achievement of an appropriate mix of Group andindividual performance targets. The Committee currently aims for the performance-related elements of executive Directorcompensation to represent over half 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.

– Compensation and benefits arrangements are clear and well understood.

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

1. Salary;2. Annual Incentive Plan;3. Share Options;4. Long Term Incentive Plan;5. Deferred Bonus Plan; and6. Pension and other benefits.

1. SalaryThe Remuneration Committee reviews salaries annually. In doing so, it looks at a range of factors such as competitivemarket data provided by independent external consultants, local market conditions, performance-related pay increases across the Company and individual skills and performance. The Remuneration Committee’s policy is for salary to be set at the median of the appropriate comparator group unless individualperformance and/or skills shortages require a different approach.

2. Annual Incentive PlanShire operates an Annual Incentive Plan which rewardsperformance. The plan is also designed to encourage executivesto meet ‘stretch’ performance objectives at both the Group and the personal level.

The Remuneration Committee sets individual executive Directorperformance objectives as well as the Group objectives at the start of each financial year to ensure they are aligned. The Groupobjectives apply to all employees participating in the Company’sAnnual Incentive Plan. Each objective, whether Group or personal,is weighted and is described in specific terms with allocateddeadlines. The 2003 Group performance objectives included:

– growth in revenue;– growth in net income;– progression of R&D portfolio; and– operational objectives.

The Remuneration Committee assesses performance againstobjectives in the first quarter of the following year. The annualbonus is payable in cash and is not pensionable. Target bonus is paid where executive Directors have fully achieved theirpersonal objectives and the Group objectives have been met in full. Maximum bonus is paid only if the RemunerationCommittee determines that personal and/or Group performancehas been exceptional. Maximum bonus payments are capped at 100% of salary for the Chief Executive Officer and 75% ofsalary for other executive Directors. Details of the bonus structureand the relative weighting of objectives between Group andpersonal objectives are shown in the table below. The levels of target and maximum bonuses have been set in line with thecompetitive market in the UK.

MaximumTarget bonus bonus Weighting of target

(as a % of (as a % of bonus objectivessalary) salary) Group Personal

Mr Matthew Emmens 55% 100% 80% 20%Chief Executive Officer

Mr Angus Russell 50% 75% 60% 40%Chief Financial Officer

Dr Wilson Totten 50% 75% 60% 40%Chief Scientific Officer

The bonus awarded to the executive Directors for 2003 reflects the Group and personal achievements and amounted to 53% of salary for Mr Emmens, 50.5% of salary for Mr Russell and47.9% of salary for Dr Totten.

34 Shire Pharmaceuticals Group plc Directors’ remuneration report

3. Share OptionsExecutive Directors are eligible to participate in the Company’s2000 Executive Share Option Scheme. Share options, which formpart of the executive Directors’ long-term compensation, are usedto align Directors’ interests with those of shareholders and topromote sustained long-term company performance.

The grant of options to executive Directors is wholly at thediscretion of the Remuneration Committee. In granting shareoptions, the Committee takes into account the advice andrecommendations of the Chief Executive Officer. The face value of options granted under the Scheme is normally capped at threetimes salary per year for executive Directors and senior managers.This annual grant level is competitive in the UK market and isconsistent with the emphasis the Company places on share-basedremuneration for its executives. In exceptional circumstances,such as on the appointment of the new Chief Executive Officer,Matthew Emmens, this grant level has been exceeded.

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. The performance 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 is transparentand a highly 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 at 15% in excess of the Retail Price Index (RPI) (or 5% on average a year) in the three years following the date of grant. In the case of an annual grant of options worth threetimes salary, Shire’s EPS must grow by 21% in excess of RPI (or on average 7% a year) in the three years following the date of grant for all the options to vest.

Grant % of salary Three-year EPS growth

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

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 re-testing featurefrom the date of grant. The Remuneration Committee, afterconsultation with some of its major institutional shareholders in 2003, has decided that, for options granted under the schemefrom 2004 onwards, the performance condition should be re-tested once only, at five years after the grant. The re-test will beapplied only where Shire’s EPS growth has not met the EPS testdescribed above. The annual average growth required over thefirst three years must be achieved over the extended performanceperiod. Hence the level of EPS growth in the next two years needsto be consequentially higher to meet the test.

The Committee is of the view that re-testing should be retained on this limited basis in order to maintain the Scheme’sinternational competitiveness. In particular, the Committee is conscious of the fact that performance tests are not attached to the vesting of options in many markets and that, in the US,phased vesting of options is also common.

The Committee is aware that some shareholders oppose evenlimited re-testing and, as with all remuneration policy matters, will therefore keep this aspect of policy under review.

Any new option scheme established in the future will not contain a re-testing feature.

The table below sets out the share options that were granted to executive Directors during 2003.

Number of Executive Director and ordinary Exerciseshare option scheme Date of grant shares Price £

Mr Matthew Emmens2000 Executive Scheme 18.03.03 945,010 3.6825Stock Purchase Plan 22.08.03 2,098 4.0900

Dr Wilson Totten2000 Executive Scheme 04.03.03 301,775 3.3800

Mr Angus Russell2000 Executive Scheme 04.03.03 284,024 3.3800

A grant of share options to Matthew Emmens was made on his appointment as Chief Executive Officer. By UK standards it is substantial, but it is considerably lower than he could haveexpected on an annual basis in the US where options are typicallygranted with no performance tests. For all his options to vest,Shire’s EPS will need to increase by an average of 9% a year in excess of RPI.

Details of the Company’s share option schemes are set out below and in note 27 to the consolidated financial statements.Performance conditions attaching to previous executive optiongrants are detailed on page 41 in the audited section of this Report.

Share options under the Stock Purchase Plan (see note (vi) on page 41) are offered at a discount as permitted by paragraph13.31 of the Listing Rules. Shares granted under the StockPurchase Plan are not performance-related.

4. 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 tomake awards of shares subject to a maximum of 100% of salarya year. Awards are made to executive Directors and seniormanagers.

The performance condition attached to the vesting of the share awards made under the Plan is Shire’s Total ShareholderReturn (TSR) relative to the FTSE 100 index over a three-yearperiod. The Remuneration Committee considers this to be an appropriate measure given that Shire is a member of the FTSE 100 and the same comparator group is used forremuneration benchmarking purposes.

35Shire Pharmaceuticals Group plc Directors’ remuneration report

Under the 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 the

FTSE 100, with vesting between these points on a linear basis; and

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

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 2003 as a ‘conditional allocation’, (as defined in the Plan), as follows:

Earliest dateValue of Total on which an

conditional number of award can beDate of award at ordinary transferred toaward grant date shares a Director

Mr Matthew Emmens 20.03.03 £290,000 80,960 21.03.07

Dr Wilson Totten 20.03.03 £170,000 47,459 21.03.07

Mr Angus Russell 20.03.03 £160,000 44,667 21.03.07

5. Deferred Bonus PlanFollowing consultation with some of its major shareholders and the subsequent revision of the design of the Plan, the Companyasked shareholders in 2003 to approve a Deferred Bonus Plan in which executive Directors can participate. This Plan provides for participants to use up to 50% of their annual bonus to buyshares in the Company. The Company will match any sharesbought, but the matched shares will vest for executive Directorsonly if the Company’s EPS grows by more than 15% in excess of RPI over a three-year period (9% in excess of RPI for otheremployees). Diluted EPS was chosen since it is consistent with the minimum performance test that applies to the vesting ofoptions – see above.

The Remuneration Committee believes that this Plan will deliver value to shareholders by encouraging executive shareownership. The Committee is committed to aligning executive and shareholder interests and is considering the introduction of a shareholding policy.

6. Pension and other benefitsThe Company’s policy is to ensure that pension benefits are competitive in the markets in which Shire operates. Shire contributes 30% of the Chief Executive Officer’s annualsalary to a SERP and 401 (K) Plan in the US. In the UK, Shireoperates a defined contribution scheme. The Company contributes25% of salary for the Chief Financial Officer and Group R&DDirector to pension benefits. These rates are in line with marketpractice for FTSE 100 companies. The implications of theforthcoming pension tax reforms will be considered during the course of the year.

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 Committee has made some policy changes to its executiveDirector contracts of employment following consultation with someof the Company’s major shareholders in 2003. New contracts forthe Company’s executive Directors have been prepared andcontain the following changes:

– a reduction in the amount payable in the event of termination of employment within 12-months of a change of control. The amount payable is reduced from two years’ to one year’ssalary and the cash equivalent of one year’s pension, car andother contractual benefits. Any bonus payable is at the discretionof the Remuneration Committee and is capped at thecontractual maximum bonus; and

– the amount of bonus payable upon termination of employment in other circumstances, other than for cause, is at the discretionof the Remuneration Committee and is capped at thecontractual target bonus.

The Remuneration Committee’s policy continues to be thatexecutive Directors’ service contracts should be for a rolling termand, for UK contracts, incorporate notice periods of 12-months.The Committee also believes that the Company should retain the right to make a payment in lieu of notice to a Director. The obligations on the executive Directors in respect of intellectualproperty remain in place together with the post-terminationrestrictions. The Committee’s view is that in the event of earlytermination executive Directors should be treated fairly but paid no more than is necessary. Moreover, there should be no elementof reward for failure.

The executive Directors’ contracts of employment, which wererevised to reflect the changes noted above, are dated 10 March2004 in the case of each of Mr Russell and Dr Totten and 12 March 2004 in the case of Mr Emmens. The contract for Mr Stahel, the previous Chief Executive Officer, was dated 28 February 2003. Mr Russell’s and Dr Totten’s contracts requirethem to give the Company 12-months’ notice and expire on them reaching 65. Mr Emmens’ contract requires him to give theCompany six-months’ notice and no age is specified for retirement.The Company is required to give Mr Russell and Dr Totten 12-months’ notice of termination, other than if termination is forcause, whereas it is not obliged to give Mr Emmens any notice.

36 Shire Pharmaceuticals Group plc Directors’ remuneration report

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/or Nomination Committee. The Chairman of the Company receives a separate fee. Fees aredetermined by the Board and are benchmarked against non-executive Director fees of comparable companies. Details of feespaid to the Chairman and non-executive Directors in 2003 are setout in the table on page 37.

The fees paid to non-executive Directors are not performance-related. Non-executive Directors do not participate in any of theCompany share schemes or other employee benefit schemes andno options have been granted to non-executive Directors in theircapacity as non-executive Directors of Shire. Neither the Chairmannor the non-executive Directors are eligible to join the Company’spension scheme.

The Hon James Grant holds share options relating to his servicewith Shire BioChem, which merged with Shire. The grant of theseoptions was made on the same terms as applied to otheremployees, at the time, including that these options are notsubject 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 2004 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 24.03.03 23.03.05 3 months

Dr Barry Price 25.01.04 24.01.05 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

Related party transactionsDetails of transactions relating to Mr John Spitznagel, a formernon-executive Director who entered into a consultancy agreementwith the Company, and The Hon James Grant, who is a partner of a Canadian law firm with which the Company incurredprofessional fees during the year, are given in note 19 to theconsolidated financial statements.

Performance graphThe graph below sets out the Total Shareholder Return (TSR) forthe five years ending 31 December 2003. The graph compares the performance of a holding of the Company’s shares with that of a holding of shares in the FTSE UK Pharma and Biotech Indexover the relevant period, calculated in accordance with theDirectors’ 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.

Five Year Historical TSR Performance Change in the Value of a Hypothetical £100 Holding Over Five Years. FTSE UK Pharma and Biotech Index Comparison Based on Spot Values.

£400

£350

£300

£250

£200

£150

£100

£50

Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03

Shire Pharmaceuticals Group PLCFTSE UK Pharma and Biotech Index

Termination paymentsMr Rolf Stahel stepped down as Chief Executive Officer of the Company in March 2003. As was disclosed in the 2002Remuneration Report, the Board decided to pay Mr Stahel inaccordance with the payment in lieu of notice provisions in hiscontract of employment. The compensation for loss of officepayment, equating to his contractual entitlement, amounted to £1,335,169. In the view of the Remuneration Committee and the Board this payment was justified given that Mr Stahel’scontract was terminated, not for any failure on his part, but ratherbecause the Board had reached the view that shareholders wouldbenefit from the appointment of a successor who could lead theCompany to its next stage of development.

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

Other remunerationMr Russell was appointed as a non-executive Director of The Cityof London Investment Trust plc (and its associated companies,The City of London European Trust Limited, The City of LondonInvestments Limited and The City of London Finance CompanyLimited) during 2003. In this capacity, he was paid £16,000. Mr Russell will retain this remuneration.

Shire Pharmaceuticals Group plc Directors’ remuneration report

Audited informationAggregate Directors’ RemunerationThe total amounts for Directors’ remuneration were as follows:

2003 2002£’000 £’000

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

8,657 5,645

Directors’ emoluments

Cash Non-cashbenefits benefits Total Total

Salary Bonuses Fees in kind in kind 2003 2002Director £’000 £’000 £’000 £’000 £’000 £’000 £’000

ExecutiveMr Matthew Emmens (ii) (i) 446 235 – 14 4 699 –Mr Angus Russell 320 162 – 10 7 499 444Dr Wilson Totten 340 163 – 11 17 531 481Mr Rolf Stahel (iii) 154 124 – – 33 311 1,144

1,260 684 – 35 61 2,040 2,069

Non-executiveDr James Cavanaugh – – 54 – – 54 45Dr Barry Price – – 43 – – 43 37The Hon James Grant – – 35 – – 35 30Mr Ronald Nordmann – – 45 – – 45 34Mr Robin Buchanan (iv) – – 16 – – 16 –Dr Francesco Bellini (v) – – 11 – – 11 30Mr Gérard Veilleux (v) – – 12 – – 12 32The late Dr Bernard Canavan – – – – – – 23

– – 216 – – 216 231

Total 1,260 684 216 35 61 2,256 2,300

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

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

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

Details of exercise of share options are disclosed on page 39. Non-executive Director remuneration is to/from the date of resignation/appointment.

37

38 Shire Pharmaceuticals Group plc Directors’ remuneration report

Directors’ pension entitlementsThe following Directors are members of money purchase schemes.Contributions paid by the Company in respect of 2003 were as follows:

2003 2002Name of Director £’000 £’000

Mr Matthew Emmens 138 –Mr Angus Russell 80 56Dr Wilson Totten 85 46Mr Rolf Stahel 4,347 216(stepped down on 19 March 2003)Dr Francesco Bellini 26 65(stepped down on 10 May 2003)

4,676 383

The 2002 Remuneration Report disclosed that the RemunerationCommittee and the Board decided, in recognition of Mr Stahel’sexceptional services to the Company over the nine years of hisemployment to make an additional one-off payment to a definedcontribution pension arrangement for Mr Stahel of £4.3 million.

The pension payment to Dr Bellini, the former chief executive of BioChem Pharma Inc., arose from Dr Bellini’s terminationarrangement, which was based on his pre-merger employmentcontract. The Company’s obligation to make pension payments to Dr Bellini ended on 13 May 2003.

