Use these links to rapidly review the document
TABLE OF CONTENTSSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31,
20012002
Commission File Number: 0-19131MEDIMMUNE, INC.
(Exact
(Exact name of registrant as specified in its charter)Delaware 52-1555759 State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 35 West Watkins Mill Road Gaithersburg, Maryland 20878 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (301) 417-0770 Securities Registered pursuant to Section 12(b) of the Act: None Securities Registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title
| Delaware State or other jurisdiction of incorporation or organization) | 52-1555759 (I.R.S. Employer Identification No.) | |
35 West Watkins Mill Road Gaithersburg, Maryland 20878 (Address of principal executive office) (Zip Code) | ||
Registrant's telephone number, including area code:(301) 417-0770 | ||
Securities Registered pursuant to Section 12(b) of the Act:None | ||
Securities Registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of Class) | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No:Yes ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ].o.
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ý No o
Aggregate market value of the 248,493,923249,222,944 shares of voting stockand non-voting common equity held by non-affiliates of the registrant based on the closing price on March 14,June 30, 2002 was $10,449,169,462.$6.6 billion. Common Stock outstanding as of March 14, 2002: 249,915,151February 25, 2003: 251,521,172 shares.
Documents Incorporated by Reference:
Document Part
Portions of Form 10-K
-------- -----------------
Proxy Statementthe registrant's definitive proxy statement for the Annual Meeting Part IIIannual meeting of Stockholdersstockholders to be held May 23, 2002.
MEDIMMUNE, INC.
FORM 10-K
TABLE OF CONTENTS
PART I PAGE
Item 1. Business........................................................................................2
Item 2. Properties.....................................................................................42
Item 3. Legal Proceedings..............................................................................42
Item 4. Submission of Matters to a Vote of Security Holders............................................44
PART II
Item 5. Market for MedImmune, Inc.'s Common Stock and Related
Shareholder Matters............................................................................45
Item 6. Selected Financial Data........................................................................46
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................................................48
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...........................................................................................63
Item 8. Financial Statements and Supplementary Data....................................................65
Report of Independent Accountants..............................................................94
Report of Management...........................................................................95
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................................................96
PART III
Item 10. Directors and Executive Officers of MedImmune, Inc.............................................96
Item 11. Executive Compensation.........................................................................96
Item 12. Security Ownership Certain Beneficial Owners and
Management.....................................................................................96
Item 13. Certain Relationships and Related Transactions.................................................96
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and
Reports on Form 8-K............................................................................97
SIGNATURES.......................................................................................................98
Schedule I .............................................................................................S-1
Exhibit Index ..............................................................................................E-1
Exhibits (Attached to this Report on Form 10-K)
| PART I | ||
| Item 1. | Business | |
| Item 2. | Properties | |
| Item 3. | Legal Proceedings | |
| Item 4. | Submission of Matters to a Vote of Security Holders | |
PART II | ||
| Item 5. | Market for MedImmune, Inc.'s Common Stock and Related Shareholder Matters | |
| Item 6. | Selected Financial Data | |
| Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations | |
| Item 7A. | Quantitative and Qualitative Disclosures about Market Risk | |
| Item 8. | Financial Statements and Supplementary Data | |
| Report of Independent Accountants | ||
| Report of Management | ||
| Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
PART III | ||
| Item 10. | Directors and Executive Officers of MedImmune, Inc. | |
| Item 11. | Executive Compensation | |
| Item 12. | Security Ownership Certain Beneficial Owners and Management | |
| Item 13. | Certain Relationships and Related Transactions | |
| Item 14. | Controls and Procedures | |
PART IV | ||
| Item 15. | Exhibits, Financial Statement Schedule, and Reports on Form 8-K | |
SIGNATURES | ||
Schedule I | ||
Exhibit Index | ||
Exhibits | (Attached to this Report on Form 10-K) | |
Synagis, CytoGam, Ethyol, RespiGam, and NeuTrexin are registered trademarks of the Company. Numax, Vitaxin and VitaxinFluMist are trademarks of the Company. FluMist is a trademark of Aviron, a wholly owned subsidiary of MedImmune, Inc.
------------------------------
The statements in this annual report that are not descriptions of historical facts may be forward-looking statements. Those statements involve substantial risks and uncertainties. You can identify those statements by the fact that they contain words such as "anticipate," "believe," "estimate," "expect," "intend," "project" or other terms of similar meaning. Those statements reflect management's current beliefs, but are based on numerous assumptions, which MedImmune cannot control and whichthat may not develop as MedImmune expects. Consequently, actual results may differ materially from those projected in the forward - forward—looking statements. Among the factors that could cause actual results to differ materially are: seasonal demand for and continued supply of the Company's principal product, Synagis; whether FluMist receives clearance by the U.S. Food and Drug Administration and, if it does, whether it will be successfully launched;manufactured and launched at a favorable price; availability of competitive products in the market; availability of third-party reimbursement for the cost of our products; effectiveness and safety of our products; exposure to litigation, including claims relating to intellectual property, product liability intellectual
propertyand government or other types of litigation;private pricing or reimbursement; foreign currency exchange rate fluctuations; changes in generally accepted accounting principles; growth in costs and expenses; the impact of acquisitions, divestitures and other unusual items; changes in equity markets affecting the value of the Company's equity investments; and the risks, uncertainties and other matters discussed below under "Risk Factors" and elsewhere in this annual report and in our other periodic reports filed with the U.S. Securities and Exchange Commission. MedImmune cautions that RSV disease occurs primarily during the winter months; MedImmune believes its operating results will reflect that seasonality for the foreseeable future. MedImmune is also developing several products (including FluMist) for potential future marketing. There can be no assurance that such development efforts will succeed, that such products will receive required regulatory clearance or that, even if such regulatory clearance were received, such products would ultimately achieve commercial success. Unless otherwise indicated, the information in this annual report is as of December 31, 2001.2002. This annual report will not be updated as a result of new information or future events.
------------------------------
EXPLANATORY NOTE
Effective January 10, 2002, MedImmune, Inc. acquired Aviron
We make available free of charge on or through a stock-for-stock exchange offer and merger transaction that is
being accounted for as a purchase. Aviron is a biopharmaceutical company focused on prevention of disease through innovative vaccine
technologies. Aviron's lead product candidate is FluMist, a live, attenuated virus vaccine delivered as a nasal mist for the
prevention of influenza. A Biologic License Application relating to FluMist is currently pending before the U. S. Food and Drug
Administration.
The textual portion of this Annual Reportour internet website our annual reports on Form 10-K, (i.e., Items 1 through 7A) gives effectquarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the Aviron acquisitionSecurities and describes the operations of Aviron as part of MedImmune's business. However, since the acquisition did not occur until January 2002,
MedImmune's Financial Statements and Supplementary Data as of and for the three years ended December 31, 2001 included in Item 8 of
this Annual Report only reflect the Aviron acquisition in Note 21 thereof entitled "Subsequent Event (unaudited)."
------------------------------
Exchange Commission. Our internet address is http://www.medimmune.com.
1
MedImmune, Inc. (together with its subsidiaries, "MedImmune" or "the Company") is a global biotechnology company that uses advances in biological sciences to discover, develop, manufacture and market products that treat or prevent infectious diseases, immune system disorders and cancer. The Company's core competencies are in the areas of monoclonal antibodies and vaccines.
MedImmune was founded in 1988 and is a biotechnology company
headquartered in Gaithersburg, Maryland with five products on the market and a diverse product pipeline.Maryland. The Company is focused on
using advancesestablished an oncology subsidiary (MedImmune Oncology, Inc.) following the acquisition of U.S. Bioscience, Inc. in immunology and other biological sciences to develop important new products that address significantly unmet
medical needs in areas of infectious disease and immune regulation.November 1999. In January 2002, MedImmune acquired Aviron, a California-based vaccines company for $1.6 billion, which became the Company's vaccines subsidiary (MedImmune Vaccines, Inc.). In July 2002, MedImmune also created a venture capital subsidiary (MedImmune Ventures, Inc.).
The Company also focuses on oncology through its wholly owned
subsidiary, MedImmune Oncology, Inc.
On December 3, 2001, MedImmune announced it had entered into a definitive agreement to acquire Aviron, a biotech company located in
Mountain View, California. The acquisition was completed in January 2002, at which point Aviron became a wholly owned subsidiary of
the Company ("Aviron").
In 1998, the Company launchedmarkets Synagis (palivizumab) in the United States for preventing respiratory syncytial virus ("RSV") in
high-risk pediatric patients. Synagis was the first monoclonal antibody approved for an infectious disease, Ethyol (amifostine), and has become an
important new pediatric product for the prevention of RSV, the leading cause of viral pneumonia and bronchiolitis in infants and
children.
The Company also markets CytoGam (cytomegalovirus immune globulin intravenous (human)) and RespiGam (respiratory. Synagis is an antibody that provides the immune system with an increased ability to prevent infection with respiratory syncytial virus ("RSV"), the leading cause of lower respiratory tract infections and pneumonia in infants and children worldwide. Ethyol is a product that reduces the unwanted impact of certain side effects of chemotherapy and radiation therapy when used to treat certain types of cancer. CytoGam is a blood plasma product that provides the immune globulin intravenous (human)system with an increased ability to prevent infection with cytomegalovirus ("CMV"). Through, a herpes virus that contributes significantly to morbidity and mortality in organ transplant patients. MedImmune Oncology'smarkets these products through its own U.S.-based specialty sales and marketing group,organization. To support these efforts, the Company markets Ethyol
(amifostine)has also entered into certain co-promotion agreements with other companies to market its products in certain geographical regions, including the United States.
MedImmune has clinical, research and NeuTrexin (trimetrexate glucuronatedevelopment staff in the U.S. through which it is developing a pipeline of product candidates for injection)potential commercialization. The Company's product candidate nearest to market is FluMist, an influenza vaccine delivered as a nasal mist, which as of February 28, 2003 was under review by the U.S. Food and Drug Administration ("FDA"). TheIn addition to its internal efforts, the Company owns or leaseshas established clinical, research and development collaborations with other companies and organizations for the development of potential products.
MedImmune operates five commercial manufacturing facilities:facilities in the U.S. and Europe. These include a
multi-use biologics facility in Frederick, Maryland;Maryland (Frederick Manufacturing Center or "FMC"); a fill and finish facility for Ethyol and NeuTrexin in Nijmegen, the Netherlands; a pilot manufacturing facility at its headquarters in Gaithersburg, Maryland; a fillingFluMist fill and packagingfinish plant in Philadelphia, Pennsylvania; and a FluMist bulk supply facility in Speke, England.
Marketed Products on the Market
Synagis
Synagis is a humanized monoclonal antibody approved for marketing in June 1998 by the U.S. Food and Drug Administration ("FDA")FDA for the prevention of serious lower respiratory tract disease caused by RSV in pediatric patients at high risk of RSV disease. Synagis
is administered by intramuscular injection at 15 mg/kg and is given once per month during anticipated periods of RSV prevalence in
the community. In the Northern Hemisphere, the RSV season typically commences in October and lasts through April or May.
RSV is the most common cause of lower respiratory tract infections in infants and children worldwide. Healthy children and individuals with adequate immune systems often acquire a benign chest cold when infected with RSV. In contrast, certain high-risk infants such as premature infants and children with chronic lung disease ("CLD," also known as bronchopulmonary dysplasia or "BPD") are at increased risk for acquiring severe RSV disease (pneumonia and bronchiolitis), often requiring hospitalization. Each year
Patients with certain types of congenital heart disease ("CHD") are also believed by the Company to be at high-risk of RSV disease. In 2002, MedImmune completed a four-year, double-blind, placebo controlled, Phase 3 clinical study of Synagis in CHD patients under the age of two. In this study,
2
Synagis appeared to be safe and effective in preventing RSV-related hospitalizations in young children with CHD. The study was conducted at 76 centers in North America and Europe and involved 1,287 children who were randomized to receive five monthly injections of either Synagis or placebo during the RSV season. Data from this study were presented at the American Academy of Pediatrics 2002 National Meeting in October 2002 and submitted to the FDA in the United States, more than 125,000 infants are hospitalized with RSV disease. The mortality rateform of hospitalized infants with RSV
infection of the lower respiratory tracta supplemental Biologics License Application (sBLA) in December 2002.
Synagis is about two percent.
There are approximately 325,000 infants at high risk of acquiring severe RSV disease born annuallyco-promoted in the United States. The pivotal
clinical trial for Synagis showed a 55-percent reduction in RSV hospitalizations among high-risk pediatric patients receiving
Synagis versus those patients receiving placebo. Synagis was safeU.S. by MedImmune and generally well tolerated, andby the proportionsRoss Division of subjects in
the placebo and Synagis groups who experienced any adverse event or any serious adverse event were similar.
In December 1997, the Company formed an exclusive worldwide marketing alliance with Abbott Laboratories ("Abbott") to commercialize
Synagis. Within the United States, the Ross Products Division of Abbott co-promotes Synagis with the Company. The Company records
all United States sales and pays Abbott a commission on sales above defined annual thresholds. Each company is responsible for its
own selling expenses.
In 2001, the Company reported sales of $516 million of Synagis to wholesalers and distributors. In general, the Company expects most
of its Synagis sales to occur in the fourth and first quarters of the year because of the seasonality of RSV in the United States.
Since most of the product is expected to be sold in the Northern Hemisphere, the Company expects this seasonality to continue in the
foreseeable future.
The Company believes that Synagis was broadly reimbursed by third-party payors in the United States during the 2000-2001 RSV season
and the first part of the 2001-2002 RSV season. There can be no assurance that third-party payors will not attempt to restrict
reimbursement guidelines of Synagis in the remainder of the 2001-2002 RSV season or in future RSV seasons.. Outside the United States, the International Division of Abbott Laboratories("AI") has the exclusive right to distribute Synagis. The
Company manufactures and sells Synagis to Abbott for sales outside the United States. As of February 1, 2002, the Company and AbbottJanuary 15, 2003, 50 countries had submitted regulatory applications requesting approval to marketapproved Synagis in 58 countries outside the United States and had
received approval in the 46 countries listed here:for marketing: Argentina, Austria, Australia, Bahrain, Belgium, Brazil, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, El Salvador, Finland, France, Germany, Greece, Guatemala, Honduras, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Nicaragua, Norway, Poland, Portugal, Qatar, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates, the United Kingdom, the United States, Uruguay and Venezuela. On
January 17,
Synagis is administered by intramuscular injection at 15 milligrams per kilogram of body weight and is most commonly given once per month during anticipated periods of RSV prevalence in the community. In the Northern Hemisphere, the RSV season typically commences in October and lasts through April or May. As such, product revenues from the product primarily occur in the fourth and first quarters of the year.
In 2002, Synagis was approved by the Japanese Ministry of Health, Labor, and Welfare. Net revenue to the Company reported $668 million in worldwide revenues from Abbott recorded as product sales in 2001 for sales of Synagis outside of the United States was $37 million.
The Company has established a manufacturing alliance with German-based Boehringer Ingelheim Pharma KG ("BI") to supplement its own
capacity to manufacture Synagis. In September 1998, the FDA approved the Company's supplement to its Biologic License Application
("BLA") allowing the Company to import and sell in the United States product from the BI facility. In December 1999, the FDA
approved the Company's own 91,000 square foot manufacturing facility in Frederick, Maryland ("Frederick Manufacturing Center" or
"FMC"). This approval allowed the Company to begin distributing Synagis manufactured at this facility. In 2001, the Company received
additional approval from the FDA to begin marketing Synagis manufactured using a fermentation improvement, called the "Enhanced
Yield Process" (EYP), which improves Synagis fermentation yields by over 300 percent. Even with these yield improvements, the
Company will continue to rely upon BI for a portion of worldwide Synagis production for at least the next few years. BI produces
Synagis in large lot sizes relative to overall product supply; there can be no assurance that failure of one or more lots of Synagis
will not adversely impact the Company's supply of product and/or market perception. Additionally, because Synagis costs are affected
by changes in foreign exchange rates and production yields, there can be no assurance that Synagis will continue to be economical to
purchase from BI. Further, there can be no assurance that product supply will be properly matched with demand.
The Company is continuing to evaluate Synagis in post-marketing clinical trials. In 2001, the Company announced that patient
enrollment was complete in a multi-year Phase 3 safety and efficacy study in children under two years of age with congenital heart
disease ("CHD") and in a multi-year Phase 4 safety study in children with cystic fibrosis. On October 31, 2001, the Cooperative
Antiviral Studies Group ("CASG") at the National Institutes of Health ("NIH") informed the Company that it had discontinued its
Phase 3 study with Synagis in bone marrow transplant recipients due to a failure to accrue patients in a timely manner. There can be
no assurance that data from these clinical trials will establish the safety or efficacy of Synagis in these populations, or that
results from these trials will not adversely affect perceptions of Synagis in the marketplace.
The Company received a composition of matter patent protecting Synagis through October 20, 2015. Additional patent applications
which could provide even broader and longer protection are pending. Other than the Company's product RespiGam (see below), the
Company is not aware of any competing products being marketed anywhere in the world for the prevention of RSV disease. The Company
believes that any products being developed, if successfully commercialized, would require at least four years of clinical
development and regulatory approval prior to reaching the marketplace. Nevertheless, there can be no assurance that a competitive
product will not be brought to market sooner than expected, or if brought to market, would not be superior to Synagis.
The Company intends to continue to explore opportunities to expand its franchise in the RSV marketplace, including the development
of a third-generation injectable antibody, Numax, which may one day replace Synagis in the marketplace for the treatment of RSV. The
Company has identified the top three Numax candidates, and is currently evaluating them in animal models to determine which molecule
to take into clinical evaluation.
Ethyol
Ethyol is an intravenous organic thiophosphate cytoprotective agent indicated forused to prevent certain unwanted side effects of a specific type of chemotherapy and radiation therapy when used to treat cancer. In the reduction ofUnited States, Ethyol was initially approved in 1995 to reduce the cumulative renal (kidney) toxicity associated with repeated administration of cisplatin in(a common chemotherapy agent) to patients with advanced ovarian cancer orcancer. In 1996, the FDA approved MedImmune Oncology's supplemental new drug application under the Accelerated Approval Regulations to include treatment of patients with non-small cell lung cancer ("NSCLC")(NSCLC). It is also indicatedProducts approved under the Accelerated Approval Regulations require further adequate and well-controlled studies to verify and describe clinical benefit. The Company completed a post-licensure clinical trial in 2001 showing that Ethyol protected against cisplatin-induced renal toxicity. The Company believed this trial would fulfill the Accelerated Approval requirement and submitted its data to the FDA for review in 2002. In late January 2003, the Company met with the FDA to discuss the Agency's conclusion that the study did not meet the Accelerated Approval requirement, as well as their request for another trial to be conducted. If no agreement can be reached on the design of such a study, there can be no assurances that the FDA will not withdraw approval of Ethyol for the NSCLC indication.
In 1999, the FDA approved Ethyol's use for the reduction of the incidence of moderate-to-severe xerostomia in patients undergoing post-operative radiation treatment for head and neck cancer, where the radiation port includes a substantial portion ofmajor salivary glands (i.e., the parotid glands.glands) are located in the radiation pathway. Xerostomia (chronic(acute and chronic dry mouth) is caused by a reduction of salivary function. It is a frequent and debilitating condition associated with radiationwhere saliva production is reduced due to damage caused to the head and neck region.salivary glands by the therapeutic radiation. Patients with xerostomia are at increased risk of oral infection, dental cavities and loss of teeth and often have difficulty chewing, swallowing and speaking. AccordingThe Company continues to evaluate the American Cancer Society,
approximately 40,000 casespotential of headexpanding the applicability and neck cancer are diagnosed each yearusefulness of Ethyol to new indications, such as the ability to reduce mucositis (ulceration of the mucous membranes lining the mouth and throat) caused by combined radiation and chemotherapy in patients with NSCLC.
3
Since October 1, 2001, MedImmune has been the sole marketer of Ethyol in the United States. Radiation therapy, often in
conjunction with surgery and/or chemotherapy, is standard treatment for head and neck cancer.Prior to this date, Ethyol was initially approvedco-promoted by the FDA in 1995 for the ovarian cancer indication. In 1996, the FDA approved MedImmune Oncology's
supplemental new drug application under the Accelerated Approval Regulations to include treatment of patients with NSCLC. Products
approved under the Accelerated Approval Regulations require further adequate and well-controlled studies to verify and describe
clinical benefit. In 2001, the Company completed a clinical trial that it anticipates may fulfill this requirement. In the event the
clinical trial fails to verify the benefit of Ethyol for the NSCLC indication, the FDA may, under certain circumstances, withdraw
approval of this indication. In 1999, the FDA approved Ethyol's use in head and neck cancer patients.
In 2001, the Company reacquired the U.S. marketing rights to Ethyol from ALZA Corporation ("ALZA"). The rights to Ethyol were
originally scheduled to return toOutside the United States, the Company on April 1, 2002, pursuant to the 1995 co-promotion agreement between the two
companies whereby ALZA was responsible for saleshas various distribution and marketing arrangements for Ethyol, primarily with affiliates of theSchering-Plough Corporation ("Schering"). The product in the United States. Due to a shift in ALZA's
priorities following its acquisition by Johnson & Johnson in early 2001, the Company believed it was in the product's best interest
for the Company to regain full commercial control as soon as possible. As part of the accelerated reacquisition, the Company
recognized approximately $20 million of incremental expenses in the third quarter of 2001 and began recording 100 percent of U.S.
sales on October 1, 2001. In accordance with the original agreement, the Company will pay ALZA a gradually diminishing royalty
beginning April 1, 2002 and expiring in 2011. Net U.S. sales of Ethyol recognized by the Company in 2001 were $14 million.
Ethyol has been approved in 60 countries worldwide. Outside the United States, Ethyol is primarily marketed by affiliates of
Schering-Plough Corporation ("Schering" or "Scherico"). Schering purchases Ethyol from the Company at a price based on a percentage
of the
In 2002, MedImmune reported net sales price of Ethyol in Germany, the United Kingdom, Spain, Italy and France. Schering's exclusive rights to market the
product in the European Union ("EU") will continue through December 31, 2003. At the end of the exclusive period, the Company can
choose to co-promote Ethyol with Scherico for an additional two years, after which the rights revert back to the Company in exchange
for future royalties. The Company has various other distribution and marketing arrangements for Ethyol outside the U.S. and the EU,
primarily with affiliates of Schering. In 2001, net revenues of Ethyol to the Company (recorded as product sales) from sales outside
the United States were $6$80 million.
The Company is continuing to evaluate Ethyol in its approved indications through post-marketing clinical trials. In November 2001,
investigators presented data from a Phase 2 study with subcutaneous Ethyol suggesting that subcutaneous administration of Ethyol may
provide comparable protective effects against radiation therapy-induced xerostomia as intravenously administered Ethyol. The Company
plans to expand the applicability and usefulness of Ethyol to potential new indications by conducting trials that evaluate its
ability to reduce mucositis in non-small cell lung cancer patients caused by radiation or chemotherapy. There can be no assurance
that data from these clinical trials will establish the efficacy of Ethyol in these populations, or that results from these trials
will not adversely affect the perception of Ethyol in the marketplace.
CytoGam
CytoGam is an intravenous immune globulin product enriched in antibodies against cytomegalovirus, ("CMV") anda herpesvirus. The product is marketed for
prophylaxis againstto prevent CMV disease associated with the transplantation of kidney, lung, liver, pancreas, and heart.kidneys, lungs, livers, pancreases or hearts. CMV contributes significantly to morbidity and mortality in organ transplant recipients. CMV can cause severe pneumonia, bacterial and fungal infections, an increase in risk of organ rejection and other organ complications, related to invasive CMV disease which, if not successfully treated, can lead to organ failure. CMV has also been shown
to cause increased bacterial and fungal infections, and has been associated with an increased risk of rejection of the transplanted
organ. There are approximately 20,000 kidney, lung, liver, pancreas, and heart transplants performed annually in the United States.
Clinical studies have shown a 50-percent reduction in CMV disease in kidney transplant patients given CytoGam and a 56-percent
reduction in serious CMV disease in liver transplant patients given CytoGam. CytoGam prophylaxis has also been associated with
increased survival in liver transplant recipients.
In December 2000, the Company received approval from the FDA for an amendment to the BLA for CytoGam allowing for the manufacture of
a portion of the production process of CytoGam at the FMC. The Company will continue to rely on third-party manufacturers to fulfill
the production steps for which the Company does not have FDA approval. Should any of the suppliers or manufacturers be unable to
supply the Company with product for any reason, there can be no assurances that the Company would be able to arrange alternate
production capabilities in a timely fashion or at all. Further, there can be no assurance that should such alternate production
capabilities be needed, the Company would be able to obtain such capabilities for a comparable cost or without continuing to incur
its existing manufacturing operating costs.
The CompanyMedImmune began marketing CytoGam in the U.S. through its own hospital-based sales forceUnited States in 1993. Net sales of CytoGam inOutside the U.S.
were $28 million in 2001, 13 percent below sales of $32 million in 2000. The variance reflects a reduction in 2001 in, the amount of
CytoGam used as a substitute for standard intravenous immune globulin (IVIG), which had been in short supply in 2000. The Company believes that, currently, there is not a shortage of standard IVIG and has no way to predict future supply shortages. Somewhat
offsetting the drop in substitution usage, CytoGam sales in 2001 reflect a modest increase in its approved, core transplantation
business. The Company believes the United States marketplace for CMV drugs in transplantation is competitive and no assurance can be
given that growth in the product's labeled indications will continue. CytoGam has been designated as an orphan drug for use in lung,
liver, pancreas and heart and therefore has market exclusivity for these indications until 2005. The product's orphan drug status in
the United States for use of CytoGam in kidney transplants expired in 1997. There can be no assurance that additional CMV
intravenoususes various specialty immune globulin products will not be successfully commercialized by other companies.
Internationally, CytoGam is approved for marketing and is currently registered for saledistributors in Argentina, Canada, Turkey and South Korea. TheKorea, as it does in other countries where the product is also available on a named patient basisbasis.
In 2002, MedImmune reported $31 million in other countries. Additionally, the Companynet sales for CytoGam.
RespiGam
RespiGam (respiratory syncytial virus immune globulin intravenous (human)) is evaluating the
potential to expand distribution into countries in Europe and Mexico. Net sales of CytoGam outside the U.S. in 2001 were $4 million.
RespiGam
RespiGam, an intravenous immune globulin enriched in neutralizing antibodies against RSV, was approved by the FDA for marketing in
the United States in January 1996. RespiGam is indicated for the prevention of serious RSV disease in children less than 24 months of age with BPD or a history of premature birth (i.e., born at 35 weeks or less gestation) and is administered by an approximately
four-hour intravenous infusion.. RespiGam was the Company's first anti-RSV product demonstrated to be safe and effective in reducing the incidence and
duration of RSV hospitalization and the severity of RSV illness in these high-risk infants. The Company believes that RespiGam has largely been replaced by Synagis in the marketplace. In 2001,2002, net sales of RespiGam were $4$3 million.
NeuTrexin
NeuTrexin NeuTrexin(trimetrexate glucuronate for injection) is a lipid-soluble intravenously administered analog of methotrexate, a commonly used anti-cancer agent. In December
1993, NeuTrexin was approved in the United States and Canada for use with concurrent leucovorin administration as an alternative therapy for the treatment of moderate-to-severePneumocystis carinii pneumonia ("PCP") in immunocompromised patients, including
patients withsuch as AIDS who are intolerant of or refractorypatients. Introduced in 1993 in the U.S. and Canada, NeuTrexin use has steadily declined in recent years due to trimethoprim-sulfamethoxazole therapy, or for whom
trimethoprim-sulfamethoxazole is contraindicated. Due to the improvement in drugs to treat AIDS patients, worldwide use of NeuTrexin
has steadily declined in recent years.AIDS. In 2001,2002, net sales of NeuTrexin were $4$3 million.
Hexalen
Hexalen is an oral synthetic cytotoxic antineoplastic chemotherapeutic agent cleared for marketing by the FDA in December 1990 for
use as a single agent in the palliative treatment of patients with persistent or recurrent ovarian cancer following first-line
therapy with cisplatin and/or alkylating agent-based combination chemotherapy. In November 2000,
Product Candidates
MedImmune Oncology signed an
agreement to sell to MGI Pharma ("MGI") worldwide rights to Hexalen and all related assets and technology. MGI assumed product
responsibilities early in 2001. Under the terms of the agreement, MGI will pay the Company $7.2 million in cash plus royalties on
sales of Hexalen for ten years. The $7.2 million is being paid to the Company over 18 months, ending in March 2002.
Development-Stage Products
FluMist (Frozen)
FluMist was acquired by MedImmune as a part of the Company's acquisition of Aviron in January of 2002. FluMist is a live, attenuated
vaccine delivered as a nasal mist for the prevention of influenza. The BLA for FluMist was submitted to the FDA for approval on
October 31, 2000. Aviron received a Complete Response Letter from the FDA on August 31, 2001, and filedcurrently focuses its response to this letter
on January 8, 2002. The Company is working to achieve approval of the product. There can be no assurance that such approval will be
received.
FluMist is based on live cold-adapted influenza vaccine technology developed by Dr. H.F. Maassab. It was licensed from the
University of Michigan and is being developed under a Cooperative Research and Development Agreement (CRADA) with the National
Institutes of Health (NIH).
FluMist has undergone, and is currently undergoing, extensive clinical trials to evaluate its usefulness as a vaccine to prevent
influenza in a number of human populations. To date, more than 20,000 children and adults have received FluMist. In studies that
have been published thus far, FluMist has been shown to provide a high protection rate against influenza in healthy children and
adults. In these studies, FluMist was shown to be generally well tolerated. FluMist recipients were more likely than placebo
recipients to report side effects, which were transitory in nature, such as sore throat, runny nose, and low-grade fever.
As a part of its response to the FDA's Complete Response Letter, Aviron provided data from two large Phase 3 clinical trials with
FluMist. The first study was a multi-year trial, involving more than 9,000 children, conducted by Aviron and the NIH. The trial was
initiated in 1998 in Temple, Texas and was funded by a $3.0 million grant from the NIH awarded to the Baylor College of Medicine.
The trial was designed to evaluate the impact of vaccinating preschool and school-age children with FluMist on the spread of
influenza into the community as measured by the number of doctor visits for flu-related illness as well as to examine the safety of
FluMist. The second Phase 3 trial completed in 2001 was one initiated by Kaiser Permanente in October 2000. In this trial, more than
9,700 participants, age one to 17 years, were enrolled during the 2000-2001 influenza season to compare the rates of different
medically attended events in the group receiving FluMist versus the group receiving placebo. There can be no assurance that data
from these clinical trials, or any future clinical trials, will establish the safety or efficacy of FluMist.
The manufacturing of FluMist involves three key processes, which since 1998, have been performed at three facilities owned or leased
by the Company's Aviron subsidiary. Each year, after the FDA's annual selection of the influenza strains to be included in the
subsequent season's vaccine, the master virus seeds are created for each of the selected vaccine strains for large scale production.
This first step is conducted at Aviron's Mountain View, California facility, and generally takes approximately four to 12 weeks.
Next, these master virus seeds are transferred to Aviron's leased facility in Speke, England, where they are used to make bulk
quantities of the vaccine strains. The vaccine's diluent, which is normal allantoic fluid ("NAF"), is also produced in bulk at this
U.K. facility. This process requires the use of specific pathogen-free hens' eggs. After an incubation period, the bulk vaccine
strains are carefully harvested from the eggs, frozen and shipped to Aviron's leased Pennsylvania facility. Once in Pennsylvania,
the frozen bulk vaccine strains and the frozen bulk NAF are thawed and blended into the trivalent vaccine, filled into nasal spray
devices, labeled, and packaged. As of December 31, 2001, none of the existing manufacturing facilities involved in the production of
FluMist had been licensed by any regulatory agency and FluMist had not yet been manufactured at a sustained commercial scale. There
can be no assurance that these facilities can achieve licensure by the FDA or any other regulatory agency. Nor can there be any
assurances that if licensed, commercial scale production can be achieved or sustained.
In January 1999, Aviron signed a worldwide collaborative agreement with Wyeth Lederle Vaccines for the development, manufacturing,
distribution, marketing, promotion, and sale of FluMist. Under this agreement, Wyeth has exclusive worldwide rights to market
FluMist, excluding Korea, Australia, New Zealand and some South Pacific countries. The two companies will co-promote FluMist in the
United States. Under the terms of the agreement, Wyeth will distribute FluMist and record all product sales. The Company will
receive approximately 50 percent of FluMist revenues, paid to the Company in the form of product transfer payments and royalties.
These payments are higher in the U.S. than internationally.
The FDA has estimated that approximately 80 million doses of the current inactivated influenza vaccine were manufactured for use in
the U.S. for the 2000/2001 influenza season. According to the U.S. Centers for Disease Control, 65 percent of the 35 million
Americans over the age of 64 received the influenza vaccine shot during 1997, up from less than 25 percent a few years earlier.
Experts suggest that very few of the 75 million children in the United States under age 19 receive the influenza vaccine, even those
at high risk for complications. Given FluMist's ease of administration, the Company believes this already large market has the
potential to grow substantially larger, primarily through expansion in the pediatric and adolescent markets.
Cold Adapted Influenza Vaccine (Liquid Formulation)
The original formulation of FluMist requires freezer storage throughout distribution. Because many international markets do not have
distribution channels well suited to the sale of frozen vaccines, Wyeth and Aviron are collaborating to develop a second generation,
refrigerator stable, liquid trivalent cold adapted influenza vaccine (CAIV-T).
Currently, there are a number of late-stage clinical trials being conducted to demonstrate the safety and efficacy of CAIV-T. In
2001, Wyeth completed a Phase 2 clinical trial of CAIV-T in more than 1,300 children in the southern hemisphere to demonstrate the
safety and immunogenicity of this formulation.
In addition, Wyeth is conducting several Phase 3 clinical trials with liquid CAIV-T:
o a Pan-Asian efficacy trial enrolled more than 3,000 participants from 12 to 36 months of age. The primary endpoint is
protection against culture-confirmed influenza.
o a Pan-European pediatric day care efficacy trial enrolled more than 1,500 children in day care from 6 to 36 months of age.
The primary endpoint is protection against culture-confirmed influenza.
o an efficacy trial in healthy elderly over 60 years of age in South Africa. The primary endpoint is protection against
culture confirmed influenza.
There can be no assurance that data from these clinical trials, or any future clinical trials, will establish the safety or efficacy
of CAIV-T.
Human Papillomavirus Vaccine
The Company is developing a vaccine against the human papillomavirus ("HPV") to prevent cervical cancer. There are over 75 different
types of HPV associated with a variety of clinical disorders, ranging from benign lesions to potentially lethal cancers. Two types
of HPV, HPV-16 and HPV-18, cause the majority of cervical cancer in the world. There are currently no vaccines to prevent HPV
infection, which is estimated to affect 24 to 40 million men and women in the United States.
In December 1997, the Company entered into a strategic alliance with GlaxoSmithKline ("GSK") to develop and commercialize the
Company's HPV vaccine. Under the terms of the agreement, GSK receives exclusive worldwide rights to the Company's HPV vaccine
technology and both companies will collaborate on research and development activities. To date,efforts in the Company has received a totaltherapeutic areas of $39.5 million in up-front payments, an equity investment,infectious diseases, immunology and research funding from GSK. Pursuant to the agreement, the Company will
continue to receive certain research funding, milestone payments (if specified development and sales goals are met), and royalties
on any product sales. Total funding and payments to the Company, exclusive of royalties, could total over $85 million.
Under the terms of the agreement, the Company conducted Phase 1 and Phase 2 clinical trials, manufactured clinical material for
those studies and received funding from GSK for these activities. GSK is responsible for the final development of the product, as
well as regulatory, manufacturing, and marketing activities.oncology. The Company's strategy for this vaccine development relies on a virus-like particle ("VLP") technology for producing a structurally
identical, non-infectious form of the virus. Scientists at the Company, in collaboration with a team at Georgetown University, first
demonstrated the effectiveness of a VLP vaccine candidate using a dog model for papillomavirus infection.
In 2001, GSK and the Company completed enrollment in five clinical trials with this vaccine, including a Phase 1 trial, three Phase
2 trials, and a 3,000-person epidemiology trial. The Company hopes that data from these trials once completed and analyzed, will
help support the initiation of Phase 3 clinical testing.
No assurance can be given that the current clinical trials or any future clinical trials will be successful, or if successful, would
lead to a continuation of thekey programs in the indications currently studied or at all.
Siplizumab (formerly known as MEDI-507)
Siplizumab is a humanized monoclonal antibody that binds to the CD2 antigen receptor found on T cells and natural killer ("NK")
cells. Laboratory studies suggest that siplizumab primarily inhibits the response of T cells through its binding of the CD2 receptor
while allowing other immune cells to respond normally to foreign antigens. This suggested selectivity of T cell inhibition suggests
that siplizumab may have potential utility in certain autoimmune diseases such as psoriasis and psoriatic arthritis, as well as in
applications in the fields of transplant medicine (e.g., as a treatment or prevention of graft-versus-host disease ("GvHD")) and
cancer (e.g., as a treatment for T cell lymphoma).
The Company's current lead development program for siplizumab is in psoriasis. In 2001, MedImmune completed enrollment in three
large Phase 2 trials: a randomized, double-blind, placebo-controlled, subcutaneous administration trial involving 420 patients at 44
sites in North America; a randomized, double-blind, placebo-controlled, intravenous administration trial involving 124 patients at
approximately 25 sites in North America; and a randomized, double-blind, subcutaneous administration trial involving 121 patients at
approximately 20 sites in Europe.
Data from MedImmune's Phase 1 program were presented in September 2001 at the European Society of Dermatology Research meeting held
in Stockholm, Sweden, which built upon the preliminary data presented in San Francisco in June 2001 at the International Psoriasis
Symposium and European Congress on Psoriasis. The updated data provided longer-term safety analysis for two trials using intravenous
administration, as well as clinical data from a subcutaneously administered trial. Overall in these studies, siplizumab was found to
be generally well tolerated, and was shown to improve psoriatic disease as measured by PASI (Psoriasis Area and Severity Index)
score given either through intravenous or subcutaneous administration. The follow-up of patients in the Phase 1 program was
consistent with the preliminary safety and clinical results, and showed that improvement in patients' psoriasis appears to be
durable after completion of treatment at least through the initial three-month follow-up period in these trials.
Autoimmune diseasesduring 2002 are of major medical importance worldwide and include common afflictions such as rheumatoid arthritis, multiple
sclerosis, Crohn's disease, psoriatic arthritis and psoriasis. Psoriasis is a common chronic, recurrent disease characterized by
dry, scaling, red lesions on the skin. Approximately six million Americans have psoriasis with between 150,000 and 260,000 new cases
reported each year. There is no cure for psoriasis and the treatments are often inconvenient, difficult to use, or have unwanted
side effects.
Siplizumab was derived from BTI-322, a rat monoclonal antibody the Company licensed from BioTransplant Incorporated
("BioTransplant") in 1995. Under the terms of the agreement with BioTransplant, the Company is responsible for all activities
related to commercialization. BioTransplant will receive milestone payments at various stages of product development and royalties
if the product is commercialized. BioTransplant has retained the right to use BTI-322 and/or siplizumab in its proprietary
ImmunoCognance systems. BTI-322 is a registered trademark of BioTransplant.
No assurance can be given that the current clinical trials or any future clinical trials will be successful, or if successful, would
lead to a continuation of the programs in the indications currently studied or at all.
Urinary Tract Infection Vaccine
The Company is developing a vaccine candidate to prevent urinary tract infections ("UTIs") caused by Escherichia coli ("E. coli"), a
bacteria that causes 85 percent of all UTIs. UTIs are a significant medical problem and one of the most common disorders prompting
medical attention in otherwise healthy women and children. Retrospective data indicate that 40 percent of adult women in the United
States experience at least one UTI sometime during their lifetime and more than 20 percent experience recurrent infection. UTIs
result in more than 7 million physician and hospital visits per year at an estimated annual healthcare cost of greater than $1
billion. Older adults are also at risk with the incidence as high as 33 out of 100 people. Currently, there are no vaccines to
prevent UTIs. Most infections can be treated with antibiotics; however, recurrence is common and emerging antibiotic resistant
bacteria create an additional threat.
Early attempts to create a vaccine against UTIs targeted pili, hair-like protein appendages on the surface of bacteria. Such
attempts were not successful in protecting against a broad range of pathogenic bacteria, including E. coli, because of the
strain-to-strain variation in the major component of the pili. The identification of specific proteins, or "adhesins," at the end of
pili that facilitate the attachment of E. coli to human tissue, provided a novel target for vaccine development. The Company's
vaccine strategy is based on blocking these adhesins, thus preventing the disease-causing bacteria from binding and accumulating in
the bladder. The novel target of the Company's vaccine candidate is the FimH adhesin. FimH does not vary widely among the different
strains of E. coli that cause UTIs. The Company believes this is a requisite quality for development of a broadly effective UTI
vaccine.
During 2001, the Company completed enrollment in two Phase 2 clinical trials with its UTI vaccine: a 93-patient study in woman with
recurrent infection and a 305-patient study in women at risk of initial infection. No assurance can be given that these clinical
trials, or any future clinical trials will be successful, or if successful, would lead to a continuation of the programs in the
indications currently studied or at all.
Epstein Barr Virus Vaccine
The Company's Aviron subsidiary is developing a subunit vaccine against the Epstein Barr virus ("EBV"), a herpes virus that is the
leading cause of infectious mononucleosis ("mono"). This vaccine is based upon the single surface antigen apparently responsible for
most of the neutralizing antibodies stimulated by a natural EBV infection. In 1995, Aviron entered into a worldwide collaboration
with GlaxoSmithKline, excluding Korea, whereby GSK funds the development of the EBV vaccine in exchange for marketing rights. A
Phase 1 clinical study conducted by GSK in Europe showed that the vaccine was safe, well tolerated and showed evidence of an immune
response in vaccine recipients. In 2001, GSK conducted a Phase 1/2 trial in Europe in healthy adults. No assurance can be given that
this clinical trial, or any future clinical trials will be successful, or if successful, would lead to a continuation of the
development program for the current indication, or at all.
Mononucleosis affects most people. Infection at a young age may cause mild symptoms, but the most debilitating symptoms appear to
take place when infection first occurs in adolescence or young adulthood. Sore throat and swollen neck glands are followed by a
period of fatigue and lethargy which can last for weeks or even months. Many high school and college students become infected with
EBV each year in the United States, of which half or more may develop mono. The disease usually runs its course without significant
medical intervention; however, the long duration of mono can be a serious problem for high school and college students as well as
workers. No vaccine is currently available for EBV. Mono affects an estimated 250,000 young adults in the United States and Europe
annually. Studies of the U.S. population indicate that approximately 90 percent of adults have been infected with EBV.
