Our opportunities lie in addressing underserved markets and growing products beyond what the consensus of opinion might be
In 2003, Shire once again delivered a very strong financial performance. During the summer, we began implementing a new strategy aimed at ensuring continued future growth. Since its inception, Shire has grown through acquisitions, subsequent product development and effective marketing. 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 be over-simplification. The Group has migrated from this simple idea, and making this proven concept viable in today’s larger organisation has kept us very busy.
Starting in July, we began exiting certain businesses, changing our organisational structure, and reshaping our leadership. It is critical that we simplify, create a unified culture and, most importantly, integrate our drug development and commercial activities. I believe that these actions are the fundamental underpinnings that will enable the organisation to create value in the longer term.
Our goal is clear – we plan to lead where we choose to compete. Our opportunities lie in addressing underserved markets and growing products beyond what the consensus of opinion might be. We have done this consistently in the past. We have learned that with the right products, small, agile and focused sales forces can deliver impressive results.
Strategic actions in 2003
Focused R&D
We have re-focused our Research and Development (R&D) resources and technology to concentrate on areas where we have a commercial presence and on a concentrated number of high-potential, late-stage products. After a thorough evaluation of our pipeline, we currently have six products in registration, two in Phase III and two in Phase II of development. This strategy aims to deliver the combined benefit of increased returns and lower 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 the larger companies. During 2003, slightly less than one-half of all products marketed by large pharmaceutical companies were not invented there. This percentage has increased steadily over the last decade. Conversely, approximately 70% 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 creativity may lie in a diffuse cross-section of smaller companies or in products that are too small to contribute in a meaningful way to the major companies. Therefore, we are focusing our licensing efforts on products or projects in the later stages of development with potential peak sales 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 businesses
As we announced in August, we intend to exit our vaccines business. We have had numerous expressions of interest and are currently examining the options which will best suit our shareholders and the Company’s interests. In pursuing these options we expect to have completed the process by the middle of 2004. We have closed our early stage research (lead optimisation) unit in Canada and closed US manufacturing and distribution sites.
Mergers and acquisitions and out-licensing
In addition, as a result of exiting oncology and anti-infective research, we announced that we would examine opportunities to out-license the oncology project, TROXATYL and to seek a partner for the HIV project, SPD754 – both Phase 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 the Japanese marketing and development rights to AGRYLIN and FOSRENOL to two companies with an established presence in this market.
Furthermore, we have significantly enhanced our M&A effort by targeting acquisitions in the US, including larger scale transactions.
Re-organisation
Given Shire’s merger history and rapid development, it was inevitable that a complex structure had developed. In order to better integrate, co-ordinate and rationalise our business activities, we have embarked on a wide reaching strategic change programme. The aim is to move the Group from a silo structure to a globally integrated organisation composed of cross-functional teams with clear accountability for delivering results. The business will also be serviced by support functions that will be global in their outlook. I have changed our management model to accomplish this. This resulted in changes to the composition of the Executive Committee and the addition of two management components – The Portfolio Review Committee (PRC) and Portfolio Teams. I chair both the Executive Committee and the PRC and the Portfolio Teams report to the PRC.
The US is the world’s largest pharmaceuticals market, where we already generate 69% of our revenues and where more than 50% of our employees are based. In recognition of this, we will establish a new corporate office in Wayne, Pennsylvania. In addition to the vaccine sites in Canada and the US that will be exited, we will close our Newport, Kentucky and Rockville, Maryland sites.
The introduction of the Portfolio Teams and the housing of R&D and US commercial functions under one roof will improve communication and focus, and speed up the process of making decisions. Other key corporate functions such as Business Development and Human Resources will also be located in the new US office.
Shire’s UK Basingstoke office will remain the Company’s headquarters but all Executive Committee members will have offices in both locations to ensure management is spending time where the day-to-day business needs are greatest. The International division will continue to be led from the UK and appropriate significant R&D presence will also be maintained in Basingstoke to serve the European markets.
We foresee having just four major North American facilities by the end of 2005 compared with 14 at the beginning of 2003.
Patent challenges
It is inevitable that Shire will receive challenges, particularly from generic manufacturers, to its drugs portfolio – it is a reflection of today’s pharmaceutical industry. Our position is clear: we will vigorously defend our Intellectual Property, including patents.
Corporate social responsibility
Our approach to corporate social responsibility (CSR) has also developed during the year with the establishment of our CSR Committee led by our Chief Financial Officer Angus Russell, and the setting of 2004 objectives. We will continue to report regularly on these activities.
Future development
Shire is stronger than ever and I am confident that 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 energetic management team and several very promising projects in the late stages of development that should be ready for launch in the near to mid term. Our aim during the forthcoming year is to continue to strengthen Shire’s position in its marketplaces and to develop the Company into one of the leading specialty pharmaceutical companies in the world.
The year 2003 was exciting and challenging. The dedication and professionalism of our employees made our success possible. Their hard work and innovative approach will continue to ensure success for the Company in the years ahead.
* Source: IMS, R&D Focus January 2004.
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