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

31 December, 31 December,Notes 2003 2002

Dr James Cavanaugh (i) 8,806,368 8,806,368Mr Matthew Emmens – –Mr Angus Russell – –Dr Wilson Totten 6,061 6,061Dr Barry Price 31,350 31,350The Hon James Grant (ii) 4,551 4,551Mr Ronald Nordmann 46,968 46,968Mr Robin Buchanan – –

*All interests are beneficial unless otherwise stated.

Notes(i) Dr Cavanaugh is President of HealthCare Ventures LLC,

which is the management company for a number of limitedpartnerships, which have interests in 8,690,090 ordinary shares. Dr Cavanaugh is also the beneficial owner of 116,278 ordinary shares.

(ii) On 9 June 2003 The Hon James Grant exercised an optiongranted to him under the BioChem Stock Option Plan for 31,859 shares at the option price of £1.25 per share. All these shares were sold on the same day at a price of £4.17 per share.

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

Directors and employees have been granted options over 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), the Roberts Stock Option Plan (Roberts Plan) and the BioChemStock Option Plan (BioChem Plan).

Shire Pharmaceuticals Group plc Directors’ remuneration report

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 price date 2003 2002Director Scheme of options £ £ £’000 £’000

Mr Rolf Stahel SHL 89,840 1.00 6.020 – 45189,840 1.00 6.020 – 45189,840 1.00 6.020 – 45190,160 1.00 3.887 – 26090,160 1.00 3.887 – 26090,160 1.00 3.887 – 260

Executive Scheme B 329,095 1.75 3.887 – 703Executive Scheme A 13,761 2.18 3.680 21 –

21 2,836

The Hon James Grant BioChem Plan 31,859 2.08 6.032 – 12631,859 1.25 4.175 93 –

93 126

114 2,962

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

Number of ordinary shares Exercise dates

At At Exercise1 January 31 December price

Director Scheme Notes 2003 Granted Exercised Lapsed 2003 £ Earliest Latest

Mr Matthew Emmens 2000 Executive Scheme B (iv) – 945,010 – – 945,010 3.6825 18.03.06 17.03.13StockPurchase Plan (vi) – 2,098 – – 2,098 4.0900 22.11.05 22.11.05

– 947,108 – – 947,108

Mr Angus Russell Executive Scheme A (i) 4,181 – – – 4,181 7.1750 13.12.02 12.12.09

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

2000 Executive (iv) 69,213 – – – 69,213 12.5700 05.06.04 04.06.11Scheme B 114,474 – – – 114,474 5.0650 04.03.05 03.03.12

– 284,024 – – 284,024 3.3800 04.03.06 03.03.13

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

241,991 284,024 – – 526,015

Dr Wilson Totten Executive Scheme A (i) 8,862 – – – 8,862 3.3850 09.02.01 08.02.08

Executive (i) 141,138 – – – 141,138 3.3850 09.02.01 08.02.05Scheme 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 Executive (iv) 63,242 – – – 63,242 12.8000 03.08.03 02.08.10Scheme B 73,986 – – – 73,986 12.5700 05.06.04 04.06.11

122,368 – – – 122,368 5.0650 04.03.05 03.03.12– 301,775 – – 301,775 3.3800 04.03.06 03.03.13

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

453,473 301,775 – – 755,248

39

40 Shire Pharmaceuticals Group plc Directors’ remuneration report

Number of ordinary shares Exercise dates

At At Exercise1 January 31 December price

Director Scheme Notes 2003 Granted Exercised Lapsed 2003 £ Earliest Latest

Mr Rolf Stahel Executive Scheme A (i) 13,761 – (13,761) – – 2.1800 15.02.99 14.02.06

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

2000 Executive (iii) 34,241 – – – 34,241 12.8000 19.03.03 18.03.04Scheme B (iii) 126,492 – – – 126,492 12.5700 18.03.04 04.12.04

(iii) 209,211 – – – 209,211 5.0650 18.09.03 03.09.05

Sharesave (ii) 1,151 – – (1,151) – 8.4100 01.12.04 31.05.05

520,963 – (13,761) (1,151) 506,051

The Hon James Grant BioChem (v) 31,859 – (31,859) – – 1.2500 14.05.01 16.06.0331,859 – – – 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

153,603 – (31,859) – 121,744

Dr Francesco Bellini BioChem (v) 3,413,550 – – – 3,413,550 7.1200 14.05.01 28.01.07

3,413,550 – – – 3,413,550

Mr Gérard Veilleux BioChem (v) 10,003 – – – 10,003 6.6000 14.05.01 18.07.09

10,003 – – – 10,003

For those options which remained unexercised during the year, no payment was made by any Director in consideration of the grant award.

There have been no variations to the terms and conditions or performance criteria for share options during the financial year except as detailed in the notes below.

Shire Pharmaceuticals Group plc Directors’ remuneration report

Notesi) Options granted under the Executive Scheme are subject

to performance criteria and cannot be exercised in full, unlessthe Company’s share price increases at a compound rate of at least 20.5% per annum over a minimum three-yearmeasurement period. If the Company’s share price increasesat a compound rate of 14.5% per annum over a minimumthree-year measurement period, 60% of the options may beexercised. If these conditions are not met after the initial threeyears, they are thereafter tested quarterly by reference to shareprice growth over the extended period. If the share price doesnot meet these conditions at any time, none of the options willbecome exercisable.

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

iii) In connection with the termination of Mr Stahel’s employment,the Remuneration Committee agreed to exercise its discretionunder the Rules of the respective option schemes to allow Mr Stahel to retain these options for a phased period of time of up to 21/2 years following his termination date as set out in the table above. Mr Stahel’s options may not be exercised if he is in breach of certain post termination restrictivecovenants and/or if he engages in activity detrimental to theCompany over that period.

iv) Options granted under the 2000 Executive Scheme vest six weeks prior to the expiry date. Options granted under the2000 Executive Scheme following the Company’s 2000 AnnualGeneral Meeting, are subject to performance criteria andcannot be exercised in full, unless the Company’s share priceincreases at a compound rate of at least 20.5% per annumover a minimum three-year period. If the Company’s shareprice increases at a compound rate of at least 14.5% perannum over a minimum three-year measurement period, 60% of the options will be exercisable. If these conditions arenot met after the initial three-year measurement period, theywill thereafter be tested quarterly by reference to compoundannual share price growth over an extended period. If theshare price does not meet these conditions at any time, noneof these options will become exercisable.

At the Annual General Meeting of the Company, held on 5 June 2001, a resolution was passed to permit the grant ofoptions under the 2000 Executive Scheme to be made subjectto performance criteria being satisfied prior to the date ofgrant. Subsequent to the passing of this resolution optionshave been granted based on a performance criteria beingsatisfied before grant namely that the Company’s share pricehad increased by an annualised compound rate of 20.5% overa minimum three-year period.

During 2002, the performance criteria were again reviewed to ensure the criteria reflected the market in which theCompany operates. Given the Company’s development it was felt appropriate that an EPS based measure should be adopted in place of share price growth targets. Therefore,option grants made from August 2002 onwards will onlybecome exercisable in full if the Company’s EPS growthexceeds the RPI over a three-year period for the followingtranches of grants:

Options with a grant value RPI plus 9%of up to 100% of salary (Directors, RPI plus 15%)

Between 101% and 200% of salary RPI plus 15%

Between 201% and 300% of salary RPI plus 21%

Over 301% of salary RPI plus 27%

The adoption of the new performance criteria applies to all options granted from August 2002 onwards. The 2000Executive Scheme provides for the performance test to be re-applied annually from a fixed point until the option expires.The Remuneration Committee agreed at the end of 2003 that, from 2004, for future grants under the Scheme theperformance condition should be re-tested once only, five years after the grant.

v) Following the acquisition of BioChem on 11 May 2001, the BioChem Plan was amended such that options overBioChem’s common stock became options over ordinaryshares of the Company. All BioChem options, which were not already exercisable, vested and became exercisable as a result of the acquisition and were not subject to anyperformance conditions. It is intended that no further optionswill be granted under the BioChem Plan.

vi) Under the Stock Purchase Plan options are granted with an exercise price equal to 85% of the fair market value of a share on the enrolment date (the first day of the offeringperiod) 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 are not subject to anyperformance condition.

The market price of the ordinary shares at 31 December 2003 was £5.42 and the range during the year was £2.93 to £5.42.

41

42 Shire Pharmaceuticals Group plc Directors’ remuneration report

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

Value of Actual Marketaward at performance price at Value at

Date of Initial award grant date related maturity maturity Date ofDirector award made £ award £ £ maturity

Mr Angus Russell 13.12.99 12,436 90,000 9,203 4.90 45,141 13.12.03Dr Wilson Totten 08.04.99 15,255 71,000 11,289 4.13 46,624 08.03.03Mr Rolf Stahel (i) 08.04.99 32,230 150,000 23,850 3.68 87,828 18.03.03

01.03.00 35,785 360,050 26,084 3.68 96,054 18.03.03

Total 275,647

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

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

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

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

Long Term Incentive Plan maturities

Value of Actualaward at performance Value at

Date of Initial award grant date related maturity Date ofDirector award made £ award £ maturity

Mr Angus Russell (i) 01.03.00 1,789 18,000 1,296 7,147 02.03.04Dr Wilson Totten (i) 01.03.00 19,881 200,032 14,398 79,404 02.03.04

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

43Shire Pharmaceuticals Group plc Directors’ remuneration report

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

Ordinary Value of Ordinary Earliest dateshares at award at shares at on which an

1 January Date of Award made grant date 31 December award canDirector 2003 award 20.03.03 £’000 2003 be made

Mr Matthew Emmens – – 80,960 290 80,960 20.03.07

80,960 290 80,960

Mr Angus Russell 1,789 01.03.00 – 18 1,789 01.03.0411,535 05.06.01 – 134 11,535 05.06.0519,078 04.03.02 – 127 19,078 04.03.06

– 44,667 160 44,667 20.03.07

32,402 44,667 439 77,069

Dr Wilson Totten 19,881 01.03.00 – 200 19,881 01.03.0412,330 05.06.01 – 144 12,330 05.06.0520,394 04.03.02 – 136 20,394 04.03.06

– 47,459 170 47,459 20.03.07

52,605 47,459 650 100,064

Mr Rolf Stahel 21,081 05.06.01 – 246 – 05.06.05See note (i) 34,868 04.03.02 – 232 – 04.03.06

55,949 – 478

The above awards made during the year were all at the price of £3.58 per share. Performance conditions attaching to awards made under the Long Term Incentive Plan are detailed on pages 34 to 35.

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

Dr Barry PriceChairman of the Remuneration Committee

44 Shire Pharmaceuticals Group plc Corporate governance statement

The Company is committed to high standards of corporate governanceThe Board is committed to high standards of corporate governance.In July 2003, the new Combined Code on Corporate Governancewas published and will take effect for the Company for thefinancial year commencing on 1 January 2004. The Company has already taken steps to comply with the new Combined Code,notwithstanding that it is not required to do so until its report for the 2004 financial year. The Company’s compliance with the provisions of the new Combined Code is described in thiscorporate governance review.

Throughout the period under review the Company has, in theDirectors’ opinion, (i) applied the principles of the Combined Code in effect for the 2003 financial year and (ii) complied with the provisions of the Combined Code in effect for the 2003financial year.

The BoardThe Board comprises three executive and five non-executiveDirectors and meets at least five times a year.

The Board has overall responsibility for managing the Company and 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 aredelegated to the Executive Committee and to various other Boardcommittees set out below. The Board receives detailed informationfrom executive Directors, the Company Secretary and other seniormanagers to enable it to exercise its responsibility.

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 28 and 29.

Independent DirectorsThe Board considers Dr James Cavanaugh, Dr Barry Price, The Hon James Grant, Mr Ronald Nordmann and Mr RobinBuchanan to be independent non-executive Directors. The Boardviews each of these non-executive Directors to be independent of management, independent in judgement and character, and free from any business or other relationship which could materiallyinterfere with the exercise of their independent judgement.

The Board considered its non-executive Chairman, Dr JamesCavanaugh, to be an independent non-executive Director in 2003. Dr Cavanaugh is a member of the Company’s Audit and Remuneration Committees and is Chairman of the Company’sNomination Committee. As the new Combined Code contemplatesthat the Chairman should no longer be considered to be‘independent’, the Company will address this by changing theconstitution of the Audit and Remuneration Committees in 2004.

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 Group and is not engaged in marketing the services of Stikeman Elliott to theGroup. Mr Grant was a board member of BioChem Pharma Inc.prior to its merger with the Company in 2001 and he brings a wealth of experience and expertise to the Board.

Board changesThere were several changes to the Board in 2003. Mr Rolf Stahel,the Company’s former Chief Executive stepped down from theBoard on 19 March 2003 and Dr Francesco Bellini and Mr GérardVeilleux stepped down from the Board as non-executive Directorson 10 May 2003. Mr Matthew Emmens joined the Board as ChiefExecutive Officer on 12 March 2003 and Mr Robin Buchananjoined the Board as a non-executive Director and a member of the Remuneration Committee on 30 July 2003.

Board meetingsDuring 2003, there were 14 Board meetings of which five wereface-to-face meetings and the remainder held by telephone. Boardmeetings are well attended. The record of attendance by Directorsat Board meetings is set out below:

Number ofmeetings Out of

Directors attended possible %

James Cavanaugh (Chairman) 14 14 100Matthew Emmens (Chief Executive Officer) 11 11 100(appointed 12 March 2003)Angus Russell (Chief Financial Officer) 14 14 100Dr Wilson Totten 14 14 100Dr Barry Price 14 14 100The Hon James Grant 13 14 93Ronald Nordmann 14 14 100Robin Buchanan 5 6 83(appointed 30 July 2003)Rolf Stahel (stepped down 19 March 2003) 3 3 100Dr Francesco Bellini 4 5 80(stepped down 10 May 2003)Gérard Veilleux 3 5 60(stepped down 10 May 2003)

The non-executive Directors have met informally during the yearwithout the Chairman and Chief Executive Officer present but notas part of a structured programme. It is intended that suchmeetings will be formalised in 2004.

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.

Shire Pharmaceuticals Group plc Corporate governance statement

Senior non-executive DirectorDr Barry Price is the nominated senior independent non-executive Director.

Supply of informationThe executive Directors and the Company Secretary areresponsible for ensuring that detailed information is provided to Board 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-appointmentNon-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 for thetime being. Accordingly, no Director should serve for more thanthree years without being subject to re-election by shareholders.

Performance appraisalsThe new Combined Code will require the Company to describehow performance evaluation of the Board, its Committees and its Directors has been conducted. Whilst the Board hasmonitored overall Board and individual Director performanceduring 2003, a more formal performance evaluation for the Board,its Committees and for each Director will be introduced in 2004.