Vitaxin
The Company is developing Vitaxin, an anti-angiogenic monoclonal antibody product, for potential use in both cancer and non-cancer
indications. Angiogenesis is the growth of new blood vessels, which in many situations is a welcome biological activity. However, in
certain diseases, such as cancer and rheumatoid arthritis, angiogenesis is an undesired event that can enhance the progression of
the disease. For example, certain solid tumors secrete growth factors that stimulate the angiogenic properties of endothelial cells.
These cells use a family of proteins called integrins to adhere to the surrounding tissue, allowing the new blood vessels to
continue their growth toward the tumor. Such new blood vessels are believed to supply the tumor nutrients and oxygen, as well as a
pathway for metastasizing to other organs. The Company believes that Vitaxin may offer a way to block the growth of new blood
vessels by binding to specific integrins, called alpha-v beta-3, found on newly sprouting blood vessels, vascular smooth muscle
cells, monocytes, macrophages, and osteoclasts.
In 1999, the Company acquired the worldwide rights to Vitaxin from Applied Molecular Evolution, Inc ("AME"), a biopharmaceutical
company engaged in the development of novel therapeutics. Pursuant to this agreement, the Company is responsible for clinical
development, manufacturing and commercialization of Vitaxin, will fund certain research to be performed by AME and will make future
milestone and royalty payments on sales of any resulting products.
During 2001, the Company initiated three important Phase 1 and Phase 1/2 trials in cancer and non-cancer indications. In March, the
Company initiated a non-randomized, open-label, dose-escalating Phase 1 pharmacokinetic study in 24 patients with refractory solid
tumors. In July, the Company initiated a Phase 1/2 open-label, single-center, dose escalation cancer study in up to 40 patients with
advanced colorectal cancer. Finally, in August, the Company announced that dosing had begun in a Phase 1 randomized, double-blind,
placebo-controlled, dose escalation trial in patients with rheumatoid arthritis, being conducted at eight sites in the U.S. and
Canada.
In 2001, the Company also signed a research and development agreement with Targesome, Inc., a private biotechnology company, to
evaluate the potential of combining Vitaxin with Targesome's proprietary nanoparticle technology. The combination could generate a
targeted nanoparticle capable of delivering a payload of a therapeutic or imaging agent for the treatment and/or diagnosis of
cancer. The goal is to create a new type of antibody therapy that could target the specific site on the endothelial cells expressing
alpha-v beta-3, and deliver a cytotoxic agent that may directly kill the new blood vessels and adjacent tumor cells. No assurance
can be given that any future clinical trials will be successful, or if successful, would lead to a continuation of the programs in
the indications currently studied or at all.
Numax
The Company intends to continue to expand its franchise in RSV prophylaxis by developing a third-generation anti-RSV product that
may be more potent than Synagis. Such a product may allow the Company to improve compliance, efficacy and patent position, thereby
further protecting its position in the RSV marketplace. The Company developed several variants of Synagis in 2000 that were at least
ten times more potent than Synagis in microneutralization studies. In 2001, the Company identified the top three Numax candidates,
and is currently evaluating them in animal models to determine which molecule to take into clinical evaluation.
No assurance can be given that any preclinical development or future clinical trials will be successful, or if successful, would
lead to a continuation of the programs in the indications currently anticipated or at all.
Anti-IL-9
MedImmune is attempting to develop therapeutics targeting IL-9 to prevent symptoms of asthma and other respiratory diseases. IL-9 is
implicated in the pathogenesis of asthma and may contribute to other respiratory disorders including chronic obstructive pulmonary
disease (COPD) and cystic fibrosis. Biopsies from asthmatic patients have shown an increase in expression of IL-9 as compared to
healthy individuals. Published findings, highlighting the central role of IL-9 in asthma, demonstrate its contribution to certain
clinical features including bronchial hyper-responsiveness, mucin production and eosinophil up-regulation in animal models and in
patients.
In 2001, the Company entered into a research collaboration and a worldwide exclusive licensing agreement with Genaera Corporation to
develop and commercialize antibodies or recombinant molecules targeting IL-9 and blocking interaction with its receptor. Pursuant to
the agreement, the companies will collaborate on the creation of specific assays and respiratory disease models for use in assessing
product candidates developed by MedImmune. MedImmune will be responsible for development, manufacturing, clinical testing, and
marketing of any resulting product.
No assurance can be given that any preclinical development or future clinical trials will be successful, or if successful, would
lead to a continuation of the programs in the indications currently anticipated or at all.
Anti-EphA2
During 2001, the Company licensed EphA2 technology from Purdue Research Foundation. EphA2 is a protein normally expressed at low
levels on most epithelial cells. However, when over-expressed, EphA2 acts as a tumor-causing protein. Preliminary studies indicate
that it is the over-expression of EphA2 that subverts normal regulation of cell growth, which then leads to tumor cell growth and
metastases. Further, these studies show that the introduction of an antibody targeting EphA2 may allow the restoration of this cell
growth regulation or induce cell killing.
Under the agreement, MedImmune is responsible for developing, manufacturing and commercializing therapeutics that target EphA2. Any
such product will potentially be used to treat a variety of aggressive tumors, including breast, colon, prostate, lung and skin
cancers, as well as to prevent metastasis. As a part of the agreement, Purdue will receive certain upfront payments and future
milestones and royalty payments on sales of any resulting products.
No assurance can be given that any preclinical development or future clinical trials will be successful, or if successful, would
lead to a continuation of the programs in the indications currently anticipated or at all.
Other Productsdescribed below. The Company and its subsidiaries also continue to work on feasibility studies in a number of other areas, including the evaluation of
vaccines to prevent cytomegalovirus, parainfluenza virus-3 and respiratory syncytial virus.areas. Any of these programs could become more significant to the Company over the next 12 months; however, there can be no assurance that any of the new programs under review will generate viable product opportunities. The Company may choose to address new opportunities for future growth in a number of ways including, but not limited to, internal discovery and development of new products, in-licensing of products and technologies, and/or merger or acquisition of companies with products and/or technologies. Any of these activities may require substantial capital investment.
Products
Product Candidates—Infectious Diseases
MedImmune's main focus within the area of infectious disease has been in the prevention and Product Development Programs
The following table, sortedtreatment of respiratory viruses. However, the Company also has programs targeting human papillomavirus, Epstein Barr virus, and cytomegalovirus, as described below.
4
FluMist—FluMist is a live, attenuated, intranasal vaccine developed to prevent influenza in healthy people. Influenza is a serious health problem worldwide, leading to 20,000 to 50,000 deaths each year in the United States. As of February 28, 2003, FluMist was under regulatory review by stagethe FDA. Throughout 2002, a number of development, describesofficial actions were taken by the FDA and the Company as a part of the ongoing regulatory review process, including: 1) the Company's marketedresponse to the FDA's first Complete Response Letter ("CRL") in January 2002 (the first CRL was issued in August 2001); 2) the FDA's issuance of a second CRL in July 2002 and development-stage products.
MARKETED PRODUCTS
Synagis Usedthe Company's response in August 2002; 3) a reinspection by the FDA of the Philadelphia blend/fill/finish/packaging plant for FluMist in mid-December 2002; and 4) a special meeting of the FDA's Vaccines and Related Biological Products Advisory Committee ("VRBPAC") in December 2002. At this Advisory Committee Meeting, the panel voted in favor of the product's safety and efficacy in healthy adults and children between the ages of 5 and 49, and for the safety of the product in healthy adults aged 50 to prevent RSV disease64 years. In January 2003, the FDA issued a third CRL, to which the company replied in pediatricearly February 2003.
Beyond the data from 20 clinical trials involving more than 20,000 patients at high riskthat were submitted to the FDA to support the product's initial licensure as an influenza vaccine, MedImmune continues to conduct additional clinical trials. In 2002, MedImmune completed a trial in 1,200 children 12 to 15 months of RSV disease
CytoGam Usedage to preventassess the antibody response of dosing FluMist simultaneously with the mumps, measles and rubella (MMR) and chicken pox (varicella) vaccines. The Company expects that additional studies will be necessary, as determined by the FDA, to supplement the amount of efficacy and safety data in healthy adults between 50 and 64 years of age and in healthy children under five years of age. The Company also expects that if and when the FDA grants initial licensure, that it will require the Company to commit to Phase 4 post-licensure studies.
Should FluMist be approved, it will be co-promoted in the U.S. by MedImmune and Wyeth. Wyeth has exclusive worldwide rights to market FluMist outside the U.S., excluding North and South Korea, Australia, New Zealand and some South Pacific countries.
Liquid CAIV-T (liquid cold adapted influenza vaccine—trivalent)—Liquid CAIV-T is being developed under a collaborative agreement between Wyeth and MedImmune as a second generation, refrigerator stable, liquid trivalent cold adapted influenza vaccine that may have the potential to replace FluMist (a frozen vaccine). Frozen vaccines pose distribution and commercial challenges, primarily outside the U.S., where freezers in pharmacies and doctors offices are not as common. In 2002, Wyeth conducted a number of late-stage clinical trials to demonstrate the safety and efficacy of CAIV-T. Additional clinical studies to support the development of this liquid formulation are planned for 2003.
Epstein Barr Virus Vaccine—MedImmune has rights to a subunit vaccine against the Epstein Barr virus ("EBV"), a herpesvirus that is the leading cause of infectious mononucleosis. This vaccine is based upon the major envelope glycoprotein that mediates viral absorption and penetration, and is a major target for the production of neutralizing antibodies stimulated by natural EBV infection. The vaccine is being developed under a worldwide collaboration with GlaxoSmithKline ("GSK"), excluding North and South Korea. In 2002, GSK sponsored a Phase1/2 clinical study in Europe during which two formulations of the vaccine were tested. Data from the study showed that the formulations were both well-tolerated and highly immunogenic. Although the study was not specifically designed to assess vaccine efficacy, none of the volunteers developed symptoms of infectious mononucleosis during the study period. A Phase 2 feasibility trial, initiated and fully enrolled in 2002, is expected to continue in 2003.
Cytomegalovirus Vaccine—MedImmune is developing a live attenuated vaccine against cytomegalovirus. For most healthy people, infection with CMV disease associated with transplantation of kidney, lung, liver,
pancreasposes no long-term health consequences and heart
Ethyol A cytoprotective agent used to reduce: (1) the cumulative renal toxicity associated
with repeated administration of cisplatinhas few symptoms. Unfortunately, in patients with advanced ovarianweakened immune systems, such as is found in AIDS, cancer or
non-small cell lung cancer; and (2)transplant patients, the incidencevirus can be much more problematic. Further, fetuses infected from their mother during gestation can suffer from significant birth defects, including deafness
5
and mental retardation. Through a collaboration with the National Institutes of moderate-to-severe xerostomiaHealth, four vaccine candidates have been tested in patients undergoing post-operative radiation treatmenta randomized, double-blind, placebo controlled Phase 1 safety trial. This trial was initiated in 2000 and enrollment was completed in 2002. Preliminary results from the study showed the vaccines were safe and well tolerated. These results were presented at the 27th International Herpesvirus Workshop in Cairns, Australia, in July 2002 and in February 2003 in Liege, Belgium.
Liquid Synagis—MedImmune is developing a liquid formulation of Synagis to improve the product's ease-of-use. Currently, Synagis is a lyophilized (i.e., freeze dried) product that requires a 20-minute waiting period following reconstitution with water for headinjection prior to use. In 2002, the Company completed a Phase 1 safety and neck cancer wherepharmacokinetics study in adults and initiated a bioequivalence trial in infants comparing the radiation port includes a substantial portionliquid and lyophilized versions of the parotid glands
RespiGam Usedproduct. In 2003, MedImmune anticipates completing the clinical and biochemical comparability studies and, if successful, submitting a supplement to its license application (sBLA) to the FDA for potential approval of the liquid formulation of Synagis.
Numax—As a part of the Company's plans to remain a leader in the development of products that treat or prevent respiratory infectious diseases, MedImmune is moving forward with the development of its third generation anti-RSV antibody product, Numax. In 2000, MedImmune began evaluating a number of candidate molecules that all appeared to be more potent in laboratory tests than the Synagis molecule. In 2002, MedImmune selected the antibody it would take forward into clinical testing as the Numax molecule. Phase 1 clinical studies are expected to begin with Numax in the second half of 2003.
Streptococcus PneumoniaeVaccine—In 2000, MedImmune granted a worldwide exclusive license to aStreptococcus pneumoniaevaccine to GSK.Streptococcus pneumoniae is a major cause of pneumonia, middle-ear infections and meningitis worldwide, especially in the very young and elderly. During 2002, GSK advanced its preclinical research efforts with vaccine candidates and it is anticipated that a lead molecule could begin human clinical testing in 2003.
Human Metapneumovirus Program—In 2002, MedImmune announced that it had in-licensed exclusive worldwide rights to the human metapneumovirus ("hMPV"), a newly identified respiratory virus, from ViroNovative, b.v. Early epidemiology studies indicate that outbreaks of hMPV occur in annual epidemics. It is believed that by the age of five, nearly all children will have been infected with hMPV. The clinical symptoms of hMPV are largely similar to RSV, ranging from mild respiratory problems to severe cough, bronchiolitis, and pneumonia, with the very youngest children often requiring hospitalization and mechanical ventilation. The Company expects to continue epidemiology studies on hMPV in 2003, as well as to conduct extensive preclinical studies assessing the potential to develop antibodies and/or vaccines to prevent or treat infection by this new virus.
Parainfluenza Virus Type 3/RSV Vaccine—During 2002, substantial preclinical research was conducted toward the goal of combining the previously independent vaccine programs against parainfluenza virus type 3 (PIV-3) and RSV. Previously, a placebo-controlled Phase 2 study had been completed with two different dosages of the PIV-3 vaccine involving 192 infants who received doses at two, four, six and 12-15 months of age. RSV and PIV-3 viruses account for 50 to 60 percent of all serious RSV diseaselower respiratory infections. Following the in-licensing of the rights to hMPV, the Company also began efforts to include this target in infants with prematurity or lung disease
NeuTrexin Used with concurrent leucovorin as an alternative treatment of moderate-to-severe
Pneumocystis carinii pneumonia in immunocompromised patients who are intolerant of, or
refractory to, trimethoprim-sulfamethoxazole therapy or for whom
trimethoprim-sulfamethoxazole is contraindicated
REGULATORY REVIEW
FluMist (frozen) Athe potential live, attenuated, cold-adapted influenzacombined vaccine delivered by nasal mist
PHASE 4
- -------
Synagis Potential prophylactic against RSV disease in children under 2 years of age with
cystic fibrosis
PHASE 3
- -------
FluMist (Liquid) A liquid formulation for a potential live, attenuated, cold-adapted influenza vaccine
delivered by nasal mist
Synagis Potential prophylactic against RSV disease in children under 2 years of age with
congenital heart disease
Ethyol Potential cytoprotectant against nephrotoxicity associated with the administration of
cisplatin/vinblastine in patients with non-small cell lung cancer
Ethyol Potential prevention of hematologic and neurologic toxicities associated with the
administration of carboplatin/paclitaxel in patients with non-small cell lung cancer
Ethyol Potential prevention of mucositis associated with combined chemotherapy and radiation
therapy in non-small cell lung cancer patients
PHASE 2
- -------
Siplizumab A potential treatment for psoriasis
Urinary tract A potential vaccineprogram, which if successful could be used to prevent disease against all three viruses. Additional preclinical research is expected to be conducted throughout 2003.
Urinary Tract Infection Vaccine—In 2002, MedImmune discontinued development of its Urinary Tract Infection Vaccine following results from two Phase 2 studies that demonstrated the vaccine was not satisfactorily effective in providing protection against urinary tract infections caused byEscherichia coli ("E. coli
infectioncoli").
6
Product Candidates—Immunology
Siplizumab—Siplizumab is a humanized monoclonal antibody that binds to the CD2 antigen receptor found on T cells and natural killer ("NK") cells. Laboratory studies suggest that siplizumab primarily inhibits the response of T cells through its binding of the CD2 receptor while allowing other immune cells to respond normally to foreign antigens. This suggested selectivity of T cell inhibition suggests that siplizumab may have potential utility in certain autoimmune diseases such as psoriasis and in other T cell regulated diseases. During 2002, MedImmune completed the preliminary analysis of three large Phase 2 trials involving a total of 661 psoriasis patients. The preliminary results demonstrate that the molecule's activity profile is competitive with other molecules in its class in measurements including the time to onset of response, durability of responses, and PASI-50 and PASI-75 response rates. PASI-50 and PASI-75 are dermatologic measurements of psoriatic disease that indicate a patient's disease has improved by 50 percent and 75 percent, respectively, from their baseline disease measurement. "PASI" is derived from Psoriasis Activity and Severity Index. Laboratory tests conducted as a part of the analysis also indicated that there was an anti-antibody response (immunogenicity) observed in over 50 percent of the patients treated. No clinical or medical implications of the immunogenicity were observed in patients. As a result, MedImmune plans to complete its analyses of these trials and to subsequently begin retreatment Phase 2 trials to further study the immunogenicity of the molecule in a chronic therapy setting. These retreatment studies will seek to determine whether there is any clinical impact of the immunogenicity in a chronic therapy setting prior to the Company's making a decision to proceed into a Phase 3 study. Should the results from the psoriasis trials be successful, the Company plans to initiate clinical studies with siplizumab in psoriatic arthritis patients.
Vitaxin—Vitaxin is a monoclonal antibody in development for both cancer and rheumatoid arthritis (RA). Vitaxin targets alpha-v beta-3, which is expressed on a number of cell types, including those found in newly forming blood vessels (angiogenesis), macrophages, osteoclasts and on the surface of certain solid tumor types. Osteoclasts, which function normally in the absorption and removal of bone tissue, play a particularly destructive role in RA that leads to disease advancement and physical impairment. In 2002, MedImmune concluded its initial Phase 1 study with Vitaxin where patients with moderate-to-severe RA disease were dosed intravenously with either a single dose of drug or placebo. MedImmune also initiated its second Phase 1 trial with Vitaxin in 2002, evaluating the safety, tolerability and pharmacokinetics of Vitaxin when administered subcutaneously. Enrollment and dosing were completed in Part A of this two-part trial in 2002. Part A was a single-dose escalation trial involving at least eight patients per dose. Enrollment and dosing in Part B of the study, which is a multi-dose trial evaluating the impact of weekly doses of Vitaxin over a three-month period, is expected to be complete in 2003.
Anti-IL-9 Antibody—IL-9 is implicated in the pathogenesis of asthma and may contribute to other respiratory disorders including chronic obstructive pulmonary disease ("COPD") and cystic fibrosis. Biopsies from asthmatic patients have shown an increase in expression of IL-9 and the IL-9 receptor compared to healthy individuals. Published findings, highlighting the central role of IL-9 in asthma, demonstrate its contribution to certain clinical features including bronchial hyper-responsiveness, mucin production and eosinophil up-regulation in animal models and in patients. In 2001, the Company entered into a research collaboration and a worldwide exclusive licensing agreement with Genaera Corporation to develop and commercialize antibodies or recombinant molecules targeting IL-9 and blocking its interaction with its receptor. During 2002, MedImmune continued to assess candidate molecules in preclinical testing, and in 2003 plans to initiate clinical testing.
Product Candidates—Oncology
Human Papillomavirus Vaccine—Under a strategic alliance with GSK, MedImmune is developing a vaccine Human A potential vaccineagainst the human papillomavirus ("HPV") to prevent cervical cancer. There are over 75 different types of HPV associated with a variety of clinical disorders, ranging from benign lesions to potentially lethal cancers. Two types of HPV, HPV-16 and HPV-18, cause the majority of cervical
7
cancer in the world. The Company's strategy for this vaccine relies on a virus-like particle ("VLP") technology for producing a structurally identical, non-infectious form of the virus. Scientists at the Company, in collaboration with a team at Georgetown University, first demonstrated the effectiveness of a VLP vaccine candidate using a dog model for papillomavirus Vaccine
Epstein Barr virusinfection. In 2002, GSK completed dosing and began data analysis in five clinical trials with this vaccine, including a Phase 1 trial, three Phase 2 trials, and a 3,000-person epidemiology trial. The Company hopes that data from these trials, once analyzed, will help support the initiation of Phase 3 clinical testing in late 2003.
Vitaxin—As previously noted, the Company is developing Vitaxin for use in both cancer and rheumatoid arthritis. In oncology, MedImmune completed its initial Phase 1 study with Vitaxin in 2002. This study involved 16 patients with advanced solid tumors that were no longer responding to standard therapy. In 2003, the Company plans to complete enrolling patients in its second Phase 1 study involving 24 patients with advanced colorectal cancer. MedImmune expects to initiate a number of tumor-specific Phase 2 trials with Vitaxin in 2003, including trials in patients with melanoma, prostate cancer and bone metastases.
Siplizumab—In the field of oncology, monoclonal antibodies have emerged in recent years as an important addition to surgery, radiation and chemotherapy for the management of patients with cancer. As stated earlier, siplizumab is a humanized monoclonal antibody that reduces the number of T cells and NK cells, leading to its consideration as a potential useful tool in fighting diseases where inhibition of proliferating T cells may have positive clinical benefits, such as in T cell lymphoproliferative disorders. Animal studies conducted with siplizumab involving CD2-positive lymphoma indicated positive survival outcomes for siplizumab-treated mice. As a result, in 2003 MedImmune plans to initiate a Phase 1 dose-escalating trial to examine the clinical safety of siplizumab in patients with CD2-positive lymphoproliferative disorders and to determine the maximum tolerated dose of the antibody in such patients.
EphA2—In late 2001, MedImmune licensed EphA2 technology from Purdue Research Foundation. EphA2 is a protein normally expressed at low levels on most epithelial cells. However, when over-expressed, EphA2 acts as a tumor-causing protein. Preliminary studies indicate that it is the over-expression of EphA2 that subverts normal regulation of cell growth, which then leads to tumor cell growth and metastases. Further, these studies show that the introduction of an antibody targeting EphA2 may allow the restoration of this cell growth regulation or induce cell killing. During 2002, the Company continued preclinical development of the project.
HAAH—In 2002, MedImmune licensed from Panacea Pharmaceuticals, Inc. exclusive worldwide rights to technology targeting the enzyme Human Aspartyl (Asparaginyl) Beta-Hydroxylase ("HAAH"), which has been found to be over-expressed in a wide variety of primary tumor tissues, including cancers of the pancreas, breast, ovary, liver, colon, prostate, lung, brain and bile duct. Initial preclinical studies have indicated that the over-expression of HAAH induces tumor formation, and that inhibition of HAAH function in the cancer cell limits the growth of the tumor.
PCDGF—In 2002, the Company licensed from A potential vaccine&G Pharmaceutical, Inc. exclusive worldwide rights to prevent illness causedtechnology targeting PC-cell-derived growth factor ("PCDGF"), which is expressed by breast cancer cells that respond to estrogen therapies, and to an even greater extent, by breast cancer cells that have become resistant to estrogen therapies. Preclinical studies to date demonstrate that inhibition of PCGDF expression inhibits breast cancer cell growth, as well as reduces the Epstein Barr virus.
vaccine
PHASE 1
- -------
Vitaxin A potential anti-angiogenic product that could be used to eliminate or impede the
advancementability of certain solid tumors and/or metastasis
Vitaxin A potential rheumatoid arthritis therapy
CMV vaccine A potential vaccinebreast cancer cells to prevent cytomegalovirus disease
PRECLINICAL
- -----------
Numax A potential prophylacticbecome hormone resistant. In addition, some reports indicate that PCDGF may play a role in tumor growth in certain ovarian and renal cancers.
Collaborations and Business Relationships
To build, advance and promote its product portfolio, MedImmune seeks to prevent RSV disease in high risk populations
Anti-IL-9 Potential asthma therapeutic
Anti-EphA2 Potential therapy for solid tumorsaugment its own internal programs and preventation of metastasis
PIV-3/RSV vaccine A potential vaccine to prevent parainfluenza virus type 3 and respiratory syncytial
virus
Siplizumab A potential treatment for psoriatic arthritis
Siplizumab A potential treatment for T cell lymphoma
Pneumococcal A potential vaccine to prevent Streptococcus pneumoniae
vaccine
Marketing, Research, Development and Collaborative Agreements
The Company's internal research programs are augmented bycapabilities with collaborative projects with a number of scientificoutside partners. As part of itsthis strategy, the Company has established license agreements, co-promotion arrangements, and
8
co-development alliances with pharmaceutical and other biotechnology companies, academic scientistsinstitutions and government laboratories. Its principal strategic alliances are listed below.
Abbott Laboratories—In December 1997, the Company entered into two agreements with Abbott Laboratories ("Abbott").Abbott. The first agreement calls for Abbott to co-promote Synagis in the United States through its Ross Products division in exchange for a percentage of net sales in excess of annual sales thresholds. Each company is responsible for its own selling expenses.
The second agreement allows Abbott to exclusively distribute Synagis outside the United States. TheInternationally, the Company manufactures and sells Synagis to Abbott at a price based on end-user sales. As of February 1, 2002, the Company and Abbott28, 2003, Synagis had submitted a total of 58
regulatory applications for approval to market Synagis and have received approval in the United States as well as 46 foreign
countries.50 countries worldwide. No assurance can be given that any of the remaining applications submitted or any future submissions to any other countries for marketing licensure will be approved in a timely manner or at all. Nor can there be any assurances that if approved in the remaining countries, that the product will be reimbursed by the associated payor systems.
ALZA Corporation—The Company acquired U.S. marketing rights to Ethyol from ALZA, effective October 1, 2001. Previously, ALZA was responsible for sales and marketing of Ethyol in the U.S. under a December 1995 co-promotion agreement between the two companies. In accordance with the original agreement, MedImmune Oncology will pay ALZA a gradually diminishing royalty beginning April 1, 2002 until 2011.
BioTransplant, Inc.—In October 1995, the Company and BioTransplant, Inc. ("BTI") formed a strategic alliance for the development of products to treat and prevent organ transplant rejection. The alliance is based upon the development of products derived from BTI's anti-CD2 antibody, BTI-322, the Company's anti-T cell receptor antibody, MEDI-500, and future generations of products derived from these two molecules (such as siplizumab, or humanized BTI-322). Pursuant to the alliance, the Company received an exclusive worldwide license to develop and commercialize BTI-322 and any products based on BTI-322, with the exception of the use of BTI-322 in kits for xenotransplantation or allotransplantation. The Company has assumed responsibility for clinical testing and commercialization of any resulting products. The Company's clinical development efforts are focused on siplizumab.
Boehringer Ingelheim Pharma KG—In December 1997 the Company entered into a manufacturing and supply agreement with Boehringer Ingelheim Pharma KG ("BI") to produce Synagis for the non-U.S. markets and to provide supplemental production capacity for Synagis sold in the United States. BI also fills and packages the Synagis it produces at its facility. The BI facility is subject to inspection and approval by the appropriate regulatory authorities in connection with maintaining its FDA licensure as well as for obtaining and maintaining approval from certain ex-U.S. countries. While the Company's Frederick manufacturing center was licensed for production of Synagis by the FDA in December 1999, it has not yet been licensed by international regulatory agencies. As such, MedImmune will continue to rely upon BI for production of all Synagis to be sold outside the U.S. for the foreseeable future to meet expected worldwide demand for the product, as well as continuing to rely upon BI as a backup for production of Synagis to be sold in the United States.
CSL Limited—In June 1998, the Company entered into a collaboration with CSL Limited ("CSL") of Victoria, Australia for the development, sale and distribution of FluMist in Australia, New Zealand and some countries in the South Pacific. The Company and CSL are jointly conducting clinical trials in Australia for FluMist. Under the agreement, CSL will sponsor the marketing application with the Therapeutic Goods Administration, Australia's ruling regulatory agency. CSL has exclusive rights to sell and distribute FluMist in these countries, and the Company will share the profits from these sales. The Company also would benefit from expansion of CSL's current flu vaccine in pediatric and healthy adult market segments if and when CSL receives regulatory approval to market FluMist in the territory. In addition, CSL has agreed, under an option agreement, to grant warrants to the Company to purchase CSL common stock upon CSL's attainment of certain milestones.
9
Evans Vaccines Limited—In July 1999, the Company entered into an agreement with a division of Celltech Group Plc ("Celltech"), which was later acquired by PowderJect Pharmaceuticals Plc and is now called Evans Vaccines Limited ("Evans"), for the manufacture of key components of FluMist at a manufacturing facility in Speke, U.K., specifically the bulk manufacture of monovalents and diluent, as well as use of the manufacturing facilities. During October 2000, the agreement was restructured with Evans so that the Company would gain direct control over FluMist manufacturing operations, subsequent to Evans' purchase of the facility from Medeva Pharma Limited in September 2000. The new agreement, which runs through 2006, transferred responsibility for bulk manufacture of FluMist, as well as approximately 100 Evans' employees who had been working on FluMist, to MedImmune. The Company also acquired the remaining 24 years of a 25-year lease from Celltech of approximately eight adjacent acres of land in Speke. The Company is using an existing 45,000 square foot structure on this property to build a new FluMist manufacturing facility.
GlaxoSmithKline PLC—In December 1997, the Company entered into a strategic alliance with GlaxoSmithKline PLC to research, develop, manufacture and commercialize therapeutic and prophylactic HPV vaccines. In exchange for exclusive worldwide rights to the Company's HPV technology, GSK provided the Company with an up-front payment of $15 million, research funding of $22.7 million through 2002, potential developmental and sales milestones that together could total up to $48 million, royalties on any product sales and an equity investment of $5 million. Under the terms of the agreement, the companies have collaborated on research and development activities. The Company conducted Phase 1 and Phase 2 clinical trials and manufactured clinical material for those studies. GSK is responsible for Phase 3 clinical trials, as well as regulatory, manufacturing and marketing activities.
In July 2000, the Company granted GSK a worldwide, exclusive license to itsStreptococcus pneumoniae vaccine technology in exchange for an up-front payment of $10 million and future potential milestones totaling more than $20 million, plus royalties on product sales. Under the terms of the agreement, GSK is responsible for all clinical development, manufacturing and sales and marketing activities for theS. pneumoniae vaccine. The Company completed the technology transfer to GSK in late 2000. The Company originally in-licensed from Human Genome Sciences, Inc. and St. Jude's Children's Research Hospital the technology it out-licensed to GSK.
In October 1995, the Company signed an agreement with GSK to collaborate on Epstein-Barr virus vaccine technology. Under the terms of the agreement, GSK was granted an exclusive license to produce, use and sell non-live EBV (subunit) vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in Korea, in exchange for an up-front payment, future milestone payments and royalties. In addition, GSK obtained a right of first refusal to an exclusive, worldwide license, excluding Korea, under any intellectual property rights relating to any live EBV vaccine technology developed or controlled by the Company during the term of this agreement. The Company retained the right to co-distribute a monovalent formulation of the EBV vaccine in the United States and to have GSK supply the vaccine. GSK agreed to fund the Company's research and development efforts related to the EBV vaccine in specified minimum amounts during the first two years of the agreement. Unless otherwise terminated, this agreement will expire on a country-by-country basis upon the expiration or invalidation of the last remaining patent covered by the agreement or 10 years from the date of first commercial sale of the vaccine, whichever is later. GSK may terminate the agreement with respect to any country at any time.
Massachusetts Health Research Institute and Massachusetts Biologics Laboratories—In August 1989 and April 1990, the Company entered into a series of research, supply and license agreements with Massachusetts Health Research Institute ("MHRI") and Massachusetts Public Health Biologics Laboratories, then a division of the Massachusetts Department of Public Health ("The State Lab"), covering products intended for the prevention or treatment of CMV and RSV infection and
10
other respiratory virus infections by immune globulins or monoclonal antibodies. The Company agreed to pay royalties on all sales using the licensed technology.
Michigan, University of—In February 1995, the Company entered into a materials transfer and intellectual property agreement with the University of Michigan. Pursuant to the agreement, the University of Michigan granted the Company exclusive worldwide rights to certain intellectual property and technology relating to the cold-adapted influenza vaccine and proprietary master donor strains of influenza viruses useful in the production of vaccines against influenza and potentially for gene therapy and other uses. Specifically, the Company obtained the exclusive right to develop, manufacture, use, market and sell products incorporating any such intellectual property or using the master strains worldwide. Pursuant to the agreement, the Company was required to grant to the university an irrevocable, royalty-free license for research purposes, or for transfer to a subsequent licensee should the agreement be terminated, to (1) all improvements developed by the Company, its affiliates or sublicensees, whether or not patentable, relating to delivery mechanisms and processes for administration and manufacturing of products, as well as packaging, storage and preservation processes for the master strains and (2) all new technical information acquired by the Company, its affiliates or sublicensees relating to the master strains and products. The agreement terminates upon the later of (1) the last to expire of the university's patents licensed to the Company or (2) 20 years from the date of first commercial sale of a product incorporating the university's technology. The Company has the right to terminate for any reason upon 12 months notice to the university.
Packaging Coordinators, Inc.—In 1998, the Company opened a 34,000 square foot manufacturing suite in Philadelphia, Pennsylvania, where doses of FluMist are blended and filled. This suite is located within a facility owned by Packaging Coordinators, Inc., ("PCI"), a division of Cardinal Health, Inc., with which the Company has contracted for the labeling and packaging of FluMist for commercial sale until October 2004. In August 2000, the Company extended the term of its original agreement with PCI until December 2004, with options to extend for up to two additional three year terms.
Schering-Plough Corporation—In May 1993, the Company entered into an exclusive marketing and distribution agreement with Scherico, Ltd. ("Scherico"), an affiliate of Schering-Plough, for Ethyol in the countries comprising the EU and European Free Trade Association (the "European Territories"). Under this agreement, Scherico purchases Ethyol from the Company at a price based on a percentage of the net sales price of Ethyol in Germany, United Kingdom, Spain, Italy and France. Scherico's exclusive rights to market the product will continue through December 31, 2003. Following the exclusive period, the Company may co-promote Ethyol with Scherico for two years, through December 31, 2005. Thereafter, the Company will reacquire sole marketing rights, subject to an obligation to pay Scherico a royalty based on a percentage of net sales, if any, from the European Territories for a period of three years. Scherico may terminate the agreement at any time by providing 180 days written notice.
MedImmune also entered into licensing agreements for Ethyol and NeuTrexin with affiliates of Schering-Plough for several additional territories outside the United States. The licensees are required to pay the Company compensation based on their net sales of the products, and the Company sells the products to the licensees at an agreed upon price.
Wyeth (formerly American Home Products Corporation)
—In January 1999, Avironthe Company signed a worldwide collaborative agreement with Wyeth Lederle Vaccines, a subsidiary of Wyeth, for the development, manufacturing,manufacture, distribution, marketing, promotion, and sale of FluMist.live, attenuated, cold adapted, nasally delivered influenza vaccines ("flu vaccines"). Under this agreement, Wyeth has exclusive worldwide rights to market FluMist,the flu vaccines, excluding Korea, Australia, New Zealand and some South Pacific countries. The two companies will co-promote FluMistthe flu vaccines in the U.S.United States. Wyeth holds the marketing rights for an initial term of seven years from the first commercial sale of FluMistthe flu vaccines in the U.S. and an initial term of eight years from the first commercial sale of FluMistthe flu vaccines outside the U.S., withUnited States. Wyeth also has an
11
option to extend its rights both in the U.S. and internationally for an additional four years and to extend its international rights for an additional three years. Extending both U.S. and international rights triggertriggers payments to the Company in excessthe range of $140$145 million to $400 million. Under the terms of the collaborative agreement with Wyeth, the two companies are to collaborate on the regulatory, clinical and marketing programs for FluMist.the flu vaccines. As a part of the collaboration, the Company is to receive certain payments related to the achievement of key milestones and events for FluMist. In January 2001, Aviron received $15.5 million from Wyeth related to the acceptance byflu vaccines.
Previously, the FDA for the filing of the BLA for FluMist on December 28, 2000. Should the product be approved in the U.S., the
Company will receive a $20 million milestone payment from Wyeth. Other potential milestone payments to the Company from Wyeth
include: $20 million for advisory body recommendations and expanded label claims; $10 million for the submission of a license
application in Europe; a $27.5 million payment for the approval of a liquid formulation of FluMist and up to $50 million upon
licensure in international regions. Compensation for achieving additional development, supply and regulatory milestones is also
included in the collaboration agreement and may total up to an additional $67.5 million. The total potential value for the license
fees, milestones, financing support and term extension options that the Company could receive from Wyeth could exceed $400 million.
Under the terms of the agreement, Wyeth will distribute FluMist and record all product sales. The Company will receive approximately
50 percent of FluMist revenues, paid in the form of product transfer payments and royalties. These payments are higher in the U.S.
than internationally. The Company incurs expenses to manufacture, supply and co-promote FluMist. Wyeth shares in the product's
clinical development expenses and has agreed to spend up to $100 million for advertising and promotion of FluMist over the first
three years of commercialization in the United States.
The Company also had a strategic alliance with American Cyanamid Company, which was later acquired by American Home Products (now Wyeth), which
is now called Wyeth, that provided for the co-development and co-promotion of RespiGam by the two companies. The agreement, entered into in November 1993 and amended in October 1995, provided for Wyeth to fund a portion of the cost of the development of RespiGam and to co-promote the product in the United States. Wyeth shared in the profits and losses of RespiGam in the United States. The alliance provides for the Company to receive royalties on any sales of Wyeth's RSV subunit vaccine candidate, and for Wyeth to receive royalties on United States sales of Synagis. Pursuant to an amendment to the agreement signed in December 1999, Wyeth's obligation to co-promote RespiGam in the United States was terminated. In addition, Wyeth no longer shares in any profits or losses of RespiGam in the United States; the royalty obligations for Synagis and Wyeth's RSV subunit vaccine candidate remain unchanged.
GlaxoSmithKline
Collaborations and Business Relationships—Entered into in 2002
A&G Pharmaceutical, Inc.—In December 1997,April 2002, the Company entered into a strategic allianceresearch collaboration with GlaxoSmithKline PLCA&G Pharmaceutical, Inc. to license technology relating to PC-Cell Derived Growth Factor, a monoclonal antibody the initial indications of which would apply to breast cancer.
Gensia Sicor Pharmaceuticals, Inc.—In December 2002, MedImmune entered into an agreement with Gensia Sicor Pharmaceuticals, Inc. ("GSK"Gensia Sicor") to research, develop, manufacturefor filling and commercialize therapeutic and prophylactic HPV vaccines. In exchange for exclusive worldwide rights topackaging of Synagis produced at the Company's HPV
technology, GSK provided the Company with an up-front payment of $15 million, future funding and potential developmental and sales
milestones which together could total over $85 million, royalties on any product sales and an equity investment of $5 million. Under
the termsFMC. The initial term of the agreement is for five years, at the companies have collaborated on research and development activities. The Company conducted Phase 1
and Phase 2 clinical trials and manufactured clinical material for those studies. GSK is responsible for the final developmentend of the product, as well as regulatory, manufacturing, and marketing activities.
In July 2000, the Company granted GSK a worldwide, exclusive license to its Streptococcus pneumoniae vaccine technology in exchange
for an up-front payment and future milestones totaling more than $30 million, plus royalties on product sales. Under the terms ofwhich, the agreement GSK is responsible for all clinical development, manufacturing and sales and marketing activities for the S.
pneumoniae vaccine. The Company completed the technology transfer to GSKautomatically renews in late 2000. The technology licensed to GSK was originally
licensed from Human Genome Sciences, Inc. and St. Jude's Childrens Research Hospital.
In October 1995, Aviron signed an agreement with GSK to collaborate on its Epstein-Barr virus vaccine technology. Under the terms of
the agreement, GSK was granted an exclusive license to produce, use and sell non-live EBV (sub unit) vaccines incorporating our
technology for prophylactic and therapeutic uses on a worldwide basis, exceptone year intervals unless terminated in Korea, in exchange for an up-front payment, future
milestone payments and royalties. In addition, GSK obtained a right of first refusal to an exclusive, worldwide license, excluding
Korea, under any intellectual property rights relating to any live EBV vaccine technology developed or controlled by Aviron during
the term of this agreement. Aviron retained the right to co-distribute a monovalent formulation of the EBV vaccine in the United
States and to have GSK supply the vaccine. GSK agreed to fund Aviron's research and development efforts related the EBV vaccine in
specified minimum amounts during the first two years of the agreement. Unless otherwise terminated, this agreement will expire on a
country-by-country basis upon the expiration or invalidation of the last remaining patent covered by the agreement or 10 years from
the date of first commercial sale of the vaccine, whichever is later. GSK may terminate the agreement with respect to any country at
any time.
ALZA Corporation
MedImmune Oncology acquired U.S. marketing rights to Ethyol from ALZA Corporation, effective October 1, 2001. The rights to Ethyol
were originally scheduled to return to MedImmune Oncology on April 1, 2002, pursuant to the December 1995 co-promotion agreement
between the two companies whereby ALZA was responsible for sales and marketing of the product in the United States. In accordance with the original agreement, MedImmune Oncology will pay ALZA a gradually diminishing royalty beginning April 1,agreement.
Iomai Corporation—In December 2002, until 2011.
BioTransplant, Inc.
In October 1995, the Company and BioTransplant, Inc.made an investment in Iomai Corporation, a private biopharmaceutical company, as part of a Series C Preferred Stock financing round offered by Iomai. Iomai's proprietary transcutaneous immunization technology ("BTI"TCI") formedmay allow delivery of vaccines through a strategic alliance forskin patch. This investment represented the development of products to treat
and prevent organ transplant rejection. The alliance is based upon the development of products derived from BTI's anti-CD2 antibody,
BTI-322, the Company's anti-T cell receptor antibody, MEDI-500, and future generations of products derived from these two molecules
(such as siplizumab, or humanized BTI-322). Pursuant to the alliance,first undertaken by the Company received an exclusive worldwide license to develop
and commercialize BTI-322 and any products based on BTI-322, with the exception of the use of BTI-322 in kits for
xenotransplantation or allotransplantation. The Company has assumed responsibility for clinical testing and commercialization of any
resulting products. The Company's clinical development efforts are focused on siplizumab. BTI may receive milestone payments which
could total up to an additional $11 million, as well as royalties on any sales of BTI-322, MEDI-500, siplizumab and future
generations of these products, if any.
Massachusetts Health Research Institute and Massachusetts Biologics Laboratories
through its venture capital subsidiary, MedImmune Ventures, Inc.
Panacea Pharmaceuticals, Inc.—In August 1989 and April 1990,February 2002, the Company entered into a series of research supply and license agreements with Massachusetts
Health Research Institute ("MHRI") and Massachusetts Public Health Biologics Laboratories, then a division of the Massachusetts
Department of Public Health ("The State Lab"), covering products intended for the prevention or treatment of CMV and RSV infection
and other respiratory virus infections by immune globulins or monoclonal antibodies. The Company agreed to pay royalties on all
sales using the licensed technology. Pursuant to the agreements, the Company paid $24.3 million in 2001, $23.6 million in 2000, and
$18.4 million in 1999, for royalties, process development and manufacturing.