Committees of the BoardThe Board has established the Audit Committee, the RemunerationCommittee, the Nomination Committee and the ExecutiveCommittee. Each committee has its own written terms of referencethat have been approved by the Board. The terms of reference for the Audit, Remuneration and Nomination Committees haverecently been revised and updated in light of new regulatoryrequirements in the US and the release of best practice guidancein the UK. The terms of reference of the Audit, Nomination andRemuneration Committees will be made available on the Company’swebsite in 2004. Details of each committee are as follows:

i) Audit Committee The Audit Committee is required, amongst other things, to reviewthe effectiveness of internal control systems, to monitor therelationship with external auditors including discussing the scopeof the audit and any issues arising from it, to review the Company’sstatutory accounts and other financial statements and informationand to review the business risks faced by the Company. The AuditCommittee also proposes to shareholders the appointment or there-appointment of the external auditors and is responsible forrecommending their remuneration.

The Audit Committee is also required to approve any audit and non-audit services provided by the Company’s auditors. Any such services are either approved by the Audit Committee, or if between scheduled Audit Committee meetings, by theChairman of the Audit Committee (who has been delegatedresponsibility for doing so) or are provided under a pre-approvalpolicy adopted by the Audit Committee. The Audit Committee is informed at each meeting of services approved by the Chairmanor provided under the pre-approval policy. These procedures areintended to safeguard auditor objectivity and independence.

The Audit Committee met on four occasions during 2003. Mr Ronald Nordmann was the Chairman of the Audit Committee in 2003 and Dr Barry Price and Dr James Cavanaugh weremembers of the Committee in 2003. All members attended all meetings in 2003.

Mr Nordmann has been a financial analyst for over 30 years and accordingly is considered by the Board to have recent andrelevant financial experience.

ii) 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 thefixing of the terms of their employment. The RemunerationCommittee may engage external consultants to advise on anyaspects of remuneration.

The remuneration of non-executive Directors is determined by the Board.

The Directors’ remuneration report appears on pages 32 to 43 and provides further information on the role of this Committee.

The Remuneration Committee met on 10 occasions in 2003. Dr Barry Price chaired the Remuneration Committee in 2003 and Dr James Cavanaugh was a member of this Committeein 2003. Mr Gérard Veilleux was a member until he stepped downfrom the Board on 10 May 2003. Mr Robin Buchanan joined theRemuneration Committee on 30 July 2003. Mr Veilleux was unableto attend two of the six Remuneration Committee meetings whichtook place before he stepped down from the Board, but otherwise all members attended all meetings.

iii) Nomination CommitteeThe Nomination Committee is responsible for identifying andnominating, for the approval of the Board, candidates to fillvacancies to the Board. This Committee meets as required and in 2003 was chaired by Dr James Cavanaugh. Mr RonaldNordmann, The Hon James Grant and Dr Barry Price also servedon this Committee in 2003. All members attended all meetings in 2003.

When considering appointments to the Board, the NominationCommittee takes into account the skills, knowledge andexperience of the existing members of the Board and determinesthe capabilities which are required of any new Director. The Nomination Committee retains the services of executivesearch consultants to assist it in the identification and nominationof new Board candidates.

iv) Executive CommitteeThe Executive Committee has the day-to-day management of the Company delegated to it by the Board and operates withinclear and formal parameters. The Executive Committee meets at least monthly. The Chief Executive Officer is the Chairman of the Executive Committee, which in 2003 consisted of nine seniorexecutives including the three executive Directors. The ExecutiveCommittee reports to and seeks guidance from the Board on a regular basis.

Directors’ remunerationThe Company’s remuneration policy is described in the Directors’remuneration report on pages 32 to 43. The report details the levelof remuneration for Directors and the basis upon which executiveremuneration is fixed.

45

46 Shire Pharmaceuticals Group plc Corporate governance statement

Executive remunerationThe remuneration of the members of the Executive Committee,other than the executive Directors, is determined by the ChiefExecutive Officer within policy guidelines set down by theRemuneration Committee and is dependent on performance.

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. The Chairman and the senior independent non-executive Directoralso are available to meet with major shareholders.

The Company maintains a flow of information to its shareholdersthrough the announcement of quarterly results and the provision of 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 London at 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. Beforeit was required under SEC rules, the Company voluntarily adoptedquarterly financial reporting, which is not obligatory in the UK.

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 the Company’s approach to corporate social responsibilitygenerally and the specific business risks related to Social,Environmental and Ethical (‘SEE’) matters.

The Board receives advice and information from the CSRCommittee to make this assessment. The CSR Committee, which is chaired by the Chief Financial Officer, was establishedduring 2003. It meets three times a year and is responsible forsetting 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 decided to produce a standalonereport on CSR. 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 was reviewed and updated in 2003and the amended version was approved by the Board inDecember 2003. The Code of Ethics applies to all Directors andemployees and is available for review on the Company’s website.

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 activitiesas 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.

i) Financial reportingThe Board has ultimate responsibility for the preparation of accounts and for the monitoring of systems of internal financial control. The Board strives to present a balanced andunderstandable assessment of the Company’s position and its prospects and endeavours to present scientific and other price-sensitive information in a balanced way. The Companypublishes quarterly 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 auditors throughout the year in addition to presentations from the auditors on a quarterly basis.Any significant findings or identified risks are closely examined and are reported to the Board with recommendations for action.

The Company has established a Disclosure Committee which is chaired by the Chief Financial Officer. Its membership comprisessenior managers from legal, finance and risk. Its responsibility is to establish and maintain controls and other procedures to ensurethat information disclosed to investors is recorded, summarisedand reported accurately and to monitor the effectiveness of theseprocedures. The Disclosure Committee also has the responsibilityfor the review and oversight of the Company’s periodic reporting.

Shire Pharmaceuticals Group plc Corporate governance statement

Following the enactment of the Sarbanes-Oxley Act 2002 in theUS, the Chief Executive Officer and the Chief Financial Officer are required to complete formal certifications, which confirm, inter alia, that:

– the annual report in the US on Form 10-K does not contain anymaterial misstatements or omissions;

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

– the Chief Executive Officer and the Chief Financial Officer areresponsible for determining and maintaining disclosure controlsand procedures; and

– 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 financial reporting.

The Chief Executive Officer and the Chief Financial Officer havecompleted these certifications and they will be filed with the SECin the US as part of the Company's annual report in the US. Whilstthere is no formal requirement for these certifications to be given in connection with the accounts prepared in accordance with UKGAAP, the UK statutory financial statements have been preparedusing the same processes.

ii) 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.The Board has reviewed both the key risks faced by the Companyand the effectiveness of the Company’s internal control systems in 2003.

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

The Company has an integrated risk management and internalaudit function. The Head of Risk and Audit, whose appointmentwas confirmed by the Audit Committee, reports to the ChiefFinancial Officer and attends and presents regularly at AuditCommittee meetings. The Head of Risk and Audit also has directaccess to the Chairman, the Chairman of the Audit Committee and the other members of the Audit Committee.

The Company has an ongoing process for identifying, evaluatingand managing the significant risks that it faces. This process hasbeen in operation throughout the period under review and up to the date of the signing of the accounts. This includes analysis of the impact on the operation of key risks and the action beingtaken to avoid or reduce each risk. The risk schedule allocatesresponsibility for management of each key risk to appropriatesenior executives. The Company also has a system of controlprocedures. Compliance with these procedures is monitoredthrough a system of internal review and regular reports on financialperformance. Any significant issues arising are reported to theAudit Committee.

The internal review of the Company’s control procedures andcompliance with them is mostly undertaken through internal audit.The Company’s outsourced internal audit function was operationalthroughout 2003. The majority of internal audit work during 2003has been concentrated on internal financial controls and onachieving compliance with Sarbanes-Oxley Act requirements,which is required by 31 December 2004. This will continue in2004. The Audit Committee, which is responsible for monitoringthe activity of the internal audit function, has reviewed theeffectiveness of the internal audit during 2003.

Although the Board and the Audit Committee receive reports on areas of significant risk to the Company and related internalcontrols, there are limitations in any system of internal control and accordingly even the most effective system can provide onlyreasonable and not absolute assurance. Such a system is designedto manage rather than eliminate the risk of failure to achievebusiness objectives and can only provide reasonable and notabsolute assurance against material misstatement or loss.

iii) External auditing The Audit Committee reviews the scope and results of the audit and non-audit services provided by the auditors, the costeffectiveness and the independence and objectivity of the auditors.

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

47

48 Shire Pharmaceuticals Group plc Statement of Directors’ responsibilities – Report of independent auditors

Statement of Directors’ responsibilitiesUK company law requires the Directors to prepare financialstatements for each financial year which give a true and fair view of the state of affairs of the Company and the Group as at the end of the financial year and of the profit or loss of the Group for that period. In preparing those financialstatements, the Directors are required to:

– select suitable accounting policies and then apply them consistently;

– make judgements and estimates that are reasonable andprudent; and

– state whether applicable accounting standards have been followed.

Report of independent auditorsTo the Shareholders of Shire Pharmaceuticals Group plc:We have audited the accompanying consolidated balance sheetsof Shire Pharmaceuticals Group plc and its subsidiaries as ofDecember 31, 2003 and 2002, and the related consolidatedstatements of operations, comprehensive income, changes in shareholders equity, and cash flows for each of the three years in the period ended December 31, 2003. These financialstatements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financialstatements and schedules based on our audits.

We conducted our audits in accordance with auditing standardsgenerally accepted in the United States of America. Thosestandards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation. We believe that our audits provide a reasonablebasis for our opinion.

The Directors are responsible for keeping proper accountingrecords which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 1985. They are also responsible for the system of internal control, for safeguarding the assets of the Companyand hence for taking reasonable steps for the prevention anddetection of fraud and other irregularities.

In our opinion the consolidated financial statements present fairly,in all material respects, the financial position of the companies as of December 31, 2003 and 2002, and the results of theiroperations and their cash flows for each of the three years in theperiod ended December 31, 2003, in conformity with accountingprinciples generally accepted in the United States of America.Also, in our opinion, the financial statement schedule, whenconsidered in relation to the basic consolidated financialstatements taken as a whole, presents fairly in all material respectsthe information set forth therein.

Deloitte & Touche LLPReading, EnglandMarch 10, 2004

Shire Pharmaceuticals Group plc Consolidated balance sheets

In thousands of US dollars, except share data

AssetsCurrent assets:Cash and cash equivalents 1,103,286 880,973Restricted cash 6,795 16,745Marketable securities (5) 304,129 316,126Accounts receivable, net (6) 215,690 138,397Inventories (7) 45,258 49,216Deferred tax asset (25) 64,532 34,849Prepaid expenses and other current assets (8) 48,017 30,790

Total current assets 1,787,707 1,467,096

Investments (9) 73,153 71,962Property, plant and equipment, net (10) 161,225 135,234Goodwill, net (11) 225,860 203,767Other intangible assets, net (11) 307,882 301,084Deferred tax asset (25) – 6,216Other non-current assets (12) 22,953 23,264

Total assets 2,578,780 2,208,623

Liabilities and shareholders’ equityCurrent liabilities:Current installments of long-term debt (15) 1,054 888Accounts payable and accrued expenses (13) 215,494 184,107Other current liabilities (14) 37,127 16,725

Total current liabilities from continuing operations 253,675 201,720Current liabilities from discontinued operations (4) – 12,784

Total current liabilities 253,675 214,504

Long-term debt, excluding current installments (15) 376,781 407,302Deferred tax liability (25) 1,400 –Other non-current liabilities (16) 23,798 13,651

Total liabilities 655,654 635,457

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

Total shareholders’ equity 1,923,126 1,573,166

Total liabilities and shareholders’ equity 2,578,780 2,208,623

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

December 31, December 31,2003 2002

Notes $’000 $’000

49

50 Shire Pharmaceuticals Group plc Consolidated statements of operations

In thousands of US dollars, except share data

RevenuesProduct sales 1,029,838 859,388 699,351Licensing and development 3,677 3,064 5,498Royalties 203,573 174,812 145,155Other revenues 13 34 2,952

Total revenues 1,237,101 1,037,298 852,956

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

Other charges (22)BioChem merger:Restructuring charges – – 8,809Asset impairments – – 20,890Merger transaction expenses – – 83,470Loss on the disposition of facility – – 8,100

Total operating expenses 842,487 710,260 709,848

Operating income 394,614 327,038 143,108Interest income 16,856 19,536 19,667Interest expense (9,470) (9,252) (12,035)Other expense, net (23) (17,539) (8,262) (52,933)

Total other (expense)/income, net (10,153) 2,022 (45,301)

Income from continuing operations before income taxes, equity in (losses)/earnings of equity method investees and discontinued operations 384,461 329,060 97,807Income taxes (25) (107,353) (88,350) (67,781)Equity in (losses)/earnings of equity method investees (26) (1,057) 1,668 1,985

Income from continuing operations 276,051 242,378 32,011Income from discontinued operations (net of income tax expense of $nil, $3,588 and $3,963 respectively) (4) – 6,108 6,748Gain on disposition of discontinued operations (net of income tax expense of $nil, $1,224 and $nil respectively) (4) – 2,083 –

Net income 276,051 250,569 38,759

Earnings per share – basic (20)Income from continuing operations 55.4¢ 48.4¢ 6.5¢Income from discontinued operations – 1.6¢ 1.4¢

55.4¢ 50.0¢ 7.9¢

Earnings per share – diluted (20)

Income from continuing operations 54.2¢ 47.4¢ 6.4¢Income from discontinued operations – 1.6¢ 1.3¢

54.2¢ 49.0¢ 7.7¢

Weighted average number of sharesBasic 498,212,826 500,687,594 492,594,226Diluted 518,967,395 522,418,246 504,875,587

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

2003 2002 2001Year ended December 31, Notes $’000 $’000 $’000

51

Consolidated statements of comprehensive incomeIn thousands of US dollars

2003 2002 2001Year ended December 31, $000 $000 $000

Net income 276,051 250,569 38,759Other comprehensive income/(loss):Foreign currency translation 114,116 50,314 (32,507)Unrealized holding gains on available for sale securities 6,322 1,264 48

Comprehensive income 396,489 302,147 6,300

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

December 31, December 31,2003 2002$000 $000

Foreign currency translation 71,421 (42,695)Unrealized holding gains on available for sale securities 7,586 1,264

Accumulated other comprehensive income/(loss) 79,007 (41,431)

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

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

As of December 31, 2000 40,292 488,015 – – 1,209,448 (14,804) (60,550) 1,174,386Net income – – – – – 38,759 – 38,759Foreign currency translation – – – – – – (32,507) (32,507)Issue of shares for acquisitions (3,662) (51,876) 802,256 17,292 (798,594) – – –Issue of common stock for conversion of loan note 22 295 – – 1,522 – – 1,544Issue costs – – – – (18) – – (18)Exchange of exchangeable shares 2,414 33,940 (524,870) (11,313) 522,456 – – –Options exercised 795 11,443 – – 69,397 – – 70,192Stock option compensation and warrants – – – – 6,780 – – 6,780Tax benefit associated with exercise of stock options – – – – 3,805 – – 3,805Unrealized holding gain on available-for-sale investments – – – – – – 48 48

As of December 31, 2001 39,861 481,817 277,386 5,979 1,014,796 23,955 (93,009) 1,262,989Net 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 on available for sale investments – – – – – – 1,264 1,264

As of December 31, 2002 40,051 484,344 272,523 5,874 1,027,499 274,524 (41,431) 1,573,166Net 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 compensation and warrants – – – – (24) – – (24)Tax benefit associated with exercise of stock options – – – – 692 – – 692Unrealized holding gain on available for sale investments – – – – – - 6,322 6,322

As of December 31, 2003 39,521 477,895 270,667 5,840 983,356 550,575 79,007 1,923,126

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

Accumulatedother

Common Exchangeable Accumulated compre-Common stock Exchangeable shares Additional (deficit)/ hensive Total

stock number shares number paid-in retained income/ shareholders’amount shares amount shares capital earnings (losses) equity

$’000 000’s $’000 000’s $’000 $’000 $’000 $’000

Consolidated statements of changes in shareholders’ equity

In thousands of US dollars, except share data

Shire Pharmaceuticals Group plc

52 Shire Pharmaceuticals Group plc

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

Net cash provided by operating activities 355,268 345,058 195,483

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

Net cash (used in)/provided by investing activities (80,648) 396,825 (425,510)

Cash flows from financing activities:(Redemption)/proceeds from 2% convertible loan notes (29,775) – 400,000Payment of debt issuance costs – – (9,000)Repayment of long-term debt, capital leases and notes (579) (3,381) (207,762)Proceeds from issue of common stock, net – – 1,526Proceeds from exercise of options 5,195 6,008 70,192Payments for redemption of common stock (52,392) – –

Net cash (used in)/provided by financing activities (77,551) 2,627 254,956

Effect of foreign exchange rate changes on cash and cash equivalents 25,244 6,964 (1,509)

Net increase in cash and cash equivalents 222,313 751,474 23,420Cash flows used in discontinued operations – 11,459 1,354

Net increase in cash and cash equivalents 222,313 762,933 24,774Cash and cash equivalents at beginning of period 880,973 118,040 93,266

Cash and cash equivalents at end of period 1,103,286 880,973 118,040

Supplemental information associated with continuing operations:Interest paid 7,716 8,101 11,122Income taxes paid 118,527 101,779 65,773

Non cash activities:Common stock issued on conversion of zero-coupon note – 1,500 1,544Capital leases assumed on acquisition of subsidiaries – 6,266 –

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

Consolidated statements of cash flows

In thousands of US dollars

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Shire Pharmaceuticals Group plc Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

1 Description of operationsShire Pharmaceuticals Group plc (Shire) and its subsidiaries (collectively referred to as 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 innovativetherapies that are prescribed by specialist doctors as opposed to primary care physicians.

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

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

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

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

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

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

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

The implementation of these actions has resulted in:

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

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

The cost of the planned reorganization in 2004 is estimated at approximately $55 million split between retaining and relocating key staff to the new US headquarters, and site closure costs and other relocation expenses. The majority of these costs will be charged as part of operating expenses. It is anticipated that these changes will improve both the efficiency of operation and the cost structure of the Group going forward.

53

54 Shire Pharmaceuticals Group plc

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

– in the US, ADDERALL XR and ADDERALL for the treatment of ADHD, AGRYLIN for the treatment of elevated blood platelets,PENTASA for the treatment of ulcerative colitis, CARBATROL for the treatment of epilepsy and PROAMATINE for the treatment of orthostatic hypotension. In addition, the Company receives royalties on sales of REMINYL for the treatment of Alzheimer’s disease,marketed by Janssen, and on EPIVIR, COMBIVIR and TRIZIVIR for the treatment of HIV/AIDS and EPIVIR-HBV® for the treatment of hepatitis B, each marketed by GSK;

– in the UK and the Republic of Ireland, the CALCICHEW range, used primarily as adjuncts in the treatment of osteoporosis, and REMINYL, which is co-promoted by Janssen-Cilag;

– in Canada, 3TC for the treatment of HIV/AIDS, COMBIVIR and HEPTOVIR (all marketed in partnership with GSK); AMATINE and FLUVIRAL S/F, a vaccine for the prevention of influenza; and

– in the Rest of the World, royalties on the sales of ZEFFIX for the treatment of hepatitis B, marketed by GSK, and royalties on sales of REMINYL marketed by Johnson & Johnson.

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

– FOSRENOL for the treatment of high blood phosphate levels associated with kidney failure. The Company submitted the first regulatory submission for FOSRENOL under the European Mutual Recognition procedure on March 13, 2001 and a New Drug Application (NDA) with the US FDA on April 30, 2002. The Company received an approvable letter from the US FDA on March 3, 2003;

– XAGRID in the EU (which is the trade name of AGRYLIN in the EU). On July 25, 2003, the Company received a positive Committee for Proprietary Medicinal Products opinion;

– Adult indication for ADDERALL XR. The Company received an approvable letter from the US FDA on October 20, 2003;– METHYPATCH, a transdermal delivery system for the once daily treatment of ADHD. Shire and Noven are working closely to supply

the FDA with appropriate Phase III data requested in their non-approvable letter issued on April 28, 2003;– BIPOTROL (SPD417) for bipolar disorder. In February 2004 Shire filed an NDA for this indication; – SPD503 (guanfacine) for ADHD, in Phase III; and– SPD476 for ulcerative colitis in Phase II.

2 Summary of significant accounting policiesa) 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 contingentassets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during thereporting period. Actual results could differ from those estimates. Estimates and assumptions are primarily made in relation to provisionsfor product returns, valuation of intangible assets, contingent liabilities and sales deductions.

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 (i.e. FOB destination) dependingon the terms of sale. Provisions for rebates, product returns and discounts to customers are provided for as reductions to revenue in thesame period as the related sales are recorded. The Company monitors and tracks the amount of rebates, product returns and discountsto customers based on historical experience to estimate the amount of reduction to revenue.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

Shire Pharmaceuticals Group plc

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

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.

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

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

Revenue from contract research and development 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 refund obligations.

d) Research and developmentResearch and development expenditures include funded and unfunded expenditures and are charged to operations in the period in which the expense is incurred.

e) 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 tangible fixed assets and are depreciated over the shorter of the period of the lease or their useful lives. The capital elements of future lease payments are recorded as liabilities, while the interestelement is charged to operations over the period of the lease to produce a level yield on the balance of the capital lease obligation.

f) Finance costs of 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 statement of operations.

g) Income taxesThe Company provides for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No.109, ‘Accountingfor Income Taxes’ (SFAS No. 109). Deferred tax assets and liabilities are provided for differences between the carrying amounts ofassets and liabilities in the consolidated financial statements and the tax bases of assets and liabilities that will result in future taxable ordeductible amounts. The deferred tax assets and liabilities are measured using the enacted tax laws and rates applicable to the periodsin which the differences are expected to affect taxable income. Income tax expense is computed as the tax payable or refundable forthe 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.

h) Earnings per shareEarnings per share (EPS) is computed in accordance with SFAS No. 128, ‘Earnings per Share’ (SFAS No. 128). Basic EPS is computedby dividing consolidated net income available to ordinary shareholders by the weighted average number of ordinary shares outstandingduring the period. Diluted EPS is computed by dividing consolidated net income available to ordinary shareholders by the weightedaverage number of shares outstanding during the period, adjusted for potentially dilutive shares that might be issued upon exercise of ordinary stock options. Such potentially dilutive shares are excluded when the effect would be to increase earnings per share or reduce a loss per share.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

55

56 Shire Pharmaceuticals Group plc

2 Summary of significant accounting policies continuedi) Advertising expenseThe Company expenses the cost of advertising as incurred. Advertising costs amounted to $40.7 million, $45.6 million and $21.8 million for the years ended December 31, 2003, 2002 and 2001 respectively.

j) Foreign 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 during the period and their balance sheets at the rates ruling at the balance sheet date. The cumulative effect of exchange rate movements is included in a separate component of other comprehensive income.

Foreign currency exchange transaction gains and losses on an after-tax basis included in consolidated net income in the years endedDecember 31, 2003, 2002, and 2001, pursuant to SFAS No. 52, ‘Foreign Currency Translation’, amounted to a $6.7 million loss, $0.3 million loss and $0.5 million loss, respectively.

k) Employee stock 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). Accordingly, compensation cost of stock options is measured as the excess, if any, of the quoted market price of Shire’s stock at the measurement date over the option exercise price and is charged to operations over the vesting period. For plans where the measurement date occurs after the grant date, referred to as variable plans, compensationcost is re-measured on the basis of the current market value of Shire stock at the end of each reporting period. Shire recognizescompensation expense for variable plans with performance conditions if achievement of those conditions becomes probable. As required by SFAS No. 123, ‘Accounting for Stock Based on Compensation’ (SFAS No. 123), the Company has included in thesefinancial statements the required pro forma disclosures as if the fair-value method of accounting had been applied.

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

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Net income, as reported 276,051 250,569 38,759Add:Stock-based employee compensation credit/(charge) included in reported net income, net of related tax effects (24) (166) 2,278Deduct:Total stock-based employee compensation expense determined under fair value based method for all awards (31,956) (24,084) (32,268)

Pro forma net income 244,071 226,319 8,769

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Earnings per shareAs reported – basic 55.3¢ 50.0¢ 7.9¢As reported – diluted 48.9¢ 49.0¢ 7.7¢Pro forma – basic 54.1¢ 45.2¢ 1.8¢Pro forma – diluted 48.1¢ 44.4¢ 1.7¢

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

m) Marketable securitiesMarketable securities consist of commercial paper and institutional and managed cash funds. In accordance with SFAS No. 115‘Accounting for Certain Investments in Debt and Equity Securities’, and based on the Company’s intentions regarding these instruments, the Company has classified all marketable securities as held-to-maturity and has accounted for these investments at amortized cost.

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

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

57Shire Pharmaceuticals Group plc

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

o) InvestmentsThe Company has certain investments in equity securities.

Investments are accounted for using the equity method of accounting if the investment gives the Company the ability to exercise significant influence, but not control over, the investee. Significant influence is generally deemed to exist if the Company has an ownership interest in the voting stock of the investee between 20% and 50%, although other factors, such as representation on 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 investees in the consolidated balancesheet as Investments – Equity method investments and its share of the investees’ earnings or losses together with other-than temporaryimpairments in value as Equity in (losses)/earnings of equity method investees in the consolidated statement of operations.

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

p) Goodwill and other intangible assets(i) GoodwillGoodwill represents the excess of the fair value of the consideration given over the fair value of the identifiable assets and liabilities acquired.

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

Impairments of goodwill were recognized if expected undiscounted cash flows were not sufficient to recover the goodwill. If a materialimpairment was identified, goodwill was written down to its estimated fair value. Fair value was determined based on the present valueof expected net cash flows to be generated by the business, discounted using a rate commensurate with the risks involved.

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

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

(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 the estimated useful life of the related product, which ranges from 5 to 40 years (weighted average 23 years). Intellectual property with no defined revenue stream, where the related product has not yet completed the necessary approval process, is written off to operations on acquisition.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

58 Shire Pharmaceuticals Group plc

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

– expected use of the asset;– regulatory, legal or contractual provisions, including the regulatory approval and review process, patent issues and actions by

government agencies;– the effects of obsolescence, changes in demand, competing products and other economic factors, including the stability of the

market, known technological advances, development of competing drugs that are more effective clinically or economically; and– actions of competitors, suppliers, regulatory agencies or others that may eliminate current competitive advantages.

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

Buildings 20 to 50 yearsOffice furniture, fittings and equipment 4 to 10 yearsWarehouse, laboratory and manufacturing equipment 4 to 10 years

The cost of land is not depreciated.

Expenditures for maintenance and repairs are charged to operations as incurred. The costs of major renewals and improvements 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.

r) 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 determination ismade, 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 estimated based on estimated discounted cash flows.

s) 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.

t) RebatesRebates primarily consist of statutory rebates to state Medicaid agencies and contractual rebates with health-maintenanceorganizations (HMOs). Statutory rebates to state Medicaid agencies and contractual rebates with HMOs are based on price differentialsbetween a base price and the selling price. As a result, the rebates increase as a percentage of the selling price over the life of theproduct. Provision for rebates are recorded as reductions to revenue in the same period as the related sales with estimates of futureutilization derived from historical trends.

u) Common stockThe authorized common stock of the Company as of December 31, 2003 was 799,999,965 ordinary shares and 17,500,000 specialordinary voting shares. The special ordinary voting shares are entitled to dividend and other rights that are economically equivalent to those of the ordinary shares.

During the second quarter of 2003, the Company initiated a planned re purchase of its common stock. During that period, the Companyrepurchased 7,592,778 of its ordinary shares at an average price of $6.78 per share.

v) Concentration of riskRevenues are mainly derived from agreements with major pharmaceutical companies and relationships with pharmaceutical wholesaledistributors and retail pharmacy chains. Significant customers are disclosed in note 21. Such clients have significant cash resourcesand 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 ADDERALL XR and 3TC. During 2003, revenues from these products were $474.5 million and $144.6 million respectively, representing 38% and 12% of total revenues respectively. As a result, factors affectingthe sale or production of ADDERALL XR or 3TC would have a material adverse effect on the Company’s financial condition and resultsof operation.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

59Shire Pharmaceuticals Group plc

2 Summary of significant accounting policies continuedw) ReclassificationsCertain amounts reported in previous years have been reclassified to conform to the 2003 presentation.

x) New accounting pronouncements(i) Adopted in the current yearIn April 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 145, ‘Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections’ (SFAS No 145). The principal change reflected in thispronouncement is that gains or losses from extinguishment of debt which were classified as extraordinary items by SFAS No. 4 are no longer classified as such. The Company adopted SFAS No. 145 during the current year. When adopted, prior extraordinary itemsrelating to the extinguishment of debt were reclassified. This resulted in extraordinary items of $2.6 million ($4.1 million before taxes and $1.5 million of income taxes) in 2001 being reclassified to interest expense and income taxes, respectively.

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

Among other changes, FIN 46R (a) clarified some requirements of the original FIN 46 which had been issued in January 2003, (b) easedsome implementation problems and (c) added new exceptions. FIN 46R deferred the effective date of the Interpretation for publiccompanies to the end of the first reporting period after March 15, 2004 except that all public companies must, at a minimum, apply theprovisions of the Interpretation to all entities that were previously considered ‘special purpose entities’ under the FASB literature prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The Company does not anticipate that the adoption of FIN 46 will have a material impact on its financial position, cash flows or results of operations.

y) Statutory accountsThe consolidated financial statements as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003 do not comprise statutory accounts within the meaning of Section 240 of the UK Companies Act 1985.