Schering-Plough Corporation
In May 1993, MedImmune Oncology entered into an exclusive marketing and distribution agreement with Scherico, Ltd. ("Scherico"), an
affiliate of Schering, for Ethyol in the countries comprising the EU and European Free Trade Association (the "European
Territories"). Under this agreement, Scherico purchases Ethyol from the Company at a price based on a percentage of the net sales
price of Ethyol in Germany, United Kingdom, Spain, Italy and France. Scherico's exclusive rights to market the product will continue
through December 31, 2003. Following the exclusive period, the Company may co-promote Ethyol with Scherico for two years, through
December 31, 2005. Thereafter, the Company will reacquire sole marketing rights, subject to an obligation to pay Scherico a royalty
based on a percentage of net sales, if any, from the European Territories for a period of three years. Scherico may terminate the
agreement at any time by providing 180 days written notice.
MedImmune Oncology also entered into licensing agreements for Ethyol and NeuTrexin with affiliates of Schering for several
additional territories outside the United States. The licensees are required to pay the Company compensation based on their net
sales of the products, and the Company sells the products to the licensees at an agreed upon price.
CSL Limited
In June 1998, Aviron entered into a collaboration with CSL Limited ("CSL") of Victoria, Australia for the development, sale and
distribution of FluMist in Australia, New Zealand and some countries in the South Pacific. The Company's Aviron subsidiary and CSL
are jointly conducting clinical trials in Australia for FluMist. Under the agreement, CSL will sponsor the marketing application
with the Therapeutic Goods Administration, Australia's ruling regulatory agency. CSL has exclusive rights to sell and distribute
FluMist in these countries, and the Company will share the profits from these sales. The Company also will benefit from expansion of
CSL's current flu vaccine in pediatric and healthy adult market segments following the approval to market FluMist in the territory.
In addition, CSL has agreed, under an option agreement, to grant warrants to the Company to purchase CSL common stock upon CSL's
attainment of certain milestones.
Applied Molecular Evolution
On February 25, 1999, the Company and Applied Molecular Evolution ("AME") announced an alliancePanacea Pharmaceuticals, Inc. to develop four monoclonal
antibodies. Under the terms of the alliance, AME would use its AMEsystem directed evolution protein engineering technology to
optimize antibodies identified by the Company, and the Company would be responsible for clinical development, manufacturing and
commercialization of any resulting products. The Company made a $6.4 million equity investment in AME, funds certain research
performed by AME and will make future milestone and royalty payments on sales of any resulting products.
Also in February 1999, the Company entered into an exclusive license with AME for Vitaxin, an anti-angiogenesis monoclonal antibody.
As part of this agreement, the Company acquired worldwide rights to Vitaxin, and became responsible for all clinical development and
marketing for the product. AME will receive royalties on any future sales of the product, should it be approved for marketing.
National Institute of Allergy and Infectious Diseases
Human Aspartyl (Asparaginyl) Beta-Hydroxylase technology.
ViroNovative, b.v.—In March 1995, Aviron entered into a five-year Collaborative Research and Development Agreement with the National Institute of
Allergy and Infectious Diseases ("NIAID") of the National Institutes of Health ("NIH") to conduct clinical trials of the Company's
cold-adapted influenza vaccine. In June 2000, Aviron extended its collaboration with the NIH through June 2003. As a part of this
agreement, Aviron obtained exclusive rights to data generated from previous clinical trials conducted by the NIH and by Wyeth. Wyeth
had conducted clinical trials for FluMist under a licenseAugust 2002, MedImmune announced that it had obtained from the NIH in 1991, which it subsequently relinquished
in 1993.
In September 2000, Aviron was awarded a $2.7 million Challenge Grant from the NIAID to develop a vaccine using the intranasal
delivery technology currently used in FluMist to protect against possible pandemic influenza virus strains. Aviron committed $2.7
million to the project over the three-year duration of the grant. Challenge Grants are milestone-driven awards, requiring
pre-determined product goals be met during the development process in order to receive the awarded funds.
In June 2000, Aviron entered into a clinical trial agreement with NIAID granting NIAID the right to conduct clinical trials at
various locations with Aviron's CMV vaccine technology.
In May 1996, Aviron obtained exclusive rights from NIAID to certain biological materials and clinical trial data for its PIV-3
program. The NIH granted Aviron exclusive rights in specific strains of bovine parainfluenza virus to develop, test, manufacture,
use and sell products for vaccination against human parainfluenza virus and other human and animal diseases. In addition, Aviron
obtained from NIAID the right to incorporate by reference an existing IND and certain data relating to the licensed materials. The
NIH retained rights to the licensed materials on behalf of the United States government to conduct research and to grant research
licenses to third parties under certain circumstances. In return for the rights granted by NIH, the Company's Aviron subsidiary will
make payments to NIH on the achievement of specified milestones and will make certain royalty payments to NIH. Unless otherwise
terminated, the agreement will terminate on cessation of commercial sales of licensed products by Aviron or its sublicensee. The
Company has the unilateral right to terminate the agreement in any country upon providing 60 days notice to NIH.
University of Michigan
In February 1995, Aviron entered into a materials transfer and intellectual property agreement with the University of Michigan.
Pursuant to the agreement, the University of Michigan granted Aviron exclusive worldwide rights to certain intellectual propertyhuman metapneumovirus from ViroNovative, b.v., a private Dutch biotechnology company affiliated with Erasmus University in Rotterdam.
Other Collaborations and technology relating to the cold-adapted influenza vaccine and proprietary master donor strains of influenza viruses useful in the
production of vaccines against influenza and potentially for gene therapy and other uses. Specifically, Aviron obtained the
exclusive right to develop, manufacture, use, market and sell products incorporating any such intellectual property or using the
master strains worldwide. Consideration granted to the University of Michigan under the agreement included a warrant to purchase
340,000 shares of common stock of Aviron at an exercise price of $10.00 per share and a warrant to purchase 50,000 shares of Aviron
common stock at $9.30 per share. In connection with the Company's acquisition of Aviron, these warrants were exchanged for warrants
to purchase 419,250 shares of MedImmune common stock in the aggregate. The agreement also provides for the issuance, upon the first
commercial sale of FluMist, of a warrant for approximately 5,150 shares of MedImmune common stock at an exercise price equal to 125%
of the acquisition price of Aviron.
Pursuant to the agreement, Aviron was required to grant to the university an irrevocable, royalty-free license for research
purposes, or for transfer to a subsequent licensee should the agreement be terminated, to (1) all improvements developed by Aviron,
its affiliates or sublicensees, whether or not patentable, relating to delivery mechanisms and processes for administration and
manufacturing of products, as well as packaging, storage and preservation processes for the master strains and (2) all new technical
information acquired by Aviron, its affiliates or sublicensees relating to the master strains and products.
The agreement terminates upon the later of (1) the last to expire of the university's patents licensed to Aviron or (2) 20 years
from the date of first commercial sale of a product incorporating the university's technology. Aviron has the right to terminate for
any reason upon 12 months notice to the university.
The Mount Sinai School of Medicine
In February 1993, Aviron entered into a technology transfer agreement with The Mount Sinai School of Medicine ("Mount Sinai"). Under
this agreement, Mount Sinai assigned to Aviron all of its right, title and interest in and to certain patents and patent
applications, as well as all associated know-how and other technical information relating to recombinant negative-strand RNA virus
expression systems and vaccines, attenuated influenza viruses and certain other technology. Mount Sinai also granted to Aviron: (1)
an option to acquire any improvements to the inventions disclosed in the assigned patents and patent applications thereafter
developed by Mount Sinai, and (2) a right of first negotiation for a license or assignment to additional related technology. Aviron
issued common stock and warrants to purchase common stock as consideration for these rights. The warrants expired in November 2001.
Other AgreementsBusiness Relationships
The Company has a number of other collaborative and business agreements with academic institutions and business corporations, including agreements with: 1) Washington University in St. Louis, Missouri coveringApplied Molecular Evolution ("AME") related to two different agreements, both dated February 1999: one related to the development of pilus-based anti-bacterialfour monoclonal antibodies using AMEs directed evolution protein engineering technology to optimize antibodies ("AMEsystem"), and the other related to the in-licensing of worldwide rights to Vitaxin; 2) ARCH Development Corporation related to its HSV and EBV vaccines, and various recombinant methods and materials, dated July 1994; 2)1992; 3) Becton Dickinson and Company
12
("Becton") for the supply of Becton's AccuSpray™ non-invasive nasal spray delivery system for the administration of FluMist, dated July 1998; 4) Chiron Corporation for the filling and packaging of Synagis produced at MedImmune's FMC, dated April 1998 and updated in 2001; 5) Genaera Corporation to develop and commercialize antibodies or recombinant molecules against IL-9 to prevent symptoms of asthma and other respiratory diseases, dated April 2001; 6) Georgetown University, dated February 1993, the German Cancer Research Center, dated June 1996, and the University of Rochester, dated October 1995, covering development of vaccines for human papillomaviruses; 3) Chiron Corporation
covering supply7) Mount Sinai School of MF59, a proprietary vaccine adjuvantMedicine ("Mount Sinai") associated with patents, patent applications and associated know-how related to be used for B19 parvovirusrecombinant negative-strand RNA virus expression systems and E. coli development, dated September 1998;
4) Alkermes to develop a pulmonary formulation of Numax targeting RSV, dated June 2000; 5) Medarex, Inc. covering the development of
fully human antibodies to multiple antigens using Medarex's HuMAb-Mousevaccines, attenuated influenza viruses and other technology, dated February 1993; 8) National Institute of Allergy and Infectious Diseases related to clinical and research and development agreements for the FluMist (dated March 1995, updated June 2000; 6) University2000), potential pandemic flu strain vaccines (dated September 2000), CMV vaccine (dated June 2000), and PIV-3 vaccine programs (dated May 1996); 9) Precision Pharma Services, Inc., for the contract manufacture of Texas covering
Fc technology to increase the half life of an antibody,Fraction II+III paste for CytoGam, dated May 1999; 7) Genaera Corporation to develop and commercialize
antibodies or recombinant molecules against IL-9 to prevent symptoms of asthma and other respiratory diseases, dated April 2001; 8)December 2002; 10) Purdue Research Foundation for the development of EphA2 technology, dated October 2001; 9) Sang-A Pharm. Co., Ltd.11) Specific Pathogen-Free Avian Supply, a division of Charles River Laboratories, for the development, manufacture,purchase of pathogen-free hens' eggs for the production of FluMist, dated June 1999 and marketing of vaccines for EBV, CMV, HSV-2 and RSV in Korea, dated March 1995; and 10) ARCH Development
Corporation related to its HSV and EBV vaccines, and various recombinant methods and materials dated July 1992. In addition, theextended through December 2004.
The Company has additional license agreements with third parties for CytoGam, RespiGam, Synagis, Ethyol and substantially all of its other potential products. Under such license agreements the Company is obligated to pay royalties on any sales of these products. In addition, the Company has also entered into various agreements to gain access to various technology and intellectual property to advance its pipeline.
Marketing and Sales
The Company has developed a sales and marketing organization whichthat it believes is responsive to the increased importance of managed care and the needneeds of the healthcare industry to provide higher quality care at lower costs. Including the Company's new Aviron subsidiary, theThe Company now employs approximately 320 people devoted to sales and marketing of its products in the United States. Approximately 60 sales and managed care representatives cover approximately 500 hospitals, managed care organizations, and clinics in the United States, which specialize in transplantation and/or pediatric/neonatal care or transplantation for the promotion of Synagis and CytoGam, and Synagis or RespiGam, respectively. Each of these 60 sales representatives is responsible for
promoting all three of these products. Approximately 90 pediatric specialty sales specialists cover the top 10,000 pediatric practices in the United States for the promotion and detailing of Synagis and RespiGam.Synagis. Approximately 60 oncology/immunology specialists are devoted to sales and marketing of Ethyol to oncologists practicing in cancer treatment centers, large hospitals and private medical practices.
The Company has a co-promotion agreementsagreement with Abbott, through itsthe Ross Products division.division of Abbott Laboratories for the promotion of Synagis in the United States. Through its 500 sales representatives, the Ross Products division details Synagis to 27,000 office-based pediatricians and 6,000 birth hospitals. SalesIn addition, the Company has a co-promotion agreement with Wyeth to market FluMist in the U.S., if and when the product is approved by the FDA and subsequently launched. Through approximately 500 sales representatives, sales managers, and managed care specialists, the Wyeth sales team would detail FluMist to office-based pediatricians and primary care physicians, while MedImmune's representatives would detail the product to leading infectious disease/respiratory care physicians, thought leaders, pharmacies and employers.
In the U.S., the Company must also rely upon specialty distributors and wholesalers to deliver its currently marketed products to the end users, including physicians, hospitals and pharmacies. There are a relatively small number of specialty distributors and wholesalers who provide such services. There can be no assurances that these distributors and wholesalers will adequately provide their services to either the end users or to the Company, nor can there be any guarantee that these service providers remain
13
solvent. If and when approved, FluMist would be distributed directly to the end user through a channel customized for FluMist by Wyeth.
The Company's products are sold outside the United States are made through distributors. Abbott serves as the Company's exclusive distributor for Synagis outside of the United States. Scherico is the exclusive distribution partner for Ethyol in the countries comprising the European Territories. Scherico and other affiliates of Schering have various other licensing and distribution arrangements for Ethyol and NeuTrexin outside of the United States. In 2001, CytoGam, NeuTrexin and RespiGam were marketed outside of the United States under
distribution agreements with various companies.
Manufacturing and Supply
The
MedImmune operates five commercial manufacturing facilities in the U.S. and Europe. In addition, the Company has entered into manufacturing, supply and purchase agreements in orderwith other companies to provide certain portions of its production capacity for all of its marketed products and to produce clinical supplies for its development-stage products.
Synagis—The primary manufacturing facility for supply of Synagis In December 1997in the Company entered into a manufacturing and supply agreement with Boehringer Ingelheim Pharma KG ("BI") to provide
supplemental production capacity for Synagis, a humanized monoclonal antibody product. For 2001, BI was the primary manufacturer of
Synagis. BI also fills and packages Synagis produced at its facility. The BI facilityU.S. is subject to inspection and approval by the
appropriate regulatory authorities in connection with maintaining its FDA licensure as well as for obtaining and maintaining
approval from certain ex-U.S. countries. While the Company's Frederick manufacturing facility was licensed for production of Synagis
by the FDA in December 1999, the Company will continue to rely upon BI for production of additional quantities of Synagis for at
least the next few years in order to meet expected worldwide demand for the product. Should BI be unable to supply Synagis to the
Company for any reason, there can be no assurance that the Company would be able to secure an alternate manufacturer in a timely
basis or without increased cost.Manufacturing Center. The Company's manufacturing facility in Frederick, MarylandFMC is a multi-use biologics facility containing a cell culture production area for the manufacture of recombinant products, such asproducts. Filling and packaging of final Synagis and siplizumab, if and when siplizumabproduct is cleared for marketingcompleted by the FDA. The Company's amendment to its BLA for approval of the facility for production of Synagis was approved in December 1999.several vendors, including Chiron, Boehringer Ingelheim, or Gensia Sicor. In August 2001, the Company received approval from the FDA to begin selling Synagis manufactured with an improved fermentation process, called "Enhancedthe Enhanced Yield Process" (EYP)Process ("EYP"), which enables the Company to make over 300 percent more Synagis per run than in previous
seasons. There can be no assurance that the facility will receive regulatory approval for its other intended purposes. The Company
has limited experience in commercial manufacturing. Accordingly,produced previously. In 2002, the Company may encounter risks associated with commercialbegan selling product manufactured under the new EYP process, having a positive impact on the product's cost of goods.
Supplemental supply of Synagis is manufactured by BI under a manufacturing including cost overruns, product defects and environmental problems. Furthermore, there can be no assurance that the
Company will be able to manufacture products at a cost that is competitive with third party manufacturing operations or that the
production yields will be comparable or better than those achieved at third party manufacturing operations.
The Company has a pilot plant facility in Gaithersburg, Maryland that produces materials for the Company's clinical trials.
Materials currently being used in clinical trials for siplizumab, the urinary tract infection vaccine, Vitaxin and MEDI-491 have
been produced at the Company's pilot plant.
The Company executed an agreement with Chiron Corporation ("Chiron") effective in April 1998, pursuant to which Chironsupply agreement. BI also fills and packages Synagis produced at its German facility. As the Gaithersburg pilot plantsole supplier of Synagis for all territories outside the U.S., BI is responsible for obtaining and Frederickmaintaining licensure and approval for making the product at its facility from all appropriate regulatory authorities (including the FDA). To provide adequate backup for international supply of Synagis, MedImmune will seek to obtain approval from the appropriate international regulatory agencies to sell Synagis made at FMC outside the United States. The Company plans to continue to rely upon BI for production of additional quantities of Synagis to meet expected worldwide demand for the product and to diversify its reliance for supply of its largest product on any one manufacturing plant. The original termsite.
Ethyol and NeuTrexin—All bulk drug substance for Ethyol and NeuTrexin is produced by contract manufacturers. In 2002, filling and finishing of all product was completed at MedImmune Oncology's products manufacturing facility in Nijmegen, the agreement was
for three years. In 2001,Netherlands. To backup its own filling and finishing capabilities, the Company renegotiatedhas an extension of this contract for an additional three years. Should Chiron be
unableagreement with Ben Venue to fill and package Synagisfinish Ethyol for any reason, there can be no assurance that the Company would be able to secure an alternate
provider without increased costs orsale in a timely manner.
FluMist
Since 1998, supplies for all frozen FluMist clinical trials have been produced at several facilities either owned or leased by the
Company's Aviron subsidiary. The master virus seeds are prepared at the Company's Mountain View, California facility. The bulk
monovalents and diluent are produced at a facility owned and operated by Evans Vaccines Limited ("Evans") in Speke, the United Kingdom. BlendingStates.
CytoGam and filling of FluMist into its trivalent formulation takes place at Aviron's Philadelphia, Pennsylvania facility.
None of these existing manufacturing facilities have yet been licensed for the manufacture of FluMist and have not yet manufactured
FluMist at a sustained commercial scale. The Company has begun the initial stages of commercial scale manufacturing of FluMist for
sale during the 2002-2003 influenza season, pending receipt of marketing approval from the FDA. No assurance can be given that such
approval will be received in time for the 2002-2003 season or at all.
In October 2000, Aviron restructured its agreement with Evans for the bulk production of the monovalents and the diluent in the
Speke, U.K. facility, subsequent to Evans purchase of this facility from Medeva Pharma Limited in September 2000. The new agreement,
which runs through June 2006, transferred responsibility for bulk production, as well as approximately 100 Evans employees, to the
Company's wholly owned U.K. subsidiary. The Company also acquired the remaining 24 years of a 25-year lease from Celltech Group Plc
of approximately eight acres of land in Speke, U.K. The Company expects to use an existing 45,000 square foot structure on this
property to build a new FluMist manufacturing facility, if and when FluMist is approved for marketing by the FDA.
In 1998, the Company's Aviron subsidiary opened a 34,000 square foot manufacturing suite in Philadelphia, Pennsylvania, where doses
of FluMist are blended and filled. This suite is located within a facility owned by Packaging Coordinators, Inc., ("PCI"), a
division of Cardinal Health, Inc., the company with which Aviron has contracted for the labeling and packaging of FluMist for
commercial sale until October 2004. In August 2000, the Company extended the term of its original agreement with PCI until December
2004, with options to extend for up to two additional terms of three years. If regulatory approval for FluMist is received, the
Pennsylvania facility is expected to be used for blending, filling, labeling, packaging and storage of commercial lots of FluMist.
No assurance can be given that the Pennsylvania facility will be granted approval by the appropriate regulatory authorities.
The production of FluMist is subject to the availability of a large number of specific pathogen-free eggs, for which there is
currently a limited number of suppliers. In June 1999, the Company entered into a non-exclusive agreement with Specific
Pathogen-Free Avian Supply, a division of Charles River Laboratories, for the purchase of pathogen-free hens' eggs through December
2001. In accordance with the terms of this agreement, the Company renewed this agreement in 2001 for an additional three years.
In August 1998, Aviron entered into a worldwide supply agreement with Becton Dickinson and Company ("Becton") whereby Becton would
supply its AccuSpray non-invasive nasal spray delivery system to the Company for the administration of FluMist. This agreement
provided for an initial term of five years with automatic renewal until terminated by either party. The Company depends on the
existing Device Master File ("DMF") application for the AccuSpray delivery system submitted to the FDA by Becton. The Company
referenced Becton's DMF as part of its BLA submission for FluMist. AccuSpray is a trademark of Becton.
The Company's current frozen formulation of FluMist is being designed to meet an acceptable level of stability for the U.S. market.
In addition to its current frozen formulation, the Company is exploring alternative formulations and presentations for FluMist that
may enable improved distribution and longer shelf life. The Company believes that a liquid formulation of FluMist will be required
to address markets outside the United States and Canada. The Company and Wyeth are jointly producing clinical trial material for the
liquid formulation of FluMist at the Company's California and Pennsylvania facilities and in Wyeth's facilities in Pennsylvania. As
part of the Company's agreement with Wyeth, both companies have the right to manufacture the liquid formulation.
Plasma Products
RespiGam—CytoGam and RespiGam are produced from human plasma collected from donors who have been screened to have high concentrations of antibodies against CMV and RSV,cytomegalovirus or respiratory syncytial virus, respectively. HumanThe collected human plasma for CytoGam and RespiGam is converted tointo an intermediate raw material (Fraction II+III paste). The State Lab, which holds the sole product and establishment licenses for CytoGam and RespiGam, processes
theknown as Fraction II+III paste. This step was completed at MedImmune's FMC for CytoGam from December 2000 until December 2002, when the Company made the decision to outsource the activity to Precision Pharma Services, Inc. The intermediate paste is processed into bulk product. In December 2000,product by the Company received approval from the FDA for an amendment to the
establishment license heldMassachusetts State Lab and then filled and packaged by the State Lab or Aventis Pasteur. The Company is exploring opportunities to allowuse its plasma production suite formerly involved in the manufacture of CytoGam in a manner that would support the production of Fraction II + III pasteits marketed and developmental-stage recombinant products.
14
FluMist—Since 1998, supplies for CytoGamall FluMist clinical trials have been produced at several facilities either owned or leased by the Company. The master virus seeds are prepared at the FMC.Company's Mountain View, California facility. The bulk monovalents and diluent are produced at facilities leased from Evans Vaccines Limited in Speke, the United Kingdom. Blending of FluMist into its trivalent formulation and filling of the final vaccine into the AccuSpray applicators, the non-invasive nasal spray delivery system developed by Becton Dickinson and the Company, takes place at the Company's Philadelphia, Pennsylvania facility. None of these existing manufacturing facilities have yet been licensed for the manufacture of FluMist, nor have they manufactured FluMist at a sustained level for commercial supply. The Company has an agreement with Aventis Pasteur ("AP") to fill and package CytoGam and RespiGam. Ifbegun the State Lab or AP is unable to satisfyinitial stages of commercial scale manufacturing of FluMist for sale during the Company's product requirements on a timely basis or is prevented for any reason2003-2004 influenza season, pending receipt of marketing approval from manufacturing its products, the Company may be
unable to secure an alternative supplier or manufacturer without undue and materially adverse operational disruption and increased
cost.
The Company incurs significant fixed costs associated with the operation of the FMC. Further, the Company currently has unutilized
capacity in the plasma production portion of the FMC. Should the Company be unable to produce Fraction II + III paste at the FMC for
any reason there can be no assurance that an alternate manufacturer could be arranged at a comparable cost, or at all, or that the
Company would not continue to incur significant fixed costs that might not be offset by product sales.
Ethyol and NeuTrexin
The Company also operates a small volume parenteral products manufacturing facility in Nijmegen, the Netherlands. This manufacturing
facility received the approval of the Dutch regulatory authorities and is now able to manufacture Ethyol and the finished dosage
form of NeuTrexin for commercial sale in Europe. The Nijmegen manufacturing facility has also been inspected by the FDA and approved
as a manufacturing site for NeuTrexin and Ethyol for commercial sale in the United States.
The Company relies on third parties to manufacture drug substance for Ethyol and NeuTrexin, and to a decreasing but still important
extent, on third parties to manufacture these finished drug products.
FDA.
Patents, Licenses and Proprietary Rights
The following table summarizes the patents issued in the United States owned or licensed by the Company and its subsidiaries:
Patents Owned or Licensed by MedImmune, Inc.
Product/ Project US Patent No. Subject Matter* Expiration Date
E. coli 4,795,803 Adhesin antigens 1/3/2006
5,804,198 Adhesin vaccines 9/8/2015
6,291,649 Anti-adhesin antibodies 3/2/2005
Vitaxin 5,753,230 Use of antibodies anti-(alpha)v(beta)3 antibodies to inhibit 5/19/2015
angiogenesis in tumors and inflamed tissue
MEDI-507 5,730,979 Anti-CD2 antibodies and their use in treating T-cell mediated immune 3/24/2015
responses
5,951,983 Anti-CD2 antibodies and their use in treating T-cell mediated immune 9/14/2016
responses
5,817,311 Use of anti-CD2 antibodies in treating T-cell mediated immune responses 10/6/2015
HPV 6,228,368 Capsomeres containing HPV L1 protein and their use in preventing and 10/6/2017
treating HPV infection
6,066,324 HPV VLPs containing L1 protein with deletions 10/9/2015
6,261,765 Disassembly/reassembly of Papillomavirus Virus Like Particles 9/5/2017
6,165,471 HPV capsomeres with reduced assembly capacity 7/2/2018
6,153,201 Oral Immunization with Papillomavirus Virus Like Particles 3/9/2013
RSV 5,824,307 Synagis(R)& other anti-RSV antibodies and their use in treating or 10/20/2015
preventing RSV infection
5,582,827 Immunoglobulin from plasma for treatment of RSV 12/10/2013
4,800,078 Treatment of respiratory disease caused by RSV using human gamma
globulin 1/24/2006
Strep 5,928,900 Pad1 protein 7/27/2016
5,981,229 DNA encoding Exp1 and PlpA proteins 11/9/2016
5,834,278 DNA encoding pneumococcal MsrA 5/1/2016
6,245,335 Streptococcal choline binding proteins 5/1/2017
IL-9 5,157,112 Antibodies which specifically bind mammalian T cell growth factor P40 10/20/2009
6,037,149 DNA and RNA molecules that encode Met-IL-9 and their use for 8/23/2016
recombinant production
5,580,753 DNA molecules encoding IL-9 and their use for recombinant production 12/3/2013
5,734,037 Nucleic acid molecules that hybridize to DNA encoding IL-9 5/23/2009
5,414,071 Human IL-9 protein 5/9/2012
5,164,317 Method for enhancing proliferation of mast cells using IL-9 3/23/2010
5,132,109 Method for enhancing IgG production using IL-9 and IL-4 10/5/2010
5,246,701 Method to inhibit IgE production using anti-IL-9 antibodies or other 10/5/2010
IL-9 inhibitors
5,962,269 Processes and hybridomas for producing anti-IL-9 receptor antibodies 10/5/2016
6,261,559 Treating asthmatic symptoms using anti-IL-9 antibodies 8/23/2016
5,789,237 Nucleic acid molecules that hybridize to DNAs encoding human and murine 8/4/2015
IL-9 receptors
5,750,377 Methods for production of mammalian T cell growth factor P40 5/12/2015
5,116,951 IL-9 receptor protein 9/19/2010
5,587,302 Nucleic acid molecules encoding mammalian T cell growth factor P40 12/24/2013
5,208,218 Mammalian T cell growth factor P40 protein 5/4/2010
5,180,678 Methods of detecting IL-9 9/19/2010
Ethyol 5,424,471 Process for preparing crystalline forms 7/13/2012
5,591,731 Dosage forms of crystalline amifostine 7/31/2012
5,824,664 Agents and methods for inhibiting HIV viral and protein expression 10/20/2015
using compounds that belong to a family which contains amifostine
5,846,958 Methods of stimulating hematopoietic progenitor cells using a compound 12/8/2015
that belong to a family which contains amifostine
5,906,984 Methods of stimulating hematopoietic progenitor cells using specific 2/17/2015
compounds, which include amifostine
5,994,409 Methods of treating toxicities associated with chemotherapy, a method 12/9/2017
of treating a nephrodisorder, and a method of treating xerostomia, all
of which use a compound that belongs to a family which contains
amifostine
6,051,563 Subcutaneous administration, method of protecting against toxicities 2/12/2017
associated with ionizing radiation
6,127,351 Methods of treating or protecting against toxicities associated with 2/12/2017
chemotherapy using a specific dosing regime, a method of stimulating
bone marrow growth, and a method of treating myelodysplastic syndrome,
all of which use a compound that belongs to a family which contains
amifostine
6,218,377 Methods of treating or protecting against toxicities associated with 2/12/2017
specific chemotherapy agents, and a method of protecting normal tissue
in cancer patients, both of which use a compound that belongs to a
family which contains amifostine
6,239,119 Methods of treating damaged or infected mucosal tissue using a 4/26/2019
compounds that belongs to a family which contains amifostine
NeuTrexin 5,716,960 Cystalline glucuronate hydrate salt 2/10/2015
6,017,921 Crystalline glucuronate salt 1/13/2015
6,017,922 Thermally stable crystalline non-salts 5/18/2018
6,258,821 Trimetrexate ascorbate and compositions comprising trimetrexate and 4/26/2019
ascorbic acid
6,258,952 Methods of producing monohydrate 5/18/2018
PALA 5,491,135 Methods of treating a viral infections (e.g., hepatitis B and C and 2/13/2013
secondary to HIV 1)
Patents Owned or Licensed by Aviron
6,322,967 Recombinant tryptophan mutants of influenza PB2 gene 2/23/2016
6,316,243 Recombinant attenuated double strand RNA viruses 11/13/2018
6,322,967 Recombinant tryptophan mutants of influenza PB2 gene 2/23/2016
6,291,236 Human CMV sequences and attenuated viruses 3/31/2015
6,090,391 Recombinant tryptophan mutants of influenza PB2 gene 2/23/2016
6,087,170 VZV gene and mutant VZV viruses 4/28/2014
6,054,130 Non-splicing variants of EBV gp350 protein and gene 4/18/2014
6,040,170 Human CMV sequences and attenuated viruses 3/31/2015
6,022,726 Attenuated negative strand RNA viruses and methods 2/8/2017
6,001,634 Recombinant negative strand RNA viruses 8/28/2009
5,925,751 Human CMV sequences and attenuated viruses 3/31/2015
5,922,328 Gamma 34.5 mutants of herpes simplex viruses 9/11/2016
5,840,520 Recombinant RSV viruses 11/24/2015
5,824,508 Non-splicing variants of EBV gp350 protein and gene 4/18/2014
5,721,354 Human CMV sequences and attenuated viruses 3/31/2015
5,690,937 Temperature sensitive mutants of influenza 6/5/2015
5,578,473 Recombinant negative strand RNA viruses 11/24/2009
5,820,871 Recombinant negative strand RNA viruses - bicistronic 10/13/2015
5,854,037 Recombinant negative strand RNA viruses 12/29/2015
5,786,199 Recombinant negative strand RNA viruses and vaccines 7/28/2015
5,166,057 Recombinant negative strand RNA viruses 11/24/2009
6,120,773 Gamma 34.5 gene modification of herpes simplex viruses 9/19/2017
6,172,047 Herpes viruses modified for use as cancer treatment 1/9/2018
6,071,692 Herpes simplex as a gene expression vector and vaccine 6/4/2004
5,714,153 Recombinant herpes simplex vaccines and vectors 12/23/2012
5,846,707 Herpes simplex as a vector 6/4/2004
5,641,651 Synthetic HSV promoters and uses 6/24/2014
5,599,691 Herpes simplex as a vector 2/4/2014
5,328,688 Recombinant herpes simplex with 34.5 gene knockout 6/12/2011
5,288,641 Herpes simplex as a vector 2/22/2011
4,859,587 Recombinant herpes simplex vectors and vaccines 8/22/2006
4,769,331 Recombinant herpes simplex cloning methods and materials 9/6/2005
4,707,358 Epstein-Barr virus gp350 subunit protein vaccine 11/17/2004
4,554,159 Vaccine against HSV-1 and HSV-2 11/19/2002
*The Company encourages any interested investor to obtain an independent legal analysis of the precise scope of the claims of the
patents listed above.
In addition, the Company owns or licenses approximately 100 patent applications currently pending in the United States.
Products currently being developed or considered for development by the Company are in the area of biotechnology, an area in which there are extensive patent filings. The Company relies on patent protection against use of proprietary products and technologies by competitors. The patent position of biotechnology firms generally is highly uncertain and involves complex legal and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that patent applications owned or licensed by the Company will result in patents being issued or that, if issued, such patents will afford protection against competitors with similar technology. The Company currently owns or licenses over 100 patents related to its products on the market or in development. The Company also owns or licenses at least 100 additional applications for patents currently pending in the United States. A list of the U.S. patents the Company owns or has licenses to is filed as an exhibit hereto and is incorporated into this document as Exhibit 99.3.
The Company believes that there are other patents issued to third parties and/or patent applications filed by third parties whichthat could have applicability to each of the Company's products and product candidates and could adversely affect the Company's freedom to make, have made, use, have used, sell, or have sold such products or use certain processes for their manufacture. Some of these third parties have contacted the Company claiming patent infringement by the Company. The Company is unable to predict whether it will ultimately be necessary to seek licenses from such third parties or, if such licenses were necessary, whether such licenses would be available on terms acceptable to the Company. The necessity for such licenses could have a material adverse effect on the Company's business.
There has been substantial litigation regarding patent and other intellectual property rights in the biotechnology industry. Litigation may be necessary to enforce certain intellectual property rights of the Company, or to defend against unassertedasserted intellectual property rights of third parties. Any such litigation could result in substantial cost to and diversion of effort by the Company.
Government Regulation
The production and marketing of the Company's products and research and development activities are subject to regulation for safety and efficacy by numerous governmental authorities in the United States and other countries. In the United States, vaccines, biologics, drugs and certain diagnostic products are subject to FDA review and licensure. The federal Food, Drug and Cosmetics Act, the Public Health Service Act and other federal statutes and regulations govern or influence the testing, manufacture, safety, labeling, storage, record keeping, licensure, advertising and promotion of such products. No assurances can be given that any products under development will be licensed for marketing by the FDA or, if approved, that the product would be successfully commercialized or maintained in the marketplace. Noncompliance with applicable requirements could result in fines, recall
15
or seizure of products, total or partial suspension of production, refusal of the government to approve product license applications, restrictions on the Company's ability to enter into supply contracts and criminal prosecution. The FDA also has the authority to revoke product licenses and establishment licenses previously granted.
The Orphan Drug Act was established to encourage development of drugs for rare diseases and conditions affecting a small patient population (generally fewer than 200,000 people). Orphan Drug designation of a product can potentially provide a company with seven years of market exclusivity if the company is the first to receive FDA product marketing approval for the orphan drug in the designated indication. Additionally, this designation provides a company with tax credits of 50 percent for qualified clinical research expenses and the opportunity for clinical research grants. CytoGam RespiGam,and Ethyol and MEDI-507 have been designated as orphan
drugsare currently protected from potential market competition under the Orphan Drug Act for certain indications by the FDA. Accordingly,following indications: (1) CytoGam has market exclusivity for use in lung, liver, pancreas and heart transplants until December 2005; (2) RespiGam has market exclusivity for its currently licensed indication through January 17,
2003; and (3)(2) Ethyol has market exclusivity for its currently licensed chemoprotective indication for patients with ovarian cancer
through December 2002, and for its radioprotective indication through June 2006. NeuTrexin's market exclusivity under the Orphan
Drug Act for its currently licensed PCP indication expired at the end of December 2000. Ethyol, has alsoNeuTrexin and siplizumab have all been designated as an orphan drugdrugs for use in indications that have not yet been approved by the FDA: (1) Ethyol—as a chemoprotective agent for use with cyclophosphamide in the treatment of advanced ovarian carcinoma, as a chemoprotective agent for use with cisplatin in the treatment of metastatic melanoma, for the treatment of myelodysplastic syndromes, and for the reduction of the incidence and severity of cisplatin-induced toxicities. NeuTrexin has also been designated
as an orphan drug toxicities; (2) NeuTrexin—for the treatment of metastatic colorectal adenocarcinoma, metastatic carcinoma of the head and neck, pharynx and larynx, pancreatic adenocarcinoma and advanced non-small cell carcinoma of the lung and osteogenic sarcoma. MEDI-507 has been
designated as an orphan drug sarcoma; and (3) siplizumab—for the treatment of graft versus host disease. Accordingly,If approved for any of the designated orphan indications, each of these products would have market exclusivity for seven years from the date of FDA approval if it is the first product approved by the FDA for treatment of the designated orphan indication. The orphanOrphan drug designationdesignations for CytoGam forthe use of Ethyol to prevent side effects of cisplatin in kidney transplants expiredovarian cancer patients, and the use of RespiGam to prevent RSV disease in 1997.high-risk infants recently expired.
The Company is also subject to regulation by the Occupational Safety and Health Administration ("OSHA") and the Environmental Protection Agency ("EPA") and to regulation under the Toxic Substances Control Act, the Resources Conservation and Recovery Act and other regulatory statutes, and may in the future be subject to other federal, state or local regulations. OSHA and/or the EPA may promulgate regulations concerning biotechnology that may affect the Company's research and development programs. The Company is unable to predict whether any agency will adopt any regulation whichthat would have a material adverse effect on the Company's operations. The Company voluntarily attempts to comply with guidelines of the National Institutes of Health regarding research involving recombinant DNA molecules. Such guidelines, among other things, restrict or prohibit certain recombinant DNA experiments and establish levels of biological and physical containment that must be met for various types of research.
Sales of pharmaceutical and biopharmaceutical products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not FDA licensure has been obtained, licensure of a product by comparable regulatory authorities of foreign countries must be obtained prior to the commencement of marketing the product in those countries. The time required to obtain such licensure may be longer or shorter than that required for FDA approval, and no assurance can be given that such approval will be obtained.
Competition
The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and intense competition. The Company's competitors include pharmaceutical, chemical and biotechnology companies, many of which have financial, technical and marketing resources significantly greater than those of the Company. In addition, many specialized biotechnology companies have
16
formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with those of the Company. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures.
The Company is aware of certain potentially competitive products targeting areas of medical interest to the Company, including influenza, respiratory syncytial virus ("RSV"), psoriasis, human papillomavirus ("HPV") infections, influenza infections, and organ graft rejection. In the prevention of CMV disease, the Company's CytoGam competes with several products including other antiviral drugs, such as intravenous and oral ganciclovir, marketed by Hoffmann-La Roche Inc., and standard immune globulin preparations. The Company is aware that a number of physicians have prescribed CytoGam in combination with ganciclovir for the prevention of CMV disease in certain patients.
The Company believes that for the prevention of RSV disease, Synagis and RespiGam are the only products currently available. However, the Company is aware of one product in the United States, ribavirin, which is indicated for the treatment of RSV disease. The existence of this product, or other products or treatments of which the Company is not aware, or products or treatments that may be developed in the future, may adversely affect the marketability of products developed by the Company.
In relation to flu vaccines, in the past, the Company ishas been aware of three main distributors of inactivated, injectibleinjectable vaccines (Aventis-Pasteur, Medeva/Evans and Wyeth). ApproximatelyFrom these three distributors, approximately 80 million doses of these inactivated vaccines arehave traditionally been sold annually in the United States. The
Company is also awareIn 2002, Wyeth announced its intent to no longer produce the inactivated, injectable vaccine after the completion of one inactivated, nasally administered flu vaccine by Berna, which was previously available in Switzerland
until its removal from the market in 2001.2002-2003 influenza season. The Company is also aware that Merck recentlyhas licensed a Russian live virus intranasal vaccine, currently available in Russia.Russia, and that ID Biomedical Corporation is developing an intranasal, inactivated flu vaccine that is in the early stages of clinical testing. Any of the products listed here, as well as other products of which the Company is not aware, may adversely affect the marketability of FluMist.
Many companies, including well-known pharmaceutical companies, are marketing anticancer drugs and drugs to ameliorate or treat the side effects of cancer therapies, and are seeking to develop new products and technologies for these applications. Many of these drugs, products and technologies are, or in the future may be, competitive with the Company's oncology products. In the United States, the Company believes that Bristol-Myers Squibb Company holds the largest share of the chemotherapy market both in terms of approved products and annual sales, and therefore dominates the marketplace. Other companies maintaining an active oncology marketing and sales presence include Schering-Plough Corporation, Pharmacia & Upjohn, AstraZeneca, Hoffmann-La Roche, Inc., Johnson & Johnson, Immunex Inc. (a subsidiary of American Home Products), Amgen, Inc., Chiron Corporation, Aventis SA, Eli Lilly and Company, Genentech and GlaxoSmithKline p.l.c. Many of these companies have substantially greater financial, technical, manufacturing, marketing and other resources than the Company and may be better equipped than the Company to develop, market and manufacture these therapies. No assurance can be given that the oncology drugs developed by the Company will be able to compete successfully against therapies already established in the marketplace or against new therapies that may result from advances in biotechnology or other fields which may render the Company's oncology drugs less competitive or obsolete. In addition, the Company's oncology drugs may become subject to generic competition in the future.
17
The Company expects its products to compete primarily on the basis of product efficacy, safety, patient convenience, reliability, price and patent position. In addition, the first product to reach the market in a therapeutic or preventive area is often at a significant competitive advantage relative to later entrants to the market. The Company's competitive position will also depend on its ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement product and marketing plans, obtain patent protection and secure adequate capital resources.
EXECUTIVE OFFICERS OF THE COMPANY
Officer
Name Age Position Since
- ------------------------------------------ --- --------- -----
Officers of the Company
| Name | Age | Position | Officer Since | |||
|---|---|---|---|---|---|---|
| Wayne T. Hockmeyer | 58 | Chairman | 1988 | |||
David M. Mott | 37 | Chief Executive Officer and Vice Chairman | 1992 | |||
Melvin D. Booth | 57 | President and Chief Operating Officer | 1998 | |||
James F. Young, Ph.D. | 50 | President, Research and Development | 1989 | |||
Franklin H. Top, Jr., M.D. | 67 | Medical Director | 1988 | |||
Armando Anido | 45 | Senior Vice President, Sales and Marketing | 1999 | |||
Edward J. Arcuri, Ph.D. | 52 | Senior Vice President, Manufacturing | 2002 | |||
Edward M. Connor, M.D. | 50 | Senior Vice President, Clinical Development | 1999 | |||
Gregory S. Patrick | 51 | Senior Vice President and Chief Financial Officer | 2001 | |||
Gail Folena-Wasserman | 48 | Senior Vice President, Development | 2002 |
Wayne T. Hockmeyer, Ph.D. 57 Chairman 1988
David M. Mott 36 Chief Executive Officer and Vice Chairman 1992
Melvin D. Booth 56 President and Chief Operating Officer 1998
James F. Young, Ph.D. 49 President, Research and Development 1989
Franklin H. Top, Jr., M.D. 66 Executive Vice President and Medical Director 1988
Armando Anido 44 Senior Vice President, Sales and Marketing 1999
Edward J. Arcuri, Ph.D. 51 Senior Vice President, Manufacturing 2002
Edward M. Connor, M.D. 49 Senior Vice President, Clinical Development 1999
Harry B. Greenberg, M.D. 57 Senior Vice President, Research 2002
Gregory S. Patrick 50 Senior Vice President and Chief Financial
Officer 2001
Gail Folena-Wasserman 47 Senior Vice President, Development 2002
Dr. Wayne T. Hockmeyer relinquished his position as Chief Executive Officer in October 2000 and now serves as the Chairman of the
Board of Directors. —Dr. Hockmeyer founded MedImmune, Inc. in April 1988 as President and Chief Executive Officer and was elected to serve on the Board of Directors in May 1988. He became Chairman of the Board of Directors in May 1993. He relinquished his position as Chief Executive Officer in October 2000 and now serves as the Chairman of the Board of Directors and President of MedImmune Ventures, Inc. Dr. Hockmeyer earned his bachelor's degree from Purdue University and earned his Ph.D. from the University of Florida in 1972. PriorIn 2002 Dr. Hockmeyer was awarded a Doctor of Sciencehonoris causa from Purdue University. From 1966 to founding MedImmune,1986 he served as a commissioned officer in the United States Army from 1966 to 1986.Army. From 1980 to 1986 he was Chairman of the Department of Immunology at the Walter Reed Army Institute of Research. In 1986, Dr. Hockmeyer joined Praxis Biologics as Vice President of Research and Development and was there until founding MedImmune, Inc. in 1988. Active in other leadership roles, Dr. Hockmeyer was
appointed by Governor Parris Glendening tois a member of the Maryland Economic Development Commission and the Maryland Technology Development Corporation. He is a member of the Board of Directors of DigeneAdvancis Pharmaceutical Corp., Diversa Corporation, IntermuneGenVec, Inc., InterMune Pharmaceuticals, Inc., GenVec,Idenix Pharmaceuticals, Inc., and TolerRx Diversa and Advancis Pharmaceutical Corp.Inc. Dr. Hockmeyer is also a member of the Board of Directors of the Biotechnology Industry Organization, the Technology Council of Maryland, a member of the Board of Visitors of the University of Maryland Biotechnology
Institute, and the University of Maryland Baltimore County.
Organization.
David M. Mott—Mr. Mott was appointed Chief Executive Officer and Vice Chairman in October 2000. He joined the Company in April 1992 as Vice President with responsibility for business development, strategic planning and investor relations. In 1994, Mr. Mott assumed additional responsibility for the medical and regulatory groups, and in March 1995 was appointed Executive Vice President and Chief Financial Officer. In November 1995, Mr. Mott was appointed to the position of President and Chief Operating Officer and was elected to the Board of Directors. In October 1998, Mr. Mott was appointed Vice Chairman. Prior to joining the Company, he was a Vice President in the Health Care Investment Banking Group at Smith Barney, Harris Upham & Co., Inc. Mr. Mott is
18
Chairman of the Board of Directors of Conceptis Technologies and also serves on the Board of Trustees of St. James School and on the Board of Governors of Beauvoir, the National Cathedral Elementary School. He holds a bachelor of arts degree from Dartmouth College.
Melvin D. Booth—Mr. Booth joined the Company in October 1998 as President and Chief Operating Officer and was elected to serve on the Board of Directors in November 1998. Prior to joining the Company, Mr. Booth was President, Chief Operating Officer and a member of the Board of Directors of Human Genome Sciences, Inc. from July 1995 until October 1998. Prior to thisthat time, Mr. Booth was employed at Syntex Corporation from 1975 to 1995, where he held a variety of positions, including President of Syntex Laboratories, Inc. from 1993 to 1995 and Vice President of Syntex Corporation from 1992 to 1995. From 1992 to 1993, he served as the President of Syntex Pharmaceuticals Pacific. From 1991 to 1992, he served as an area Vice President of Syntex, Inc. From 1986 to 1991, he served as the President of Syntex, Inc., Canada. Mr. Booth is a past Chairman of the Pharmaceutical Manufacturers Association of Canada, and is currently a board member of NovaScreen Biosciences Corporation, Focus Technologies, Inc., and Spacehab, Inc. Mr. Booth graduated from Northwest Missouri State University and holds a Certified Public Accountant Certificate.
James F. Young, Ph.D.—Dr. Young was promoted to the position of President, Research and Development, in December 2000. He joined MedImmune in 1989 as Vice President, Research and Development. In 1995, he was promoted to Senior Vice President and in 1999 he was promoted to Executive Vice President, Research and Development. Dr. Young received his doctorate in microbiology and immunology from Baylor College of Medicine in Houston, Texas, and bachelor of science degrees in biology and general science from Villanova University. Dr. Young is a member of the Board of Directors of Iomai Corporation.
Franklin H. Top, Jr., M.D.—Dr. Top became the Company's Medical Director in 1990. Dr. Top joined the Company in June 1988 as Executive Vice President and was elected to the Board of Directors in July 1988. Prior to joining the Company, Dr. Top served as Senior Vice President for Clinical and Regulatory Affairs at Praxis Biologics from 1987 to 1988. Prior to 1987, Dr. Top served for 22 years in the U.S. Army Medical Research and Development Command, where he was appointed Director, Walter Reed Army Institute of Research in 1983. Dr. Top holds a doctorate of medicine cum laude and a bachelor of science degree in biochemistry from Yale University.
Armando Anido—Mr. Anido joined the Company in 1999 as Senior Vice President, Sales and Marketing. Prior to joining the Company, Mr. Anido was Vice President of CNS Marketing at Glaxo Wellcome, Inc. from 1996 to 1999. Prior to this time, Mr. Anido served in various positions at Lederle Laboratories from 1989 to 1995, culminating in his service as the Vice President of Anti-Infectives Marketing. Mr. Anido is a registered pharmacist, and holds a Bachelor of Science in pharmacy and a Master of Business Administration degree from West Virginia University.
Edward J. Arcuri, Ph.D.—Dr. Arcuri was appointed Senior Vice President, Manufacturing, in February 2002 following the Company's acquisition of Aviron. Dr. Arcuri was Senior Vice President, Operations, of Aviron since May 2000. He joined Aviron as Vice President, Manufacturing, in July 1999. Prior to joining Aviron, Dr. Arcuri served as Vice President, Manufacturing Operations and Process Development for North American Vaccine, Inc., or NAVA, from January 1995 to July 1999. Prior to joining NAVA, Dr. Arcuri served as Senior Director, Biological Manufacturing, at Merck & Co., Inc. from 1991 to 1994. Dr. Arcuri holds a B.S. degree in Biology from the State University of New York at Albany and a mastersmaster's degree and Ph.D. in Biology from Rensselaer Polytechnic Institute.
Edward M. Connor, M.D.—Dr. Connor was promoted to Senior Vice President, Clinical Development, in 1999. He joined the Company in 1994 as the Director of Clinical Studies and was promoted in 1995 to Vice President of Clinical Development. Dr. Connor holds a bachelor's degree in biology from Villanova University and a medical degree from University of Pennsylvania School of Medicine. He is board certified in pediatrics and is a consultant in pediatric infectious diseases.
Dr. Greenberg was appointed Senior Vice President, Research in February 2002 following the Company's acquisition of Aviron. Dr.
Greenberg joined Aviron as Senior Vice President, Research and Development and Chief Scientific Officer in November 2000. Prior to
joining Aviron, Dr. Greenberg spent 17 years as a faculty member at the Stanford University School of Medicine. At Stanford, he was
most recently the Senior Associate Dean for Research and the Joseph D. Grant Endowed Professor of Medicine, and at the same time he
served as Associate Chief of Staff for Research at the Veterans Administration Palo Alto Health Care System. Dr. Greenberg served as
chair of the Vaccines Related Biological Products Advisory Committee of the U.S. Food and Drug Administration from February 1999
until beginning his position with Aviron. Dr. Greenberg holds a B.A. in History with honors from Dartmouth College and M.D. from
Columbia College of Physicians and Surgeons.
19
Gregory S. Patrick—Mr. Patrick joined the Company in February 2001 as Senior Vice President and Chief Financial Officer. Prior to joining the Company, he was Chief Financial Officer for Ventiv Health, Inc., a spin-off of global marketer Snyder Communications, from 1999 through 2000.2001. Prior to this time, Mr. Patrick was employed by Merck & Company, Inc. from 1985 to 1999. During this period, Mr. Patrick held a series of positions, including Vice President and Group Controller in 1999, and Vice President and Controller of the manufacturing division from 1991 to 1999. Mr. Patrick received a master of business administration degree in finance from New York University, and a master of engineering degree and a bachelor of science degree in environmental engineering with a minor in chemical engineering from Rensselaer Polytechnic Institute.
Ms.
Gail Folena-Wasserman, Ph.D.—Dr. Folena-Wasserman was promoted to Senior Vice President, Development in February 2002. Ms. Folena-WassermanShe joined the Company in 1991 as Director, Development and was promoted to Vice President, Development in October 1995. Prior to joining the Company, she spent nine years in natural products isolation and biopharmaceutical process development at SmithKline Beecham Pharmaceuticals. Her responsibilities currently include oversight of all cell culture and purification process development, clinical manufacturing, analytical methods development, and quality control for investigational products. Ms.Dr. Folena-Wasserman holds a bachelor's degree in biology and chemistry from Montclair State College in New Jersey, and has a master's degree in biochemistry and a doctorate in chemistry from Pennsylvania State University.
EMPLOYEES
As of December 31, 2001, we had 877 full time employees. We consider
Employees
The Company considers relations with ourits employees to be good. As a result of the
acquisition of Aviron in January 2002, our workforce will increase significantly. Aviron employed 585 full-time employees as of December 31, 2001.
RISK FACTORS2002, the Company had 1,505 full-time permanent employees and approximately 100 temporary employees.
Approximately 100 of the Company's employees in England are members of a labor union, with which the Company renegotiates annually. There can be no guarantee that the annual negotiations will lead to an outcome that is favorable to the Company. If negotiations would break down between the Company and the union, there can be no guarantee that the Company would be able to manufacture adequate supply of FluMist.
Risk Factors
In addition to the other information included in this report, you should consider the following risk factors. This report contains forward-looking statements covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve risks and uncertainties that may affect our business and prospects. OurMedImmune's results may differ significantly from the results discussed in the forward-looking statements as a result of certain factors whichthat are listed below or discussed elsewhere in this report and our other filings with the Securities and Exchange Commission.
The seasonal nature of ourthe Company's business can exaggerate the consequences of any factor that adversely affects ourits sales and may cause significant fluctuations in our quarterly operating results.
Our principal product,
Synagis accounted for approximately 89%85% of ourthe Company's total product sales for the year 2001.in 2002. Synagis is used to protect high-risk infants from serious lower respiratory tract disease caused by RSV. Because RSV occurs primarily during the winter months, the major portion of Synagis sales occuroccurs during the first and fourth quarters of the calendar year. This high concentration of product sales in a portion of the year exaggerates the adverse consequences on ourthe Company's profits of any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfy product demand, or of any unsuccessful sales or marketing strategies during the RSV season and may cause our quarter-to-quarter operating results to vary widely. Furthermore, ourthe Company's current product base would limit ourits ability to offset in the second and third quarters any lower-than-expected Synagis sales during the RSV season, which could cause our annual financial results to be below expectations. In addition, this seasonality
20
will be relevant to FluMist, which, if approved by the FDA, is expected to be sold primarily in the third and fourth quarters of the year, which is the most common time for yearly influenza vaccines.
If we arethe Company is unable to successfully commercialize FluMist, the anticipated benefits of ourits acquisition of AvironMedImmune Vaccines will not be realized.
We
In January 2002, the Company acquired Aviron in January 2002MedImmune Vaccines for approximately $1.6 billion of MedImmune common stock.billion. The principal asset of Aviron isMedImmune Vaccines was its lead product candidate, FluMist, which is a vaccine delivered as a nasal mist for the prevention of influenza. FluMist is not currently approved for marketing, but its Biologic License Application ("BLA") is pending beforeunder review at the U.S. Food and Drug Administration
("FDA").FDA. There can be no assurance that the FDA will approve FluMist for marketing. Even if it were approved for marketing, there can be no assurance that FluMist would achieve commercial success. WeIndeed, there are a number of issues which could impact the Company's ability to commercialize FluMist, including: inability to perform the complex annual update of the FluMist formulation for new influenza strains (because the FDA may delay selection of strains, or because difficulties or delays may be experienced in the technically demanding process followed each year to update the formulation of FluMist); if there are difficulties with the manufacturing process or a sudden loss of inventory, it could cause significant loss in sales due to the seasonal nature, and there may not be sufficient quantities of vaccine; if the market demand for FluMist exceeds manufacturing capacity, revenues may be limited; and FluMist acceptance may be limited by a number of factors, including perceived effectiveness of competing influenza vaccines (including the inactivated influenza vaccine), unfavorable publicity concerning other vaccines, pricing of FluMist, broad accessibility to FluMist, reimbursement policies of government and third-party payors, the frozen storage requirements for those distributing and shipping the product and the requirement of frozen storage capacity by those administering the vaccine. The Company will not realize the anticipated benefits of the AvironMedImmune Vaccines acquisition unless FluMist achieves commercial success. In addition, if manufacturing problems are encountered, or the Company is unable to fully utilize its capacity, it may not recover its investment in manufacturing facilities for FluMist in Pennsylvania and England.
If we failthe Company fails to manage ourits growth properly, ourthe business will suffer.
As a result of ourthe MedImmune Vaccines acquisition of Aviron in January 2002 and the recent expansion of our marketing efforts for Synagis and Ethyol, ourthe Company's workforce has expanded from 842877 full-time permanent employees at JanuaryDecember 31, 2001 to 1,5191,505 full-time permanent employees at JanuaryDecember 31, 2002. To accommodate ourits rapid growth and compete effectively, weMedImmune will need to continue to improve ourits management, operational and financial information systems and controls, generate more revenue to cover a higher level of operating expenses, integrate Aviron's business and employees into
our operations, continue to attract and retain new employees, accurately anticipate demand for the products we manufacturemanufactured and maintain adequate manufacturing capacity. This rapid growth and increased scope of operations present risks we have not previously encountered and could result in substantial unanticipated costs and time delays in product manufacture and development, which could materially and adversely affect ourthe business.
We have invested heavily
There are certain inherent risks in ourthe manufacture of biotechnology and pharmaceutical products.
MedImmune's manufacturing operations and may not recover that investment.
Through December 31, 2001, we have invested over $80.9 million of capital expenditures in our manufacturing facilities. As a result
of our acquisition of Aviron in January 2002, which leases manufacturing facilities in Pennsylvania and the United Kingdom, we have
increased our investment in manufacturing facilities by $36.1 million. The Aviron facilities are not yet licensed by the FDA and we
currently have excess capacity in the plasma production portion of our facility in Frederick, Maryland. If we suffer manufacturing
problems, or are unable to fully utilize our capacity, we may not recover our investment in these facilities.
We have only recently begun significant manufacturing operations. Our lack of experience creates additional risk of manufacturing
difficulties.
Our manufacturing operations, which we have only recently begun on a commercial scale, expose usit to a variety of significant risks, including: o product defects;
o contamination of product or product loss;
o environmental problems resulting from our production process; sudden loss of inventory and othe inability to manufacture products at a cost that is competitive with third party manufacturing operations. Furthermore, we have neverMedImmune has not produced FluMist onfor a sustained period for commercial scale. Our lackuse. In addition, some of significant experiencethe Company's facilities are unionized and may be subject to manufacturing interruptions due to labor action.
As is common in commercial manufacturingthe industry, the Company relies upon license agreements and supply contracts with third parties, who, in turn may makerely upon others for the fulfillment of their contractual obligations
21
to the Company. There can be no guarantee that the companies from which MedImmune has licensed technology or from which it more time consumingsecures supplies will be able to comply with their contractual obligations, or expensive for usthat the Company will be able to address these problems and could adversely affect our operations.
We areprotect its license or sublicense rights.
The Company is dependent on third party manufacturers and suppliers whichthat may not perform as we expect.
We are currently, and forexpected.
For the foreseeable future, expectMedImmune expects to be dependent on a limited number of contract manufacturers for some or all of the manufacture of ourits current and future products (if any).products. These suppliers also rely upon other suppliers in the supply chain, and in some instances those suppliers may provide heavily concentrated services or goods, and there may be no back up supplier. In addition, in many instances the Company does not have redundant operational or manufacturing capacities, such that it often has only a single source provider for the supply of certain material or the manufacturing process at issue, which may create significant business interruption risk. Although we arenow able to produce the majority of the worldwide supply of Synagis, the Company is unable to produce all of the required supply. Accordingly, it depends on Boehringer Ingelheim to produce a portion of the Synagis we
sell, we are unable currently to produce all that we require. Accordingly, we depend on Boehringer Ingleheim Pharma KG ("BI") to
produce a portion of our Synagis requirements.Synagis. BI's facility is subject to inspection and approval by both United States and foreign regulatory authorities in order to maintain its license to manufacture our products.Synagis. Should BI be unable to supply Synagis to us for any reason, there can be no assurance that we would be able to secure an alternate manufacturer could be secured on a timely basis without increased cost or at all. In addition, since we dothe Company does not have the capability to fill and package any ofSynagis produced at the Synagis we produce at our Frederick Manufacturing Center, we dependthe Company depends on Chiron Corporation ("Chiron") for that portion of the manufacturing process. Chiron's facility is similarly subject to inspection and approval by United States regulatory authorities in order to maintain its license to fill and package our products. Should Chiron be unable to fill and package our Synagis for any reason, there can be no assurance that we
would be able to secure an alternate source could be secured to fill and package Synagis on a timely basis without increased cost or at all.
We depend on the University of Massachusetts, Massachusetts Biologics Laboratories (the "State Lab") for a portion of the production
of our plasma derived products.
The State Lab holds the sole product and establishment licenses from the FDA for the manufacture of
CytoGam and RespiGam. Although we perform a portion of the CytoGam production process at our Frederick facility, we rely on the
State Lab to manufacture all of the bulk product for CytoGam that we sell and to produce all of the RespiGam that we sell. We also
rely on Aventis Pasteur to package and fill all of our plasma derived products. Our manufacturing arrangements with the State Lab
are renegotiated annually. We cannot guarantee that any new arrangements will be made on terms favorable to us. In addition, we relyCompany relies on a limited number of suppliers to obtain substantially all of the plasma used as raw material for the production of CytoGam and RespiGam. WeThe Company relies upon the State Lab of Massachusetts to manufacture all of the bulk product for CytoGam and to produce all of RespiGam. The Company also dependrelies on Precision Pharma, Inc. to make the intermediate product component for CytoGam and relies upon Aventis Pasteur to package and fill its plasma-derived products. The manufacturing arrangements with the State Lab are renegotiated annually. The Company cannot guarantee that any new arrangements will have terms favorable to it. The Company also cannot guarantee that the contractors upon which it relies to produce its plasma-derived products will be able to meet their obligations.
The Company depends on third parties to manufacture the drug substance for Ethyol. There can be no assurance that third party manufacturers will give ourthe Company's orders highest priority, or that we wouldsubstitute manufacturers could be able to readily find substitute manufacturersfound without significant delays or increased costs.
Our research
The Company depends on Specific Pathogen-Free Avian Supply, a division of Charles River Laboratories, for the supply of pathogen-free hens' eggs for bulk manufacture of FluMist. Should Specific Pathogen-Free Avian Supply be unable to supply the eggs for any reason, there can be no assurance that an alternate egg source could be secured on a timely basis, without increased cost or at all. The Company also relies upon Becton Dickinson as the sole source for the custom-made AccuSprayers used to deliver FluMist intranasally. If for any reason, Becton Dickinson would be unable to supply the sprayers in a timely manner, there can be no assurance that a substitute manufacturer could be found without significant delays or increased costs, or that the Company would be able to meet product demand for the following influenza season.
Because the Company's various manufacturing processes and those of its contractors are highly complex and are subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties or delays in the Company's and the
22
Company's contractors' manufacturing of existing or new products could increase our costs, cause us to lose revenue or market share and damage our reputation.
The Company relies upon a limited number of pharmaceutical wholesalers and distributors that could impact the ability to sell the Company's products.
In the U.S., the Company relies upon specialty distributors and wholesalers to deliver its currently marketed products to the end users, including physicians, hospitals, and pharmacies. There are a relatively small number of specialty distributors and wholesalers who provide such services. There can be no assurances that these distributors and wholesalers will adequately provide their services to either the end users or to the Company, nor can there be any guarantee that these service providers will remain solvent. Given the high concentration of sales to certain pharmaceutical distributors and wholesalers, the Company could experience a significant loss if one of the top four or five customers declared bankruptcy or was otherwise unable to pay its obligations to MedImmune.
The Company's products are sold outside the United States through distributors. Abbott International serves as the Company's exclusive distributor for Synagis outside of the United States. Scherico is the exclusive distribution partner for Ethyol in the countries comprising the European Territories. Scherico and other affiliates of Schering-Plough have various other licensing and distribution arrangements for Ethyol and NeuTrexin outside of the United States. There can be no guarantee that these distributors will adequately provide services to the Company.
Research and development activities are costly and may not be successful.
A considerable portion of ourthe Company's annual operating budget is spent on research, development and clinical activities. In 2001, we2002, approximately $144.2 million was spent
approximately $83.0 million on research and development projects, including costs of clinical trials. WeCurrently, numerous products are currently developing
numerous productsbeing developed that may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. There is also no guarantee that the Company will be able to generate additional product candidates for its pipeline, either through internal research and development, or through the successful in licensing of products or technology.
Further, we relythe Company relies on numerous third parties to assist in various states of the development process. Third-party contract costs are typically substantial. In addition, the third party contractors we useused may be unable to complete their work in a timely fashion or in a manner that is satisfactory to us.satisfactory. Should they be unable to meet ourthe Company's needs, weit may have to incur substantial additional costs, which could have a material adverse effect on our business.
We are
The Company is dependent on third party marketing partners whichthat may not perform as we expect.
We dependexpected.
The Company depends on strategic alliances with our marketing partners to accomplish many of ourits sales goals. For example, we have agreementsgoals such as its agreement with Abbott Laboratories under which itsAbbott's Ross Products Division co-promotes Synagis with usthe Company in the United States. If ourLikewise, MedImmune has an agreement with Wyeth relative to the commercialization of FluMist. The Company also relies on various strategic alliances with marketing partners for international sales of its products, such as Abbott International for Synagis, and various affiliates of Schering-Plough for Ethyol. At this point, the Company has no infrastructure or ability to commercialize a product internationally without the assistance of these international distributors. If the Company's marketing partners, either in the U.S. or international, fail to devote sufficient effort and attention to achieving those goals, ourits product sales would be adversely affected.
23
The Company is dependent upon developing non-traditional marketing channels to market its products.
Certain of the Company's products, including FluMist, are dependent upon the creation of non-traditional marketing channels to realize full commercial potential. This includes selling through chain pharmacies and employer health plans, as a complement to traditional detailing to physicians. We cannot assure you that we will successfully develop these marketing channels.
Patent protection for ourthe Company's products may be inadequate or costly to enforce.
We
The Company may not be able to obtain effective patent protection for products we develop. We are currently developing, or considering
developing,its products in thedevelopment. The biotechnology industry an industryis one in which there are extensive patent filings. The patent position of biotechnology firms generally is highly uncertain and involves complex legal and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that ourthe Company's patent applications will result in patents being issued or that, if issued, such patents will afford protection against competitors with similar technology. Litigation could be necessary from time to time in order to enforce ourMedImmune's intellectual property rights. There has been substantial litigation regarding patent and other intellectual property rights in the biotechnology industry. We areThe Company is not aware at this time of any infringement of ourits patents. If we were required to litigate, there could be substantial cost involved and significant diversion of ourthe Company's business efforts. In addition, the FluMist donor strain is not protected by patents, and is instead, protected by trade secrets associated with the technology of creating cold-adapted, temperature sensitive live influenza vaccines. There can be no assurances that a competitor will not create a competing influenza vaccine based upon similar technologies.
If we failthe Company fails to obtain any required patent licenses from third parties, ourits product development efforts could be limited.
We believe
The Company believes that there are patents issued to third parties and/or patent applications filed by third parties whichthat could apply to each of ourits products and product candidates. These patents and/or applications could limit ourthe Company's ability to manufacture, use or sell ourits products. In such a case, wethe Company may be required to obtain a patent license in order to avoid infringing a third party's intellectual property rights. Such licenses could impose significant royalty burdens on us.the Company. If such a license were necessary, there can be no assurance that it would be available on terms acceptable to usthe Company or at all, which could have a material adverse effect on ourits business.
Technological developments by our competitors may render ourthe Company's products obsolete.
If our competitors were to develop superior products or technologies, ourthe Company's products or technologies could be rendered noncompetitive or obsolete. BiotechnologyDevelopments in the biotechnology and pharmaceuticals are evolving fields in which developmentspharmaceutical industries are expected to continue at a rapid pace. Our successSuccess depends upon achieving and maintaining a competitive position in the development of products and technologies.
Our lead product,
Synagis is marketed for the prevention of serious lower respiratory tract disease caused by RSV in pediatric patients at high risk of RSV. Synagis accounted for approximately 89%85% of ourthe Company's product sales in 2001. We are2002. The Company is not aware of any competing product being marketed anywhere in the world for the prevention of RSV disease other than our product RespiGam. Nevertheless, competition from other biotechnology and pharmaceutical companies can be intense. Many of our competitors have substantially greater research and development capabilities, marketing, financial and managerial resources and experience in the industry. Were a competitor to develop a better product or technology, ourthe Company's products or technologies could be rendered obsolete, decreasing our product sales and resulting in a material adverse effect on ourthe Company's business.
24
Compliance with government regulations is costly and time-consuming.
Substantially all of ourthe Company's products require costly and time-consuming regulatory approval by governmental agencies. In particular, human therapeutic and vaccine products are subject to rigorous preclinical and clinical testing for safety and efficacy and approval processes by the FDA in the United States, as well as regulatory authorities in foreign countries. There can be no assurance that required approvals will be obtained. If we werethe Company is unable to obtain these approvals on a timely basis or at all, ourits ability to successfully market products directly and through our collaborators, and to generate revenues from sales or royalties, would be impaired.
All approved products are subject to continuing regulation. If wethe Company were to fail to comply with applicable requirements, weit could be subject to:
o fines, recall or seizure of products; o total or partial suspension of production;
o refusal by the government to approve our product license applications; o restrictions on our ability to enter into supply contracts; and o criminal prosecution.
The FDA also has the authority to revoke product licenses and establishment licenses previously grantedgranted. The FDA also has the authority to us. Currently, welimit the approved indications/uses for which a product is sold. Many products have multiple indications (uses) for which they can be promoted. Certain products are
marketing Ethyol for the treatment of patients with NSCLC. This indication was approved under the FDA's Accelerated Approval Regulations. These regulationsRegulations, which require that we conduct clinicaladditional studies to verify and describe the clinical benefit of thean approved indication.
We have completed trials which we anticipate will be sufficient to meet the FDA's requirements. If the FDA isdoes not satisfiedbelieve that we
have metan additional study meets the requirements of accelerated approval, it may withdraw itsthe approval of Ethyola certain indication, thus precluding the Company from promoting the product in the NSCLC indication.that indication/use. Should the FDA revoke any product or establishment licenses granted to us,the Company, or limit the indications for which a product is sold, it could have a material adverse effect on ourits business.
The Company's products may receive further scrutiny after approval by regulatory agencies for adverse events relating to the product.
Prior to approval by the FDA, as well as international regulatory agencies, drug products are subject to rigorous preclinical and clinical testing for safety and efficacy. From these trials, a product's "adverse event profile" is identified. This profile is disclosed on each product's Package Insert, which is printed material accompanying the product to inform physicians and patients as to what side effects they might encounter with a given product's use. Following approval, MedImmune monitors all of its drug products to maintain a current safety database, tracking identified adverse events from a drug's use in broader populations. Such adverse events are reported to the appropriate regulatory authorities. Periodically, discussions with regulatory agencies may occur regarding adverse event reports. Such discussions may result in changes to the disclosure in the Package Inserts for the Company's products and communications with health care professionals to apprise them of such changes. During 2002, modifications were made to the Package Inserts for NeuTrexin, Ethyol and Synagis reflecting information gained from product use.
Product liability claims may result from clinical trials or sales of ourthe Company's products and product recalls may be necessary.
As a developer, tester, manufacturer, marketer and seller of healthcare products, we areMedImmune is potentially subject to product liability claims. OurIts blood products, such as CytoGam and RespiGam, involve heightened risks of claims, including the risk of claims resulting from the transmission of blood-borne diseases. All vaccine products carry risk and the potential for adverse events after introduction to the market is an issue for all vaccines. Indeed, a vaccine could be licensed by the FDA and still be associated with adverse events that reduce or eliminate revenue. For example, in 1998 the FDA approved the use of a vaccine to prevent infant diarrhea, but the product was subsequently withdrawn from the market due to a possible link between a serious bowel disorder and the vaccine, an adverse event that occurred at a frequency not detectable in the clinical trials. In addition, there are a number of theoretical risks related to a live virus vaccine, including reversion to wild type, or recombining to
25
form a new strain that may cause disease. A weakened, live virus may also cause disease resembling a wild-type infection in people with an immune system that is not working properly because of a pre-existing disease or compromised immune system.
Defending a product liability claim could be costly and divert our focus from business operations. Although we carrythe Company carries insurance that we regardit regards as reasonably adequate to protect usit from potential claims, there can be no assurance that wethe Company will be able to maintain ourits current product liability insurance at a reasonable cost, or at all. If a claim were successful, there is no guarantee that the amount of the claim would not exceed the limit of ourthe Company's insurance coverage. Further, a successful claim could result in the recall of some or all of our products.MedImmune's products, or could reduce revenues related to the product. Any of these occurrences could have a material adverse effect on our business.the Company's business, or result in a clinical trial interruption or cancellation. Additionally, blood products like CytoGam and RespiGam are occasionally recalled from the market because of risks of contamination from infectious agents or for other reasons whichthat are often beyond ourthe Company's control. Any such recall of ourMedImmune's blood products would adversely affect our sales.
Restrictions on marketing could impact the Company's ability to promote its products.
Restrictions on promotion in patient populations as a result of the FDA warning letters on promotional materials could affect sales of the Company's products and could lead to holds on current and future New Drug Applications or Biological License Applications and supplements filed with the FDA.
The loss of key personnel could harm ourthe Company's business.
Our
MedImmune's success depends upon the continued contributions of ourits executive officers and scientific and technical personnel. Many key responsibilities have been assigned to a relatively small number of individuals. Our key personnel include Mr. David M. Mott, Chief Executive Officer and Vice Chairman of the Board; Mr. Melvin D. Booth, President and Chief Operating Officer; and Dr. James F. Young, President, Research and Development. We haveThe Company has an employment agreement with each of them. The competition for qualified personnel is intense, and the loss of services or certain key personnel could adversely affect ourthe Company's business. We doMedImmune does not maintain or intend to purchase "key man" life insurance on any of ourits personnel.
The Company may not be able to hire or retain highly qualified personnel or maintain key relationships.
The success of the Company's business depends, in large part, on its continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel, and on its ability to develop and maintain important relationships with leading research institutions and key distributors. Competition for these types of personnel and relationships is intense among pharmaceutical, biopharmaceutical and biotechnology companies, and the Company's inability to attract and retain such employees and relationships could have a material effect on its business.
Fluctuations in ourMedImmune's common stock price over time could cause our stockholders to lose investment value.
The market price of ourMedImmune's common stock has fluctuated significantly over time, and it is likely that the price will fluctuate in the future. During 2001,2002, the closingdaily price of ourMedImmune common stock on the Nasdaq stock market ranged from a high of $52.36$48.35 to a low of $28.31.$20.37. Investors and analysts have been, and will continue to be, interested in ourthe Company's reported earnings, as well as how we performthe Company performs compared to their expectations. Announcements by usthe Company or others regarding operating results, existing and future collaborations, results of clinical trials, scientific
26
discoveries, commercial products, patents or proprietary rights or regulatory actions may have a significant effect on the market price of ourthe Company's common stock. In addition, the stock market has experienced extreme price and volume fluctuations that have particularly affected the market price for many biotechnology companies and that have often been unrelated to the operating performance of these companies. These broad market fluctuations may adversely affect the market price of ourMedImmune common stock.
Changes in foreign currency exchange rates or interest rates could result in losses.
We have
The Company has entered into foreign exchange forward contracts which could result in losses. Because we have contracts for the future
purchase of inventory which area supplemental manufacturing contract denominated in foreign currencies, there is a chance that foreign currencyEuros. Fluctuations in the Euro—U.S. Dollar exchange rate or interest
ratewould lead to changes could result in increases or decreases in the actualU.S. Dollar cost of our purchases.manufacturing. To reduce the risk of unpredictable changes in these costs, the cost of our purchases, weCompany may, from time to time, enter into forward foreign exchange contracts, which allow uscontracts. However, due to purchase, for a fixed price on
a specific date in the future, thevariability of timing and amount of payments under this contract, the forward foreign currency necessary to pay for our contractual purchase of inventory.
Fluctuations inexchange contracts may not mitigate the anticipated payment date forpotential adverse impact on the inventory could require us to adjust the date of the contract, which could
result in a change in the foreign currency exchange rate of the contracts, which in turn could have an adverse effect on ourCompany's financial results.
Expenditures relating to ourthe Company's manufacturing operations in the United KingdomEngland and the Netherlands are paid in local currency. We haveMedImmune has not hedged ourits expenditures relating to these manufacturing operations, and therefore foreign currency exchange rate fluctuations may result in increases or decreases in the amount of expenditures recorded. Additionally, certain of ourthe Company's distribution agreements outside the United States provide for usit to be paid based upon sales in local currency. As a result, changes in foreign currency exchange rates could adversely affect the amount we expectthe Company expects to collect under these agreements.
Government investigations or litigation could impact MedImmune's business.
The Federal Government, state governments and private payors are investigating and have begun to file actions against numerous pharmaceutical and biotechnology companies alleging that the reporting of prices for pharmaceutical products has resulted in a false and overstated Average Wholesale Price (AWP), which in turn is alleged to have improperly inflated the reimbursement paid by Medicare beneficiaries, insurers, state Medicaid programs, medical plans and others to health care providers who prescribed and administered those products. These same payors are also alleging that companies are not reporting their "best price" to the states under the Medicaid program. One of these cases was recently brought against the Company and is described in Note 20 to the Consolidated Financial Statements. These cases could have an adverse effect on the Company's financial results.
The success of ourthe Company's products may be limited by government and third-party payors.
The continuing efforts of government and third-party payors to contain or reduce the costs of health care through various means may negatively affect sales of ourthe Company products. For example, the Company believes that approximately 24%one-third of all Synagis vials sold in the United States during the
2000-2001 RSV season were2002 was covered by Medicaid reimbursement programs. In many foreign markets, pricing and profitability of pharmaceutical products is subject to governmental control.control and pricing pressure on pharmaceutical products will remain. In the United States there have been, and we expect there will continue
to be, various federal and state proposals to implement similar government controls over pricing and profitability.profitability and the Company expects that similar proposals will continue to be advanced. The adoption by the federal government or state governments of any such proposals, and the continued pricing pressures in foreign markets could limit the commercial success of ourthe Company's existing or any future products.
27
The Company's principal executive and administrative offices and research and development facilities are located in Gaithersburg, Maryland. The facilities occupy approximately 104,000119,000 square feet (including the facilities on West Watkins Mill Road and at the Wind River facility) and are leased until 2006. In March 2002, the Company paid approximately $13.4 million to acquire rights to 25 acres of land in Gaithersburg, Maryland, which will serve asis the site of the Company's new corporate headquarters. The Company has contracted with a designer and general contractor for the construction of the first phase of the new facility,
over the next several years, at a total estimated cost of $80approximately $85 million. The construction project is expected to breakbroke ground in AprilMarch 2002. The Company expects to take occupancy of the first phase, which will feature a complex totaling 218,000220,000 square feet, in the fall of 2003. At that time, the Company expects tomay sublease a largesome portion of its current facilities.
The Company also owns 56,000 square feet of administrative and warehouse space and a 91,000 square foot multi-use biologics facility in Frederick, Maryland. The biologics facility includes a cell culture production area used for manufacture of products such as Synagis and isSynagis. Until December 2002, this facility was also used for the manufacture of immune globulins and by-products from human plasma. In addition, to its Maryland
facilities, the Company leases warehouse space in Nijmegen, the Netherlands, the Company owns an 18,000 square foot manufacturing facility on 36,000 square feet of land and leases approximately 9,000 square feet which is subject to
a lease that extendsof warehouse space through 2003.
The Company's Aviron subsidiaryDecember 2005.
MedImmune Vaccines occupies 104,800102,000 square feet of office and laboratory space in Mountain View, California, which is leased through October 2005 with two options to extend for successive five-year periods. In addition, AvironMedImmune Vaccines leases approximately 41,00055,000 square feet of space in Philadelphia, Pennsylvania, pursuant to a lease agreement through December 2004, with options to extend for up to two additional terms of three years. Avironyears each. MedImmune Vaccines also occupies 64,050approximately 72,000 square feet of office, laboratory and warehouse space in Bensalem, Pennsylvania, pursuant to a lease agreement through June 2008. Additionally, in Santa Clara, California, AvironMedImmune Vaccines leases approximately 69,00072,000 square feet of office, laboratory and manufacturing space through January 2019, with an option to renew for seven years and approximately 22,500 square feet of office space, expiring in October 2004.
Aviron
MedImmune Vaccines occupies approximately 8,900 square feet of a manufacturing facility in Speke, U.K.,England, pursuant to a sublease expiring in June 2006, and leases approximately eight acres of land adjacentnear to the existing site, which includes a 60,700 square foot structure, through 2025. In addition, AvironMedImmune Vaccines leases approximately 5,100 square feet of office space in Speke under short-term leases.
The Company believes that its current facilities and anticipated additions are adequate to meet its research and development, commercial production, and administrative needs for the near term.
ITEM 3. LEGAL PROCEEDINGS
In 1998, MediGene AG ("MediGene") initiated a legal action against Loyola University of Chicago ("Loyola") and the Company in the
U.S. District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference
by the Company with an alleged prospective business relationship between MediGene and Loyola. The claims relate to human
papillomavirus vaccine technology allegedly covered by contracts between MediGene and the Company and by a license agreement from
Loyola to the Company, under which the Company granted a sublicense to GlaxoSmithKline. MediGene seeks damages from the Company
ranging from $31.3 million to $86.9 million based on the tortious interference claim, and/or damages ranging from $10.2 million to
$31.3 million based on the breach of contract claim. MediGene also seeks ownership of the patents in question, as well as recission
of the Company's license agreement from Loyola or rights as a third-party beneficiary thereof. On December 22, 2000 and March 15,
2001, the District Court granted summary judgment motions in favor of the Company on all claims. The District Court ordered entry of
final judgment in favor of the Company on March 19, 2002. On March 27, 2002 MediGene filed a notice of appeal to the United States
Court of Appeals for the Federal Circuit.
In October 2000, Celltech Chiroscience Limited ("Celltech") commenced a legal proceeding against the Company in the U.K. High Court
of Justice, Chancery Division, Patents Court. Celltech alleges that the Company failed to pay royalties
Information with respect to its saleslegal proceedings is included in Note 20 of Synagis as required by a license agreement dated January 19, 1998. Under the agreement, the Company obtained from Celltech a
worldwide license to make, use and/or sell product under a patent (and related applications) pertaining to humanized antibodies. In
the proceeding, Celltech seeks payment of a 2% royalty based on net sales of Synagis sold or manufactured in the United States, with
interest,Item 8 Financial Statements and certain costs, including attorney's fees. The Company has filed answering papers denying that any royalties are due on
the basis that Celltech's U.S. patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal
doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. On July 20, 2001, the High
Court of Justice ordered a hearing, which is expected to take place in late 2002 or early 2003, on whether it will dismiss
Celltech's case on this basis. On November 29, 2001, the Company received a letter from counsel for Celltech enclosing a copy of a
patent granted by the European Patent Office on November 14, 2001. That letter requested various information concerning the
manufacture and sale of Synagis in Europe and sought confirmation that the Company would pay royalties on such sales pursuant to the
license agreement dated January 19, 1998. As of March 25, 2002, the Company had not made the royalty payments that were the subject
of Celltech's letter, and Celltech had not initiated any legal proceeding against the Company based on its European patent.
On December 18, 2001, Genentech, Inc. ("Genentech") announced that it had been granted a patent relating to certain methods and
compositions used to produce antibodies by recombinant DNA technology. Four years ago, in anticipation of any potential impact the
issuance of Genentech's patent could have on the production of Synagis, the Company obtained a license to this patent. The Company
has received from Genentech a letter, dated January 7, 2002, stating that Genentech expects to receive from the Company royalty
payments pursuant to such license. The Company is in the process of evaluating whether any valid claim of Genentech's patent, as
recently issued, covers production of Synagis. If so, the Company would pay royalties to Genentech on U.S. net sales of Synagis
commencing December 18, 2001. Pending resolution of this issue, the Company has made certain royalty payments to Genentech under
protest and with reservation of all of its rights. The Company is also evaluating whether any of its other antibody-based product
candidates, if and when approved for marketing by the U.S. Food and Drug Administration, could require a license under the Genentech
patent.
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol Gesellschaft") filed a complaint for refrain,
information and damages with the Regional Court of Hamburg against MedImmune Oncology on the grounds of trademark infringement in
respect of the use of the trademark "Ethyol" in Germany. No monetary amount is currently being sought in the litigation by Ichthyol.
Ichthyol is seeking injunctive relief against the use of the trademark Ethyol in Germany. The suit was dismissed on January 29, 1997
by the Regional Court of Hamburg. Ichthyol Gesellschaft filed an appeal and a judgment was rendered in favor of MedImmune Oncology
in the appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on points of law with the Federal Court of
Justice, and in June 1999, Ichthyol Gesellschaft filed the grounds for the appeal on points of law. By judgment of May 3, 2001, the
Federal Court of Justice reversed the judgment of the Higher Regional Court and remitted the case to that court for another hearing.