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

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

– the severance of approximately 135 Lead Optimization employees. As of December 2003, 130 had left the Company, and the remaining employees left by January 31, 2004. Severance payments are being made to the former employees over a fifteen-monthperiod, as required by local regulations;

– a $6.0 million write-off of associated tangible fixed assets. These assets, primarily laboratory equipment, were used by Lead Optimization for research and development and have no alternative use; and

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

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

60 Shire Pharmaceuticals Group plc

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

Income statement classification Allocation between segmentsR&D SG&A R&D International

$’000 $’000 $’000 $’000

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

7,225 6,026 7,225 6,026

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

Costs recorded Utilizationin year to in year to

Opening December 31, December 31, Closingliablity 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

b) Assets held for saleSubsequent to the closure of Lead Optimization, the decision to dispose of the Biologics business and the announced US sitereorganization (all discussed above), the Company began an assessment of property needs in Canada and the United States. As a result of this initial process, the Company decided to dispose of its building in Laval, Canada and will relocate the employees based in Laval to another site or enter into a lease agreement with an ultimate buyer. The Company also decided to sell its building in Buffalo Grove. As of December 31, 2003, the Company had obtained valuations of the properties and entered into sale negotiations with third parties on the Laval property and is actively seeking buyers for its Buffalo Grove facility. Based on these negotiations, the valuations obtained, the limitations on use of the building in its current state and the overall real estate market, the Company hasrecorded an impairment charge of $10.7 million, which is included in selling, general and administrative expenses in the consolidatedstatement of operations; in addition, the Company has reclassified to prepaid expenses and other current assets the assets held for sale in the consolidated balance sheets.

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

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

Fair value$’000

Total current assets 3,188Property, plant and equipment, net 11,620Current installments of long-term debt (216)Accounts payable (1,367)Long-term debt, excluding current installments (6,050)

Net assets acquired 7,175Goodwill 10,175

17,350

Represented by:Purchase consideration 17,000Acquisition fees 350

17,350

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

61Shire Pharmaceuticals Group plc

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

2002 2001Year ended December 31, $’000 $’000

Revenues 1,042,748 861,660Net income 248,983 38,824Earnings per share - basic 49.7 7.9Earnings per share - diluted 48.7 7.7

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

b) Divestment of OTC products divisionOn December 27, 2002, the Company completed its divestment of a group of non-strategic US products, known collectively as the Over-The-Counter (OTC) products. The Company received sale proceeds of $71.0 million and recorded a gain on disposal of $2.1 million. Further details of this discontinued operation are provided in note 4 below.

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

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

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

2002 2001Year ended December 31, $’000 $’000

Product sales 24,010 24,613Cost of product sales (5,764) (6,279)

Gross profit 18,246 18,334

Operating expenses:Selling, general and administrative (8,550) (7,623)

Operating income 9,696 10,711Income taxes (3,588) (3,963)

Income from discontinued operations 6,108 6,748Gain on sale (net of tax) 2,083 –

8,191 6,748

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

62 Shire Pharmaceuticals Group plc

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

December 31, December 31,2002 2001$’000 $’000

Current assets:Inventories – 1,779

Long term assets:Goodwill and other intangible assets, net – 65,348Deferred tax liability – (7,400)

Total long term assets – 57,948

Current liabilities:Other current liabilities (12,784) –

Total current liabilities (12,784) –

Net (liabilities)/assets (12,784) 59,727

Included in the 2002 other current liabilities are amounts for ongoing liabilities that were not transferred to the purchaser. There are noremaining liabilities as of December 31, 2003.

5 Marketable securities

December 31, December 31,2003 2002$’000 $’000

Commercial paper 120,872 87,843Institutional and managed cash funds 183,257 228,283

304,129 316,126

December 31, December 31,2003 2002

Maturity profile of commercial paper $’000 $’000

Less than one month 27,854 7,2971-3 months 84,763 12,9813-6 months 8,255 67,565

120,872 87,843

December 31, December 31,2003 2002

Maturity profile of institutional and managed cash funds $’000 $’000

Less than one month 51,550 63,6001-3 months 19,861 20,3733-6 months 26,791 45,0906-12 months 36,195 25,192More than one year 48,860 74,028

183,257 228,283

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

63Shire Pharmaceuticals Group plc

6 Accounts receivable, net

December 31, December 31,2003 2002$’000 $’000

Trade receivables, net 208,893 130,210Research and development contracts 5,151 5,184Other receivables 1,646 3,003

215,690 138,397

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

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

2003 2002 2001$’000 $’000 $’000

As of January 1, 4,585 5,724 2,709Charged to income 42,841 35,021 27,239Utilization (39,573) (36,160) (24,224)

As of December 31, 7,853 4,585 5,724

7 Inventories

December 31, December 31,2003 2002$’000 $’000

Finished goods 28,356 27,672Work-in-process 10,104 13,716Raw materials 6,798 7,828

45,258 49,216

8 Prepaid expenses and other current assets

December 31, December 31,2003 2002$’000 $’000

Prepaid expenses 19,747 14,558Assets held for resale 12,470 –Deferred financing costs 1,004 1,208Value added taxes receivable 3,819 2,730Other current assets 10,977 12,294

48,017 30,790

Deferred financing costs relate to the $370 million convertible loan note (see note 15). These costs are being amortized over 10 years using the effective interest rate method.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

64 Shire Pharmaceuticals Group plc

9 Investments

December 31, December 31,2003 2002$’000 $’000

Investments in private companies 46,068 47,255Investments in public companies 22,057 14,129Equity method investments 5,028 10,578

73,153 71,962

a) Investments in private companiesInvestments in private companies comprise investments in a number of pharmaceutical and biotechnology companies. The investments in the following private companies require Shire to make additional future investments:

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

(ii) EGS Healthcare fundIn November 2000, the Company entered into an agreement to invest up to $10.0 million in various EGS healthcare funds. EGS is a private equity company that makes investments in healthcare companies that focus mainly on biotechnology and pharmaceuticals. As of December 31, 2003, the Company has invested $6.1 million in EGS healthcare funds and the Company is committed to invest a further $3.9 million into these funds.

b) Investments in public companiesDuring the year ended December 31, 2003, there were no new investments made in public companies. In July 2002, the Company’s $11.1 million preference share investment in Immunogen Inc. was converted in to a common stock holding.

During the year ending December 31, 2002, the Company wrote down the cost of investments in public companies by $4.5 million due to other than temporary impairments. This expense is included within non-operating other (expense)/income, net (see note 23).

c) Equity method investmentsThe Company has accounted for its commercialization partnership with GSK (through which the products 3TC and ZEFFIX are marketed in Canada) using the equity method of accounting. The Company’s 50% share of the partnership is included within ‘Equity in earnings of equity method investees’ and the related equity investment of $5.0 million (December 31, 2002: $2.9 million) is included above.

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

During 2003 the Company had applied the equity method of accounting as the Company owned, but did not exercise control over its 50% share of the joint venture. As a result, the Company’s investment was valued at cost, adjusted for its share of the earnings or losses of the joint venture. The Company’s share of the partnership was included within ‘Equity in earnings of equity method investees’ in the consolidated statement of operations and the related equity investment was included in equity method investmentsin the consolidated balance sheet.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

65Shire Pharmaceuticals Group plc

10 Property, plant and equipment, net

December 31, December 31,2003 2002$’000 $’000

Land and buildings 107,466 111,164Office furniture, fittings and equipment 48,847 31,210Warehouse, laboratory and manufacturing equipment 80,978 46,706

237,291 189,080Less: Accumulated depreciation (76,066) (53,846)

161,225 135,234

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

11 Goodwill and other intangible assets, net

December 31, December 31,2003 2002$’000 $’000

Goodwill arising on businesses acquired 281,072 254,207Less: accumulated amortization (55,212) (50,440)

225,860 203,767

Intellectual property rights acquired 469,137 397,807Less: accumulated amortization (161,255) (96,723)

307,882 301,084

Total 533,742 504,851

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

Otherintangible

Goodwill assets$’000 $’000

As of January 1, 2003 203,767 301,084Acquisitions – 48,275Amortization charged – (26,400)Asset impairments – (27,489)Foreign currency translation 22,093 12,412

As of December 31, 2003 225,860 307,882

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

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

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 recognition of an impairment loss of $18.8 million ($10.8 million in the US segment and $8.0 million in the international segment), which has been reflected in selling, general and administrative expenses in the consolidated statement of operations.

Amortization charged for the three years ended December 31, 2003, 2002 and 2001 was $26.4 million, $23.5 million and $31.4 million,respectively. Goodwill was no longer amortized with effect from January 1, 2002 following the adoption of SFAS No. 142.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

66 Shire Pharmaceuticals Group plc

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

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

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

2001Year ended December 31, $’000

Income from continuing operations as reported 34,615Add back of goodwill amortization charge 10,763

Adjusted income from continuing operations 45,378

Net income as reported 38,759Add back of goodwill amortization charge 10,763

Adjusted net income for basic earnings per share 49,522Interest charged on convertible debt, net of tax –

Adjusted net income for diluted earnings per share 49,5222001

Year ended December 31, $’000

Basic earnings per share (in $):Basic earnings per share, as reported 7.9Add back goodwill amortization charge 2.2

Adjusted basic earnings per share 10.1

Diluted earnings per share (in $):Diluted earnings per share as reported 7.7Add back goodwill amortization charge 2.1Interest charged on convertible debt, net of tax –

Adjusted diluted earnings per share 9.8No. of shares

Weighted average number of shares:Basic 492,594,226Diluted 504,875,587

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

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

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

US International Biologics Corporate R&D TotalDecember 31, $’000 $’000 $’000 $’000 $’000 $’000

2003 193,023 32,837 – – – 225,8602002 174,617 29,150 – – – 203,767

There were no changes in allocation of goodwill in either period and all the movements are due to foreign exchange.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

67Shire Pharmaceuticals Group plc

12 Other non-current assets

December 31, December 31,2003 2002$’000 $’000

Deferred financing costs 6,441 7,915SERP investment 12,042 12,070Other assets 4,470 3,279

22,953 23,264

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

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

13 Accounts payable and accrued expenses

December 31, December 31,2003 2002$’000 $’000

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

215,494 184,107

14 Other current liabilities

December 31, December 31,2003 2002$’000 $’000

Income taxes payable 19,102 5,440Interest on long-term debt 2,653 2,893Social security liabilities 2,216 1,934Value added taxes 1,503 1,957SERP 2,781 1,233Other accrued liabilities 8,872 3,268

37,127 16,725

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

68 Shire Pharmaceuticals Group plc

15 Long-term debt

December 31, December 31,2003 2002$’000 $’000

Total obligations 377,835 408,190Current maturities of long-term obligations (1,054) (888)

Total long-term debt 376,781 407,302

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

December 31, December 31,2003 2002$’000 $’000

Convertible notes due 2011 370,225 400,000Canadian provincial and federal government loan 1,532 1,880Capital leases 6,078 6,310

377,835 408,190

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

December 31,2003$’000

2004 1,0542005 1,0142006 2542007 2722008 294Thereafter 374,947

377,835

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

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

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

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

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

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

The interest expense recorded in the year ended December 31, 2003 was $7.5 million (2002: $8.0 million, 2001: $2.9 million).

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

69Shire Pharmaceuticals Group plc

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

(iii) Capital leases

December 31, December 31,2003 2002

Obligations under capital leases $’000 $’000

Current 282 261Non-current 5,796 6,049

6,078 6,310

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

December 31, December 31,2003 2002$’000 $’000

Land and buildings 6,645 6,259Office furniture, fittings and equipment 172 160

6,817 6,419Less: accumulated depreciation (888) (126)

5,929 6,293

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

December 31,2003$’000

2004 2822005 2542006 2542007 2722008 294Thereafter 4,722

6,078

16 Other non-current liabilities

December 31, December 31,2003 2002$’000 $’000

SERP (note 24) 6,102 7,131Long-term bonuses 3,117 –Deferred revenue 13,430 –Other accrued liabilities 1,149 6,520

23,798 13,651

The deferred revenue relates to amounts received from the out-licensing of AGRYLIN and FOSRENOL in Japan.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

70 Shire Pharmaceuticals Group plc

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

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

– Marketable securities (commercial paper and institutional and managed cash funds) – the carrying value approximates fair value because of the short-term nature of these instruments.

– Investments – the carrying value of non-current investments with readily determinable market values equals the fair value as 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 available interest rates or, where the debt instrument is traded, by reference to the market price.

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

CarryingAmount Fair Value

$’000 $’000

December 31, 2003Financial assets:Commercial paper 120,872 120,872Institutional and managed cash funds 183,257 183,257Investments 22,057 22,057Financial liabilities:Long-term debt 376,781 378,769

December 31, 2002Financial assets:Commercial paper 87,843 87,843Institutional and managed cash funds 228,283 228,283Investments 14,129 14,129Financial liabilities:Long-term debt 408,190 376,883

The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate fair value because of the short-term maturity of these instruments.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

71Shire Pharmaceuticals Group plc

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

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

Operating Capitalleases lease$’000 $’000

2004 12,719 2822005 7,854 2542006 5,234 2542007 3,646 2722008 2,794 294Thereafter 11,819 4,722

44,066 6,078

Less: amount representing fixed executory costs, including interest, included in future minimum lease payments –Total capital lease obligation 6,078Less: current portion of capital lease obligation (282)

Non-current portion of capital lease obligation 5,796

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

Shire has guaranteed a building lease and has $6.8 million of restricted cash held as collateral for this lease.

b) Letters of creditAs of December 31, 2003 the Company had an irrevocable standby letter of credit with Fifth Third Bank to Allfirst Bank in the amount of $10.0 million relating to the bonds that financed the construction of its US manufacturing facility.

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

An irrevocable standby letter of credit of $19.0 million (CAN$24.5 million) that represented the Company's obligations with respect to the establishment of pandemic readiness as of December 31, 2003.

c) Commitments (i) The Company has undertaken to subscribe to interests in companies and partnerships for amounts totaling $44.8 million (December 31, 2002: $38.1 million). As of December 31, 2003 an amount of $36.8 million (December 31, 2002: $26.4 million) has been subscribed,leaving an outstanding commitment of $8.0 million (December 31, 2002: $11.7 million).