By order of December l9, 2001, the Higher Regional Court ordered Ichthyol to make further submissions concerning the relevant facts
and legal questions. Ichthyol recently filed its submissions. Another hearing will probably be held this summer.
After consultation with its counsel, the Company believes that it has meritorious defenses to the claims referred to aboveSupplementary Data and is determined to defend its position vigorously. While it is impossible to predict with certainty the eventual outcome of these
proceedings, the Company believes they are unlikely to have a material adverse effect on its financial position but might have a
material adverse effect on its results of operations for a particular period.
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
28
ITEM 5. MARKET FOR MEDIMMUNE, INC.'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock Market under the symbol "MEDI". At March 14, 2002,February 25, 2003, the Company had 1,9091,976 common stockholders of record. This figure does not represent the actual number of beneficial owners of common stock because shares are generally held in "street name" by securities dealers and others for the benefit of individual owners who may vote the shares.
The following table shows the range of high and low prices and year endyear-end closing prices for the common stock for the two most recent fiscal years, adjusted to reflect a three-for-one stock split on June 2, 2000.
2001 2000
---- ----
High Low High Low
---- --- ---- ---
First Quarter $54.56 $27.63 $76.25 $43.00
Second Quarter 48.05 29.19 80.69 42.00
Third Quarter 48.08 29.51 86.13 57.75
Fourth Quarter 48.95 33.47 72.63 44.63
Year End Close $46.35 $47.69years.
| | 2002 | 2001 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | High | Low | High | Low | ||||||||
| First Quarter | $ | 48.35 | $ | 37.30 | $ | 54.56 | $ | 27.63 | ||||
| Second Quarter | 41.05 | 24.80 | 48.05 | 29.19 | ||||||||
| Third Quarter | 30.43 | 20.37 | 48.08 | 29.51 | ||||||||
| Fourth Quarter | 29.24 | 20.45 | 48.95 | 33.47 | ||||||||
| Year End Close | $ | 27.17 | $ | 46.35 | ||||||||
The Company has never declared or paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain any earnings to fund future growth, product development and operations.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands, except per share data)
RESULTS FOR THE YEAR 2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total revenues $618,679 $540,495 383,375 $227,221 105,748
Gross profit 440,822 368,483 266,622 107,988 39,315
Earnings/(loss) before cumulative effect of a
change in accounting principle 148,960 144,977 93,371² 47,187¹ (44,804)
Net earnings/(loss) 148,960 111,156 93,371² 47,187¹ (44,804)
Basic earnings/(loss) per share
Earnings
Earnings/(loss) before cumulative effect of a
change in accounting principle 0.70 0.69 0.49 0.28 (0.30)
Net earnings/(loss) 0.70 0.53 0.49 0.28 (0.30)
Diluted earnings/(loss) per share
Earnings/(loss) before cumulative effect of a
change in accounting principle 0.68 0.66 0.44 0.24 (0.30)
Net earnings/(loss) 0.68 0.50 0.44 0.24 (0.30)
YEAR END POSITION
Cash and marketable
securities $787,690 $526,254 $270,394 $176,860 $101,246
Total assets 1,219,386 1,006,575 648,424 405,777 232,717
Long-term debt 9,544 10,302 11,856 87,910 90,276
Shareholders' equity 1,044,273 843,582 537,079 248,566 87,560
| | 2002 | 2001 | 2000 | 1999 | 1998 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (in thousands, except per share data) | ||||||||||||||||
| RESULTS FOR THE YEAR | |||||||||||||||||
| Total revenues | $ | 847,739 | $ | 618,679 | $ | 540,495 | $ | 383,375 | $ | 227,221 | |||||||
| Gross profit | 585,034 | 440,822 | 368,483 | 266,622 | 107,988 | ||||||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | (1,098,015) | (1) | 148,960 | 144,977 | 93,371 | (2) | 47,187 | (3) | |||||||||
| Net (loss) earnings | (1,098,015) | (1) | 148,960 | 111,156 | 93,371 | (2) | 47,187 | (3) | |||||||||
| Basic (loss) earnings per share | |||||||||||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | (4.40 | ) | 0.70 | 0.69 | 0.49 | 0.28 | |||||||||||
| Net (loss) earnings | (4.40 | ) | 0.70 | 0.53 | 0.49 | 0.28 | |||||||||||
| Diluted (loss) earnings per share | |||||||||||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | (4.40 | ) | 0.68 | 0.66 | 0.44 | 0.24 | |||||||||||
| Net (loss) earnings | (4.40 | ) | 0.68 | 0.50 | 0.44 | 0.24 | |||||||||||
YEAR END POSITION | |||||||||||||||||
| Cash and marketable securities | $ | 1,423,056 | $ | 777,690 | (4) | $ | 526,254 | $ | 270,394 | $ | 176,860 | ||||||
| Total assets | 2,188,289 | 1,236,855 | (4) | 1,016,597 | (4) | 657,210 | (4) | 409,249 | (4) | ||||||||
| Long-term debt | 218,356 | 9,544 | 10,302 | 11,856 | 87,910 | ||||||||||||
| Shareholders' equity | 1,677,234 | 1,044,273 | 843,582 | 537,079 | 248,566 | ||||||||||||
29
PRO FORMA RESULTS
The following data represents the Company's pro forma financial results assuming retroactive adoption of the change in accounting principle (SAB 101).
Total revenues $540,495 $385,222 $204,209 $87,624
Net earnings (loss) 144,977 94,5052 33,0581 (62,928)
Earnings/(loss) per share
Basic 0.69 0.50 0.19 (0.42)
Diluted 0.66 0.45 0.17 (0.42)
1
| | | | 2000 | 1999 | 1998 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | (in thousands, except per share data) | ||||||||||||
| Total revenues | $ | 540,495 | $ | 385,222 | $ | 204,209 | |||||||||
| Net earnings | 144,977 | 94,505 | (2) | 33,058 | (3) | ||||||||||
| Earnings per share | |||||||||||||||
| Basic | 0.69 | 0.50 | 0.19 | ||||||||||||
| Diluted | 0.66 | 0.45 | 0.17 | ||||||||||||
QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands,
(in thousands, except per share amounts)
data)
2002 Quarter Ended(1)
| | Dec. 31 | Sept. 30 | June 30 | March 31 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 348,730 | $ | 59,233 | $ | 57,330 | $ | 320,668 | ||||||
| Gross profit | 265,618 | 36,937 | 41,688 | 240,791 | ||||||||||
| Net earnings (loss) | 84,591 | (36,292 | ) | (29,456 | ) | (1,116,858 | )(2) | |||||||
| Net earnings (loss) per share: | ||||||||||||||
| Basic | $0.34 | $(0.14 | ) | $(0.12 | ) | $(4.54 | )(2) | |||||||
| Diluted | $0.33 | $(0.14 | ) | $(0.12 | ) | $(4.54 | )(2) | |||||||
2001 Quarter Ended
- ------------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
Net sales $276,021 $39,991 $28,315 $235,202
Gross profit 213,584 23,651 21,188 182,399
Net earnings (loss) 98,506 (18,974) (9,223) 78,651
Net earnings (loss) per share:
Basic $0.46 ($0.09) ($0.04) $0.37
Diluted $0.45 ($0.09) ($0.04) $0.36
2000 Quarter Ended
- ------------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
Net sales $227,394 $47,246 $25,387 $195,776
Gross profit 172,890 31,472 13,373 150,748
Earnings (loss) before cumulative
effect
| | Dec. 31 | Sept. 30 | June 30 | March 31 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net sales | $ | 276,021 | $ | 39,991 | $ | 28,315 | $ | 235,202 | |||||
| Gross profit | 213,584 | 23,651 | 21,188 | 182,399 | |||||||||
| Net earnings (loss) | 98,506 | (18,974 | ) | (9,223 | ) | 78,651 | |||||||
| Net earnings (loss) per share: | |||||||||||||
| Basic | $0.46 | $(0.09 | ) | $(0.04 | ) | $0.37 | |||||||
| Diluted | $0.45 | $(0.09 | ) | $(0.04 | ) | $0.36 | |||||||
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
We
This Management's Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements regarding future events and our future results that are pleasedbased on current expectations, estimates, forecasts, and the beliefs and assumptions of our management. Readers are cautioned that these forward-looking statements are only predictions and are subject to reportrisks, uncertainties, and assumptions that are difficult to youpredict. Readers are referred to the "Forward Looking Statements" and "Risk Factors" sections in Part I, Item 1 of this document.
OVERVIEW
Since 1988, MedImmune has been focused on our financial conditionusing biotechnology to produce innovative products to prevent or treat infectious disease, autoimmune disease and results of operations. During 2001,cancer. Having made significant advances in the last several years, MedImmune achieved total revenues
of $618.7 million,is now a 14% increase from 2000, and net earnings grew 34% to $149.0 million. The following discussion should be read in
conjunctionfully integrated company with the accompanying financial statementsability and related notes.
OVERVIEW
Since inception, we have incurred significant operating expenses developinginfrastructure to take a product from discovery through development, manufacturing, and into the market via our productsoncology, pediatric, and experienced substantial operating
losses until achieving profitability in 1998. The profitability was driven byhospital-based sales of Synagis, our second generation anti-RSV drug
which was approved by the FDA on June 18, 1998 and by the Centralized European Agency for the Evaluation of Medicinal Products
("EMEA") in August 1999. Synagis is approved in the United States for the prevention of serious lower respiratory tract disease
caused by RSV in pediatric patients at high risk for RSV disease. Because of the seasonal nature of RSV, limited sales, if any, are
expected during the second and third quarters of any calendar year, causing results to vary significantly from quarter to quarter.
Synagis sales for the 2000/2001 and 1999/2000 RSV seasons totaled $480 million and $357 million, respectively. We also market
CytoGam for the attenuation of primary CMV disease in kidney, lung, liver, pancreas and heart transplant patients, and RespiGam for
the prevention of serious lower respiratory tract infection caused by RSV in children under 24 months of age with BPD or a history
of prematurity. RespiGam, our first generation anti-RSV drug, has been largely replaced in the marketplace by Synagis.
In November 1999, we completed a merger with U.S. Bioscience, Inc. ("USB", now known as MedImmune Oncology, Inc.) in a transaction
accounted for as a pooling-of-interests. As a consequence, historical results of MedImmune and USB have been combined. In addition
to gaining clinical, marketing and sales personnel specializing in oncology, we also added three approved products to our product
portfolio, including two oncology products. Ethyol was approved by the FDA in December 1995 as a selective cytoprotective agent to
reduce the cumulative renal (kidney) toxicity associated with repeated administration of cisplatin in patients with advanced ovarian
cancer. In 1996, the label was expanded to include patients with non-small cell lung cancer ("NSCLC"). The label was further
expanded in June 1999 to include the prevention of severe dry mouth caused by post-operative radiation treatment in certain head and
neck cancer patients. Ethyol was made commercially available by our United States distribution partner, ALZA Corporation ("ALZA"),
in March 1996.
On October 1, 2001, we accelerated the return to MedImmune Oncology of domestic Ethyol marketing rights. Thus, we are now
responsible for all sales and marketing activities for Ethyol in the United States. NeuTrexin, introduced in January 1994, is
approved for concurrent use with leucovorin administration (leucovorin protection) as an alternative therapy for the treatment of
moderate-to-severe Pneumocystis carinii pneumonia ("PCP") in immunocompromised patients, including patients with AIDS. Hexalen,
introduced in January 1991, is a cytotoxic drug for use as a single agent in the palliative treatment of patients with persistent or
recurrent ovarian cancer. In November 2000, we sold this product to MGI Pharma for approximately $7.2 million plus future royalties.forces.
During January 2002, we completed the acquisition ofacquired Aviron through an exchange offer and merger transaction valued at approximately
$1.6 billion, net of cash. Aviron is(the "Acquisition"), a biopharmaceutical company headquartered in Mountain View, California, focused on prevention
ofpreventing disease through innovative vaccine technologies. Aviron's leadThe operating results of Aviron, which was subsequently renamed MedImmune Vaccines, Inc., have been included in our consolidated operating results beginning January 10, 2002.
MedImmune currently actively markets three products: our flagship product Synagis, which we launched in the United States in 1998, Ethyol and CytoGam. Our leading product candidate, is FluMist, a live, attenuated virusan influenza vaccine delivered as a nasal mist, foris under regulatory review by the prevention of influenza. We believe our experience in research and development, manufacturing,
marketing, and regulatory affairs are well suited to enhance Aviron's current efforts to gain regulatory approval to market the
product.
Our acquisition of Aviron will be accounted for as a purchase business combination and, consequently, the results of operations of
Aviron will be included in our consolidated operating results effective January 10, 2002. Under the terms of the transaction, we
exchanged approximately 34.0 million of our common shares for approximately 31.6 million shares of Aviron common stock, and an
additional 7.1 million of our common shares are issuable upon exercise of Aviron's outstanding options and warrants. In addition,
holders of Aviron's $200 million of convertible notes will be able to convert the notes into a total of 3.4 million of our common
shares at a conversion price of $58.14 per share.
FDA.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of consolidated financial statements requires us to make estimates and judgments with respect to the selection and application of accounting policies that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosures of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
We believe the following critical accounting policies and significant judgments and estimates have the greatest impact on the preparation of our consolidated financial statements.
Product Sales - statements:
Acquired In-Process Research and Development—We generally sell our products torecorded a limited numbercharge of wholesalers$1,179.3 million during the year ended December 31, 2002 for the write-off of purchased in-process research and distributors. We recognize revenue on product
sales when persuasive evidencedevelopment in conjunction with the Acquisition. The write-off represents the fair value of an arrangement exists, delivery has occurred,purchased in-process technologies at the sales priceacquisition date, calculated as the sum of probability-adjusted commercial scenarios. This method is fixed or determinable and
collectibility is probable. These criteria are generally met when the product is received by our customers. In certainbased upon management's estimates of the Company's distribution agreementsprobability of FDA approval and commercial success for FluMist. As with all biotechnology products, the total salesprobability of FDA approval and commercial success for any particular research and development project is highly uncertain. Management's projections were based on assumptions, which may or may not remain valid for the relevant period, including the estimated impact of four "key" factors: price received fromper dose; dose volume; launch date; and the customer is variable based, in part, on the end-user sales
price. When allpotential failure of the other revenue criteria have been met,frozen or liquid formulations of the Company recognizes revenue to the extentinfluenza vaccine. Based on current information, management believes that the customer has an
obligationestimates and assumptions underlying the fair value analysis are reasonable.
Inventory Reserves—Most of the inventory components for FluMist have expiration dates that range from 9 to pay, if24 months. Through September 2002, we produced inventory in anticipation of a
31
possible launch of FluMist for the customer has limited or no control over2002/2003 flu season. At that time, we recognized that FDA approval would not be received in time for a launch for the end-user sales price2002/2003 flu season, and accordingly, any subsequent
adjustmentswe recorded a full reserve for the inventory components we believed would not be used prior to reaching their expiration dates. In the recorded revenue are notfourth quarter of 2002, we began production of certain inventory components in anticipation of a possible launch of FluMist for the 2003/2004 flu season, as FDA approval is expected to be significant. Subsequent adjustmentsreceived in the second quarter of 2003 if not sooner. With respect to all inventory components on hand as of December 31, 2002, we reviewed the following assumptions to determine the amount of any additional reserves: the expected date of approval; the expected sales volume; the concentration of viral material in our vaccine; potential changes in the influenza strains recommended by the Centers for Disease Control and Prevention for each season's vaccine; anticipated changes in the manufacturing process and other variables associated with product launch efforts. As of December 31, 2002, we have $62.5 million of inventory against which we have a reserve of $47.5 million, resulting in a net inventory balance of $15.0 million. Should FluMist be approved for the 2003/2004 flu season and sales levels are higher than expected, we may be able to utilize more inventory than anticipated, and as such, our margins would be favorably impacted in these periods when the inventory is sold. Conversely, should FluMist not be approved, or if sales levels are lower than expected, we may have further reserves or writedowns for obsolete inventory.
For our other products, we periodically assess our inventory balances to determine whether net realizable value is below recorded revenuecost. Factors we consider include expected sales volume, production capacity and expiration dates.
Sales allowances and other sales related estimates—We estimate the amount of sales discounts and sales returns, recorded as a reduction of gross product sales, by applying rates determined by our past experience to actual sales for the period. We estimate our co-promotion expense and sales commissions, recorded as selling, general and administrative expense, by applying an estimated rate that result from
variances between amounts previously invoicedis based upon an estimate of projected sales for the season, to our actual sales for the period. We estimate the level of bad debts based upon our assessment of the concentration of credit risk, the financial condition and environment of our customers, the level of credit insurance we obtain on our customers and the total sales price received areexpected impact of current reimbursement issues our customers experience. We estimate the aggregate amount of government reimbursements, recorded as an adjustmenta reduction to gross product sales, inbased upon historical experience and our best estimate of the quarter in which they become known. Product sales are recorded netproportion of allowances for estimated chargebacks, government rebates,
discounts, returns, and other reductions to product sales. Both in the United States and elsewhere, sales of pharmaceutical products
depend on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans.
Third-party payors are increasingly challenging the prices charged for products, and are limiting reimbursement levels offered to
consumers for these products, possibly resulting in an incremental reduction of reimbursements from third-party payors. Synagis is
currently widely reimbursed by Medicaid and other government programs. The Company estimates the portion of itsseasonal sales that will occurbe subject to this end-user market and records allowances at a level that management believes is sufficientreimbursement, largely comprised of Medicaid payments to cover estimated
requirements for rebates.state governments. If our estimateshistorical trends are not indicative of government rebates vary significantlythe future, or our actual seasonal sales are materially different from actual results, adjustments to recorded
revenues may be required.
Contract Revenues - We recognize revenue from upfront and milestone payments under collaborative agreements using the
contingency-adjusted performance model for revenue recognition. Under this method, payments received that are related to future
performance are deferred and recorded as revenues as they are earned over specified future performance periods. The amount of
revenue recognized during each period is based on a percentage-of-completion model of actual costs incurred relative to the total
projected costsamounts, or if our assessments prove to be incurred undermaterially different than actual occurrence, our results could be affected. During the collaborative agreement. When the performance criteria for a non-refundable milestone
payment are met, the costfourth quarter of the effort that has been incurred2002, we recorded an additional charge of $2.1 million to date is divided by the total projected costs under the development
arrangement (i.e., ratio of performance), and revenue is recognized for that milestone to the extent of the ratio of performance to
date. We follow this method since reasonably dependable estimates of the revenue and costs applicable to various stages of a
collaboration agreement can be made. Recognized revenues are subject to revisions as the collaboration efforts progress and
estimated costs to complete are revised. Revisions in revenue estimates are recorded to income in the period in which the facts that
give rise to the revision become known.
Trade Receivable Bad Debt Reserves - We maintain allowances for doubtful accounts for estimated lossesco-promotion expense, resulting from the inabilityfinal reconciliation of our customersgross to make required payments. Ifnet sales for the financial condition of our customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be required.
Co-promotion Expenses - In connection with our agreement with Abbott Laboratories to co-promote Synagis in the United States, we are
required to pay Abbott an increasing percentage of net domestic sales based on Abbott achieving certain sales thresholds over the
annual2001/2002 contract year. The contract year extends from July to June each year and generally coincides with the annual respiratory
syncytial virus ("RSV") season, which occurs primarily in the fourth and first quarters in the Northern Hemisphere. We estimate our
net sales and resulting co-promotion expense for the entire contract year to determine a proportionate percentage of expense to
apply across all Synagis sales during that contract year. Any adjustments to the co-promotion expense that result from variances
between estimated and actual net sales are recorded as an adjustment to expense in the quarter they become known. During 2001 2000
and 1999,2000, the adjustments were immaterial. If actual net sales are significantly different from the estimates, the adjustment to
co-promotion expense may be significant.
not material.
Taxes - —We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than notanticipated to be realized. While we have consideredWe consider future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance, in the eventallowance. Should we were to determine that we would bewere able to realize more than the recorded amounts of net deferred tax assets in the future, in excess of theirour net recorded amount, an adjustment to the deferred tax assetincome would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of the net deferred tax asset in the future, an
adjustment to the deferred tax assetour net income would be charged to incomedecrease in the period such determination was made.
Inventory Reserves -
Investments—We record an inventory reserveregularly enter into collaborative research and development agreements with strategic partners. As part of the agreements, we may obtain common stock, preferred stock or other equity securities in these strategic partners. These companies may be public or privately held companies. At the time the securities are obtained, we determine if the investment should be accounted for estimated obsolescence or unmarketable inventory in an amount equal to the
difference betweenunder the cost of inventory and the estimated market valuemethod, equity method, or consolidation method based upon assumptions about future demand and market
conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be
required.
Other Operating Expenses - We currently record in other operating expenses charges from the plasma production sectionmultiple factors
32
including: percentage ownership of the Frederick facility, which currently has excess capacity. These chargescompany; representation on board of directors; participation in policy-making processes; technological dependency; veto rights of partners; our role on key technical or product development committees; revenue dependence; and other extraordinary voting rights. Investments accounted for under the equity method are expected to continueadjusted quarterly for the foreseeable future until the
plasma production sectionCompany's proportionate share of the facility is fully utilized for its intended purpose.
Investments - We recordinvestee's gains or losses, which may fluctuate significantly from quarter to quarter. Each quarter, we evaluate all of our investments, in marketable securities at fair value, with unrealized gains and losses reported, net of tax,
as a component of other comprehensive income. The fair value of these investments is sensitive to changes in interest rates and the
credit-worthiness of the security issuers. We hold minority interests in companies having operations or technology in areas within
our strategic focus, some of which are publicly traded and have highly volatile share prices. We recordrecognize an investment impairment charge in the consolidated statements of operations when we believe an investment has experienced a decline in value that is other-than-temporary. Adverse changes in market
conditions or poor operating results of underlying investments could result in future losses.
Derivative Financial Instruments - We have contracts for the future purchase of inventory which are denominated in foreign
currencies. To hedge the effect of fluctuating foreign currencies in our financial statements, we periodically enter into foreign
forward exchange contracts which allow us to purchase, for a fixed price on a specific date in the future, the amount of foreign
currency necessary to pay for the contractual purchase of inventory. We enter into foreign exchange forward contracts for purposes
of hedging future cash flows, and never for speculative or trading purposes. We record all derivative financial instruments on our
balance sheet at fair value, with changes in the fair value reportedof an investment falls below its cost value and is judged to be other than temporary. We consider various factors in current earnings or other comprehensive income, depending ondetermining whether a derivative is designated as partwe should recognize an impairment charge, including the length of a hedge transaction,time and if so, depending on the type of hedge transaction. The gains
and losses on these derivatives that are reported in other comprehensive income are reclassified as earnings in the periods inextent to which
the related inventory is sold. Fluctuations in the anticipated payment date for the inventory could create hedge ineffectiveness,
which could give rise to gains or losses for the fair value has been less than our cost basis, the financial condition and near-term prospects of the hedge.
Commitments and Contingencies - We have entered into manufacturing, supply and purchase agreements in orderissuer, fundamental changes to provide production
capability for our products, and to provide a supply of certain raw materials. We are involved in litigation and administrative
proceedings arising in the ordinary course of business. We evaluate potential loss contingencies on a regular basis and accrue any
such losses if and when they become probable and reasonably estimable. Future changes in our assessmentbusiness prospects of the probabilityinvestee, share prices of subsequent offerings, and our intent and ability to hold the investment for a loss
contingency could have a material impact on our resultsperiod of operationstime sufficient to allow for any anticipated recovery in the period the assessment changes.
market value.
RESULTS OF OPERATIONS
2001
2002 Compared to 2000
Revenues
2001
To present our results in the same manner as we view the performance of the business and the resulting underlying trends, we have presented certain expense categories with and without certain Acquisition-related amounts, including: the acquired in-process research and development charge; amortization of intangible assets, compensation expense associated with the assumption and vesting of unvested stock options, retention and severance payments; and the amortization of the premium on convertible subordinated notes. Inclusion of such Acquisition related expenses is consistent with generally accepted accounting principles. Where we exclude such expenses, we use the term "adjusted."
Revenues—Product Sales (In Millions) 2001 2000
---- ----
Synagis $516.4 $427.0
CytoGam $ 32.3 $36.5
Ethyol $ 20.3 $21.4
Other Products $ 10.5 $10.9
TOTAL $579.5 $495.8
| | 2002 | 2001 | Growth | ||||||
|---|---|---|---|---|---|---|---|---|---|
| | (In Millions) | ||||||||
| Synagis | $ | 667.8 | $ | 516.4 | 29 | % | |||
| Ethyol | 80.4 | 20.3 | 296 | % | |||||
| Other Products | 37.8 | 42.8 | (12 | %) | |||||
| $ | 786.0 | $ | 579.5 | 36 | % | ||||
Product sales ofgrew 36% to $786.0 million as compared to $579.5 million in 2001, grew 17% over 2000 levels of $495.8 million primarily due to increased sales of Synagis and were also impacted by our reacquisitionthe impact of Ethyolreacquiring the domestic marketing rights to Ethyol from ALZA. ALZA as of October 1, 2001.
Synagis our largest product,—Synagis accounted for approximately 89%85% and 86%89%, respectively, of our 20012002 and 20002001 product sales. Sales of Synagis for the year ended December 31, 2001
increased 21% over 2000. Contributing to the growth in 2001 sales wasWe achieved a 20%33% increase in domestic Synagis sales to $637.4 million in 2002, up from $479.7 million in 2001 from $399.5 million in 2000. The2001. This growth was attributablelargely due to increased demand in the United States, resultingand resulted in a 19%30% increase in domestic sales unit volumes, andunits sold. Also aiding growth was a 3.6%3.5% price increase that took effect in the domestic selling price of Synagis effective in the second quarter of
2001. The increase in sales wasJune 2002, partially offset by an increase in Medicaid rebates,sales allowances, which are accounted for as a reduction to product sales, as Synagis usage by patients eligible for Medicaid grew over the prior year. Contributing to the growth insales. Our reported international sales duringof Synagis decreased 17% to $30.4 million in 2002 compared to $36.7 million in 2001, due to a 40% decrease in units sold to AI, our exclusive distributor of Synagis outside of the United States. We believe that the decrease is due to reductions in the inventory stocking levels of AI, rather than reduced product demand by end users. The decrease in unit volume was offset by an increase in the per unit sales price recognized upon delivery of product to Abbott
International ("Abbott")AI under the terms of our international distribution agreement. The terms of the distribution agreement (a)
mandated an increaseBased on information received from AI, we believe that end-user sales have increased over last year. We record Synagis international product sales based on AI's sales price to customers, as defined in the transfer price effective May 1, 2001 and (b) requires the entire purchase price to be payable upon
delivery of product to Abbott. Under the revised terms, the price earned by the Company is determinable at the time of delivery.
Under the previous contract terms, the Company invoiced Abbott and recognized revenue on sales to Abbott when Synagis was delivered
based on a contractually stipulated transfer price, which approximated 60 percent of the ultimate revenue value to us. Following the
end of each quarter, Abbott remitted a report to us detailing end-user sales for the quarter along with an additional amount due in
excess of the transfer price.agreement. We recognized revenue for the additional amount due in excess of the transfer price at that time.
Units shipped to Abbott during 2001 decreased approximately 16% from 2000, which we believe reflects reductions in Abbott's
inventory stocking levels rather than reduced product demand by end users. Furthermore, we have been working with AbbottAI to expand the number of countries where we are licensed to sell
33
Synagis. As of February 1, 2002, international registrations have28, 2003, Synagis had been filedapproved for marketing in 5850 countries, for the approval of Synagis, for which approval in(including the United States and 46 foreign countries had been obtained.States), the most recent of which was Canada in May 2002. There can be no assurance that approvals by the appropriate regulatory authorities will continue to be granted. Additionally,granted or that we may
notwill receive pricing and reimbursement approvals in countries where we have received regulatory approval.
CytoGam accounted for approximately 6% of our 2001 product sales, compared to 7% in 2000. CytoGam sales decreased to $32.3 million
in 2001 from $36.5 million in 2000, a decrease of 12%. Domestic sales units decreased 21%, which was partially offset by a domestic
price increase of 8% effective in the second quarter of 2001 and a decrease in government rebates for the product. We believe that a
portion of the CytoGam sales that occurred in 2000 were the result of product substitution occurring because of the then worldwide
shortage of standard IVIG products. In late 2000, the supply of standard IVIG products increased, and certain Medicaid agencies
began to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales for the year ended December 31,
2001 relating to product substitution decreased significantly. We expect the future use of CytoGam as a substitute for standard IVIG
products will be limited.
Ethyol—Ethyol accounted for approximately 4%10% and 5%4% of our product sales in 2002 and 2001, and 2000, respectively. Ethyol revenues decreased 5% from
$21.4 million in 2000 to $20.3 million in 2001. Sales of Ethyol for the year ended December 31, 2001 were impacted by our early
assumption of domestic marketing responsibility for Ethyol from ALZA. The transfer of marketing responsibility from ALZA was
originally scheduled to occur in April 2002. However, in September 2001, we reached an agreement with ALZA to accelerate toOn October 1, 2001 the transferwe reacquired domestic marketing rights to us of Ethyol marketing rights. In anticipation of that transfer, we ceasedfrom ALZA and have since recorded all revenues from domestic sales of Ethyol to ALZA during
thewholesalers and distributors. As part of this agreement, no third quarter of 2001 supply sales were made to ALZA, and we purchased ALZA's remaining Ethyol inventory as of September 30, 2001,at their original purchase price, which wewas recorded as a reduction to product sales in the amount of $2.3 million. In addition, we believe ALZA's domestic marketing focus on Ethyol during
the first nine months of 2001 was adversely affected by the acquisition in 2001 of ALZA by Johnson & Johnson which, in turn,
adversely affected ALZA's 2001 sales of Ethyol.sales. Beginning October 1, 2001, we record all revenues from domestic sales of Ethyol and,
beginning April 1, 2002, we will pay ALZA a declining royalty for nine years thereafterthrough 2011 based on net sales of Ethyol in the U.S. We
recordedUnited States. Domestic Ethyol sales were $74.7 million in 2002, as compared to $14.3 million in 2001. The increase is primarily attributable to a three-fold increase in domestic units sold in 2002 versus the 2001 year, which included nine months of revenues generated under our product supply agreement with ALZA and three months of sales to wholesalers and distributors. Further, two domestic price increases occurred during 2002, including a 9% increase in April 2002 and a 6% increase in September 2002. In addition, 2001 included net domestic product salesreturns of $2.3 million, relating to our assumption of Ethyol of $12.7 million during the fourth quarter of 2001.marketing rights. Prior to October 1, 2001, we had recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price.price as defined in the agreement. Our international sales of Ethyol to our distribution partner, Schering-Plough Corporation ("Schering"), declined slightly toSchering, were $5.7 million for 2002, down 5% from the prior year sales of $6.0 million during 2001 as
compared to $6.5 million in 2000, as unit sales decreased 3%.million. We record Ethyol international product sales based on a percentage of Schering's end user sales. We believe the decreasesales, as defined in international sales was primarily due to reductions in inventory stocking
levels at our international distribution partner.
agreement.
Other Products—Sales of other products in 2001,2002, which include sales of CytoGam, NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, were comparabledecreased $5.0 million, or 12% compared to 2000 sales. Results forlast year. The decrease was due to marginal declines in all of our other product lines.
Forward-looking commentary—We believe that the year ended December 31, 2000 also included net salesgrowth rate of Hexalen. We sold this product to MGI Pharma in November 2000 and, therefore we no longer recordour product sales, of Hexalen; rather, we
recognize royalty income and other income pursuant to our agreement with MGI Pharma, which are includedwhile still at double-digit levels, will decelerate in other revenues for 2001.
The2003. However, the level of future product sales will be dependentdepend on several factors, including, but not limited to, the timing and extent of future regulatory approvals of our products and product candidates, receiving reimbursement pricing, availability of finished product inventory, approval and commercialization of competitive products and the degree of acceptance of our products in the marketplace.
We continue to make progress in the FDA review process for FluMist. On January 29, 2003, we received a CRL from the FDA containing five questions, to which we responded in early February 2003. We anticipate that we will receive FDA approval for FluMist during the second quarter of 2003, if not sooner.
Revenues—Other Revenues
Other revenues increased 58% to $61.8 million for the year ended December 31, 2001 decreased $5.5 million, or 12%,2002 compared to $39.2 million in 20012001. The increase is largely attributable to $25 million received from $44.7Wyeth, our marketing partner for FluMist, for compensation of 2002 FluMist manufacturing costs under recent amendments to the collaborative agreements. An increase of $9.7 million in 2000. Other revenues during both years consisted primarily of revenues under collaborative agreements. We recognized revenue of
$21.4 million in 2001 versus $21.1 million in 2000 related to upfront and milestone payments under these agreements. We recognize
non-refundable fees and milestone payments in connection with research and development and commercialization agreements as the
contractual obligations and performance requirements are fulfilled, using the contingency adjusted performance model for revenue
recognition. Under this method, the amount of revenue recognized during each period is based on a percentage of completion model of
actual costs incurred relative to the total projected costs. The expected timing of revenues to be recognized through 2005 under the
major collaborative agreements for which we have deferred a portion of the upfront and milestone payments received, based on current
estimates of costs to complete, are as follows (in thousands):
2002 2003 2004 2005
---- ---- ---- ----
Abbott Laboratories $7,500 $2,700 $-- $--
GlaxoSmithKline 700 -- -- --
Schering-Plough Corporation 400 400 400 400
------ ------ ---- ----
Total $8,600 $3,100 $400 $400
====== ====== ==== ====
Future changes in estimated total costs or differences between actual costs and projected costs in any one period could cause the
actual recorded amounts to differ from the projected amounts.
Other revenues also include research funding from GlaxoSmithKline ("GSK") for the development of an HPV vaccine. Funding decreased
$5 million to $2.8 million in 2001, as our responsibilities under the collaboration agreement, primarily Phase I and II clinical
trials and preparation of clinical material, are nearing completion. Other revenues during 2001 also include approximately $5.3
million in 2001 and $1.2 million in 2000 from MGI Pharma related to the agreement for the sale of our Hexalen business. During 2001,
we also entered into an agreement to sell excess production capacity to a third party and recorded $7.5$7.7 million in funding for FluMist clinical development and sales and marketing activities from Wyeth also contributed to the growth over 2001. Partially offsetting these increases is a decrease of $15.5 million in revenue recorded under collaborative agreements, including a $2.7 million decrease in clinical funding received for our HPV vaccine candidate as we are nearing completion of Phase 1 and 2 clinical trials and our preparation of clinical material.
Forward-looking commentary—We anticipate the level of other revenues under the arrangement. Other revenuesto increase in both years also include2003 largely due to milestone and royalty income from ALZA in accordancepayments associated with the termsapproval and commercialization of the Ethyol
distribution agreement. Other revenues during 2000 also included $10.0 million related to the license agreement signed with GSK for
our Streptococcus pneumoniae vaccine technology. FluMist.
34
The level of contract revenues in future periods will depend primarily upon the extent to which we enter into other collaborative contractual arrangements, if any, and the extent to which we achieve certain milestones provided for in existing agreements. Future revenues from the sale of excess production capacity will vary depending upon the extent to which we enter into these types of arrangements, and are not expected to be significant for 2003 or thereafter.
The expected timing of annual revenues to be recognized through 2005 under major collaborative agreements entered into before January 1, 2002, which we have accounted for using the contingency adjusted performance model and deferred a portion of the up-front and milestone payments received, based on current estimates of costs to complete, is as follows (in millions):
| | 2003 | 2004 | 2005 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Abbott Laboratories | $ | 2.7 | $ | 0.0 | $ | 0.0 | ||||
| Schering-Plough Corporation | 0.4 | 0.4 | 0.4 | |||||||
| Total | $ | 3.1 | $ | 0.4 | $ | 0.4 | ||||
Cost of Sales -
Cost of sales for 20012002 increased 9%45% to $200.9 million from $138.7 million from $127.3 million in 20002001, due to increasesthe increase in sales volumes.
Gross marginsvolumes and additional royalties owed for the year ended December 31, 2001 improved to 76% from 74% for the year ended December 31, 2000. Gross margins in
2001 were principally improved as a result of increased sales of Synagis, which has more favorable margins, as well as lowerpartially offset by manufacturing costscost reductions following implementation of an improved manufacturing process at the Frederick Manufacturing Center ("FMC")FMC which increases Synagis yields. Additionally, margins in 2000 were adversely affected by a $2.4 million charge associated withenhances the write-off of certain Synagis inventory, asyields for Synagis. As a result, of a contamination ingross margins for 2002 were down two percentage points to 74% from 76% for the manufacturing process at the FMC, as well as a $1.5
million charge associated with the write-off of by-product inventory associated with our plasma production activities. year ended December 31, 2001.
Forward-looking commentary—We expect that gross margins may vary significantly from quarter to quarter, based on the product mix. We expect that on an annual basis, our gross margin percentage for 20022003 should be lower than 2001,2002, as a result of expenses for initial manufacturing operationsthe anticipated launch of Aviron
in anticipation of possible FDA approval of FluMist, which may or may not be granted.
FluMist.
Research and Development Expenses -
Research and development expenses of $144.2 million in 2002 increased 74% from $83.0 million in 2001 increased 25% from $66.32001. Excluding Acquisition related amounts of $9.4 million in 2000, primarily2002 for retention payments, stock option acceleration and stock compensation expense for unvested options assumed, research and development expenses were $134.8 million, up 62% over 2001. This increase was largely due to a larger numberthe on-going activities of activeMedImmune Vaccines and payments of approximately $19.0 million to gain access to various technologies and intellectual property to advance our pipeline. These increases were offset by decreases in clinical trials. During 2001, we initiated nine new clinical trials and completed
patient enrollment in 12 trials. Currently,trial expenses, as several of our clinical trials includewere either completed, cancelled or delayed during 2002. During 2002, we completed several important clinical trials, including a Synagissuccessful Phase 3 studytrial for Synagis in infantschildren with congenital heart disease a trial with adults using a liquid formulation of Synagis, three Phase 2 and one Phase 1 human papillomavirus vaccine
trials, one Phase 1 trial and three Phase 2 trials for use of MEDI-507 in psoriasis patients, two Phase 2 trials for our urinary
tract infection (UTI) vaccine, and two Phase 1 and one Phase 2 Vitaxin trials. In addition, to accommodate more research and
development activity, we expanded our workforce and facilities, resulting in increased wages and occupancy expense. We expect
clinical spending to increase significantly in the coming quarters as more of our product candidates move into the clinic, we expand
trials on products already in the clinic, and we include Aviron's expenses in our results. Additionally, we expect to incur
significant charges insiplizumab.
35
During 2002, for the write-off of purchased in-process research and development relating to our acquisition of
Aviron. We are currently performing a valuation of all tangible and intangible assets and liabilities, including the acquired
in-process research and development. Preliminarily, we have estimated that $1,145 million of the purchase price will be allocated to
in-process research and development, and will be recognized as an expense during the first quarter of 2002. We expect to finalize
the valuation of the purchased in-process research and development by March 31, 2002.
During 2001, we incurred significant costs related to the development of various products and product candidates. A summary of our more significant research and development efforts is as follows:
Stage of
Development-Stage Products Description Development
- -------------------------- ----------- -----------
Synagis Potential treatment of RSV in infants with
congenital heart disease Phase 3
Siplizumab
| Development-Stage Products | Description | Stage of Development | ||
|---|---|---|---|---|
| Synagis | Potential prevention of RSV in infants with congenital heart disease | Phase 3 completed | ||
Siplizumab | Potential treatment for psoriasis | Phase 2 | ||
Urinary tract infection vaccine | Potential vaccine to prevent urinary tract infections caused by E. coli | Terminated | ||
Human papillomavirus vaccine | Potential vaccine to prevent cervical cancer | Phase 2 completed | ||
Vitaxin | Potential product to slow tumor growth and to prevent the progress of rheumatoid arthritis | Phase 1 | ||
FluMist | Influenza vaccine delivered as a nasal mist | FDA review |
As indicated in the table above, we completed the preliminary analysis of three Phase 2 Urinarytrials for siplizumab involving almost 700 psoriasis patients. While the drug appeared to be generally well tolerated and some patients exhibited an improvement in their psoriatic disease, an anti-antibody response (also known as immunogenicity) was observed in the laboratory tests of over 50 percent of the patients. This anti-antibody response did not appear to cause any clinical complications. In 2003, we plan to conduct retreatment Phase 2 studies to further assess the potential clinical impact of the immunogenicity. We also completed two Phase 2 trials of ourE. coli urinary tract infection Potential vaccine, to preventand have determined that there is not a sufficient level of efficacy in prevention of urinary tract vaccine infections caused by E. coli Phase 2
Human papillomavirus vaccine Potential vaccine to prevent cervical cancer Phase 2
Vitaxin Potential anti-angiogenicproceed with additional trials. Our ongoing clinical program also includes several product to impede tumor
growth, and potential rheumatoid arthritis therapycandidates in various phases of evaluation, including a Phase 1 trial in adults using a liquid formulation of Synagis and certain trials for FluMist. Additionally, we have multiple programs in preclinical development.
Forward-looking commentary—We expect research and development expenses to be up slightly in 2003 compared to 2002. This is largely due to the impact of the conclusion of trials and studies as described above offset by the anticipation of post-marketing commitments, additional trials associated with FluMist and the continued progress of our pipeline candidates.
During 2002, we entered into the several research collaborations and licensing agreements, which commit us to future payments of $186.7 million, should certain events or milestones occur.
The development-stage efforts listed above and other research and development projects may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. Further, we rely on numerous third parties to assist us in various stages of the development process. Should they be unable to meet our needs, we may incur substantial additional costs. Any of such uncertainties, if they should occur, could have a material adverse effect on our financial condition and results of operations.
Selling, General, and Administrative Expense -Expenses
Selling, general and administrative ("SG&A") expenses increased 54% to $299.3 million in 2002 compared to $194.8 million for the 2001 period. Excluding Acquisition-related amounts of $11.9 million in expense in 2002 relating to retention payments, stock option acceleration and stock compensation for unvested stock options assumed and amortization of intangibles, SG&A expenses were $287.5 million,
36
up 48% over 2001. As a percentage of product sales, adjusted SG&A expense increased to 37% of product sales in the 2002 period from 34% in the 2001 period. The increase in this ratio is largely reflective of the impact of the Acquisition and the inclusion of MedImmune Vaccines' ongoing expenses. Additionally, we incurred increased co-promotion expense directly related to the growth in domestic sales of Synagis, higher salaries and sales commissions, as well as increased Synagis marketing expense. SG&A expenses for 2002 also included a $5.0 million charge associated with the settlement of a contractual dispute in August 2002 regarding an agreement with the Massachusetts Biologic Laboratories of the University of Massachusetts ("MBL") to transfer certain technology relating to the Company's monoclonal antibody manufacturing operations. The comparison to last year is favorably impacted as $13.4 million of expenses related to our accelerated acquisition of Ethyol marketing rights from ALZA was included in SG&A for 2001.
Forward-looking commentary—We expect SG&A expenses as a percentage of product sales to decrease in 2003, largely due to a shift in product sales mix.
Other Operating Expenses
Other operating expenses, which reflect manufacturing start-up costs and other manufacturing related costs, increased to $100.0 million in 2002 from $9.6 million in 2001. Excluding Acquisition-related amounts of $20.8 million in expense in 2002 relating to stock compensation for unvested stock options assumed and amortization of intangibles, adjusted other operating expenses were $79.2 million. The increase over 2001 is primarily related to $56.9 million of pre-production costs and inventory reserves for FluMist. The majority of the cost incurred for FluMist was associated with preparing for the aborted 2002 commercial launch. Additionally, we incurred a $12.9 million charge for the write-off of CytoGam manufacturing equipment as the Company has outsourced CytoGam production activities as of November 2002. Also included in other operating expense for both periods are excess capacity costs associated with the plasma production section of the FMC.
Forward-looking commentary—We expect the level of other operating expenses will decline significantly in 2003 as we anticipate that approval of FluMist will occur in the second quarter of 2003, if not sooner.
In-Process Research and Development
We incurred charges of $1,179.3 million for the year ended December 31, 2002 for the write-off of purchased in-process research and development in conjunction with the Acquisition. The write-off represents the fair value of purchased in-process technologies at the acquisition date, calculated utilizing the sum of the probability-adjusted scenarios under the income approach using a discount rate of 18.7%, and certain in-process research and development projects, primarily FluMist. We do not anticipate that there will be any alternative future use for the in-process technologies that were written off.
FluMist is a live, attenuated vaccine delivered via a nasal mist for the prevention of influenza. It is a frozen vaccine requiring freezer storage. A liquid influenza vaccine, better suited to international markets where freezers are not as readily available to pharmacists and physicians, is currently being developed by our partner Wyeth. While there are other flu vaccines currently marketed by other companies, FluMist would be the only live virus vaccine administered as a nasal mist.
In October 2000, we submitted a BLA for FluMist to the FDA seeking approval for licensure. We received a CRL from the FDA and filed our response to this letter in January 2002. A second CRL was received from the FDA in July 2002 requesting clarification and additional information relating to clinical data and chemistry, manufacturing and controls data previously submitted. We submitted the requested information in August 2002. We met with the FDA's VRBPAC committee in December 2002 who voted favorably on the questions of safety and efficacy for FluMist in preventing influenza in
37
healthy children, adolescents and adults ages five through 49 and safety for healthy individuals aged 50-64 years. On January 29, 2003, we received a third CRL from the FDA containing five questions, to which we responded in early February 2003.
The valuation of the acquired in-process research and development is based upon certain estimates and assumptions by management. The valuation is based upon management's estimates of the probability of FDA approval and commercial success for FluMist. As with all biotechnology products, the probability of FDA approval and commercial success for any particular research and development project is highly uncertain. Management's projections were based on assumptions, which may or may not remain valid for the relevant period, including the estimated impact of four "key" factors: price per dose; dose volume; launch date; and the potential failure of the frozen or liquid formulations of the influenza vaccine. Based on current information, management believes that the estimates and assumptions underlying the fair value analysis are substantially accurate. In addition, as of February 28, 2003, none of the existing manufacturing facilities involved in the production of FluMist had been licensed by any regulatory agency and FluMist had not yet been manufactured at a sustained commercial scale. There can be no assurance that these facilities can achieve licensure by the FDA or any other regulatory agency, or can there be any assurances that if licensed, commercial scale production could be achieved or sustained. If we fail to obtain FDA approval for the marketing and manufacture of FluMist, we will absorb all of the related ongoing expenses while recording no corresponding revenue.
Interest Income and Expense
We earned interest income of $49.4 million for 2002, compared to $36.5 million in 2001, reflecting higher cash balances available for investment, largely due to the Acquisition, partially offset by a decrease in interest rates, which lowered the overall portfolio yield. Interest expense for 2002, net of amounts capitalized, was $9.1 million, up $8.5 million over 2001. Excluding the Acquisition-related amount of $1.8 million for the amortization of premium on the 51/4% Convertible Subordinated Notes ("the Notes"), adjusted interest expense was $194.8$10.9 million. The increase over 2001 is due to interest expense on the Notes assumed in the Acquisition.
Loss on Investment Activities
We incurred $14.1 million in losses on investment activities for 2002. The losses consisted primarily of impairment charges of $4.5 million on our publicly traded equity investments and $9.6 million on our minority interest investments related to declines in fair value that were judged to be other than temporary.
Taxes
We recorded income tax expense of $48.2 million for the year ended December 31, 2002. Excluding items not deductible for tax purposes, principally the write-off of purchased in-process research and development, the resulting effective tax rate is 37.2%. This compares to tax expense of $79.5 million recorded for the year ended December 31, 2001, based on an effective tax rate of 34.8%. The higher effective tax rate for 2002 versus 2001 is due to lower credits estimated to be available for research and development activities, including credits earned for orphan drug status of certain research and development activities. These credits will vary from year to year depending on the activities of the Company.
Forward-looking commentary—We expect that our 2003 effective tax rate will continue to be at approximately the same rate as 2002.
38
Net loss
Net loss for the year ended December 31, 2002 was $1.1 billion, or $4.40 per share compared to net earnings for the year ended December 31, 2001 of $149.0 million or $0.70 basic and $0.68 diluted earnings per share. Excluding the after-tax impact of the Acquisition-related amounts totaling $1.2 billion, adjusted net earnings for 2002 were $106.6 million, or $0.42 adjusted earnings per diluted share.
Shares used in computing net loss per share in 2002 were 249.6 million. Shares used in computing basic and diluted earnings per share for 2001 were 213.4 million and $157.3220.1 million, respectively. The increase in share count primarily reflects the 34.0 million additional shares issued in conjunction with the Acquisition.
We do not believe inflation had a material effect on our financial statements.
Forward-looking commentary—In 2003, we expect to generate net earnings per diluted share. The level of net earnings will depend on many factors, including, but not limited to, the timing and extent of regulatory approvals of our products and product candidates, the degree of acceptance of our products in the marketplace and adequate product supply to meet demand.
RESULTS OF OPERATIONS
2001 Compared to 2000
Revenues—Product Sales
| | 2001 | 2000 | Growth | ||||||
|---|---|---|---|---|---|---|---|---|---|
| | (In Millions) | ||||||||
| Synagis | $ | 516.4 | $ | 427.0 | 21 | % | |||
| CytoGam | 32.3 | 36.5 | (12 | %) | |||||
| Ethyol | 20.3 | 21.4 | (5 | %) | |||||
| Other Products | 10.5 | 10.9 | (4 | %) | |||||
| $ | 579.5 | $ | 495.8 | 17 | % | ||||
Product sales grew 17% to $579.5 million in 2001 from $495.8 million in 2000, primarily due to increased sales of Synagis.
Synagis—Sales of Synagis increased 21% over 2000 from $427.0 million to $516.4 million in 2001. Contributing to the growth was a 20% increase in domestic Synagis sales from $399.5 million in 2000 to $479.7 million in 2001. This growth was attributable to higher demand in the United States, resulting in a 19% increase in domestic sales unit volume, and a 3.6% increase in the domestic selling price of Synagis effective in the second quarter of 2001. Partially offsetting the increase was higher estimated government reimbursements, which were accounted for as a reduction of product sales, as Synagis usage by patients eligible for Medicaid grew over the prior year. Contributing to the strong growth in international sales during 2001 was the timing of a contractual shift in May 2001 to a higher proportion of the per unit sales price recognized upon delivery of product to Abbott under the terms of our international distribution agreement. Units shipped to Abbott during 2001 decreased approximately 16% from 2000, which we believe reflects reductions in Abbott's inventory stocking levels rather than reduced product demand by end users. We believe, based on information provided by AI, that end user demand increased from 2000 to 2001.
CytoGam—CytoGam sales decreased 12% from $36.5 million in 2000 to $32.3 million in 2001. Domestic sales units decreased 21%, which was partially offset by a domestic price increase of 8% effective in the second quarter of 2001 and a decrease in government reimbursements for the product.
39
We believe that a portion of the CytoGam sales that occurred in 2000 was the result of product substitution occurring because of the then worldwide shortage of standard IVIG products. In late 2000, the supply of standard IVIG products increased, and certain Medicaid agencies began to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales relating to product substitution decreased significantly in 2001.
Ethyol—Ethyol revenues decreased 5% from $21.4 million in 2000 to $20.3 million in 2001. Sales of Ethyol in 2001 were impacted by our early assumption of domestic marketing responsibility for Ethyol from ALZA. The transfer of marketing responsibility from ALZA was originally scheduled to occur in April 2002. However, in September 2001, we reached an agreement with ALZA to accelerate to October 1, 2001 the transfer to us of Ethyol marketing rights. In anticipation of that transfer, we ceased supply sales of Ethyol to ALZA during the third quarter of 2001, and we purchased ALZA's remaining Ethyol inventory at historical cost as of September 30, 2001, which we recorded as a reduction to product sales in the amount of $2.3 million. Beginning October 1, 2001, we recorded all revenues from domestic sales of Ethyol and, beginning April 1, 2002, we pay ALZA a declining royalty for nine years thereafter based on sales of Ethyol in the U.S. We recorded net domestic product sales of Ethyol of $12.7 million during the fourth quarter of 2001. Prior to October 1, 2001, we recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price. Our international sales of Ethyol to our distribution partner, Schering, declined slightly to $6.0 million during 2001 as compared to $6.5 million in 2000, as unit sales decreased 3%. In accordance with our product supply agreement, we recorded Ethyol international product sales based on a percentage of Schering's end user sales. We believe the decrease in international sales was primarily due to reductions in inventory stocking levels at our international distribution partner.
Other Products—Sales of other products in 2001, which included sales of NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, were comparable to 2000 sales. Results for the year ended December 31, 2000 also included net sales of Hexalen. We sold this product to MGI Pharma in November 2000 and, therefore no longer recorded product sales of Hexalen; rather, we recognized royalty income and other revenue pursuant to our agreement with MGI Pharma. These amounts were included in other revenues for 2001.
Revenues—Other Revenues
Other revenues decreased 12% from $44.7 million in 2000 to $39.2 million in 2001. Other revenues during both years consisted primarily of revenues under collaborative agreements. We recognized revenue of $21.4 million in 2001 compared to $21.1 million in 2000 related to upfront and milestone payments under these agreements. We recognized non-refundable fees and milestone payments in connection with research and development and commercialization agreements as the contractual obligations and performance requirements were fulfilled, using the contingency adjusted performance model for revenue recognition. Under this method, the amount of revenue recognized during each period was based the ratio of actual costs incurred relative to the total projected costs.
Other revenues also included research funding from GSK for the development of an HPV vaccine. Funding decreased $5 million to $2.8 million in 2001, as our responsibilities under the collaboration agreement, primarily Phase 1 and 2 clinical trials and preparation of clinical material, were nearing completion. Other revenues also included approximately $5.3 million in 2001 and $1.2 million in 2000 respectively,from MGI Pharma related to the agreement for the sale of our Hexalen business. During 2001, we also entered into an increaseagreement to sell excess production capacity to a third party and recorded $7.5 million in other revenues under the arrangement. Other revenues in both years also included royalty income from ALZA in accordance with the terms of the Ethyol distribution agreement. Other revenues during 2000 also included $10.0 million related to the license agreement signed with GSK for ourStreptococcus pneumoniae vaccine technology.
40
Cost of Sales
Cost of sales for 2001 increased 9% to $138.7 million from $127.3 million in 2000 due to increased sales volumes. Gross margins for the year ended December 31, 2001 improved to 76% from 74% for the year ended December 31, 2000. Gross margins in 2001 were principally improved as a result of a product mix shift to Synagis. Synagis has higher margins than MedImmune's other products, which is in part attributable to lower manufacturing costs following implementation of an improved manufacturing process at the FMC, which increased fermentation yields. Additionally, margins in 2000 were adversely affected by a $2.4 million charge associated with the write-off of certain Synagis inventory, as a result of a contamination in the manufacturing process at the FMC, as well as a $1.5 million charge associated with the write-off of by-product inventory associated with our plasma production activities.
Research and Development Expenses
Research and development expenses increased 25% to $83.0 million in 2001 from $66.3 million in 2000, primarily due to a larger number of active clinical trials. During 2001, we initiated nine new clinical trials and completed patient enrollment in twelve trials. Our clinical trials included a Synagis Phase 3 study in infants with congenital heart disease, a trial with adults using a liquid formulation of Synagis, three Phase 2 and one Phase 1 human papillomavirus vaccine trials, one Phase 1 trial and three Phase 2 trials for use of siplizumab in psoriasis patients, two Phase 2 trials for our UTI vaccine, and two Phase 1 and one Phase 2 Vitaxin trials. In addition, to accommodate more research and development activity, we expanded our workforce and facilities, resulting in increased wages and occupancy expense.
During 2001, we incurred significant costs related to the development of various products and product candidates. A summary of our more significant research and development efforts as of December 31, 2001 would include Synagis (Phase 3), siplizumab (Phase 2), UTI (Phase 2), HPV vaccine (Phase 2) and Vitaxin (Phase 1).
The development-stage efforts listed above and other research and development projects may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. Further, we rely on numerous third parties to assist us in various stages of the development process. Should they be unable to meet our needs, we may incur substantial additional costs. Any of such uncertainties, if they should occur, could have a material adverse effect on our financial condition and results of operations.
Selling, General and Administrative Expense
SG&A expense increased 24%. to $194.8 million in 2001 from $157.3 million in 2000. As a percentage of product sales, SG&A expense increased to 34% in 2001 from 32% in 2000. A portion of thethis increase in SG&A expense in 2001 versus 2000 is reflective of expenses related to our accelerated
acquisition of Ethyol marketing rights from ALZA. We recorded $13.4 million in termination fees relating to our agreement with ALZA.ALZA for the accelerated acquisition of Ethyol marketing rights in the United States. In addition, we incurred increased salary and related expenses for the expansion of our Ethyol sales force of approximately 40 additional sales representatives and increased marketing expenses for the relaunch of Ethyol during the second half of 2001. SG&A expense also increased due to increased wage and related expenses for our pediatric sales force which was established in mid-year 2000, costs for expanded Synagis marketing programs, and increased co-promotion expense to the Ross Products Division of Abbott Laboratories for the promotion of Synagis in the United States. Co-promotion expense is based on a percentage of net domestic sales
of Synagis and thus increases as net domestic Synagis sales increase. Offsetting these increases was a decrease in legal expenses from 2000, as several legal matters outstanding in 2000 have since beenwere resolved. For 2002, we expect SG&A expenses to decrease
slightly as a percentage of total revenues.
41
Other Operating Expenses -
Other operating expenses, which reflect manufacturing start-up costs, the cost of idle manufacturing capacity and other manufacturing related costs, increased in 20014% to $9.6 million in 2001 from $9.2 million in 2000. The slightThis increase iswas mainly attributable to chargesa $1.3 million charge in 2001 of
$1.3 million to record certain plasma inventories at their net realizable value. The plasma was intended for the start-up operations of our manufacturing plant and was not approved for use in the current production process. In December 2000, the FDA granted
approval of an amendment to the Biologic License Application for CytoGam to allow us to perform a portion of the CytoGam production
process at our Frederick facility. Currently, the plasma production section of the Frederick facility has excess capacity, which
results in charges to other operating expenses. These charges are expected to continue for the foreseeable future until the plasma
production section of the facility is fully utilized. Other operating expenses are expected to increase significantly in 2002 as a
result of manufacturing-related and start-up costs associated with Aviron's operations in anticipation of possible FDA approval of
FluMist, which may or may not be granted.
Interest Income and Expense -
We earned interest income of $36.5 million during 2001 versuscompared to $29.6 million in 2000, reflecting higher cash balances available for investment and a shift in our investment strategy to include investments with longer maturities, partially offset by a decline in interest rates which lowered our portfolio yield. Interest expense was comparable in 2001 to 2000.
Taxes -
We recorded income tax expense of $79.5 million for the year ended December 31, 2001, resulting in an effective tax rate of 34.8%. This comparescompared to tax expense of $64.4 million recorded for the year ended December 31, 2000, based on an effective tax rate of 30.8%. The variation in the effective tax rate for 2001 versuscompared to 2000 results from differences inis due to the amount of credits takenavailable for research and development activities and credits earned for orphan drug status of certain research and development activities. These
credits will vary from year to year depending on the activities of the Company. In addition, due to state tax law changes for the year ended December 31, 2001, the value of our state deferred tax assets decreased. We believe thisThe change in the statutory tax law will
ultimately lower our tax rates; however, we wererate required us to reduce our deferred tax assets and accompanying valuation allowance to value them at the new rate, resulting in a $2.4 million additional charge to tax expense during 2001. We expect that our
year-to-date effective tax rate in future periods will approximate our statutory rate of 37.0%.
Cumulative Effect of a Change in Accounting Principle -
We recorded a non-cash charge to 2000 earnings of $33.8 million, net of tax, or $0.16 on a diluted per share basis, as the cumulative effect of a change in accounting principle for the implementation of SAB 101. The adjustment was applied to the first quarter of 2000 as required by the SAB and includes amounts recognized as revenue prior to 2000. These amounts related to up-front payments or milestone payments whichthat we received in prior years under arrangements for which performance obligations related to the up-front or milestone payments had been met, but for which we were contractually obligated to perform additional research and development activities or other activities in future periods. Accounting principles
generally accepted in the United States previously required us to record the revenue from the up-front and milestone payments as
received, when the performance obligations associated with those payments had been fully met. However, following the adoption of SAB
101, accounting principles generally accepted in the United States now require that we recognize the revenue received in conjunction
with up-front or milestone payments over the remaining performance period under the contract as those obligations are fulfilled.
Net earnings -Earnings
Earnings for the year ended December 31, 2001 were $149.0 million, compared to earnings for the year ended December 31, 2000 of $145.0 million, before the cumulative effect of a change in accounting principle of $33.8 million. Net earnings per share for the year ended December 31, 2001 were $149.0 million, or $0.70 for basic earnings per share and $0.68 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 213.4 million and 220.1 million, respectively. Net earnings for the year ended December 31, 2000, which include the cumulative effect of a change in accounting principle, were $111.2 million, or $0.53 basic and $0.50 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 209.1 million and 220.4 million, respectively.
We do not believe inflation had a material effect on our financial statements.
These results were consistent with our objectives for the year
LIQUIDITY AND CAPITAL RESOURCES
Sources and with the continued developmentUses of our products.Cash
The factors that
affected 2001 results may continueCompany's capital requirements have generally been funded from operations, cash and investments on hand, and issuance of common stock. Cash and marketable securities (short and
42
long-term) increased 83% to affect near-term financial results.
2000 Compared to 1999
Revenues
Product Sales (In Millions) 2000 1999
---- ----
Synagis $427.0 $293.0
CytoGam 36.5 34.7
Ethyol 21.4 19.6
Other Products 10.9 9.5
TOTAL $495.8 $356.8
Product sales in 2000 increased 39% to $495.8 million. The$1.4 billion at December 31, 2002 from $777.7 million at December 31, 2001. This increase was attributable to a number of factors including:
An increase in sales of Synagis, our largest product, which accounted for 86% and 82% of our 2000 and 1999 product sales,
respectively. Sales of Synagis in 2000 increased 46% to $427.0 million over 1999 sales of $293.0 million. Increased domestic demand
for the product resulted in a 35% increase in unit volume. A 3.1% domestic price increase which took effect in the second quarter of
2000 also contributedis due to the sales increase. International sales increased 233% to $27.5 million in 2000 and reflected primarily an
increase in unit volumeimpact of 215% over the prior year, following approval of Synagis by the EMEA in August 1999. The unit volume
increase reflected greater demand for the productAcquisition, as well as inventory stocking by Abbott International. Sales madecash generated from operations. Working capital increased 31% to Abbott may
not reflect the ultimate demand for the product by the end users. Abbott International acts as our exclusive distributor for Synagis
sales outside of the United States. The terms of our agreement with Abbott provide for us to receive 40 to 50 percent of end user
sales. We initially recognized sales to Abbott when Synagis was shipped to Abbott based on a contractual, guaranteed transfer price;
this amount approximated 60 to 75 percent of the total sales revenue expected to be received for each vial. Following the end of
each quarter, Abbott remitted a report to us detailing end user sales by Abbott for the quarter and we recognized revenue for the
additional amount due in excess of the transfer price and up to 40 to 50 percent of the end user selling price. As of$476.8 million at December 31, 2000, we and Abbott International had filed international registrations in 58 countries for the approval of Synagis, of which
approvals in 43 countries had been obtained.
CytoGam sales increased to $36.52002 from $365.2 million or 5% over 1999 sales of $34.7 million. We believe that a portion of the CytoGam sales
that occurred in both years was the result of product substitution occurring because of a worldwide shortage of standard IVIG
products. During 2000, the supply of standard IVIG products increased, and certain Medicaid agencies began to limit or discontinue
reimbursement of CytoGam as a substitute for IVIG. Thus, we believe CytoGam sales for the 2000 period relating to product
substitution decreased significantly. Partially offsetting the decrease in the substitution business was a moderate increase in
usage in transplantation. Overall, unit volumes decreased 5% domestically and 40% internationally when compared to the 1999 year.
Despite the unit volume decrease, sales dollars increased due to a domestic price increase of approximately 7% implemented during
the second quarter of 2000, and due to decreased government rebates paid for the product, principally for Medicaid, related to the
IVIG substitution sales.
Sales of Ethyol increased approximately 9% to $21.4 million over 1999 sales of $19.6 million. Ethyol was sold through distribution
partners in the United States and internationally; we received a percentage of end user sales and recorded all related cost of goods
sold. In 2000, revenue for Ethyol from ALZA, our United States distributor, was $14.8 million versus $14.0 million in 1999. We
achieved an increase in sales volumes of 7% domestically and 9% internationallyat December 31, 2001. Also, as a result of increased demand by the distribution
partners. Sales made to our distribution partners may not reflect the ultimate demand for the product by the end users. In 2000,Acquisition, we estimated that end user demand for Ethyolhave added $200 million in the United States increased by approximately 28%. The difference between end user
demand and demand from our distributor represents fluctuations in wholesaler and distributor inventories.
Sales of other products in 2000 increased $1.4 million, or 15% from the prior year. Sales of other products included primarily sales
of NeuTrexin and RespiGam. Also included in other product sales were sales of Hexalen. In November 2000, we sold this product to MGI
Pharma.
Other revenues for the year ended December 31, 2000 of $44.7 million increased 68% from 1999 other revenues of $26.6 million. This
increase was largely due to the implementation of SAB 101 in the fourth quarter of 2000, retroactively to January 1, 2000. SAB 101
summarizes certain of the SEC's views in applying generally accepted accounting principles to certain revenue transactions in
financial statements. The implementation of SAB 101 included amounts previously recognized as revenue relating to up-front payments
or milestone payments received by us in prior years under arrangements for which performance obligations related to the up-front or
milestone payments had been met, but for which we were contractually obligated to perform additional research and development
activities or other activities in future periods. Generally accepted accounting principles previously required us to record the
revenue from the up-front and milestone payments as received, when the performance obligations associated with those payments had
been fully met. However, following the adoption of the SAB, generally accepted accounting principles now require that the revenue
received in conjunction with up-front or milestone payments be recognized over the remaining performance period under the contract
as those obligations are fulfilled. In accordanceNotes with the SAB, we recognized $21.1 millionentire balance due in licensing revenues for the year 2000
related to up-front fees and milestone payments received in prior years. Excluding these revenues, other revenues would have
decreased $3.0 million, or 11%, as compared to 1999's level of $26.6 million, and included primarily $10.0 million from
GlaxoSmithKline ("GSK") related to the sale of our Streptococcus pneumoniae vaccine technology, $7.8 million earned under a
collaborative agreement with GSK for HPV vaccine development, and royalty income due from ALZA in accordance with the terms of the
Ethyol distribution agreement. Other revenues in 1999 primarily included $6.2 million received under the HPV vaccine development
collaboration with GSK and a payment of $15.0 million from Abbott upon European approval of Synagis.
Cost of Goods Sold - Cost of goods sold rose 41% in 2000 to $127.3 million versus $90.2 million in 1999. This increase was primarily
a result of increased 2000 sales volumes. Gross margins were 74% for 2000, as compared to 75% for 1999. Included in cost of goods
sold for 2000 was a $2.4 million charge associated with the write-off of certain Synagis inventory as a result of a contamination in
the manufacturing process at the FMC, as well as a $1.5 million charge associated with the write-off of by-product inventory
associated with our plasma production activities. We expect gross margins to vary from quarter to quarter, based on the product mix.
Research and Development Expenses - Research, development and clinical spending expenses increased 11% over the prior year from
$59.6 million in 1999 to $66.3 million in 2000, primarily due to higher expenditures on our clinical trials and increased
infrastructure costs needed to support the growing number of ongoing clinical trials. We are currently administering multiple trials
for our products, primarily including: Synagis in infants with congenital heart disease, human papillomavirus vaccine trials, and
several trials using MEDI-507.
Selling, General, and Administrative Expense - Selling, general and administrative ("SG&A") expense was $157.3 million in 2000
versus $139.4 million in 1999, an increase of 13%. As a percent of product sales, however, SG&A expenses in 2000 decreased from
39% of product sales in 1999 to 32% of product sales in 2000. 1999 expenses included one-time items of $21.2 million for merger and
severance related costs associated with the acquisition of USB, which was completed on November 23, 1999. The charge consisted of
approximately $14.7 million of deal-related costs (i.e., banking fees, audit and tax fees, printing fees, and other fees),
approximately $5.6 million of involuntary employee termination costs, and approximately $0.9 million of other costs. Of the amount
expensed, approximately $1.2 million of severance costs were accrued as of December 31, 1999. No material adjustments were made to
the accrual during 2000. A significant portion of the increase in SG&A expense in 2000 related to co-promotion expenses due to
the Ross Products Division of Abbott Laboratories for the promotion of Synagis in the United States; these expenses increased as the
domestic sales for Synagis increased. Co-promotion expense is recorded ratably as a percentage of net domestic Synagis sales.
Further increases in 2000 were attributable to wage and related expenses incurred in connection with the establishment of our
pediatric sales force during 2000 and legal costs related to several outstanding legal matters, including those related to the
MediGene AG and Celltech matters. During the fourth quarter of 1999, we favorably resolved a prior dispute with one of our partners
resulting in the receipt of approximately $6.8 million. Such settlement amount was recorded as a reduction to selling,
administrative and general expense in the fourth quarter of 1999.
Other Operating Expenses - Other operating expenses, which reflect manufacturing start-up costs, decreased 47% in 2000 to $9.2
million from $17.4 million in 1999. Expenses in both years included start-up costs for the Company's Frederick Manufacturing Center
("FMC"). Expenses in both the 2000 and 1999 periods included charges for the write-off of certain equipment associated with our
plasma production activities of $1.8 million and $1.4 million, respectively. In December 2000, the FDA granted approval for the
amendment to the BLA for CytoGam to allow for a portion of the production of CytoGam at the Frederick facility. We were granted FDA
approval for the manufacture of Synagis at the Frederick facility in December 1999. Currently, the plasma production section of the
Frederick facility has excess capacity.
Interest Income and Expense - Interest income increased 134% to $29.6 million from $12.6 million in 1999 as a result of higher cash
balances available for investment and increased yields on investments in the 2000 investment portfolio due to more favorable market
conditions. Interest expense in 2000 decreased due to debt paydowns.
Taxes - We recorded income tax expense in 2000 of $64.4 million as compared to a benefit of $7.1 million recorded in 1999. Our
effective tax rate for 2000 was 30.8%. The variation from the statutory rate of 38.6% was principally due to increased credits for
research and development expenditures and credits earned for orphan drug status of certain research and development activities. The
benefit in 1999 included the reversal of the valuation allowance against deferred taxes related to federal net operating losses of
USB in the amount of $41.0 million. The recognition of these deferred tax assets had no impact on our 1999 cash flows. Excluding the
reversal of the valuation allowance, income tax expense would have been $33.9 million in 1999, an effective rate of 39.3%. The
variation from the statutory rate was also principally due to tax credits for research and development expenditures and credits
earned for orphan drug status of certain R&D expenditures, offset by the nondeductibility of certain merger related expenses.
Cumulative effect of a change in accounting principle- We recorded a non-cash charge to 2000 earnings of $33.8 million, net of tax,
as the cumulative effect of a change in accounting principle for the implementation of SAB 101. The adjustment was applied to the
first quarter of 2000 as required by the SAB and included amounts previously recognized as revenue related to up-front payments or
milestone payments received in prior years under arrangements for which performance obligations related to the up-front or milestone
payments had been met, but for which we are contractually obligated to perform additional research and development activities or
other activities in future periods. Generally accepted accounting principles previously required us to record the revenue from the
up-front and milestone payments as received, when the performance obligations associated with those payments had been fully met.
However, following the adoption of the SAB, generally accepted accounting principles required that the revenue received in
conjunction with up-front or milestone payments be recognized over the remaining performance period under the contract as those
obligations are fulfilled.
Net Earnings - 2000 net earnings, which included the cumulative effect of a change in accounting principle, were $111.2 million
compared to 1999 net earnings of $93.4 million. Basic earnings per share in 2000 of $0.53 on 209.1 million shares compared to basic
earnings of $0.49 in 1999 on 190.4 million shares. Diluted earnings per share in 2000 of $0.50 on 220.4 million shares compared to
diluted earnings per share in 1999 of $0.44 on 212.3 million shares. Year 2000 earnings before the cumulative effect of a change in
accounting principle were $145.0 million, or $0.69 basic and $0.66 diluted earnings per share. Pro forma net income, which assumed
that SAB 101 had been applied retroactively to prior years, was $145.0 million in 2000, or $0.69 basic and $0.66 diluted earnings
per share. Pro forma net income in 1999 was $93.7 million, or $0.49 basic and $0.44 diluted earnings per share. 1999 share and per
share amounts have been restated to reflect the three-for-one stock split effected in June 2000.
We do not believe inflation had a material effect on our financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Cash and marketable securities were $787.7 million at December 31, 2001, an increase of 50% over 2000. Working capital was $429.9
million at December 31, 2001, versus $526.3 million at December 31, 2000. The decrease in working capital reflects our decision
during 2001 to invest a portion of our cash in longer-term investments, which are not included in working capital.
2008.
Operating Activities—Net cash provided by operating activities increased to $263.5 million in the year ended December 31, 2002 as compared to $250.9 million in the comparable 2001 as compared to $173.0 million in 2000,period, primarily as the result of higher earnings. Additionally, allowancesthe net earnings for trade accounts receivable increased $9.6 million to adequately reserve
for increased government rebates primarily affecting Synagis sales. Accounts payablethe period (excluding the write-off of in-process research and development and other non-cash items) and volume-related increases in accrued co-promotion expenses increased $25.5 million,
primarily for increased amounts due to Abbott Laboratories for Synagis co-promotion expense, dueand royalties payable. The Company has made $5.1 million in cash restructuring payments relating to the increase in domestic Synagis
sales, and $13.4Acquisition. The remaining restructuring liability of $1.0 million for termination fees dueis expected to ALZA.
be settled by 2004 with cash generated from operations.
Investing Activities—Cash used for investing activities during 2001 amounted to $188.22002 was $347.0 million, as compared to $199.3$188.2 million in 2000, excluding
capitalized interest of $0.3 million.2001. Cash used for investing activities in 20012002 included net additions to our investment portfolio of $168.4$404.3 million, $10.0offset by $146.9 million in cash acquired as a result of which was an investmentthe Acquisition. We also invested $8.7 million in convertible preferred equity securities of a strategic partner
related to the in-licensing of the IL-9 asthma antibody technology; $18.3partners, including Panacea, A&G and Iomai. We expended $80.9 million for capital expenditures, primarily for the land purchase for and construction of our new corporate headquarters in Gaithersburg, Maryland, and for the continued expansion of the Synagisour manufacturing area at our Frederick manufacturing facilityfacilities in Pennsylvania, Speke (England) and updated manufacturing and accounting systems; and a
$1.5 million investment in a strategic alliance for the research and development of a tumor-targeting particle.
Maryland.
Financing Activities—Financing activities generated $42.0 million in cash for 2002, as compared to $23.6 million in cash in 2001, as compared to $74.8 million in 2000.2001. Approximately $24.3$46.7 million was received upon the issuance of common stock relating primarily to the exercise of employee stock options in 2001,2002, as compared to $76.3$24.3 million received in 2000,2001, largely reflecting the lower
average price for our common shares during 2001.inclusion of option exercises by employees subsequent to the Acquisition. In 2001 and 2000,2002, repayments on long-term debtobligations were $4.6 million, compared to $0.7 million and $1.5 million,
respectively.
in 2001, primarily reflecting paydowns of long-term obligations assumed with the Acquisition.
Forward-looking commentary—We are obligated in 2002expect to provide $27.9have approximately $115 million in funding for various clinical trials, research and development and license
agreements with certain institutions. We have also agreed to make milestone payments in the future in the aggregate amount of $119.4
million, the timing of which is uncertain and dependent on the occurrence of certain events such as the granting by the FDA of a
license for product marketing in the United States for somecapital expenditures during 2003. Construction of the product candidates covered by the Company's agreements. We have
firm commitments with BI for planned production through March 2004 for approximately 43.7 million Euros, payment for which is
subject to manufacturing and delivery schedules. During March 2002, we paid approximately $13.4 million to acquire 25 acres of land
in Gaithersburg, Maryland, which will serve as the site of our new corporate headquarters. We have contracted with a designer and
general contractor for the constructionfirst phase of the new headquarters facility, over the next several years, at a total estimated cost of $80 million.
The$85 million as well as major construction project is expectedprojects at our facilities in Pennsylvania and in England, will be funded from cash generated from operations and investments on hand. Additionally, we have options to break ground in Aprilpurchase an additional 14 acres of land adjacent to the new headquarters facility. Construction began during March 2002, and we expect to take occupancy of the first phase, a complex of approximately 220,000 square feet, in the fall of 2003. The Company'smajority of our existing funds, together with funds contemplatedspace in Gaithersburg is leased through 2006, a portion of which is expected to be generated from productsubleased. There can be no guarantee that we will be successful in subleasing the space.
In conjunction with our licensing agreement with Genentech and research and development collaborations reached with Panacea, A&G and ViroNovative during 2002, we are obligated to pay up to $186.7 million in various milestone payments subject to the achievement of specified clinical, regulatory, and sales milestones. We are also obligated to pay up to $108.2 million in potential milestones under various research and investment income,development agreements we have entered into since inception. Additionally, we are required to pay research and development funding and maintenance fees under certain of the contracts. Payments are expected to provide sufficient liquiditybe funded from cash generated from operations and investments on hand.
Through MedImmune Ventures, Inc., we plan to meetinvest up to $100 million over the anticipated needsnext three years in minority interest investments in strategic partners that are either public or early-to-late stage private biotechnology companies focused on discovering and developing human therapeutics.
43
Contractual Obligations and Commitments—The following table summarizes our contractual obligations and commitments that will require significant cash outlays in the future:
| | Total | 2003 | 2004 | 2005 | 2006 | 2007 | beyond | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations | ||||||||||||||||||||||
| Long-term debt* | $ | 208.8 | $ | 0.8 | $ | 0.9 | $ | 0.9 | $ | 1.0 | $ | 1.1 | $ | 204.1 | ||||||||
| Facilities leases | 62.9 | 8.6 | 8.6 | 6.5 | 4.4 | 2.6 | 32.2 | |||||||||||||||
| Unconditional purchase obligations | 69.8 | 46.6 | 23.2 | — | — | — | — | |||||||||||||||
| Evans liability | 30.7 | 3.9 | 22.9 | 3.9 | — | — | — | |||||||||||||||
| Total contractual obligations | $ | 381.8 | $ | 59.9 | $ | 55.6 | $ | 11.3 | $ | 5.4 | $ | 3.7 | $ | 245.9 | ||||||||
| Other Commercial Commitments | ||||||||||||||||||||||
| Standby letters of credit | $ | 2.3 | $ | 2.1 | $ | — | $ | 0.2 | $ | — | $ | — | $ | — | ||||||||
| Evans liability | 2.0 | 0.5 | 1.5 | — | — | — | — | |||||||||||||||
| Obligations under Collaborative Agreements | 294.9 | 7.1 | 7.5 | 9.2 | 3.7 | 14.4 | 253.0 | |||||||||||||||
| Total other commercial commitments | $ | 299.2 | $ | 9.7 | $ | 9.0 | $ | 9.4 | $ | 3.7 | $ | 14.4 | $ | 253.0 | ||||||||
44
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about our risk-management activities includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.
Our primary market risks as of December 31, 20012002 are the exposures to loss resulting from changes in interest rates, foreign currency exchange rates, and equity prices. Market risk exposure with respect to interest rates and equity prices exceeds that of December 31, 20002001 due to the increase in the size of our investment portfolio. Also, during 2001 we revised our investment strategy
to include investments with longer maturities.
As of December 31, 2001,2002, our excess cash balances are primarily invested in marketable debt securities with investment grade credit ratings. Substantially all of our cash and cash equivalents, and short-term and long-term investments are held in custody by three major U.S. financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. Our investments include U.S. corporate debt securities, which include commercial paper and notes, international bank debt securities, international bank CD'S, and U.S. Governmentgovernment and Agencyagency notes and bonds. The maturities range from three months to fiveseven years. Our investment guidelines are intended to limit the amount of investment exposure as to institution, maturity, and investment type. The fair value of these investments is sensitive to changes in interest rates. Further, interest income earned on variable rate debt securities is exposed to changes in the general level of interest rates.
The following table presents principal cash flows and weighted average interest rates by expected maturity dates for each class of security with similar characteristics.
Fair
2002 2003 2004 2005 2006 Total Value
---- ---- ---- ---- ---- ----- -----
U.S. Government and
Agencies $ -- $ -- $ -- $ -- $ 8,000 $ 8,000 $ 8,310
Interest Rate -- -- -- -- 5.5%
Corporate Debt Securities $141,375 $70,522 $117,375 $92,350 $108,735 $530,357 $556,494
Interest Rate 4.5% 6.8% 5.9% 7.2% 6.0%
Foreign Bank CD's $ -- $ -- $ 6,000 $ -- $ 22,000 $ 28,000 $ 30,464
Interest Rate -- -- 5.0% -- 7.4%characteristics (in millions):
| | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | Total | Fair Value | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. Gov't and Agencies | $ | 163.7 | $ | 44.3 | $ | — | $ | 11.0 | $ | 15.0 | $ | 6.9 | $ | 5.0 | $ | 245.9 | $ | 254.2 | |||||||||
| Interest Rate | 2.3% | 3.2% | — | 5.5% | 4.8% | 5.9% | 6.6% | ||||||||||||||||||||
Corp. Debt Securities | $ | 183.7 | $ | 198.4 | $ | 160.7 | $ | 181.5 | $ | 83.5 | $ | 36.4 | $ | 56.2 | $ | 900.4 | $ | 967.9 | |||||||||
| Interest Rate | 5.6% | 5.9% | 6.4% | 5.7% | 5.8% | 5.1% | 5.8% | ||||||||||||||||||||
Foreign Bank Debt Securities | $ | 27.6 | $ | 6.0 | $ | 8.0 | $ | 23.0 | $ | — | $ | — | $ | — | $ | 64.6 | $ | 69.0 | |||||||||
| Interest Rate | 1.2% | 5.0% | 4.1% | 7.4% | — | — | — | ||||||||||||||||||||
We are exposed to equity price risks related to the marketable equity securities included in our investment portfolio. As of December 31, 2001,2002, we owned approximately 907,000 shares of common stock in a publicly-tradedpublicly traded company with which we previously formed a strategic alliance. In accordance with FAS 115, "Accounting for Certain Investments in Debt and Equity Securities," we value the
investment at its market price. Since thethat company's initial public offering in July 2000, the market price of the shares has fluctuated significantly. During 2002, the Company determined that the decline in fair value below the cost basis of the investment was other than temporary, based primarily on the duration and magnitude of the decline in fair value, largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee company. For the year ended December 31, 2002, the Company recorded a realized loss of $4.5 million to write-down the cost basis of the investment to fair value. We expect thisthe stock price volatility to continue and, thus, the value assigned to this investment could change significantly from its market value of $11.2$1.9 million at December 31, 2001.2002. For each one percent change in the fair value of the underlying security, the fair value of our investment would change by approximatelyless than $0.1 million. As of December 31, 2000,2001, the fair value of the investment was $15.5$11.2 million.
In connection with its research and development collaborations, the Company holds minority interests in companies having operations or technology in areas within its strategic focus. The investments are maintained on the cost or equity method of accounting, according to the facts and
45
circumstances of the individual investment. Under either method, the investments are subject to adjustment for other-than-temporary impairments. Additionally, for investments carried on the equity method, the Company's proportionate share of the investee's gains or losses is recorded on a quarterly basis. During 2001, we invested approximately $10.02002, the Company determined that the declines in fair value below the cost basis of certain of its minority interest investments were other than temporary, based primarily on the duration and magnitude of the declines in fair value, largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee companies. For the year ended December 31, 2002, the Company recorded realized losses of $9.5 million to write-down the cost basis of certain of its minority interest investments in non-marketable securities to fair value.
In July 2002, the Company formed MedImmune Ventures, Inc., a wholly-owned venture capital subsidiary that will assume the responsibility of the current portfolio of minority interest investments in strategic partners and will invest in public or early-to-late-stage private biotechnology companies focused on discovering and developing human therapeutics. The fund will invest primarily in areas of strategic interest to the Company, including infectious disease, immunology and oncology. The fund initially plans to invest up to $100.0 million over the next three years.
Following the Acquisition, the Company's subsidiary, MedImmune Vaccines, continues to be obligated for $200.0 million in Notes due 2008. The Notes were recorded at their fair value of $211.4 million, based on quoted market prices as of January 10, 2002, the acquisition date. Interest is payable semi-annually in arrears in cash on February 1 and August 1 each year. Changes in interest rates do not affect interest expense incurred on the Notes, because they bear interest at fixed rates. The Notes are convertible preferred equity securitiesinto an aggregate of a strategic partner, which is
a publicly-traded biopharmaceutical company. In accordance with accounting principles generally accepted in3.4 million shares of the United States of
America, we carry the investment at cost, adjusted for any other-than-temporary declines in value. We evaluate the investment for
potential other-than-temporary impairmentsCompany's common stock, based on a periodic basis, and determined that no such other-than-temporary impairments
occurred during 2001.conversion price of $58.14, at any time on or before February 1, 2008. The Company may redeem the Notes beginning in February 2004, at redemption prices declining from 103% of their principal amount in 2004 to 100% in 2008, plus accrued interest. The estimated fair value of the Notes at December 31, 2002, based on quoted market prices, was $198.2 million.