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

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

The Company is committed to approximately $13.9 million (CAN$18.0 million) of capital expenditure for the purpose of achieving the level of pandemic readiness required in the Pandemic contract. The Government has agreed to reimburse the Company $10.4 million(CAN$13.5 million). At the end of the contract, the Company is committed to buy back any unused and unexpired materials and capitalassets reimbursed by the GOC (at net book value) that can be used for production of trivalent vaccine or other products.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

72 Shire Pharmaceuticals Group plc

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

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

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

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

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

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

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

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

(vi) DRAXISIn connection with the Company’s purchase of a range of products from DRAXIS Health Inc. in 2003, the Company has an obligation to make certain milestone payments if no generic events occur for certain products purchased. The milestone payments could reach an amount up to $3.1 million (CAN$4 million) if no generic events have occurred for those products by January 22, 2007.

d) Legal proceedings (i) General The Company accounts for litigation losses in accordance with SFAS No. 5, ‘Accounting for Contingencies’ (SFAS No. 5). Under SFAS No. 5, loss contingency provisions are recorded for probable losses when management is able to reasonably estimate the loss.Where the estimated loss lies within in a range and no particular amount within that range is a better estimate than any other amount,the minimum amount is recorded. In other cases management's best estimate of the loss is recorded. These estimates are 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. During the year ended December 31, 2003 a legal accrual of $2.0 million was released, to the consolidated statement of operations, because of the outcome of previously pending litigation.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

73Shire Pharmaceuticals Group plc

18 Commitments and contingencies continued(ii) PhentermineShire US Inc. (SUS), a wholly-owned subsidiary of Shire, is a defendant in 429 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 withthe 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 4,226such phentermine lawsuits, in respect of which SUS has been dismissed as a defendant in 3,797 cases. Shire is awaiting thefurtherance of proceedings in the remaining 429 pending lawsuits.

SUS became involved with phentermine through its acquisition of certain assets of Rexar Pharmacal Corporation (Rexar) in 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 sideeffects 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 Company in respect of phentermine. Legal expenses to date have been paidby Eon, the supplier to SUS, or Eon’s insurance carriers, but such insurance is now exhausted. Eon has agreed to defend and indemnifySUS in this litigation pursuant to an agreement dated November 30, 2000 between Eon and SUS.

(iii) ADDERALL XRShire’s extended release ‘once daily’ version of ADDERALL, ADDERALL XR is covered by US patent No. 6,322,819 (the ’819 Patent). In January 2003 the Company was notified that Barr Laboratories, Inc. (Barr) had submitted an Abbreviated New Drug Application(ANDA) under the Hatch-Waxman Act seeking permission to market a generic version of ADDERALL XR prior to the expiration date of the Company’s ’819 Patent. The notification alleged that the ’819 Patent is not infringed by Barr’s extended release mixedamphetamine salt product, which is the subject of Barr’s ANDA. On February 24, 2003 Shire Laboratories Inc. (Shire Laboratories) filedsuit against Barr in the United States District Court for the Southern District of New York alleging that Barr’s ANDA infringes the ’819Patent. The Company is seeking a ruling that Barr’s ANDA infringes the ’819 Patent and should not be approved before the expirationdate of the ’819 Patent. The Company is also seeking an injunction to prevent Barr from commercializing its ANDA product before theexpiration of the ’819 Patent, damages in the event that Barr should engage in such commercialization, as well its attorneys’ fees andcosts. Barr has counterclaimed for a declaration that its ANDA product will not infringe the claims of the ’819 Patent. Barr is alsoseeking 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. InAugust 2003 Shire was notified that Barr had submitted an ANDA under the Hatch-Waxman Act seeking permission to market itsgeneric version of ADDERALL XR prior to the expiration date of the ’300 Patent and alleging that the ‘300 Patent is invalid. InSeptember 2003 Shire Laboratories filed a lawsuit in the United States District Court for the Southern District of New York against Barralleging that Barr’s ANDA infringes the ’300 Patent. The Company is seeking a ruling that Barr’s ANDA infringes the ’300 Patent andshould not be approved before the expiration date of the ’300 Patent. The Company is also seeking an injunction to prevent Barr fromcommercializing its ANDA product before the expiration of the ’300 Patent, damages in the event that Barr should engage in suchcommercialization, as well its attorneys’ fees and costs. By way of a counterclaim Barr is seeking a declaration that the ’300 Patent is invalid and Barr has also asked for its attorneys’ fees, costs and expenses. The lawsuits against Barr with respect to the ’819 and ’300 Patents were consolidated in December 2003 and a trial date scheduled for January 2006.

Barr may not launch a generic version of ADDERALL XR before it receives final approval of its ANDA from the FDA. The 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 ofthe latest stay (February 2006) or a district court decision in its favor. In the event that the Company does not prevail, then Barr could bein a position to market its extended release mixed amphetamine salt product upon FDA final approval of its ANDA following the expiryof the existing Hatch-Waxman exclusivity in October 2004.

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

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

74 Shire Pharmaceuticals Group plc

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

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

Nostrum may not launch a generic version of CARBATROL before it receives final approval of its ANDA from the FDA. The 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 the expiration of the stay (February 2006) or a district court decision in its favor. In the event that the Company does not prevail, then Nostrum could be in a position to market its 300 mg extended release carbamazepine product upon FDA final approval of its ANDA.

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

$0.5 million was due to the law firms in which the Hon James Grant is a partner as of December 31, 2003 (2002 $nil).

b) Immunosystems BioChem Immunosystems Inc. (Immunosystems), formally a wholly owned subsidiary of BioChem, was sold in February 2000 to a thirdparty. Dr Bellini, the former chief executive officer of BioChem, continued as a Director of Immunosystems. In December 2001, theCompany acquired a 19.9% equity interest in Immunosystems in consideration for the release of a debt owing to the Company fromImmunosystems. This debt existed prior to the Company’s merger with BioChem. As part of the same transaction, the Company wasreleased from a pre-existing BioChem guarantee over other Immunosystems’ liabilities.

c) Mr SpitznagelMr Spitznagel, a former Director of the Company, who resigned during the year ended December 31, 2001, entered into a consultancyagreement with the Company in December 1999, which provided that:

– If he had good reason, as defined in his service agreement with Roberts, to terminate his employment with Roberts under his serviceagreement, the Company would cause Roberts to provide him with the payments and benefits he would be entitled to upon a ‘goodreason’ termination;

– Mr Spitznagel would provide consulting services to the Company for at least 42 months following the acquisition of Roberts, unlessMr Spitznagel terminated the consultancy agreement prior to the end of the 42nd month upon 30 days notice; and

– The Company would pay Mr Spitznagel at a rate of $400,000 per annum for his consulting services, $150,000 per annum as an officeallowance, $250,000 per annum to comply with certain restrictive covenants contained therein and $150,000 per annum for tax,financial and estate planning advice, life insurance and health insurance.

During 2003 the final payment was made to Mr Spitznagel of $0.5 million. The consultancy agreement has now been terminated and no further payments will be made. At December 31, 2002 Mr Spitznagel was owed $0.5 million (2001: $1.4 million).

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

75Shire Pharmaceuticals Group plc Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Income from continuing operations 276,051 242,378 32,011

Income from discontinued operations, net of tax – 8,191 6,748

Numerator for basic earnings per share 276,051 250,569 38,759Interest charged on convertible debt, net of tax 5,218 5,585 –

Numerator for diluted earnings per share 281,269 256,154 38,759

No. No. No. of shares of shares of shares

Weighted average number of shares outstandingBasic 498,212,826 500,687,594 492,594,226Effect of dilutive shares:Share options 1,859,076 1,883,475 11,362,332Convertible debt 18,895,493 19,847,177 –Warrants – – 919,029

20,754,569 21,730,652 12,281,361

Diluted 518,967,395 522,418,246 504,875,587

Basic earnings per share:Income from continuing operations 55.4¢ 48.4¢ 6.5¢Income from discontinued operations, net of tax – 1.6¢ 1.4¢

55.4¢ 50.0¢ 7.9¢

Diluted earnings per share:Income from continuing operations 54.2¢ 47.4¢ 6.4¢Income from discontinued operations, net of tax – 1.6¢ 1.3¢

54.2¢ 49.0¢ 7.7¢

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

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

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

2003 2002 2001No. No. No.

Year ended December 31, of shares of shares of shares

Share options 17,006,093 17,492,575 10,384,600Warrants 1,346,407 1,346,407 –

18,352,500 18,838,982 10,384,600

76 Shire Pharmaceuticals Group plc

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

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

US International Biologics Corporate R&D TotalYear ended December 31, 2003 $’000 $’000 $’000 $’000 $’000 $’000

External revenues:Product sales 846,438 158,643 24,757 – – 1,029,838Licensing and development 3,376 301 – – – 3,677Royalties 14 10,314 – 193,245 – 203,573Other revenues 13 – – – – 13

Total revenues 849,841 169,258 24,757 193,245 – 1,237,101Cost of product sales 94,597 53,166 15,351 – – 163,114Research and development – – – – 215,781 215,781Selling, general and administrative 234,091 76,912 9,134 56,777 – 376,914Depreciation and amortization (1) 30,965 24,338 4,571 26,804 – 86,678

Total operating expenses 359,653 154,416 29,056 83,581 215,781 842,487

Operating income/(loss) 490,188 14,842 (4,299) 109,664 (215,781) 394,614

US International Biologics Corporate R&D TotalDecember 31, 2003 $’000 $’000 $’000 $’000 $’000 $’000

Total assets (2) 697,460 484,093 25,207 1,262,889 109,131 2,578,780Long-lived assets (2) 238,774 281,058 24,325 200,225 46,691 791,073Capital expenditure on long-lived assets 18,324 53,469 383 15,827 16,854 104,857

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

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

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

77Shire Pharmaceuticals Group plc

21 Segment reporting continued

US International Biologics Corporate R&D TotalYear ended December 31, 2002 $’000 $’000 $’000 $’000 $’000 $’000

External revenues:Product sales 714,655 131,465 13,268 – – 859,388Licensing and development 2,661 403 – – – 3,064Royalties 215 8,999 – 165,598 – 174,812Other revenues – 34 – – – 34

Total revenues 717,531 140,901 13,268 165,598 – 1,037,298Cost of product sales 63,356 59,242 11,084 – – 133,682Research and development – – – – 189,179 189,179Selling, general and administrative 211,032 68,290 8,480 44,386 – 332,188Depreciation and amortization (1) 28,999 11,200 4,138 10,874 – 55,211

Total operating expenses 303,387 138,732 23,702 55,260 189,179 710,260

Operating income/(loss) 414,144 2,169 (10,434) 110,338 (189,179) 327,038

US International Biologics Corporate R&D TotalDecember 31, 2002 $’000 $’000 $’000 $’000 $’000 $’000

Total assets (2) 818,383 423,688 22,292 894,136 50,124 2,208,623Long-lived assets (2) 260,751 216,004 21,413 214,018 29,341 741,527Capital expenditure on long-lived assets 13,158 270 1,298 35,600 2,286 52,612

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

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

US International Biologics Corporate R&D TotalYear ended December 31, 2001 $’000 $’000 $’000 $’000 $’000 $’000

Product sales 587,449 106,286 5,616 – – 699,351Licensing and development 4,507 991 – – – 5,498Royalties 264 5,604 – 139,287 – 145,155Other revenues – 900 2,052 – – 2,952

Total revenues 592,220 113,781 7,668 139,287 – 852,956

Cost of product sales 58,655 40,754 12,597 – – 112,006Research and development – – – – 171,029 171,029Selling, general and administrative 179,115 41,542 1,203 37,875 – 259,735Depreciation and amortization (1) 18,375 10,744 4,129 12,561 – 45,809Asset impairments and restructuring charges – – – 29,699 – 29,699Merger transaction expenses – – – 83,470 – 83,470Loss on disposition of assets – 8,100 – – - 8,100

Total operating expenses 256,145 101,140 17,929 163,605 171,029 709,848

Operating income/(loss) 336,075 12,641 (10,261) (24,318) (171,029) 143,108

US International Biologics Corporate R&D TotalDecember 31, 2001 $’000 $’000 $’000 $’000 $’000 $’000

Total assets (2) 658,031 127,828 – 1,095,776 29,096 1,910,731Long-lived assets (2) 327,289 46,562 – 373,039 23,286 770,176Capital expenditure on long-lived assets 3,880 36,224 – 27,349 2,488 69,941

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

(2) The total assets and long lived assets relating to the Biologics segment are managed within the International segment.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

78 Shire Pharmaceuticals Group plc

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

2003 2003 2002 2002 2001 2001Year ended December 31, $’000 % revenue $’000 % revenue $’000 % revenue

Customer A 274,771 22% 231,270 22% 176,941 21%Customer B 269,364 22% 197,184 19% 123,350 14%Customer C 175,856 14% 160,210 15% 136,927 16%Customer D 158,689 13% 149,613 14% – –

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

2003 2002December 31, $’000 $’000

Customer A 23,793 4,354Customer B 25,676 9,189Customer C 45,712 45,227Customer D 8,212 9,738

22 Other charges

2001Year ended December 31, $’000

BioChem merger:Restructuring charges 8,809Asset impairments 20,890Merger transaction expenses 83,470Loss on disposition of facility 8,100

121,269

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

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

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

(iv) Loss on disposition of facility As described above, the Company made the decision to close its existing manufacturing facility in Toronto and to dispose of the facility.The Company incurred a loss of $8.1 million upon the disposition.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

79Shire Pharmaceuticals Group plc

23 Other expense, net

2003 2002 2001Year ended December 31, $’000 $’000 $’000

SERP valuation adjustment 175 (2,301) (2,018)Write-down of long-term investments due to impairment (15,540) (8,680) (55,748)GeneChem funds income 3,755 3,333 3,995Foreign exchange (6,716) (344) (487)Other 787 (270) 1,325

(17,539) (8,262) (52,933)

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

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

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

As a result of this review, the Company determined that it was necessary to record impairment charges totaling $55.7 million related tocertain of these investments. The impairment consisted of the write-off of an investment in Qualia, of $18.7 million, the write-off of theinvestment in a Biovector of $6.2 million and a write-down of the net assets of Immunosystems by $30.8 million.

a) QualiaBioChem held a 14.1% equity interest in common stock and an investment in preferred shares of Qualia, which, at the time of the merger, owned, amongst other development projects, the rights to a product that was approved for sale in Europe and Canada. This product was in development for a planned submission to the FDA for approval to sell in the United States. The Company reviewedthe status of the product and the estimated timing of submission to the FDA, its estimate of the future cash flows from royalties whichwould be received upon sale of the product (without such registration) and Qualia’s access to additional funding. Based on the assessment of these factors, the Company determined that the investment should be written off as (1) approval by the FDA, originallyexpected in June 2001, had not occurred, creating doubt relative to the timing of an eventual approval of the product by the FDA, (2) Shire management believed that without registration with the FDA the projected royalties generated from the sale of this product could not generate cash flows sufficient to recover the investment and (3) Shire anticipated the efforts necessary to obtain approval from the FDA as significant.

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

In February 2002, FDA approval was received to sell the product into the United States. Subsequent to the approval, structural changeswere made to the Company’s holding in Qualia and the Company’s distribution rights for the product, which resulted in the Companyowning a 50% interest in a combined structure and releasing the Company from any future funding obligations. Qualia has continued to incur operating losses since the approval of the product by the FDA, and the Company has recorded its portion of those losses.

b) BiovectorIn late 2000, BioChem management noted that Biovector Therapeutics S.A. (Biovector), a privately held French company in which it held a 9.6% interest, had begun to experience financial and operational difficulties. At that time, management considered whether therewas an other than temporary impairment and determined there was not, based on its estimate of the future operations, the historicalfinancial information available and publicly available information. However, in April 2001, Biovector formally informed its investors that it was experiencing financial difficulties, principally because of an inability to attract additional research and development collaborationpartners and an inability to identify additional sources of financing.