Changes in interest rates do not affect interest expense incurred on our remaining outstanding indebtedness of $9.5$8.8 million and $10.3$9.5 million at December 31, 20012002 and 2000,2001, respectively, because the borrowings are in the form of notes whichthat bear interest primarily at fixed rates. Maturities of long-term debt for the next five years are as follows: 2002, $0.8 million; 2003, $0.8 million; 2004, $0.9 million; 2005, $0.9 million; and 2006, $1.0 million; and 2007, $1.1 million. The estimated fair value of ourthe remaining long-term debt at December 31, 20012002 and 2000,2001, based on quoted market prices or discounted cash flows at currently available borrowing rates, was $9.3 million and $10.0 million, and $10.9 million,
respectively.
The Company's contract with BI for the purchasesupplemental manufacturing of Synagis from BI is denominated in Euros. Currently, we have firm commitments with BI for planned production through March 20042005 for approximately 43.742.6 million Euros, payment for which is subject to manufacturing and delivery schedules. In an effort to reduce the impact of fluctuations in the rate of exchange between the U.S. Dollar and the Euro on the cost of the Company's purchases of Synagis, the Company periodically enters into foreign exchange forward contracts. These contracts permit the Company to purchase Euros to fund a portion of its inventory purchase obligations at a fixed exchange rate. Each contract terminates on the day the Company expects to make payment for a shipment of Synagis. The Company does not enter into foreign exchange forward contracts for speculative or trading purposes. As of December 31, 2001, the Company did not have any open
foreign exchange forward contracts. As of December 31, 2000, the Company had outstanding forward Euro contracts in the amount of
$11.1 million, all expiring within one year. Fair value of the outstanding contracts at December 31, 2000 was $0.5 million.
On January 1, 2001, the Company adopted Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 establishes new accounting and reporting standards for derivative financial instruments and
hedging activities. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at fair value. Changes in
fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a
derivative is designated as part of a hedge transaction and if it is, depending on the type of hedge transaction. For foreign
currency cash-flow hedge transactions in which the Company is hedging the variability of cash flows related to inventory purchases,
changes in the fair value of the derivative instruments will be reported in other comprehensive income. The gains and losses on
these derivatives that are reported in other comprehensive income, will beand reclassified as earnings in the periods in which the related inventory is sold. The ineffective portion, if any, of all hedges will beare recognized in current-period earnings.
46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MedImmune, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
December 31, 2001 December 31, 2000
----------------- -----------------
Assets
Cash and cash equivalents $ 171,255 $ 84,974
Marketable securities 227,067 406,455
Trade receivables, net 108,902 115,635
Inventory, net 50,836 46,633
Deferred tax assets 27,280 22,319
Other current assets 9,063 11,796
---------- ----------
Total current assets 594,403 687,812
Property and equipment, net 95,402 86,383
Deferred tax assets, net 136,361 194,761
Marketable securities 389,368 34,825
Other assets 3,852 2,794
---------- ----------
Total assets $1,219,386 $1,006,575
========== ==========
Liabilities and Shareholders' Equity
Accounts payable, trade $ 5,873 $ 3,090
Accrued expenses 94,965 72,159
Product royalties payable 47,720 40,553
Deferred revenue 13,839 33,966
Other current liabilities ---------- ---------
2,149 1,697
---------- ---------
Total current liabilities 164,546 151,465
Long-term debt 8,791 9,595
Other liabilities 1,776 1,933
------------- --------------
Total liabilities 175,113 162,993
------------- --------------
Commitments and Contingencies (Note 17)
Shareholders' Equity
Preferred Stock, $.01 par value; authorized
5,524,525 shares; none issued or outstanding -- --
Common Stock, $.01 par value; authorized
320,000,000 shares; issued and outstanding
214,484,084 and 211,347,825 at December 31,
2001 and 2000, respectively 2,145 2,113
Paid-in capital 891,627 842,815
Accumulated earnings (deficit) 141,875 (7,085)
Accumulated other comprehensive income 8,626 5,739
-------------- --------------
Total shareholders' equity 1,044,273 843,582
-------------- --------------
Total liabilities and shareholders' equity $1,219,386 $1,006,575
============== ==============
(in thousands)
| | 2002 | 2001 | ||||||
|---|---|---|---|---|---|---|---|---|
| Assets: | ||||||||
| Cash and cash equivalents | $ | 130,056 | $ | 171,255 | ||||
| Marketable securities | 396,882 | 162,375 | ||||||
| Trade receivables, net | 113,774 | 126,371 | ||||||
| Inventory, net | 59,963 | 50,836 | ||||||
| Deferred tax assets | 25,735 | 27,280 | ||||||
| Other current assets | 17,023 | 9,063 | ||||||
| Total Current Assets | 743,433 | 547,180 | ||||||
Marketable securities | 896,118 | 444,060 | ||||||
| Property and equipment, net | 183,992 | 95,402 | ||||||
| Deferred tax assets, net | 222,038 | 136,361 | ||||||
| Intangible assets, net | 113,275 | — | ||||||
| Goodwill | 15,970 | — | ||||||
| Other assets | 13,463 | 13,852 | ||||||
| Total Assets | $ | 2,188,289 | $ | 1,236,855 | ||||
Liabilities and Shareholders' Equity: | ||||||||
| Accounts payable, trade | $ | 19,773 | $ | 5,873 | ||||
| Accrued expenses | 157,359 | 112,434 | ||||||
| Product royalties payable | 74,048 | 47,720 | ||||||
| Deferred revenue | 6,789 | 13,839 | ||||||
| Other current liabilities | 8,684 | 2,149 | ||||||
| Total Current Liabilities | 266,653 | 182,015 | ||||||
Long-term debt | 217,554 | 8,791 | ||||||
| Obligations to Evans | 24,755 | — | ||||||
| Other liabilities | 2,093 | 1,776 | ||||||
| Total Liabilities | 511,055 | 192,582 | ||||||
| Commitments and Contingencies | ||||||||
Shareholders' Equity: | ||||||||
| Preferred stock, $.01 par value; authorized 5,525 shares; none issued or outstanding | — | — | ||||||
| Common stock, $.01 par value; authorized 320,000 shares; issued and outstanding 251,262 at December 31, 2002 and 214,484 at December 31, 2001 | 2,513 | 2,145 | ||||||
| Paid-in capital | 2,613,075 | 891,627 | ||||||
| Deferred compensation | (6,823 | ) | — | |||||
| Accumulated (deficit) earnings | (956,140 | ) | 141,875 | |||||
| Accumulated other comprehensive income | 24,609 | 8,626 | ||||||
| Total Shareholders' Equity | 1,677,234 | 1,044,273 | ||||||
| Total Liabilities and Shareholders' Equity | $ | 2,188,289 | $ | 1,236,855 | ||||
The accompanying notes are an integral part of these financial statements.
47
MedImmune, Inc.
Consolidated Statements of Operations
(in
(in thousands, except per share data)
For the year ended December 31,
2001 2000 1999
---- ---- ----
Revenues
Product sales $579,529 $495,803 $356,815
Other revenue 39,150 44,692 26,560
------- ------- -------
Total revenues 618,679 540,495 383,375
------- ------- -------
Costs and Expenses
Cost of sales 138,707 127,320 90,193
Research and development 82,985 66,296 59,565
Selling, general, and administrative 194,841 157,330 139,389
Other operating expenses 9,606 9,231 17,409
------- ------- -------
Total expenses 426,139 360,177 306,556
------- ------- -------
Operating income 192,540 180,318 76,819
Interest income 36,516 29,569 12,633
Interest expense (590) (474) (3,176)
------- ------- -------
Earnings before income taxes and cumulative
effect of a change in accounting principle 228,466 209,413 86,276
Provision (benefit) for income tax 79,506 64,436 (7,095)
------- ------- -------
Earnings before cumulative effect of a change in
accounting principle 148,960 144,977 93,371
Cumulative effect of a change in accounting principle,
net of tax benefit of $21,262 -- (33,821) --
-------- ------- -------
Net earnings $148,960 $111,156 $93,371
======== ======== =======
Basic earnings per share:
Earnings before cumulative effect of a change in
accounting principle $0.70 $0.69 $0.49
Cumulative effect of a change in accounting principle,
net of tax -- (0.16) --
--------- -------- --------
Net earnings $0.70 $0.53 $0.49
========= ======== ========
Shares used in calculation of basic earnings per share 213,378 209,101 190,421
========= ======== ========
Diluted earnings per share:
Earnings before cumulative effect of a change in
accounting principle $0.68 $0.66 $0.44
Cumulative effect of a change in accounting principle,
net of tax -- (0.16) --
--------- -------- --------
Net earnings $0.68 $0.50 $0.44
========= ======== ========
Shares used in calculation of diluted earnings per share 220,101 220,428 212,310
========= ======== ========
Pro forma amounts assuming the change in accounting
principle was applied retroactively:
Net earnings $144,977 $94,505
======== ========
Basic earnings per share $0.69 $0.50
======== ========
Diluted earnings per share $0.66 $0.45
======== ========
| | For the year ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||||
| Revenues | ||||||||||||
| Product sales | $ | 785,961 | $ | 579,529 | $ | 495,803 | ||||||
| Other revenue | 61,778 | 39,150 | 44,692 | |||||||||
| Total revenues | 847,739 | 618,679 | 540,495 | |||||||||
| Costs and Expenses | ||||||||||||
| Cost of sales | 200,927 | 138,707 | 127,320 | |||||||||
| Research and development | 144,150 | 82,985 | 66,296 | |||||||||
| Selling, general, and administrative | 299,323 | 194,841 | 157,330 | |||||||||
| Other operating expenses | 100,029 | 9,606 | 9,231 | |||||||||
| Acquired in-process research and development | 1,179,321 | — | — | |||||||||
| Total expenses | 1,923,750 | 426,139 | 360,177 | |||||||||
| Operating (loss) income | (1,076,011 | ) | 192,540 | 180,318 | ||||||||
| Interest income | 49,355 | 36,516 | 29,569 | |||||||||
| Interest expense | (9,110 | ) | (590 | ) | (474 | ) | ||||||
| Loss on investment activities | (14,074 | ) | — | — | ||||||||
| (Loss) earnings before income taxes and cumulative effect of a change in accounting principle | (1,049,840 | ) | 228,466 | 209,413 | ||||||||
| Provision for income taxes | 48,175 | 79,506 | 64,436 | |||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | (1,098,015 | ) | 148,960 | 144,977 | ||||||||
| Cumulative effect of a change in accounting principle, net of tax | — | — | (33,821 | ) | ||||||||
| Net (loss) earnings | $ | (1,098,015 | ) | $ | 148,960 | $ | 111,156 | |||||
| Basic (loss) earnings per share: | ||||||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | $ | (4.40 | ) | $ | 0.70 | $ | 0.69 | |||||
| Cumulative effect of a change in accounting principle, net of tax | — | — | (0.16 | ) | ||||||||
| Net (loss) earnings | $ | (4.40 | ) | $ | 0.70 | $ | 0.53 | |||||
| Shares used in calculation of basic (loss) earnings per share | 249,625 | 213,378 | 209,101 | |||||||||
| Diluted (loss) earnings per share: | ||||||||||||
| (Loss) earnings before cumulative effect of a change in accounting principle | $ | (4.40 | ) | $ | 0.68 | $ | 0.66 | |||||
| Cumulative effect of a change in accounting principle, net of tax | — | — | (0.16 | ) | ||||||||
| Net (loss) earnings | $ | (4.40 | ) | $ | 0.68 | $ | 0.50 | |||||
| Shares used in calculation of diluted (loss) earnings per share | 249,625 | 220,101 | 220,428 | |||||||||
| Pro forma amounts assuming the change in accounting principle was applied retroactively: | ||||||||||||
| Net earnings | $ | 144,977 | ||||||||||
| Basic earnings per share | $ | 0.69 | ||||||||||
| Diluted earnings per share | $ | 0.66 | ||||||||||
The accompanying notes are an integral part of these financial statements.
48
MedImmune, Inc.
Consolidated Statements of Cash Flows
(in
(in thousands)
For
| | For the year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net (loss) earnings | $ | (1,098,015 | ) | $ | 148,960 | $ | 111,156 | |||||||
| Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | ||||||||||||||
| Cumulative effect of a change in accounting principle, net of tax | — | — | 33,821 | |||||||||||
| Acquired in-process research and development | 1,179,321 | — | — | |||||||||||
| Deferred taxes | 50,806 | 76,398 | 68,024 | |||||||||||
| Deferred revenue | (8,663 | ) | (21,430 | ) | (21,117 | ) | ||||||||
| Depreciation and amortization | 36,820 | 9,124 | 7,322 | |||||||||||
| Amortization of premium (discount) on marketable securities | 9,752 | (2,024 | ) | (2,798 | ) | |||||||||
| Amortization of deferred compensation | 19,228 | — | — | |||||||||||
| Amortization of bond premium | (1,819 | ) | — | — | ||||||||||
| Loss on investment activities | 14,074 | — | — | |||||||||||
| Impairment of long-lived assets | 14,058 | — | — | |||||||||||
| Increase (decrease) in sales allowances | 17,427 | 9,599 | (125 | ) | ||||||||||
| Increase (decrease) in provision for inventory reserve | 23,988 | 2,910 | (1,018 | ) | ||||||||||
| Change in restructuring liability for cash employee termination costs | (5,142 | ) | — | — | ||||||||||
| Other | 2,409 | (138 | ) | 2,161 | ||||||||||
| Increase (decrease) in cash due to changes in assets and liabilities: | ||||||||||||||
| Trade receivables | 3,944 | (2,866 | ) | (28,616 | ) | |||||||||
| Inventory | (23,276 | ) | (6,559 | ) | (11,999 | ) | ||||||||
| Other assets | (2,220 | ) | 2,697 | (2,833 | ) | |||||||||
| Accounts payable and accrued expenses | 4,627 | 25,451 | 6,849 | |||||||||||
| Product royalties payable | 26,328 | 7,166 | 12,026 | |||||||||||
| Other liabilities | (105 | ) | 1,627 | 410 | ||||||||||
| Net cash provided by operating activities | 263,542 | 250,915 | 173,263 | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Investments in securities available for sale | (1,008,936 | ) | (842,589 | ) | (685,207 | ) | ||||||||
| Maturities of securities available for sale | 467,254 | 312,954 | 430,845 | |||||||||||
| Proceeds from sales of securities available for sale | 137,393 | 371,230 | 63,375 | |||||||||||
| Net cash acquired in acquisition of Aviron | 146,853 | — | — | |||||||||||
| Capital expenditures, net of capitalized interest | (80,871 | ) | (18,258 | ) | (8,588 | ) | ||||||||
| Investments in strategic alliances | (8,735 | ) | (11,499 | ) | — | |||||||||
| Net cash used in investing activities | (347,042 | ) | (188,162 | ) | (199,575 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from issuance of common stock | 46,664 | 24,339 | 76,286 | |||||||||||
| Repayments on long-term obligations | (4,639 | ) | (742 | ) | (1,505 | ) | ||||||||
| Net cash provided by financing activities | 42,025 | 23,597 | 74,781 | |||||||||||
| Effect of exchange rate changes on cash | 276 | (69 | ) | (65 | ) | |||||||||
| Net (decrease) increase in cash and cash equivalents | (41,199 | ) | 86,281 | 48,404 | ||||||||||
| Cash and cash equivalents at beginning of year | 171,255 | 84,974 | 36,570 | |||||||||||
| Cash and cash equivalents at end of year | $ | 130,056 | $ | 171,255 | $ | 84,974 | ||||||||
| Supplemental cash flow data: | ||||||||||||||
| Cash paid during the year for interest | $ | 11,013 | $ | 559 | $ | 607 | ||||||||
| Cash (received) paid during the year for income tax (refunds) payments | (2,320 | ) | 505 | 1,016 | ||||||||||
Supplemental schedule of noncash investing and financing activities:
During January 2002, the year ended December 31,
-------------------------------
2001 2000 1999
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $148,960 $111,156 $93,371
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Cumulative effectCompany acquired 100% of a change in accounting principle,
netthe outstanding capital stock of tax -- 33,821 --
Deferred taxes 76,398 68,024 (7,457)
Deferred revenue (21,430) (21,117) --
DepreciationAviron through an exchange offer and amortization 9,124 7,322 5,001
Change in reservemerger transaction. The Company exchanged approximately 34.0 million of its common shares for loss on disposalall of fixed assets (88) 1,635 --
Capitalized interest -- (295) (1,707)
Compensation elementthe outstanding shares of stock options/grants -- -- 575
Amortization of discount on marketable securities (2,024) (2,798) (78)
Increase (decrease) in allowances for sales discounts,
returns, bad debts, chargebacks, and government rebates 9,599 (125) (3,509)
Increase (decrease) in provision for inventory reserve 2,910 (1,018) (1,668)
Other (50) 526 1,481
Increase (decrease) in cash due to changes in assets
and liabilities:
Trade receivables (2,866) (28,616) (49,974)
Inventory (6,559) (11,999) (6,839)
Other assets 2,697 (2,833) (600)
Accounts payable and accrued expenses 25,451 6,849 18,596
Product royalties payable 7,166 12,026 13,579
Other liabilities 1,627 410 (1,918)
--------- -------- -------
Net cash provided by operating activities 250,915 172,968 58,853
--------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in securities available for sale (852,589) (685,207) (333,849)
Maturities of securities available for sale 312,954 430,845 201,044
Proceeds from sales of securities available for sale 371,230 63,375 30,642
Capital expenditures (18,258) (8,293) (12,203)
Investment in strategic alliance (1,499) -- (6,350)
--------- -------- -------
Net cash used in investing activities (188,162) (199,280) (120,716)
--------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance ofAviron common stock and private
placementassumed Aviron's outstanding options and warrants, for which approximately 7.0 million additional shares of securities 24,339 76,286 69,843
Deferred costs from debt issuance -- -- (2)
Repayments on long-term debt (742) (1,505) (15,869)
-------- -------- -------
Net cash provided by financing activities 23,597 74,781 53,972
-------- -------- -------
Effectthe Company's common stock are issuable. The estimated fair value of exchange rate changes on cash (69) (65) (269)
Net increase (decrease)the net assets acquired was $1,635.1 million, and included $1,179.3 million of acquired research and development assets that were charged to current period results at the date of acquisition and $211.4 million of 51/4% convertible subordinated notes due in cash equivalents 86,281 48,404 (8,160)
Cash and cash equivalents at beginning2008.
The accompanying notes are an integral part of year 84,974 36,570 44,730
-------- -------- -------
Cash and cash equivalents at endthese financial statements
49
MedImmune, Inc.
Consolidated Statements of year $171,255 $84,974 $36,570
========= ======== =======
Shareholders' Equity
(in thousands)
| | Common Stock, $.01 par | | | | | | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | Accumulated Other Comprehensive Income (Loss) | | |||||||||||||||||
| | Paid-in Capital | Deferred Compensation | Accumulated Earnings (Deficit) | | ||||||||||||||||||
| | Shares | Amount | Total | |||||||||||||||||||
| Balance, December 31, 1999 | 203,840 | $ | 2,038 | $ | 654,885 | $ | — | $ | (118,241 | ) | $ | (1,603 | ) | $ | 537,079 | |||||||
| Net earnings | — | — | — | — | 111,156 | — | 111,156 | |||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (8 | ) | (8 | ) | |||||||||||||
| Unrealized gain on investments, net of tax | — | — | — | — | — | 7,350 | 7,350 | |||||||||||||||
| Comprehensive income | 118,498 | |||||||||||||||||||||
| Common stock options exercised | 7,508 | 75 | 76,210 | — | — | — | 76,285 | |||||||||||||||
| Tax benefit associated with the exercise of stock options | — | — | 111,720 | — | — | — | 111,720 | |||||||||||||||
| Balance, December 31, 2000 | 211,348 | 2,113 | 842,815 | — | (7,085 | ) | 5,739 | 843,582 | ||||||||||||||
| Net earnings | — | — | — | — | 148,960 | — | 148,960 | |||||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | (216 | ) | (216 | ) | |||||||||||||
| Unrealized gain on investments, net of tax | — | — | — | — | — | 3,071 | 3,071 | |||||||||||||||
| Unrealized gain on hedged inventory purchases, net of tax | — | — | — | — | — | 32 | 32 | |||||||||||||||
| Comprehensive income | 151,847 | |||||||||||||||||||||
| Common stock options exercised | 3,092 | 31 | 22,818 | — | — | — | 22,849 | |||||||||||||||
| Issuance of common stock under the employee stock purchase plan | 44 | 1 | 1,489 | — | — | — | 1,490 | |||||||||||||||
| Tax benefit associated with the exercise of stock options | — | — | 24,505 | — | — | — | 24,505 | |||||||||||||||
| Balance, December 31, 2001 | 214,484 | 2,145 | 891,627 | — | 141,875 | 8,626 | 1,044,273 | |||||||||||||||
| Net loss | — | — | — | — | (1,098,015 | ) | — | (1,098,015 | ) | |||||||||||||
| Foreign currency translation adjustment | — | — | — | — | — | 778 | 778 | |||||||||||||||
| Unrealized gain on investments, net of tax | — | — | — | — | — | 15,079 | 15,079 | |||||||||||||||
| Unrealized gain on hedged inventory purchases, net of tax | — | — | — | — | — | 126 | 126 | |||||||||||||||
| Comprehensive loss | (1,082,032 | ) | ||||||||||||||||||||
| Common stock options exercised | 2,663 | 27 | 42,673 | — | — | — | 42,700 | |||||||||||||||
| Issuance of common stock under the employee stock purchase plan | 163 | 2 | 3,962 | — | — | — | 3,964 | |||||||||||||||
| Tax benefit associated with the exercise of stock options | — | — | 14,804 | — | — | — | 14,804 | |||||||||||||||
| Shares issued related to the acquisition of Aviron | 33,952 | 339 | 1,664,412 | (39,454 | ) | — | — | 1,625,297 | ||||||||||||||
| Amortization of deferred compensation for the vesting of stock options | — | — | — | 19,228 | — | — | 19,228 | |||||||||||||||
| Reversal of deferred compensation for cancellation of stock options | — | — | (4,403 | ) | 4,403 | — | — | — | ||||||||||||||
| Decrease in restructuring liability for amortization of deferred compensation for the vesting of stock options | — | — | — | 9,000 | — | — | 9,000 | |||||||||||||||
| Balance, December 31, 2002 | 251,262 | $ | 2,513 | $ | 2,613,075 | $ | (6,823 | ) | $ | (956,140 | ) | $ | 24,609 | $ | 1,677,234 | |||||||
The accompanying notes are an integral part of these financial statements.
50
MedImmune, Inc.
Consolidated Statements of Shareholders'
Equity
(in thousands, except share data)
Accumu- Accumulated
lated Other
Common Stock, $.01 par Paid-in Earnings Treasury Comprehensive
Shares Amount Capital (Deficit) Stock Income (Loss) Total
------ ------ ------- --------- ----- ------------- -----
Balance, December 31, 1998 174,927,966 $1,749 $459,005 $(211,612) $(145) $(431) $248,566
Net earnings -- -- -- 93,371 -- -- 93,371
Foreign currency translation
adjustment, net of tax -- -- -- -- -- (633) (633)
Unrealized loss on investments, net
of tax -- -- -- -- -- (539) (539)
--------
Comprehensive income 92,199
--------
Common stock options exercised 9,152,823 92 43,780 -- -- -- 43,872
Private placement of common stock,
February 1999 1,209,027 12 19,957 -- -- -- 19,969
Tax benefit associated with the exercise of
stock options -- -- 67,149 -- -- -- 67,149
Compensation related to stock
options/grants 16,077 -- 575 -- -- -- 575
Conversion of debentures, net of
unamortized expenses of $1,253 18,292,635 183 58,564 -- -- -- 58,747
Exercise of warrants 241,806 2 6,000 -- -- -- 6,002
Cancellation of treasury stock -- -- (145) -- 145 -- --
---------- ----- -------- -------- ----- ------- -------
Balance, December 31, 1999 203,840,334 2,038 654,885 (118,241) -- (1,603) 537,079
Net earnings -- -- -- 111,156 -- -- 111,156
Foreign currency translation adjustment,
net of tax -- -- -- -- -- (8) (8)
Unrealized gain on investments, net of tax -- -- -- -- -- 7,350 7,350
-------
Comprehensive income 118,498
-------
Common stock options exercised 7,507,491 75 76,210 -- -- -- 76,285
Tax benefit associated with the exercise
of stock options -- -- 111,720 -- -- -- 111,720
---------- ----- ------- ------- ----- ------ -------
Balance, December 31, 2000 211,347,825 2,113 842,815 (7,085) -- 5,739 843,582
Net earnings -- -- -- 148,960 -- -- 148,960
Foreign currency translation
adjustment, net of tax -- -- -- -- -- (216) (216)
Unrealized gain on investments, net of tax -- -- -- -- -- 3,071 3,071
Unrealized gain on hedged inventory
purchases, net of tax -- -- -- -- -- 32 32
-------
Comprehensive income 151,847
-------
Common stock options exercised 3,092,283 31 22,818 -- -- -- 22,849
Issuance of common stock under the
employee stock purchase plan 43,976 1 1,489 -- -- -- 1,490
Tax benefit associated with the exercise
of stock options -- -- 24,505 -- -- -- 24,505
----------- ------ -------- -------- ------ ------ ----------
Balance, December 31, 2001 214,484,084 $2,145 $891,627 $141,875 $0 $8,626 $1,044,273
=========== ====== ======== ======== ====== ====== ==========
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Notes to Consolidated Financial Statements
1. ORGANIZATION
MedImmune, Inc., a Delaware corporation (together with its subsidiaries, the "Company"), is a biotechnology company headquartered in Gaithersburg, Maryland. The Company currently markets five products and maintains a diverse product portfolio. The Company is
focused on using advances in immunology and other biological sciences to develop important new products that address significant
medical needs in areas such as infectious diseases, immune regulation and oncology.
During January 2002, the Company completed theits acquisition of Aviron, subsequently renamed MedImmune Vaccines, Inc., a biopharmaceutical company headquartered in Mountain View, California, through an exchange offer and merger transaction.transaction (the "Acquisition"). The acquisition will beAcquisition was accounted for as a purchase, and the results of operations of Aviron will beMedImmune Vaccines are included in the results of the Company effective January 10, 2002 (see Note 21)3).
The Company currently actively markets three products, Synagis, Ethyol, and CytoGam, and maintains a diverse research and development pipeline. The Company's leading product candidate, FluMist, is under review by the FDA. The Company is focused on developing important new products that address significant medical needs in the areas of infectious diseases, immunology and oncology.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies applied in the preparation of these financial statements are as follows:
Basis of Presentation—The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Seasonality—The Company's largest revenue-generating product, Synagis, is used to prevent RSV in high-risk infants. RSV is most prevalent in the winter months in the Northern Hemisphere. Because of the seasonal nature of RSV, limited sales, if any, of Synagis are expected during the second and third quarters of any calendar year, causing results to vary significantly from quarter to quarter. Sales of Synagis comprised approximately 85%, 89%, and 86% of total product sales for the years ended December 31, 2002, 2001, and 2000, respectively.
FluMist, which has not yet been approved by the FDA, is used to prevent influenza, which is most prevalent in the fall and winter months. If FluMist is approved, limited sales, if any, are expected in the first and second quarters of any calendar year because of the seasonal nature of influenza, causing results to vary significantly from quarter to quarter.
Cash, and Cash Equivalents and Marketable Securities—The Company considers all highly liquid instruments purchased with a maturity of three months or less at date of purchase to be cash equivalents. Marketable Securities
Investments in marketable securities consist principally of commercial paper and debt securities of United States corporations, including commercial paper and notes, debt securities of international bank
certificates of deposit,banks, and United States Government and Agency notes and bonds. Investments with original maturities of three to 2412 months from the balance sheet date are considered current assets, while those with maturities in excess of two yearsone year are considered non-current assets. The securities are held for an unspecified period of time and may be sold to meet liquidity needs and therefore are classified as available-for-sale as defined by Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."available-for-sale. Accordingly, the Company records these investments at fair value, with unrealized gains and losses on investments reported, net of tax, as a component of other comprehensive income (loss). The Company also holds minority interests
in companies having operations or technology in areas within its strategic focus, some of which are publicly traded and have highly
volatile share prices. The Company records an investment impairment charge when it believes an investment has experienced a decline
in value that is other-than-temporary.
Concentration of Credit Riskincome.
Substantially all of the Company's cash and cash equivalents, and short-term and long-term investments, are held in custody by three major U.S. financial institutions. The majority of the Company's cash equivalents consist of U.S. Government Federal Agency Securities, short-term marketable securities, and overnight repurchase agreements. Deposits held with banks may exceed the
51
amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company's short-term and long-term investments generally consist of marketable securities with investment grade credit ratings and deposits with major banks. The Company's investment guidelines are intended to limit the amount of investment exposure as to institution, maturity, and investment type. Maturities generally range from three months to fiveseven years. The fair values of these investments are sensitive to changes in interest rates and the credit-worthiness of the security issuers. Further, interest income earned on variable rate debt securities is exposed to changes in the general level of interest rates.
Minority Interest Investments—In connection with its research and development collaborations, the Company holds minority interests in companies having operations or technology in areas within its strategic focus. The investments are maintained on the cost or equity method of accounting, according to the facts and circumstances of the individual investment. Under either method, the investments are subject to adjustment for other-than-temporary impairments. Additionally, for investments carried on the equity method, the Company's proportionate share of the investee's gains or losses is recorded on a quarterly basis. For minority interests maintained in publicly traded companies, the Company's investment is maintained as available-for-sale securities. Due to the highly volatile share prices of these investments, the investments are subject to unrealized holding gains or losses.
During 2002, the Company has notdetermined that the declines in fair value below the basis of certain of its minority interest investments were other than temporary, based primarily on the duration and magnitude of the declines in fair value, largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee companies. For the year ended December 31, 2002, the Company recorded realized any significant losses onof $9.5 million to write-down the cost basis of certain of its investments.
minority interest investments to estimated fair value.
Fair Value of Financial Instruments—The carrying amount of financial instruments, including cash and cash equivalents, trade receivables, contracts receivable, other current assets, accounts payable, and accrued expenses, approximate fair value as of December 31, 2002 and 2001 due to the short maturities of these instruments.
Concentration of Credit Risk—The Company sells its products primarily to a limited number of pharmaceutical wholesalers and distributors without requiring collateral. The Company periodically assesses the financial strength of these customers and establishes allowances for anticipated losses when necessary.
The Company currently markets five products. Sales
As of Synagis, the Company's largest selling product, comprised approximately 89%December 31, 2002, trade accounts receivable included three customers that each accounted for 22%, 86%21%, and 82%19%, of total product sales for the years ended December 31, 2001, 2000, and 1999,net trade accounts receivable, respectively. As of December 31, 2001, trade accounts receivable included two customers that each accounted for 29% and 26% of net trade accounts receivable, respectively. As of December 31, 2000, trade accounts receivable included three customers that each accounted for 32%,
22%, and 15% of net trade accounts receivable, respectively.
Inventory—Inventory is stated at the lower of cost or market. Cost is determined using a weighted-average approach that approximates the first-in, first-out method. Where the Company has a firm contract for their purchase, by-products that result from production of the Company's principal products are accounted for as a reduction of the cost of the principal products. The Company records an inventory reserve for estimated obsolescence, excess or unmarketable inventory in an amount equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
Product Sales—The Company recognizes revenue on product sales when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable and collectibility is probable. These criteria are generally met upon receipt of the product by our
customers. In certain of the Company's international distribution agreements, the total sales pricecompensation received by the Company from the customerits partner is variable based, in part, on the end-user sales price. When all of the other revenue criteria
52
have been met, the Company recognizes revenue to the extent that the customer has an obligation to pay, if the customer has limited or no control over the end-user sales price and, accordingly, any subsequent adjustments to the recorded revenue are not expected to be significant. Subsequent adjustments to recorded revenue that result from variances between amounts previously invoiced and the total sales price received are recorded as an adjustment to product sales in the quarter in which they become known. Product sales are recorded net of allowances for estimated chargebacks, returns, discounts, and government rebates. Both in the United States and elsewhere, sales of pharmaceutical products depend on the availability of reimbursement to the consumer from third-party payors, such as government and private insurance plans. The Company estimates the portion of its sales that will occur to this end-user marketbe covered by government insurance and records allowances at a level that management believes is sufficient to cover estimated requirements for rebates.reimbursements. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Allowances for discounts, returns, chargebacks, government rebates and bad debts, which are netted against accounts receivable, totaled $26.9$18.1 million and $17.3$9.4 million at December 31, 2002 and 2001, respectively. Allowances for government reimbursements were $26.2 million and 2000, respectively. Product royalty expense is recognized
concurrently with the recognition$17.5 million as of product revenue. Royalty expense,December 31, 2002 and 2001, respectively, and are included in cost of sales, was $86.3 million, $69.2 million,
and $46.7 million foraccrued expenses in the years ended December 31, 2001, 2000 and 1999, respectively.
accompanying balance sheets.
Other Revenues—
Contract Revenues
Contract—For contracts executed prior to January 1, 2002, contract revenues are recognized overduring each period based on a percentage-of-completion model based on actual costs incurred relative to the fixed term of the contract as the related expenses are incurred.total projected costs. Upfront fees and milestone payments under collaborative agreements are recognized when they are earned in accordance with the applicable performance requirements and contractual terms, using the contingency adjustedcontingency-adjusted performance model for revenue recognition.(percentage-of-completion) model. Under this method, payments received that are related to future performance are deferred and recorded as revenues as they are earned over specified future performance periods. The amount of revenue recognized during each period is based on a percentage of completion model of
actual costs incurred relative to the total projected costs. When the performance criteria for a non-refundable milestone payment
are met, the cost of the effort that has been incurred to date is divided by the total projected costs under the development
arrangement (i.e., ratio of performance), and revenue is recognized for that milestone to the extent of the ratio of performance to
date. Recognized revenues are subject to revisions as the collaboration efforts progress and estimated costs to complete are revised.
For new contracts executed or acquired after January 1, 2002, the Company uses the milestone payment method when all milestones to be received under contractual arrangements are determined to be substantive, at-risk and the culmination of an earnings process. Substantive milestones are payments that are conditioned upon an event requiring substantive effort, when the amount of the milestone is reasonable relative to the time, effort and risk involved in achieving the milestone and when the milestones are reasonable relative to each other and the amount of any up-front payment. If all of these criteria are not met, then the Company will use the contingency-adjusted performance model (see Note 4).
Miscellaneous Revenues—Other revenues include licensing fees, grant income, royalty income, corporate funding, and reimbursement of expenses under research and other collaborative agreements. These revenues are recognized on the earlier of when the payments are received or when collection is assured and only when no further performance obligations exist.
Royalty Expense—Product royalty expense is recognized concurrently with the recognition of product revenue based on a contractually stipulated royalty percentage, and is included in cost of sales.
Research and Development Expenses
Licensing Fees—In the normal course of business, the Company enters into collaborative research and development and in-licensing agreements to acquire access to technology. These collaborative agreements usually require the Company to pay up-front fees and milestone payments, some of which are significant. When the Company pays an up-front or milestone payment, management evaluates the stage of the acquired technology to determine the appropriate accounting treatment. If the technology
53
is considered to be in the early development stage (generally defined as pre-clinical through Phase 1 (initial human testing)), the up-front or milestone payment is expensed. If the technology has entered Phase 2 or Phase 3 clinical trials but has not yet been approved by regulatory authorities, the Company will evaluate the facts and circumstances of each case to determine if a portion or all of the payment have future benefit and should be capitalized at fair value. Payments made to third parties subsequent to regulatory approval will be capitalized with that cost generally amortized over the patented life of the product. The agreements may also require that the Company provide funding for research programs of our partners. These costs are expensed as incurred.
Other—The Company accrues estimated costs for clinical and preclinical studies performed by contract research organizations or by internal staff based on the total of the costs incurred through the balance sheet date. The Company monitors the progress of the trials and their related activities to the extent possible, and adjusts the accruals accordingly.
Selling, General and Administrative Expenses—Co-promotion Expense
Expenses—In connection with the agreement with Abbott Laboratories to co-promote Synagis in the United States, the Company is required to pay Abbott an increasing percentage of net domestic sales based on Abbott achieving certain sales thresholds over the annual contract year. The contract year extends from July to June each year and generally coincides with the annual respiratory syncytial virus
("RSV")RSV season, which occurs primarily in the fourth and first quarters in the Northern Hemisphere. The Company estimates its net sales and resulting co-promotion expense for the entire contract year to determine a proportionate percentage of expense to apply across all Synagis sales during that contract year. Any adjustments to the co-promotion expense that result from variances between estimated and actual net sales are recorded as an adjustment to expense in the quarter they become known. During the fourth quarter of 2002, the Company recorded an additional charge of $2.1 million to co-promotion expense, resulting from the final reconciliation of net sales for the 2001/2002 contract year. During 2001 2000, and 1999,2000, the adjustments were immaterial.
not material.
Property and Equipment—Property and equipment are stated at cost. Interest cost incurred during the period of construction of plant and equipment and prior
tois capitalized until the asset is placed in service, after FDA licensure is capitalized.obtained. Depreciation and amortization expense commence when the asset is placed in service for its intended purpose. Depreciation and amortization is computed using the straight-line method based upon the following estimated useful lives:
Years
Building and improvements 15-30
Manufacturing, laboratory, and facility equipment 5-15
Office furniture, computers and equipment
| Years | ||
|---|---|---|
| Building and improvements | 15-30 | |
| Manufacturing, laboratory, and facility equipment | 5-15 | |
| Office furniture, computers and equipment | 3-7 |
Amortization of leasehold improvements is computed on the straight-line method based on the shorter of the estimated useful life of the improvement or the term of the lease. Depreciation and amortization expense for the years ended December 31, 2002, 2001, and 2000 and
1999 was $20.7 million, $9.1 million, and $7.3 million, and $5.0 million, respectively.
Upon the disposition of assets, the costs and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the statements of operations. Repairs and maintenance costs are expensed as incurred and were $7.0 million, $3.3 million, $4.1 million, and $2.9$4.1 million for the years ended December 31, 2002, 2001, and 2000, and 1999, respectively.
Long-Lived Assets
The Company evaluates the recoverability of the carrying value of property and equipment and intangible assets in accordance with
the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets to be Disposed Of."equipment. The Company considers historical performance and anticipated future results in its evaluation of the potential impairment. Accordingly, when the indicators of impairment are present, the Company evaluates the carrying value of these assets in relation to the operating performance of the business and
54
future undiscounted cash flows expected to result from the use of these assets. Impairment losses are recognized when the sum of the expected future cash flows are less than the assets' carrying value. To date,
Intangible Assets—Intangible assets are stated at amortized cost. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the Company has
recorded nocarrying amount of an asset may not be recoverable. Intangible assets at December 31, 2002, are comprised of the following (in millions):
| | 2002 | |||
|---|---|---|---|---|
| Worldwide collaborative agreement with Wyeth | $ | 90.0 | ||
| Contract manufacturing agreement with Evans | 39.0 | |||
| Other intangible assets | 0.4 | |||
| 129.4 | ||||
| Less accumulated amortization | (16.1 | ) | ||
| $ | 113.3 | |||
Amortization of intangible assets is computed on the straight-line method based on the estimated useful lives of the assets. Amortization expense for the year ended December 31, 2002 was $16.1 million. The estimated aggregate amortization expense for each of the next five years is as follows: 2003, $16.6 million; 2004, $16.4 million; 2005, $16.4 million; 2006, $12.0 million; and 2007, $7.7 million.
Goodwill—Goodwill represents the excess of the Company's cost to acquire MedImmune Vaccines over the net of the amounts assigned to assets acquired and liabilities assumed. Goodwill is not amortized, but is evaluated for impairment losses.
at least annually.
Forward Exchange Contracts—The Company is obligated to make certain payments to foreign suppliers in local currency. To hedge the effect of fluctuating foreign currencies in its financial statements, the Company may enter into foreign forward exchange contracts. Gains or losses associated with the forward contracts are computed as the difference between the foreign currency contract amount at the spot rate on the balance sheet date and the forward rate on the contract date.
On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes new accounting and reporting standards for derivative financial instruments and hedging activities. SFAS 133
requires that all
All derivative instruments beare recorded on the balance sheet at fair value. Changes in fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and if so, depending on the type of hedge transaction. For foreign currency cash-flow hedge transactions in which the Company is hedging the variability of cash flows related to inventory purchases, changes in the fair value of the derivative instruments are reported in other comprehensive income. The gains and losses on these derivatives that are reported in other comprehensive income are reclassified as earnings or losses in the periods in which the related inventory is sold. The ineffective portion, if any, of all hedges or gains or losses on cash-flow hedges related to inventory transactions that subsequently become not probable of not occuringoccurring are recognized in the current period. In accordance with the transition provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", the Company recorded a net-of-tax cumulative-effect-type gain of $0.3 million in accumulated other comprehensive income as of January 1, 2001 to recognize at fair value all derivatives, which are designated as foreign currency cash-flow hedging instruments.
Fair Value
As of Financial Instruments
The carrying amountDecember 31, 2002, the Company had outstanding forward Euro contracts for the purchase of financial instruments, including cash and cash equivalents, trade receivables, contracts receivable, other
current assets, accounts payable, and accrued expenses, approximate1.1 million Euros, all expiring within one year, with a fair value asof $0.3 million. As of December 31, 2001, the Company had no outstanding forward contracts. During the years ended December 31, 2002 and 2000 due2001, net unrealized gains on forward exchange contracts, net of tax, of $0.6 million and $0.1 million, respectively, were reclassified as earnings during the year as the related inventory was sold.
55
During the year ended December 31, 2002, the Company reclassified a gain of $0.2 million to the short
maturities of these instruments.
current period earnings for hedge ineffectiveness related to forward exchange contracts.
Income Taxes—Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not. Future reversals of valuation allowance of $15.6 million on acquired deferred tax assets of the Company's subsidiary, MedImmune Vaccines, will first be applied against goodwill and other intangibles before recognition of a benefit in the consolidated statement of operations. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities, exclusive of amounts related to the exercise of stock options which benefit is recognized directly as an increase in shareholders' equity.