Following the merger with BioChem, the Company made a decision not to invest further money in this entity and to take steps to cancelany contracts therewith. Based on this decision and the financial difficulties being experienced by Biovector, the Company determined that it was appropriate to write-off this investment. In February 2002, Biovector went into liquidation.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

80 Shire Pharmaceuticals Group plc

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

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

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

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

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

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

Company contributions to personal defined contribution pension plans totaled $16.1 million, $6.8 million and $4.9 million for the yearsended December 31, 2003, 2002 and 2001, respectively, and were charged to operations as they became payable.

b) Defined benefit pension planRoberts, a company with whom the Company merged in December 1999, operated a defined SERP for certain US employees, which was established in 1998. This plan was available to former employees of Roberts who met certain age and service requirements.

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

In accordance with EITF 97-14, the asset and liability of $12.0 million and $8.9 million, respectively, are shown on the balance sheet within the categories ‘Other non-current assets’ and ‘Other non-current liabilities’. See notes 12 and 16 above.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

81Shire Pharmaceuticals Group plc

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

UK (76,267) (50,520) (101,756)US 285,221 218,139 190,068Other jurisdictions 175,507 161,441 9,495

Income from continuing operations before income taxes and equity in net (losses)/income of associates and discontinued operations 384,461 329,060 97,807

Income before income taxes attributable to discontinued operations – 9,696 6,748

Total income before income taxes and equity in net (losses)/income of associates 384,461 338,756 104,555

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Current income taxes:UK corporation tax – – –US federal tax (101,174) (67,686) (40,818)US state and local taxes (4,313) (9,561) (8,988)Other jurisdictions (18,792) (19,864) (16,746)

Total current taxes (124,279) (97,111) (66,552)

Deferred taxesUK corporation tax (9,696) – –US federal tax (3,647) (1,136) (20,586)US state and local taxes (180) (34) (618)Other jurisdictions 30,449 9,931 19,975

Total deferred taxes 16,926 8,761 (1,229)

Total income taxes attributable to continuing operations (107,353) (88,350) (67,781)

Total incomes taxes attributable to discontinued operations – (4,812) (3,963)

Total income taxes (107,353) (93,162) (71,744)

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Income from continuing operations before income taxes and equity in net (losses)/income of associates and discontinued operations 384,461 329,060 97,807

Corporation tax rate 30% 30% 30%

Income tax expense at corporation tax rate (115,338) (98,718) (29,342)Adjustments to derive effective rate:Non-deductible items:Goodwill amortization – – (3,309)Permanent differences (4,404) (4,280) (32,268)Other items: Change in valuation allowance (28,663) (13,948) (27,395)Difference in taxation rates 45,580 36,450 27,662Prior year adjustment (8,544) (2,317) 2,958Other 4,016 (5,537) (6,087)

Provision for income taxes on continuing operations (107,353) (88,350) (67,781)Provision for income taxes on discontinued operations – (4,812) (3,963)

Provision for income taxes (107,353) (93,162) (71,744)

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

82 Shire Pharmaceuticals Group plc

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

December 31, December 31,2003 2002$’000 $’000

Deferred tax assets:Accrued expenses not currently deductible 3,340 7,847Losses carried forward 248,239 188,937Provisions 11,299 5,347Other 1,876 6,517

Gross deferred tax assets 264,754 208,648Less: valuation allowance (168,176) (139,513)

96,578 69,135Excess of tax value over book value of assets (33,446) (28,070)

Net deferred tax assets 63,132 41,065

Balance sheet classifications:Deferred tax assets - current 64,532 34,849Deferred tax (liabilities)/assets - non-current (1,400) 6,216

63,132 41,065

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

December 31, December 31,2003 2002$’000 $’000

Approximate net operating loss carry-forwards against future US federal tax liabilities 23,468 33,386

Approximate net operating loss carry-forwards against future US state tax 130,755 132,480Approximate net operating loss carry-forwards against future foreign tax liabilities 800,509 507,276

Total 954,732 673,142

The tax losses shown above have the following expiration dates:

December 31,2003$’000

2004 –2005 –2006 6462007 40,8542008 65,4782009 28,3202010 –Available indefinitely 819,434

954,732

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

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

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

83Shire Pharmaceuticals Group plc

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

GSK 3,495 2,592 1,985CADx/Qualia (4,552) (924) –

(1,057) 1,668 1,985

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

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

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

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

2003 2002 2001Year ended December 31, $’000 $’000 $’000

Risk-free interest rate 1.89 - 3.40% 1.90 - 5.33% 3.43 - 5.22%Expected dividend yield 0% 0% 0%Expected life 5 years 5 years 5 yearsExpected volatility 60.0% 55.2% 59.5%

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

(i) Shire Pharmaceuticals Executive Share Option Scheme - Parts A and B (Executive Scheme)Options granted under the Executive Scheme are subject to performance criteria and cannot be exercised in full, unless Shire’s share price increases at a compound rate of at least 20.5% per annum over a minimum three-year measurement period. If Shire’s share price increases at a compound rate of 14.5% per annum over a minimum three-year measurement period, 60% of the options may be exercised. If these conditions are not met after the initial three years, they are thereafter tested quarterly by reference to share price growth over the extended period. If the share price does not meet these conditions at any time, none of the options will become exercisable.

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

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

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

Options with a grant value of up to 100% of salary RPI plus 3% per annum (directors, RPI plus 5%)Between 101% and 200% of salary RPI plus 5% per annum Between 201% and 300% of salary RPI plus 7% per annumOver 301% of salary RPI plus 9% per annum

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

84 Shire Pharmaceuticals Group plc

27 Stock incentive plans continuedThe new EPS performance criteria apply to options granted under the 2000 Executive Scheme from August 2002. After consultation with some of its institutional shareholders, the Company has decided that for options granted under the scheme from 2004 onwards, the performance condition should be retested once only, at five years after the grant. The retest will be applied only where Shire’s 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.

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

(iv) Shire Pharmaceuticals Group plc Employee Stock Purchase Plan (Stock Purchase Plan)Under the Stock Purchase Plan, options are granted with an exercise price equal to 85% of the fair market value of a share on 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) Roberts Stock Option Plans (Roberts Plans)Options issued under the Roberts Plans were originally granted over shares in Roberts, a company acquired by the Company on December 23, 1999. Exercise of these options results in the option holder receiving ordinary shares in Shire. As a result of the acquisition of Roberts, and in accordance with the terms of the original Roberts plans, all options granted under the Roberts Plans became immediately capable of exercise. It is intended that no further options will be granted under the Roberts Plans.

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

In a period of ten years, not more than 10% of the issued share capital of Shire may be placed under option under any employee share scheme.

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

– 2000 Executive Scheme: the maximum number of shares over which incentive options may be granted under Part 3 of the scheme is 25,000,000.

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

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

Scheme Number of options Expiry period from date of issue Vesting period

Executive Scheme 3,698,397 10 years 3 years, subject to performance criteria2000 Executive Scheme 16,123,388 10 years 3 years, subject to performance criteriaSharesave Scheme 272,411 6 months after vesting 3 or 5 yearsStock Purchase Plan 838,906 On vesting date 27 monthsSLI Plan 11,287 10 years Immediate on acquisition by ShireRoberts Plans 138,338 6 years Immediate on acquisition by ShireBioChem Plan 4,912,816 10 years Immediate on acquisition by Shire

Total 25,995,543

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

Weighted average exercise priceYear ended 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)

Outstanding as of end of period 10.92 25,995,543

Exercisable as of end of period 12.79 8,989,450

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

85Shire Pharmaceuticals Group plc

27 Stock incentive plans continued8,819,199 options were granted under the 2000 Executive Scheme. These options were issued with exercise prices equivalent to themarket value on the date of grant.

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

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

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

Weighted average exercise priceYear ended 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)

Outstanding as of end of period 11.55 20,051,297

Exercisable as of end of period 9.24 8,491,051

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

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

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

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

Weighted average exercise priceYear ended December 31, 2001 $ Number of shares

Outstanding as of beginning of period 7.83 24,790,322Granted 17.24 4,405,089Exercised 6.29 (11,443,831)Forfeited 13.86 (1,501,736)

Outstanding as of end of period 10.80 16,249,844

Exercisable as of end of period 7.50 9,054,150

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

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

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

The average fair value of options granted in the year ended December 31, 2001 is $17.51.

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

86 Shire Pharmaceuticals Group plc

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

Weighted average Weighted averageWeighted average exercise price of No. of options exercise price of

No. of options outstanding Exercise prices $ remaining life options outstanding exercisable options exercisable

11,287 1.01 – 2.00 1.6 1.3 11,287 1.331,861 2.01 – 3.00 0.5 2.2 31,861 2.276,893 3.01 – 4.00 1.2 3.4 76,893 3.4

214,954 4.01 – 5.00 0.9 4.8 211,906 4.881,006 5.01 – 6.00 0.8 5.4 62,664 5.3

9,063,662 6.01 – 7.00 8.3 6.1 838,746 6.2463,014 7.01 – 8.00 2.0 7.3 39,806 7.6

1,545,436 8.01 – 9.00 4.5 8.5 986,337 8.54,658,484 9.01 – 10.00 7.7 9.4 17,563 9.6

256,823 10.01 – 11.00 5.0 10.7 168,205 10.7186,961 11.01 – 12.00 3.0 11.3 186,961 11.3

3,979,218 12.01 – 13.00 3.2 12.7 3,979,218 12.747,789 13.01 – 14.00 4.2 13.5 47,789 13.5

217,112 14.01 – 15.00 3.4 14.5 144,953 14.525,104 15.01 – 16.00 2.2 15.1 – –

317,990 16.01 – 17.00 6.1 16.2 317,990 16.2307,753 17.01 – 18.00 7.9 17.8 – –

1,404,079 18.01 – 19.00 3.5 18.4 1,278,048 18.43,102,117 22.01 – 23.00 7.2 22.5 585,223 22.6

4,000 23.01 – 24.00 6.9 23.6 4,000 23.6

25,995,543 8,989,450

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

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

First Second Third Fourthquarter quarter quarter quarter

2003 $’000 $’000 $’000 $’000

Total revenues 304,517 298,988 289,442 344,154Operating income 89,192 94,217 88,812 122,393Net income 63,066 65,485 64,619 82,881Earnings per share – basic 12.6¢ 13.1¢ 13.1¢ 16.7¢

Earnings per share – diluted 12.3¢ 12.8¢ 12.8¢ 16.3¢

First Second Third Fourthquarter quarter quarter quarter

2002 $’000 $’000 $’000 $’000

Total revenues 236,982 248,084 249,720 302,512Operating income 70,293 75,109 80,990 100,646Net income 56,802 59,307 63,585 70,875Earnings per share – basic 11.3¢ 11.8¢ 12.6¢ 14.1¢

Earnings per share – diluted 10.9¢ 11.4¢ 12.1¢ 13.8¢

Notes to the consolidated financial statements

In thousands of US dollars, except where indicated

87Shire Pharmaceuticals Group plc Five-year review

2003 2002 2001 2000 1999Year ended December 31, $’000 $’000 $’000 $’000 $’000

Statement of Operations:Revenues 1,237,101 1,037,298 852,956 647,654 515,447Operating expenses (842,487) (710,260) (709,848) (507,379) (559,911)

Operating income/(loss) 394,614 327,038 143,108 140,275 (44,464)Interest and other, net (10,153) 2,022 (45,301) 111,842 23,064

Income/(loss) before income taxes and discontinued operations 384,461 329,060 97,807 252,117 (21,400)Income taxes (107,353) (88,350) (67,781) (43,564) (18,695)Equity method investees (1,057) 1,668 1,985 (3,809) –

Income/(loss) from continuing operations 276,051 242,378 32,011 204,744 (40,095)Income/(loss) from discontinued operations, net of tax – 6,108 6,748 6,983 (7,337)Gain on disposition of discontinued operations, net of tax – 2,083 – – –

Net income/(loss) 276,051 250,569 38,759 211,727 (47,432)

Earnings/(loss) per share – basicIncome from continuing operations 55.4¢ 48.4¢ 6.5¢ 42.4¢ (8.3)¢Income from discontinued operations – 1.6¢ 1.4¢ 1.4¢ (1.5)¢

55.4¢ 50.0¢ 7.9¢ 43.8¢ (9.8)¢

Earnings/(loss) per share – dilutedIncome from continuing operations 54.2¢ 47.4¢ 6.4¢ 41.4¢ (8.3)¢Income from discontinued operations – 1.6¢ 1.3¢ 1.4¢ (1.5)¢

54.2¢ 49.0¢ 7.7¢ 42.8¢ (9.8)¢

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

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

2003 2002 2001 2000 1999December 31, $’000 $’000 $’000 $’000 $’000

Balance Sheet:Total current assets 1,787,707 1,467,096 1,140,555 695,853 520,023Total assets 2,578,780 2,208,623 1,910,731 1,548,495 1,351,791Total current liabilities 253,675 214,504 231,616 227,850 233,818Total liabilities 655,654 635,457 647,742 374,109 471,905Total shareholders’ equity 1,923,126 1,573,166 1,262,989 1,174,386 879,886

88 Shire Pharmaceuticals Group plc Summary financial statement

For the year ended 31 December 2003

GeneralThe summary financial statement does not contain sufficientinformation to allow for a full understanding of the results and state of affairs of the Company or Group. The summary financialstatement is prepared under UK GAAP. For further information, the full UK statutory accounts, the auditors’ report on thoseaccounts and the Directors’ report should 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 ParkChinehamBasingstokeHampshireRG24 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 2003. The report did not contain any statement under Section 237 (2) or (3) of the Companies Act 1985.

Results and dividendsThe loss on ordinary activities before taxation of the Group was£298.3 million (2002: £526.8 million). The net assets of the Groupas at 31 December 2003 were £2,308.5 million (2002: £2,747.7million). The Directors do not recommend the payment of a dividend.

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.

DirectorsThe Directors who served during the year were as follows:

Dr James Cavanaugh, Chairman and non-executive Director(Chairman of Nomination Committee)

Mr Matthew Emmens, Chief Executive OfficerAppointed 12 March 2003

Mr Angus Russell, Chief Financial Officer

Dr Wilson Totten, Group R&D Director

Dr Barry Price, Senior non-executive Director (Chairman of the Remuneration Committee)

The Hon James Grant, non-executive Director

Mr Ronald Nordmann, non-executive Director (Chairman of the Audit Committee)

Mr Robin Buchanan, non-executive DirectorAppointed 30 July 2003

Mr Rolf Stahel, Former Chief ExecutiveResigned 19 March 2003

Mr Gérard Veilleux, non-executive DirectorResigned 10 May 2003

Dr Francesco Bellini, non-executive DirectorResigned 10 May 2003

89Shire Pharmaceuticals Group plc Summary financial statement

For the year ended 31 December 2003

Independent Auditors’ Statement to the Members of Shire Pharmaceuticals 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 3 of the summary financial statement.

This statement 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 the Company’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 assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for thisreport, or for the opinions we have formed.

Respective responsibilities of Directors and auditorsThe Directors are responsible for preparing the Annual review and summary financial statement in accordance with applicableUnited Kingdom law and accounting standards. Our responsibilityis to report to you our opinion on the consistency of the summaryfinancial statement with the full annual accounts, the Directors’report and the Directors’ remuneration report, and its compliancewith the relevant requirements of Section 251 of the CompaniesAct 1985 and the regulations made thereunder. We also read the other information contained in the Annual review and summaryfinancial statement as described in the contents section, andconsider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the summary financial statement.

Basis of opinionWe conduct our work in accordance with bulletin 1999/6 The Auditors’ Statement of Summary Financial Statementissued by the United Kingdom Auditing Practices Board.

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 2003 and complies with the applicablerequirements of Section 251 of the Companies Act 1985 and theregulations made thereunder.

Deloitte & Touche LLPChartered Accountants and Registered Auditors Reading12 March 2004

90 Shire Pharmaceuticals Group plc

Consolidated profit and loss account

2003 2002£’000 £’000

Turnover: Group and share of joint venture 764,662 697,314Less: share of joint venture’s turnover (3,594) (762)

Continuing operations 761,068 696,552Discontinued operations – 15,975

Group turnover 761,068 712,527Cost of sales (102,384) (95,042)

Gross profit 658,684 617,485Net operating expenses (2003: including £426,362,000exceptional goodwill impairment, 2002: £613,983,000) (958,619) (1,150,630)Other operating income 698 –

Operating loss (299,237) (533,145)

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

(299,237) (533,145)

Share of joint venture’s operating loss (2,806) (559)Finance charges, net 3,702 6,931

Loss on ordinary activities before taxation (298,341) (526,773)Tax on loss on ordinary activities (65,014) (61,626)

Retained loss for the year transferred from reserves (363,355) (588,399)

Loss per shareBasic (72.9)p (117.5)pDiluted (72.9)p (117.5)p

Consolidated statement of total recognised gains and losses

Year ended Year ended31 December, 31 December,

2003 2002£’000 £’000

Loss for the year (363,355) (588,399)Translation of the financial statements of overseas subsidiaries (47,157) (62,739)

Total recognised gains and losses relating to the year (410,512) (651,138)

Summary financial statement

For the year ended 31 December 2003

91Shire Pharmaceuticals Group plc Summary financial statement

Consolidated balance sheet

31 December 31 December 2003 2002£’000 £’000

Fixed assetsIntangible assets – intellectual property 171,548 183,404Intangible assets – goodwill 1,365,583 1,900,896Tangible assets 97,054 84,001Fixed asset investments 33,269 37,345Investment in joint ventures– share of gross assets – 5,082– share of gross liabilities – (342)

1,667,454 2,210,386

Current assetsStocks 25,282 30,571Debtors– due within one year excluding deferred tax 141,046 106,125– due within one year – deferred tax 36,049 21,646– due after more than one year excluding deferred tax 9,224 9,535– due after more than one year – deferred tax – 3,861Current asset investments 169,895 196,364Cash at bank and in hand 621,670 558,432

1,003,166 926,534

Creditors: Amounts falling due within one year (141,722) (131,885)

Net current assets 861,444 794,649

Total assets less current liabilities 2,528,898 3,005,035Creditors: amounts falling due after more than one yearConvertible debt (202,659) (243,547)Deferred tax (782) –Other creditors (16,957) (13,782)

(220,398) (257,329)

Net assets 2,308,500 2,747,706

Capital and reservesCalled-up share capital 23,895 24,217Share premium 3,218,695 3,214,512Exchangeable shares 190,425 191,552Capital reserve 3,135 2,755Other reserves 24,247 24,247Profit and loss account (1,151,897) (709,577)

Equity shareholders’ funds 2,308,500 2,747,706

92 Shire Pharmaceuticals Group plc Summary financial statement

For the year ended 31 December 2003

Consolidated cash flow statement

2003 2002£’000 £’000

Net cash inflow from operating activities 280,275 302,321Returns on investments and servicing of finance:Interest and other income received 13,165 15,434Interest paid (9,404) (8,458)Interest element of finance lease rentals (59) (45)

Net cash inflow from returns on investments and servicing of finance 3,702 6,931

Taxation:Overseas corporation tax paid (66,874) (73,145)

Capital expenditure and financial investments:Purchase of long-term investment (3,447) (2,957)Purchase of intangible fixed assets (30,238) (15,470)Purchase of tangible fixed assets (31,400) (15,014)Proceeds from sale of a business 559 44,103Proceeds from sale of tangible fixed assets 1,060 542

Net cash inflow for capital expenditure and financial investments (63,466) 11,204

Acquisitions and disposals:Purchase of subsidiary undertaking – (11,647)Expenses of acquisitions – (235)Net cash acquired with subsidiary undertakings – 33

Net cash outflow from acquisitions – (11,849)

Cash inflow before management of liquid resources and financing 153,637 235,462

Management of liquid resources:Increase in cash placed on short-term deposit 17,848 254,561

Financing:Exercise of share options 3,114 3,985Repurchase of ordinary share capital (31,808) –Capital element of finance leases (160) (74)Net decrease in debt during the year (18,053) (832)

Net cash (outflow)/inflow from financing (46,907) 3,079

Increase in cash in the year 124,578 493,102

93Shire Pharmaceuticals Group plc

1 Basis of preparationThe 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 2003.

2 Directors’ remunerationAggregate Directors’ remunerationThe total amounts for Directors’ remuneration and other benefits were as follows:

2003 2002£’000 £’000

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

8,657 5,645

Directors’ emoluments

Cash Non-cashbenefits benefits Total Total

Salary Bonuses Fees in kind in kind 2003 2002£’000 £’000 £’000 £’000 £’000 £’000 £’000

ExecutiveMr Matthew Emmens (ii) (i)446 235 – 14 4 699 –Mr Angus Russell 320 162 – 10 7 499 444Dr Wilson Totten 340 163 – 11 17 531 481Mr Rolf Stahel (iii) 154 124 – – 33 311 1,144

1,260 684 – 35 61 2,040 2,069

Non-executiveDr James Cavanaugh – – 54 – – 54 45Dr Barry Price – – 43 – – 43 37The Hon James Grant – – 35 – – 35 30Mr Ronald Nordmann – – 45 – – 45 34Mr Robin Buchanan (iv) – – 16 – – 16 –Dr Francesco Bellini (v) – – 11 – – 11 30Mr Gérard Veilleux (v) – – 12 – – 12 32The late Dr Bernard Canavan – – – – – – 23

– – 216 – – 216 231

Total 1,260 684 216 35 61 2,256 2,300

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

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

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

Basic and diluted2003 2002£’000 £’000

Loss for the financial year (363,355) (588,399)

The weighted average number of shares used in each year are as follows:2003 2002

No. No.

Total for basic and diluted EPS 498,212,826 500,687,594

Notes to the summary financial statement

For the year ended 31 December 2003

94 Shire Pharmaceuticals Group plc

Shire Pharmaceuticals Group plcChief Executive Officer: Matthew EmmensHampshire International Business ParkChineham, BasingstokeHampshire RG24 8EP, UKTel +44 (0)1256 894 000Fax +44 (0)1256 894 708

Shire Pharmaceuticals LimitedManaging Director: John FreemanHampshire International Business ParkChineham, BasingstokeHampshire RG24 8EP, UKTel +44 (0)1256 894 000Fax +44 (0)1256 894 708

Shire Pharmaceuticals Ireland LimitedDirector and General Manager: Brian Martin2nd Floor, Building 1ACitylink Business ParkOld Naas RoadDublin 12, IrelandTel + 353 1 429 7700Fax + 353 1 429 7701

Shire Pharmaceutical Contracts Limited(Singapore representative office)Managing Director: Tony OoiLiFung Centre58 Toh Guan Road # 03-09ASingapore 608829Tel +65 6665 2795Fax +65 6665 2797

Shire Deutschland GmbH & Co KGGeneral Manager: Leonhard TerpSiegburger Strasse 126D-50679 Köln, GermanyTel +49 221 88047 30Fax +49 221 88047 41

Shire France S.A.General Manager: Vincent Lucet88, rue du Dôme92514 Boulogne-BillancourtCedex, Paris, France Tel: +33 (1) 46 10 90 00Fax: +33 (1) 46 08 21 49

Shire Italia S.p.AGeneral Manager: Charles MarchettiVia Provinciale Lucchese, 70Sesto Fiorentino, 50019 Firenze, ItalyTel +39 (0) 5530 250 50Fax +39 (0) 5530 250 51

Shire Pharmaceuticals Iberica SLManaging Director: José Antonio Senz de BrotoPaseo Pintor Rosales num. 40, Bajo Izda, 28008 Madrid, SpainTel +34 915 500691Fax +34 915 493 695

Shire US, Inc.EVP and General Manager, North America: Greg FlexterOne Riverfront PlaceNewport, KY 41071, USATel +1 800 828 2088Tel +1 859 669 8000Fax +1 859 669 8414

Shire US Manufacturing, Inc.EVP Global Supply Chain & Quality: John Lee11200 Gundry LaneOwings Mills, MD 21117, USATel +1 410 413 1000Fax +1 410 413 2000

Shire Laboratories, Inc.President and Chief Executive Officer: Jack Khattar1550 East Gude DriveRockville, MD 20850, USATel +1 301 838 2500Fax +1 301 838 2501

Shire Pharmaceutical Development, Inc.Senior Vice President: Simon Tulloch1801 Research Blvd., Suite 600Rockville, MD 20850, USATel +1 240 453 6400Fax +1 240 453 6404

Shire Biologics Inc. CanadaPresident: Randal Chase275, Armand-Frappier BlvdLaval, Quebec, Canada H7V 4A7Tel +1 450 978 7800Fax +1 450 978 77552323 du Parc Technologique BlvdSainte-Foy, Quebec, Canada G1P 4RBTel +1 418 650 0010Fax +1 418 650 0080

Shire Biologics Inc. USSenior Vice President R&D: Ronald Ellis30 Bearfoot RdNorthboroughMA 01532, USATel +1 508 351-9944Fax +1 508 351-9675

Shire BioChem Inc.275, Armand-Frappier BlvdLaval, Quebec, Canada H7V 4A7Tel +1 450 978-7800Fax +1 450 978-7755

Shire head office and main operating locations

95Shareholder informationShire Pharmaceuticals Group plc

Registered office addressHampshire International Business ParkChineham, BasingstokeHampshire, RG24 8EP, UKRegistered in EnglandNo. 2883758

Investor relationsCléa RosenfeldTel + 44 (0)1256 892160Fax + 44 (0)1256 894712Email investorrelations@uk.shire.comwww.shire.com

Registrars and transfer officeAll administrative enquiries relating toshareholdings should be addressed to LloydsTSB Registrars, clearly stating the registeredshareholder's name and address.

Lloyds TSB RegistrarsThe Causeway, WorthingWest Sussex, BN99 6DA, UK

US Shareholdersi) ADSsThe Company’s American Depository Shares(ADSs), each representing three ordinary sharesare listed on the Nasdaq national market underthe symbol ‘SHPGY’. The Company files reportsand other documents with the Securities andExchange Commission (SEC) which are availablefor inspection and copying at the SEC's publicreference facilities or can be obtained by writingto the Company Secretary.

ii) ADR DepositaryMorgan Guaranty Trust Company of New York is the depositary for Shire PharmaceuticalsGroup plc ADSs. All enquiries concerning ADSrecords, certificates or transfer of ordinary sharesinto ADSs should be addressed to:

Morgan Guaranty Trust Company of New YorkPO Box 8205, BostonMA 02266-8205, USATel +1 781 575 4328Fax +1 781 575 4088

96 Shire Pharmaceuticals Group plc Trade marks – Cautionary statements

Shire trade marksADDERALL XR® (mixed amphetamine salts)ADDERALL® (mixed amphetamine salts)AGRYLIN® (anagrelide hydrochloride)AMATINE® (midodrine hydrochloride)BIPOTROL® (carbamazepine)CALCICHEW® (calcium carbonate)CALCICHEW D3 FORTE® (calcium carbonate)CARBATROL® (carbamazepine)COLAZIDE® (balsalazide)EMUTROL™ENSOTROL®

FLUVIRAL® S/F (split-virion influenza vaccine)FOSRENOL® (lanthanum carbonate)METHYPATCH® (methylphenidate)MICROTROL®

MICROTROL DR™MICROTROL PR™MICROTROL XR™MIDON® (midodrine hydrochloride)OPTISCREEN®

PROAMATINE® (midodrine hydrochloride)PROSCREEN®

RAPITROL™SOLARAZE® (diclofenac sodium 3%)SOLUTROL™TROXATYL® (troxacitabine)VANIQA®

XAGRID® (anagrelide hydrochloride)

Third-party trade marks3TC® (lamivudine) (trade mark of GSK)ADEPT® (4% icodextrin solution) (trade mark of ML Laboratories plc)COMBIVIR® (trade mark of GSK)EPIVIR® (trade mark of GSK)EPIVIR-HBV® (trade mark of GSK)PENTASA® (mesalamine) (trade mark of Ferring AS)REMINYL® (galantamine hydrobromide) (trade mark of Johnson & Johnson)TRIZIVIR® (trade mark of GSK)ZEFFIX® (lamivudine) (trade mark of GSK)

Cautionary statementsStatements included herein that are not historicalfacts, are forward-looking statements. Suchforward-looking statements involve a number of risks and uncertainties and are subject tochange at any time. In the event such risks oruncertainties materialize, Shire’s results could be materially affected. The risks and uncertaintiesinclude, but are not limited to, risks associatedwith the inherent uncertainty of pharmaceuticalresearch, product development, manufacturingand commercialization, the impact of competitiveproducts, including, but not limited to, the impacton Shire’s attention deficit hyperactivity disorder(ADHD) franchise, patents, including but notlimited to, legal challenges relating to Shire’sADHD franchise, government regulation andapproval, including but not limited to the expectedproduct approval dates of lanthanum carbonate(FOSRENOL®), METHYPATCH®, XAGRID®

and the adult indication for ADDERALL XR®, the implementation of the planned reorganization and other risks and uncertainties detailed fromtime to time in Shire’s regulatory filings.

The statements of the medical practitionersappearing on pages 11, 13, 14, 17 and 19 of thisdocument have been made by and represent theviews of the named individuals. These statementsare not, and should not be interpreted to be,statements by Shire.

Designed and produced by Bostock and Pollitt Limited

Shire Pharmaceuticals Group plc UK Head Office

Hampshire International Business ParkChineham, BasingstokeHampshire RG24 8EP

T: +44 (0)1256 894 000F: +44 (0)1256 894 708

www.shire.com