Earnings Per Share—Basic earnings per share is computed by dividing the net earnings available to common shareholders bybased on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net earnings available to common
shareholders bybased on the weighted average number of common shares outstanding after giving effect toadjusted for all dilutive potential common shares
that wereshares. The dilutive impact, if any, of common stock equivalents outstanding during the period.period, including outstanding stock options and warrants, is measured by the treasury stock method. The dilutive impact, if any, of the Company's convertible subordinated notes is measured using the if-converted method. Potential common shares are not included in the computation of diluted earnings per share if they are antidilutive.
Comprehensive Income
Under SFAS No.130 "Reporting Comprehensive Income," the Company is required to display comprehensive income and its components as
part of the financial statements. —Comprehensive income is comprised of net earnings and other comprehensive income, (loss), which includes certain changes in equity that are excluded from net earnings. The Company includes foreign currency translation
adjustments, unrealized holding gains and losses, net of tax, on available-for-sale securities, and unrealized gains and losses on
foreign currency hedges in otherOther comprehensive income (loss).
A significant portion of other comprehensive income (loss) for the year ended December 31, 2001 relates toincludes certain changes in equity that are excluded from net earnings or loss, such as translation adjustments, unrealized holding gains and losses on available-for-sale marketable securities. The Company maintains an investment in a company with which it previously
formed a strategic alliance, which is carried at its fair value. Due to market volatility associated with this investment, the value
of the Company's investment has fluctuated significantly since the company's initial public offering,securities, and may continue to do so in
the future.
New Accounting Standards
The Company adopted SFAS No. 140, "Accounting for Transfersgains and Servicing of Financial Assets and Extinguishments of Liabilities"
("SFAS 140"), for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001.
SFAS 140 establishes accounting and reporting standards for transfers and servicing of financial assets and extinguishments of
liabilities. The adoption of SFAS 140 did not have a material impactlosses on the Company's financial position, results of operations or
cash flows.
During June 2001, the Company adopted SFAS No.141, "Business Combinations" ("SFAS 141"), which addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16 and SFAS 38, "Accounting for Preacquisition Contingencies of
Purchased Enterprises." All business combinations under the scope of this statement consummated after June 30, 2001 are to be
accounted for using one method, the purchase method. In accordance with the standard, the Company prospectively adopted SFAS 141
effective for business combinations consummated after June 30, 2001. The adoption did not have a material impact on the Company's
financial position, results of operations, or cash flows for all periods presented. The Company's acquisition of Aviron during
January 2002 will be accounted for using the purchase method, in accordance with SFAS 141.
SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), was issued in June 2001 and addresses financial accounting and
reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." Under SFAS 142,
goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The
amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill
and intangible assets acquired prior to July 1, 2001, the Company is required to adopt SFAS 142 effective January 1, 2002. The
Company anticipates that SFAS 142 will not have a material impact on the Company's financial position, results of operations, or
cash flows.
SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS 143"), was issued in June 2001 and addresses financial accounting
and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to all entities and legal obligations associated with the retirement of long-lived assets that result from the
acquisition, construction, development, and normal operation of long-lived assets. SFAS 143 is effective for the Company's fiscal
year beginning January 1, 2003. The Company anticipates that SFAS 143 will not have a material impact on the Company's financial
position, results of operations, or cash flows.
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"), was issued in August 2001 and addresses
the financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS 144 is effective for the Company's
fiscal year beginning January 1, 2002. The Company anticipates that SFAS 144 will not have a material impact on the Company's
financial position, results of operations, or cash flows.
hedging instruments.
Stock-based Compensation—Compensation costs attributable to stock option and similar plans are recognized based on any excess of the quoted market price of the stock on the date of grant over the amount the employee is required to pay to acquire the stock, in accordance with the intrinsic-value method under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Such amount, if any, is accrued over the related vesting period, as appropriate. In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), the Company makes annual pro forma disclosures of net earnings as if the fair-value-basedfair-value- based method of accounting had been applied.
Foreign Currency Translation—All balance sheet accounts of the Company's foreign subsidiaries have been translated from their respective functional currencies to U.S. dollars using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using monthly average exchange rates for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of other comprehensive income (loss).
income.
Reclassification—Certain prior year amounts have been reclassified to conform to the current presentation.
Use of Estimates—The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the financial statement date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
56
New Accounting Standards—The Company adopted the provisions of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), effective January 1, 2002. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. Inasmuch as the Company had no recorded goodwill or intangible assets prior to the January 2002 acquisition of Aviron, the adoption of SFAS 142 did not have an impact on the Company's financial position, results of operations, or cash flows.
Effective January 1, 2002, the Company adopted the provisions of SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"), requiring recognition and measurement of impairment if indicators are present.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities. The scope of SFAS 146 includes costs to terminate contracts that are not capital leases, costs to consolidate facilities or relocate employees and termination benefits provided to employees who are involuntarily terminated under terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual compensation contract. The provisions of the Statement are effective for exit or disposal activities initiated after December 31, 2002. The Company anticipates that the adoption of SFAS 146 will not have a material impact on the Company's financial position, results of operations or cash flows.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition and additional disclosure requirements of SFAS 148 are effective January 1, 2003.
Also during 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees, and clarifies that at the time a company issues a guarantee, the Company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. In accordance with FIN 45, the Company has disclosed the nature and potential future payments under existing guarantees as of December 31, 2002 (see Note 17). The Company's adoption of FIN 45 did not have a material impact on the Company's financial position, results of operations or cash flows.
3. ACQUISITION
On January 10, 2002, the Company completed the Acquisition through an exchange offer and merger transaction. Through the Acquisition, the Company obtained its lead product candidate, FluMist, which is a nasally delivered, live, attenuated virus vaccine not yet approved by the FDA. The Acquisition was accounted for as a purchase and, accordingly, the results of MedImmune Vaccines' operations have been included with the Company's operations since January 10, 2002.
Under the terms of the Acquisition, the Company exchanged approximately 34.0 million of its common shares for 100% of the outstanding common stock of Aviron. Additionally, the Company assumed outstanding options and warrants for which approximately 7.0 million shares of the Company's
57
common stock are issuable. Holders of Aviron's Notes may convert the Notes into a total of approximately 3.4 million shares of the Company's common stock, based on a conversion price of $58.14 per share.
During the year ended December 31, 2002, the Company recorded adjustments to the purchase price resulting from a final reconciliation of Aviron registered shares of common stock as of the acquisition date, a refinement to the calculation of unearned compensation for terminated employees, and a reconciliation of transaction costs. The purchase price adjustments resulted in a net decrease of $1.3 million to the purchase price and a corresponding decrease to goodwill. The revised aggregate purchase consideration was approximately $1.6 billion, as follows (in millions):
| Common stock | $ | 1,497.3 | |
| Assumption of Aviron's options and warrants, less intrinsic value of unvested portion | 128.0 | ||
| Transaction costs | 9.8 | ||
| $ | 1,635.1 | ||
The value of common shares issued was $44.10 per share, based on the closing market price of the Company's common stock on November 30, 2001, the last business day prior to the signing of the merger agreement. The fair value of options and warrants assumed in the transaction was estimated using the Black-Scholes option pricing model.
The following table summarizes the final estimated fair values (in millions) of the assets acquired and liabilities assumed at the date of acquisition.
| Assets: | |||
| Cash and marketable securities | $ | 417.5 | |
| Other current assets | 24.9 | ||
| Other assets | 45.8 | ||
| Deferred tax assets | 127.6 | ||
| Intangible assets | 129.4 | ||
| In-process research and development | 1,179.3 | ||
| Goodwill | 16.0 | ||
| Total assets | $ | 1,940.5 | |
| Liabilities: | |||
| Current liabilities | $ | 49.2 | |
| Restructuring liability | 15.8 | ||
| Long-term debt | 211.4 | ||
| Long-term obligations | 28.5 | ||
| Other liabilities | 0.5 | ||
| Total liabilities | 305.4 | ||
| Net assets acquired | $ | 1,635.1 | |
Intangible Assets—Of the $129.4 million of acquired intangible assets, $90.0 million was assigned to MedImmune Vaccines' worldwide collaborative agreement with Wyeth for the development, manufacture, distribution, marketing, promotion, and sale of FluMist, which is subject to amortization over its estimated useful life of approximately 11 years. The Company estimated the fair value of the Wyeth agreement using the sum of the probability-adjusted scenarios under the income approach. In applying this method, the Company relied on revenue assumptions, profitability assumptions and anticipated approval dates. The remaining $39.0 million was assigned to MedImmune Vaccines' contract
58
manufacturing agreement with Evans Vaccines Limited, which is subject to amortization over its estimated useful life of approximately four years. The Company estimated the fair value of the Evans agreement using the cost approach, which is based on the theory that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced. In its analysis, the Company reduced replacement cost for such factors as physical deterioration and functional or economic obsolescence.
In-Process Research and Development—Approximately $1,179.3 million of the purchase price was allocated to acquired research and development assets that were written off at the date of acquisition as a separate component of the Company's results of operations. The amount represents the fair value of purchased in-process technology for projects, principally FluMist, which, as of the date of the acquisition, had not yet reached technological feasibility and had no alternative future use.
Goodwill—Approximately $16.0 million in goodwill was recognized in the final allocation of the purchase price, none of which is expected to be deductible for tax purposes. Through December 31, 2002, the Company recorded net purchase price adjustments of $1.3 million; net reversals to the restructuring liability of $0.2 million (discussed below); a net increase of $3.7 million and a net reduction of $0.9 million to the fair values assigned to certain depreciable assets and certain liabilities, respectively, based on a final assessment of their net realizable value; and a net decrease in the fair value assigned to net deferred tax assets of $6.4 million resulting from the revisions to the purchase price allocation; which in the aggregate resulted in an increase to goodwill of $0.3 million. The Company performed its annual impairment analysis during the fourth quarter of 2002, and determined that the goodwill was not impaired.
Restructuring Liability—Included in the final allocation of acquisition cost is a restructuring liability of $15.8 million for estimated costs associated with the Company's restructuring plan. The restructuring plan was originally formulated and announced to employees in December 2001, to consolidate and restructure certain functions, including the involuntary termination of eight executives and 52 other employees of MedImmune Vaccines from various functions and levels. Through December 31, 2002, the Company recorded purchase accounting adjustments resulting from a refinement to the calculation of involuntary termination benefits, the removal from the original accrual of four positions that were retained, and to reflect revised costs estimated for outplacement fees and vacant leased office space. As a result of these adjustments, the Company recorded net restructuring charge reversals of $0.2 million through December 31, 2002, which resulted in a corresponding reduction to goodwill.
The restructuring liability activity through December 31, 2002 is summarized as follows (in millions):
| | Original Accrual at 1/10/02 | Adjustments | Adjusted Accrual | Restructuring Charges Incurred | Balance at 12/31/02 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Employee severance costs | $ | 5.4 | $ | (0.3 | ) | $ | 5.1 | $ | (5.1 | ) | $ | — | |||
| Acceleration of employee stock options | 9.5 | (0.3 | ) | 9.2 | $ | (9.2 | ) | — | |||||||
| Other facility-related costs | 1.1 | 0.4 | 1.5 | $ | (0.5 | ) | 1.0 | ||||||||
| Total | $ | 16.0 | $ | (0.2 | ) | $ | 15.8 | $ | (14.8 | ) | $ | 1.0 | |||
Transaction Costs—Included in the final allocation of acquisition costs were accrued transaction costs of $9.8 million, which primarily consist of investment banking, accounting and legal fees incurred by the Company. For the period ended December 31, 2002, there were no significant adjustments to accrued transaction costs and all costs have been paid.
Pro Forma Data—The following unaudited pro forma condensed combined supplemental data present the revenues, net earnings and earnings per share of the combined entity as though the
59
business combination had been completed as of January 1, 2002 and 2001, respectively. The unaudited pro forma condensed combined supplemental data gives effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of amortization of intangibles, deferred stock compensation costs, the elimination of the non-recurring charge for acquired in-process research and development, the tax effects to the pro forma adjustments and the recognition of the tax benefits arising from Aviron's net loss for the 2001 period. The unaudited pro forma condensed combined supplemental data are not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future (in millions, except per share data).
| | Year Ended December 31, | |||||
|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||
| Revenues | $ | 847.7 | $ | 635.7 | ||
| Net earnings | $ | 81.3 | (1) | $ | 56.5 | |
| Diluted earnings per share | $ | 0.32 | (1) | $ | 0.22 | |
4. ACCOUNTING CHANGECHANGES
For new contracts executed or acquired after January 1, 2002, the Company has changed its accounting method for contract revenues such that the Company may recognize contract revenues associated with substantive at-risk performance milestones when the milestone is achieved, when no future service obligation is attendant to that milestone and when the related revenue is due and payable under the milestone payment method. The change in accounting principle was made to more closely reflect the essence of the Company's contractual obligations with collaborative partners. Also, the new method is prevalent in the industry in which the Company operates. The effect on net loss and net loss per share for the year ended December 31, 2002 is not material.
In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying accounting principles generally accepted in the United States of America to certain revenue transactions in financial statements. The implementation of SAB 101 as of January 1, 2000 affected amounts previously recognized as revenue relating to up-front payments or milestone payments received by the Company in years prior to 2000 under arrangements for which performance obligations related to the up-front or milestone payments had been met, but for which the Company is contractually obligated to perform additional research and development activities or other activities in future periods.
Accounting principles generally accepted in the United States of America previously required the Company to record the revenue from
the up-front and milestone payments as received, when the performance obligations associated with those payments had been fully met.
However, following the adoption of the SAB, accounting principles generally accepted in the United States of America now require
that the revenue received in conjunction with up-front or milestone payments be recognized over the remaining performance period
under the contract as those obligations are fulfilled, using the contingency adjusted performance model for revenue recognition.
The Company implemented SAB 101 effective January 1, 2000. As of December 31, 2001 and 2000, the Company has recorded on the balance
sheet current deferred revenue of $13.8 million and $34.0 million, respectively. The deferred revenue is being recognized over the
period of fulfillment of the contractual obligations. The effect of adopting SAB 101 on 2000 earnings before the cumulative effect of the change in accounting principle was additional income, net of tax, of $13.0 million, or $0.06 per diluted share. The effect on 2000 net earnings (including a non-cash, cumulative effect after tax charge of $33.8 million or $0.16 per diluted share) was a charge of $20.8 million, or $0.10 per share. IfIn connection with the Company had been requiredadoption, a portion of the upfront and milestone payments received under collaborative agreements with Abbott, Alza, GSK, and Schering were deferred and are being recognized over the period of fulfillment of the contractual obligations. As of December 31, 2002 and 2001, the remaining balance of deferred revenue with respect to account for transactions in accordance with SAB 101 in earlier
periods, the Company would have reported additional other revenue and earnings before the cumulative effect of a change in
accounting principle of $4.3amounts received under these agreements was $3.9 million and $2.6$12.5 million, respectively, in the fourth quarter of 1999. Both basic and diluted earnings
per share would have increased by $0.01 for the fourth quarter of 1999.
4.respectively.
60
5. SEGMENT INFORMATION
SFAS No. 131 "Disclosures about Segments of an Enterprise and Related Information" establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about its products, services, geographic areas and major
customers. Under SFAS No. 131, the
The Company's operations are considered one operating segment as the Company's chief operating decision makers review the profit and loss of the Company on an aggregate basis and manage the operations of the Company as a single operating segment.
The Company sells its products primarily to a limited number of pharmaceutical wholesalers and distributors. During 2001, two mergers occurred involving four of the pharmaceutical wholesalers and distributors to which the Company sells its products. Three of the four companies individually accounted for at least ten percent of the Company's product sales prior to the mergers. Customers individually accounting for at least ten percent of the Company's product sales during the past three years are as follows:
2001 2000 1999
---- ---- ----
Company A 26% 27% 27%
Company B 18% 19% 22%
Company C 13% 16% 15%
Company D 12% 11% 11%
--- --- ---
Total % of product sales 69% 73% 75%
=== === ===
| | 2002 | 2001 | 2000 | |||
|---|---|---|---|---|---|---|
| Company A | 27% | 26% | 27% | |||
| Company B | 17% | 18% | 19% | |||
| Company C | 13% | 13% | 16% | |||
| Company D | 11% | 12% | 11% | |||
| Total % of product sales | 68% | 69% | 73% | |||
The Company relies on a limited number of distributor agents/affiliates to sell CytoGam and NeuTrexin internationally. The Company
has also entered into contractual agreements with Abbott International, a division of Abbott Laboratories, for distribution of Synagis outside of the United States and with affiliates of Schering-Plough Corporation for international distribution of Ethyol. The Company also relies on a limited number of distributor agents/affiliates to sell CytoGam and NeuTrexin internationally. The breakdown of product sales by geographic region is as follows (in thousands)millions):
2001 2000 1999
------- ------- -------
United States $531,483 $456,311 $335,161
All other 48,046 39,492 21,654
-------- -------- --------
Total product sales $579,529 $495,803 $356,815
======== ======== ========
| | 2002 | 2001 | 2000 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| United States | $ | 748.0 | $ | 531.5 | $ | 456.3 | |||
| All other | 38.0 | 48.0 | 39.5 | ||||||
| Total product sales | $ | 786.0 | $ | 579.5 | $ | 495.8 | |||
The breakdown of long-lived assets by geographic region is as follows (in thousands)millions):
2001 2000
------- -------
United States $ 92,498 $83,094
All other 2,904 3,289
-------- -------
Total long-lived assets $ 95,402 $86,383
======== =======
| | 2002 | 2001 | ||||
|---|---|---|---|---|---|---|
| United States | $ | 161.0 | $ | 92.5 | ||
| All other | 23.0 | 2.9 | ||||
| Total long-lived assets | $ | 184.0 | $ | 95.4 | ||
Other revenue of $61.8 million, $39.2 million, and $44.7 million in 2002, 2001, and $26.6 million in 2001, 2000, and 1999, respectively, consists mainly of United States distribution, licensing, milestone revenues, corporate funding, and contract manufacturing revenues.
5. INVESTMENTS
61
Investments in marketable securities are comprised of the following (in thousands)millions):
Cost/ Fair Value at Gross Gross
Principal Amortized Balance Sheet Unrealized Unrealized
Amount Cost Date Gains Losses
------ --------- ---- ----- ------
December 31, 2001:
Equity Securities $ -- $ 16,350 $ 21,167 $ 4,817 $ --
U.S. Government and Agencies 8,000 8,078 8,310 232 --
Corporate Debt Securities 530,357 546,943 556,494 9,900 (349)
Foreign Bank CD's 28,000 29,860 30,464 604 --
-------- -------- -------- ------- -------
Total $566,357 $601,231 $616,435 $15,553 $ (349)
======== ======== ======== ======= =======
December 31, 2000:
Equity Securities $ -- $ 6,350 $ 15,478 $ 9,128 $ --
U.S. Government and Agencies 35,900 36,120 36,174 62 (8)
Corporate Debt Securitites 357,002 361,534 362,832 1,636 (338)
Foreign Bank CD's 25,750 26,797 26,796 7 (8)
-------- -------- -------- ------- ------
Total $418,652 $430,801 $441,280 $10,833 $ (354)
======== ======== ======== ======= ======
| | Principal Amount | Cost/ Amortized Cost | Fair Value at Balance Sheet Date | Gross Unrealized Gains | Gross Unrealized Losses | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2002: | ||||||||||||||||
| Equity Securities | $ | — | $ | 1.9 | $ | 1.9 | $ | — | $ | — | ||||||
| U.S. Government and Agencies | 245.9 | 251.0 | 254.2 | 3.2 | — | |||||||||||
| Corporate Debt Securities | 900.4 | 935.4 | 967.9 | 32.9 | (0.3 | ) | ||||||||||
| Foreign Bank Debt Securities | 64.6 | 66.3 | 69.0 | 2.6 | — | |||||||||||
| Total | $ | 1,210.9 | $ | 1,254.6 | $ | 1,293.0 | $ | 38.7 | $ | (0.3 | ) | |||||
| December 31, 2001: | ||||||||||||||||
| Equity Securities | $ | — | $ | 6.4 | $ | 11.2 | $ | 4.8 | $ | — | ||||||
| U.S. Government and Agencies | 8.0 | 8.1 | 8.3 | 0.2 | — | |||||||||||
| Corporate Debt Securities | 530.4 | 546.9 | 556.5 | 9.9 | (0.3 | ) | ||||||||||
| Foreign Bank Debt Securities | 28.0 | 29.8 | 30.4 | 0.6 | — | |||||||||||
| Total | $ | 566.4 | $ | 591.2 | $ | 606.4 | $ | 15.5 | $ | (0.3 | ) | |||||
The amortized cost and fair market value of investments at December 31, 20012002 and 2000,2001, by contractual maturities are (in thousands)millions):
2001 2000
---- ----
Cost/ Cost/
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ----- -----
Equity Securities $ 16,350 $21,167 $ 6,350 $ 15,478
Due in one year or less 37,805 37,899 105,594 105,670
Due after one year through two years 165,007 168,001 284,021 285,308
Due after two years through five years 382,069 389,368 34,836 34,824
-------- -------- -------- --------
Total $601,231 $616,435 $430,801 $441,280
======== ======== ======== ========
| | 2002 | 2001 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cost/ Amortized Cost | Fair Value | Cost/ Amortized Cost | Fair Value | ||||||||
| Equity Securities | $ | 1.9 | $ | 1.9 | $ | 6.4 | $ | 11.2 | ||||
| Due in one year or less | 393.4 | 395.0 | 149.5 | 151.2 | ||||||||
| Due after one year through two years | 252.6 | 259.6 | 71.8 | 73.4 | ||||||||
| Due after two years through five years | 496.3 | 521.9 | 363.5 | 370.6 | ||||||||
| Due after five years through seven years | 110.4 | 114.6 | — | — | ||||||||
| Total | $ | 1,254.6 | $ | 1,293.0 | $ | 591.2 | $ | 606.4 | ||||
Gross gains recognized on sales of securities in 2002, 2001 and 2000 were $0.9 million, $2.1 million and $1.6 million, respectively, as determined by specific identification. Gross losses recognized on sales of securities were immaterial during both2002, 2001 and 2000, as determined by specific identification.
During 1999, there were no material gains or losses2002, the Company determined that the decline in fair value below the cost basis of its investment in the marketable equity securities of a public company was other than temporary, based primarily on salesthe duration and magnitude of securities.
6.the declines in fair value, in turn largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee company. For the year ended December 31, 2002, the Company recorded a realized loss of $4.5 million to write-down the cost basis of the investment to fair value.
62
7. INVENTORY
Inventory at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
Raw
| | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|
| Raw materials | $ | 30.4 | $ | 16.8 | |||
| Work in process | 19.4 | 13.7 | |||||
| Finished goods | 10.2 | 22.2 | |||||
| 60.0 | 52.7 | ||||||
| Less noncurrent | — | (1.9 | ) | ||||
| $ | 60.0 | $ | 50.8 | ||||
The Company has commenced production of inventory, including Normal Allantoic Fluid (NAF), Virus Harvest (VH), sprayers, and finished goods, in connection with its proposed launch of FluMist, which has not yet been approved by the FDA. In recognition of management's assessment that the entire inventory of finished goods and certain other inventory materials $16,805 $14,715
Work in process 13,731 21,091
Finished goods 22,155 13,159
------- -------
52,691 48,965
Less noncurrent (1,855) (2,332)
------- -------
$50,836 $46,633
======= =======
Noncurrent inventory atwill reach their expiration dates prior to FDA approval, the Company recorded reserves for such inventory. As of December 31, 2001 and 20002002, the Company has a FluMist related inventory balance of $62.5 million, against which there is compriseda reserve of some$47.5 million, resulting in a net inventory balance of the Company's raw plasma. Noncurrent inventory at
December 31, 2001 also includes certain CytoGam production lots that are being tested for long-term stability which are not expected
to be available for sale within the next 12 months.$15.0 million.
Inventory balances are net of reserves for RespiGam inventory, for which minimal product sales are expected to result for the foreseeable future. In April 2002, the Company reduced the inventory and reserve balances by $3.4 million upon the disposal of expired product. RespiGam inventory and reserve balances, respectively, were $0.6 million and $0.2 million as of December 31, 2002, and $4.9 million and $5.9$4.2 million, and $4.2 and $4.7 million,as of December 31, 2001.
Noncurrent inventory at December 31, 2001 and 2000, respectively.
7.is comprised of some of the Company's raw plasma as well as certain CytoGam production lots that are being tested for long-term stability. Noncurrent inventory at December 31, 2002 is fully reserved.
8. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
Land
| | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|
| Land and land improvements | $ | 15.7 | $ | 2.3 | |||
| Buildings and building improvements | 52.6 | 54.3 | |||||
| Leasehold improvements | 33.9 | 15.2 | |||||
| Laboratory, manufacturing and facilities equipment | 50.1 | 33.1 | |||||
| Office furniture, computers, and equipment | 28.5 | 15.0 | |||||
| Construction in progress | 56.7 | 10.0 | |||||
| 237.5 | 129.9 | ||||||
| Less accumulated depreciation and amortization | (53.5 | ) | (34.5 | ) | |||
| $ | 184.0 | $ | 95.4 | ||||
During March 2002, the Company paid approximately $13.4 million to acquire 11 acres of land in Gaithersburg, Maryland, which will serve as the site of the Company's new corporate headquarters and landresearch facilities. Additionally, the Company has options to purchase an additional 14 acres of land. The Company has begun construction of the first phase of the new facility, at a total estimated cost of $85 million. The Company expects to take occupancy of the first phase of construction, which will feature a complex totaling approximately 220,000 square feet, in the fall of 2003.
63
In connection with the Acquisition, the Company acquired property, plant and equipment valued at approximately $42.5 million, comprised primarily of leasehold improvements, $ 2,313 $ 2,186
Buildings and building improvements 54,291 50,936
Leasehold improvements 15,236 15,750
Laboratory,lab, manufacturing and facilitiesoffice equipment, 33,114 32,152
Office furniture, computers, and equipment 14,953 12,267
Construction in progress 10,035 --
------- -------
129,942 113,291
Less accumulated depreciation and amortization (34,540) (26,908)
------- -------
$95,402 $86,383
======= =======partially-constructed manufacturing facilities.
As of December 31, 20012002, construction in progress includes $17.6 million of engineering and 2000, buildings includesconstruction costs associated with four facilities. They are: 1) the portionand other professional fees related to Phase I of the Company's Frederick manufacturing facility that was granted approval by the FDA for the productionnew headquarters. In addition, construction in progress includes $33.4 million of Synagis in December 1999,engineering, construction and was placed in service on December 31, 1999; 2) the portion of the Company's Frederick manufacturing facility that was granted
approval by the FDA for the production of CytoGam intermediate paste in December 2000, and was placed in service on December 31,
2000; 3) warehouse, laboratory and administrative space adjacentequipment costs related to the manufacturing facility in Frederick, Maryland; and 4)construction activities at the Company's manufacturing facilityfacilities in Nijmegen, the Netherlands.Pennsylvania and Speke, England. As of December 31, 2001, construction in progress primarily includes engineering, construction, and equipment costs associated with the expansion of the cell culture production area in the Company's
Frederick manufacturing facility,FMC, which will bewas placed in service upon FDA approval.
8.during 2002.
Effective November 2002, the Company outsourced the process of converting human plasma to the critical intermediate used in CytoGam production to a third party manufacturer. Prior to that date, the process was performed at the Company's Frederick Manufacturing Facility. Accordingly, the Company recorded a $12.9 million impairment charge during the fourth quarter of 2002 for the write-off of certain plasma manufacturing assets.
Interest costs capitalized in connection with the Company's construction activities totaled $0.9 million in 2002. Interest costs capitalized during 2001 and 2000 were immaterial.
9. ACCRUED EXPENSES
Accrued expenses at December 31, is comprised of the following (in thousands)millions):
2001 2000
----- ----
Accrued contracts $12,634 $10,139
Accrued manufacturing 4,232 4,200
Accrued sales and marketing 55,204 46,608
Accrued contract termination fees (Note 15) 13,440 --
Accrued other 9,455 11,212
------- -------
$94,965 $72,159
======= =======
9.
| | 2002 | 2001 | ||||
|---|---|---|---|---|---|---|
| Co-promotion expenses | $ | 60.1 | $ | 41.2 | ||
| Government reimbursements | 26.2 | 17.5 | ||||
| Sales and marketing costs | 17.2 | 14.0 | ||||
| Research and development expense | 16.1 | 12.6 | ||||
| Bonuses | 11.0 | — | ||||
| Contract termination fees | — | 13.4 | ||||
| Other | 26.8 | 13.7 | ||||
| $ | 157.4 | $ | 112.4 | |||
10. FACILITIES LEASES
The Company leases warehouse, laboratory and administrative space under numerous operating leases. Under the leases, the Company is obligated to pay a basic monthly rent, which will increase each lease year. The leases also require the Company to pay for utilities and its proportionate share of taxes, assessments, insurance and maintenance costs. Rent expense for the years ended December 31, 2002, 2001, and 2000 and 1999 was $9.0 million, $2.2 million, and $3.4 million, and $2.6 million, respectively.
64
The Company's future minimum lease payments under operating leases are as follows (in thousands)millions):
Year ending December 31,
------------------------
2002 $1,901
2003 1,962
2004 2,025
2005 2,089
2006 1,780
Thereafter --
-------
$9,757
=======
10.
| Year Ending December 31, | | ||
|---|---|---|---|
| 2003 | $ | 8.6 | |
| 2004 | 8.6 | ||
| 2005 | 6.5 | ||
| 2006 | 4.4 | ||
| 2007 | 2.6 | ||
| Thereafter | 32.2 | ||
| $ | 62.9 | ||
11. LONG-TERM DEBT
Long-term debt at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
4%
| | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|
| 51/4% Convertible Subordinated Notes | $ | 209.6 | $ | — | |||
| 4% notes due to Maryland Department of Business and Economic Development, due 2016 | 5.4 | 5.7 | |||||
| 7.53% note due to Maryland Industrial Development Finance Authority, due 2007 (collectively with the 4% notes referred to as the "Maryland Notes") | 3.1 | 3.6 | |||||
| Note due to Cooperative Rabobank, B.A., due 2009, variable interest rate | 0.3 | 0.2 | |||||
| 218.4 | 9.5 | ||||||
| Less current portion included in other current liabilities | (0.8 | ) | (0.7 | ) | |||
| $ | 217.6 | $ | 8.8 | ||||
Convertible Subordinated Notes—Following the Acquisition, MedImmune Vaccines remains obligated for its outstanding indebtedness, which includes $200.0 million aggregate principal amount of the Notes. Approximately $211.4 million of the acquisition cost was allocated to the Notes, which represents the fair value as of the acquisition date, based on quoted market prices. The Notes are convertible into an aggregate of 3.4 million shares of the Company's common stock, based on a conversion price of $58.14, at any time on or before February 1, 2008. The Company may redeem the Notes beginning in February 2004, at redemption prices declining from 103% of their principal amount in 2004 to 100% in 2008, plus accrued interest. Interest is payable semi-annually in arrears in cash on February 1 and August 1 each year. Interest paid during 2002 was $10.5 million. The estimated fair value of the Notes as of December 31, 2002 was $198.2 million, based on quoted market prices.
Collateralized Loans—The Maryland Notes are collateralized by the land, buildings and building fixtures of the FMC. The agreements include a provision for early retirement of the notes due to Maryland Department of Business and Economic Development
due 2016 $5,731 $6,015
7.53% note due to Maryland Industrial Development Finance Authority, due
2007 3,564 3,987
Note due to Cooperative Rabobank, B.A., due 2009
Variable interest rate 249 300
------ ------
9,544 10,302
Less current portion included in other current liabilities (753) (707)
------ ------
$8,791 $9,595
====== ======by the Company. Principal and interest payments on the Maryland notesNotes began in 1998. Pursuant to the terms of the agreements, the Company is required to meet certain financial and non-financial covenants including maintaining minimum cash balances and net worth ratios. The Company maintains a $0.4 million compensating balance related to the notes,Maryland Notes, which is included in other assets. The notes are
collateralized by the land, buildings and building fixtures of the Frederick manufacturing facility. The agreements include a
provision for early retirement of the notes by the Company.
In May 1994, the Company's subsidiary, USB Pharma B.V., entered into a mortgage loan with Cooperative Rabobank B.A. in the amount of 1.2 million Dutch guilders collateralized by the land and buildings of its manufacturing facility in Nijmegen, the Netherlands and guaranteed by the Company. Proceeds from the loan were used to partially fund the purchase of additional equipment for the
65
facility. The mortgage loan, for which principal payments began in March 1995, has a 15-year term and bears interest at a quarterly variable rate. The current
interest rate is 6.05%as of December 31, 2002 was 5.85%.
Maturities of long-term debtthe collateralized loans for the next five years are as follows: 2002, $0.8 million; 2003, $0.8 million; 2004, $0.9 million; 2005, $0.9 million; and 2006, $1.0 million. Interest paid was $0.6 million, $0.5 million,million; and $5.2 million, for the years ended
December 31, 2001, 2000, and 1999, respectively.2007, $1.1 million.
The estimated fair values of the Company's long-term debtcollateralized loans at December 31, 20012002 and 2000,2001, respectively, based on quoted market prices or discounted cash flows based onusing currently available borrowing rates, was $10.0were $9.3 million and $10.9$10.0 million compared to itsthe carrying values of $9.5$8.8 million and $10.3$9.5 million.
11.
12. Shareholders' Equity
In July 1997, the Company's Board of Directors adopted a Stockholder Rights Plan.
Pursuant to the terms of the Stockholder Rights Plan adopted by the Company's Board of Directors, common stock purchase Rightsrights ("Rights") were distributed as a dividend at the rate of one Right for each share of common stock of the Company held by stockholders of record as of the close of business on July 21, 1997. The Rights will be exercisable only if a person or group acquires beneficial ownership of 20 percent or more of the Company's common stock or commences a tender or exchange offer upon consummation of which such a person or group would beneficially own 20 percent20% or more of the Company's stock. The Rights will expire on July 9, 2007.
In February 1999, the Company closed two private placements resulting in the issuance of 1.2 million new shares of common stock to
institutional investors for net proceeds of $20.0 million. In connection with the private placements, warrants to purchase 0.2
million shares of common stock at $24.82 per share were issued. These warrants were exercised in November 1999 for net proceeds of
$6.0 million.
In July 1999, $60 million of the Company's 7% convertible subordinated notes were converted into common stock. The transaction
resulted in the issuance of 18.3 million shares of common stock and increased shareholders' equity by $58.7 million, the carrying
amount of the converted debt on the date of the conversion.
In June 2001, the Company introduced an employee stock purchase plan under which 3,000,000 shares of common stock were reserved for
issuance. Eligible employees may purchase a limited number of shares of the Company's common stock at 85% of the market value at
plan-defined dates. Employees purchased 43,976 shares for $1.5 million during 2001 under this plan.
12.
13. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the diluted EPS computation for the years ended December 31, 2002, 2001, 2000, and 1999.
2001 2000 1999
---- ---- ----
Numerator (in thousands):
Net earnings $148,960 $111,156 $93,371
Interest on 7% convertible notes,2000. There are no reconciling items to the numerator for the EPS computation for the periods reported.
| | 2002 | 2001 | 2000 | |||||
|---|---|---|---|---|---|---|---|---|
| Denominator (in millions): | ||||||||
| Weighted average shares outstanding | 249.6 | 213.4 | 209.1 | |||||
| Effect of dilutive securities: | ||||||||
| Stock options and warrants | — | 6.7 | 11.3 | |||||
| Denominator for diluted EPS | 249.6 | 220.1 | 220.4 | |||||
The Company incurred a net loss for the year ended December 31, 2002 and, accordingly, did not assume exercise or conversion of amounts capitalized and related taxes -- -- 720
-------- -------- -------
Numeratorpotential common shares for diluted EPS $148,960 $111,156 $94,091
======== ======== =======
Denominator (in thousands):
Weighted average shares outstanding 213,378 209,101 190,421
Effect of dilutive securities:
Stock options 6,723 11,327 12,714
7% convertible notes -- -- 9,175
-------- -------- -------
Denominator for diluted EPS 220,101 220,428 212,310
======== ======== =======the year, as follows, because to do so would be antidilutive:
| (in millions) | ||
|---|---|---|
| Stock options, at prices ranging from $0.47 to $83.25 | 28.6 | |
| Warrants, at $9.30 per share | 0.4 | |
| Notes, at a conversion price of $58.14 | 3.4 | |
| Total potential common shares | 32.4 | |
The following table shows the number of shares and related price ranges of those shares that were excluded from the EPS computations above.for the years ended December 31, 2001 and 2000. These options to purchase shares of common stock were outstanding in the periods reported, but were not included in the computation of diluted earnings per share as the exercise prices for these options were greater than the average market price of the common stock during the period reported, and therefore would be antidilutive.
Year ended Year ended Year ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Price range of stock options:
$40.50-$83.25 6,555,197
$61.50-$83.25 886,425
$28.33-$67.11 1,074,054
13.antidilutive (in millions).
| 2001 | 2000 | ||||
|---|---|---|---|---|---|
| Price range of stock options: | |||||
| $40.50–$83.25 | 6.6 | ||||
| $61.50–$83.25 | 0.9 | ||||
66
14. COMMON STOCK OPTIONSEQUIVALENTS
The Company currently grants stock options under certain of the following stock option plans:
Shares Authorizedplans originated by the Company. In May 2002, the Company's shareholders voted to increase the maximum number of shares of common stock reserved for Optionissuance under the 1999 Plan Description Grants
---- ----------- ------
Old Plan from 19,250,000 to 25,250,000 shares.
| Plan | Description | Shares Authorized (in millions) | ||
|---|---|---|---|---|
| Old Plan | Provides option incentives to employees, consultants | 1.5 | ||
1991 Plan | Provides option incentives to employees, consultants and advisors of the Company | 33.0 | ||
1993 Non-Employee Directors Plan | Provides option incentives to non-employee directors | 1.5 | ||
1999 Plan | Provides option incentives to employees, consultants and advisors of the Company | 25.3 |
The following compensation plans, for which no future grants will be made, were acquired by the Company 1991 Plan Providesin 1999 in connection with its acquisition of MedImmune Oncology.
| Plan | Description | Shares Authorized (in millions) | ||
|---|---|---|---|---|
| Non-Executive Stock Option Plan | Provided option incentives to employees who are not officers or directors of MedImmune Oncology, consultants | 1.0 | ||
1996 Non-Employee Directors Stock Option Plan | Provided option incentives to elected non-employee directors of MedImmune Oncology | — |
In addition, the following compensation plans, for which no future grants will be made, were acquired by the Company Non-Employee Directors Provides option incentives to non-employee directors 1,500,000
Plan
1999 Plan Provides option incentives to employees, consultants 19,250,000
and advisorsin 2002 in connection with its acquisition of the Company
Non-Executive Stock Provided option incentives to employees who are not 1,012,500
Option Plan officers or directors of USB, consultants and advisors
of the Company
1992 Stock Option Plan Provided option incentives to officers and directors of 1,282,500
USB
1996 Non-Employee Provided option incentives to elected non-employee 22,500
Directors Stock Option directors of USB
Plan
1999 Stock Option Plan Provided option incentives to employees, consultants 1,350,000
and advisors of USB
1991 Special Provided option incentives to employees, consultants 450,000
Non-Statutory Plan and advisors of USB
1987 Special Non Provided option incentives to employees and 225,000
Statutory Plan non-employees of USB
1987 Non Statutory Plan Provided option incentives to employees and 450,000
non-employee members of The Board of Directors of USB
1987 Incentive Stock Provided option incentives to employees, consultants, 450,000
Option Plan and advisors of USBMedImmune Vaccines.
| Plan | Description | Shares Authorized (in millions) | ||
|---|---|---|---|---|
| 1996 Equity Incentive Plan ("1996 Plan") | Provides for the grant of incentive and nonstatutory stock options to employees and consultants of MedImmune Vaccines | 4.7 | ||
1999 Non-Officer Equity Incentive Plan ("1999 Plan") | Provides for the grant of nonstatutory stock options, stock bonuses, rights to purchase restricted stock, and stock appreciation rights to consultants and employees who are not officers or directors of MedImmune Vaccines | 4.2 |
Options under all plans normally vest over a three to five year period and have a maximum term of 10 years. The Company has reserved a total of 31,077,75934.6 million shares of common stock for issuance under these plans as of December 31, 2001.2002.
67
Related stock option activity, is as follows:
Options Granted Prior to
Establishment offollows (shares in millions):
| | Plans Prior to Establishment of the 1991 Plan | 1991 and 1999 Plans | Non-Employee Directors Plan | MedImmune Oncology Plans | MedImmune Vaccines Plans | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Shares | Price per share(1) | Shares | Price per share(1) | Shares | Price per share(1) | Shares | Price per share(1) | Shares | Price per share(1) | |||||||||||||||
| Balance Dec. 31, 1999 | 0.1 | $ | 0.13 | 19.9 | $ | 10.94 | 0.6 | $ | 7.72 | 1.5 | $ | 22.12 | — | $ | — | ||||||||||
| Granted | — | — | 7.2 | 59.75 | 0.2 | 72.75 | — | — | — | — | |||||||||||||||
| Exercised | (0.1 | ) | 0.13 | (6.0 | ) | 7.76 | (0.2 | ) | 5.33 | (1.3 | ) | 21.77 | — | — | |||||||||||
| Canceled | — | — | (0.7 | ) | 38.75 | — | — | — | — | — | — | ||||||||||||||
| Balance Dec. 31, 2000 | — | — | 20.4 | 28.15 | 0.6 | 24.23 | 0.2 | 25.52 | — | — | |||||||||||||||
| Granted | — | — | 4.7 | 38.14 | 0.2 | 47.20 | — | — | — | — | |||||||||||||||
| Exercised | — | — | (3.0 | ) | 7.15 | (0.1 | ) | 12.51 | (0.2 | ) | 20.70 | — | — | ||||||||||||
| Canceled | — | — | (1.9 | ) | 43.87 | — | — | — | — | — | — | ||||||||||||||
| Balance Dec. 31, 2001 | — | — | 20.2 | 32.17 | 0.7 | 29.22 | 0.0 | — | — | — | |||||||||||||||
| Acquisition | — | — | — | — | — | — | — | — | 6.5 | 27.25 | |||||||||||||||
| Granted | — | — | 5.9 | 36.74 | 0.2 | 28.90 | — | — | — | — | |||||||||||||||
| Exercised | — | — | (0.8 | ) | 6.75 | — | — | — | — | (1.8 | ) | 20.28 | |||||||||||||
| Canceled | — | — | (1.2 | ) | 44.97 | — | — | — | — | (1.1 | ) | 36.06 | |||||||||||||
| Balance Dec. 31, 2002 | — | $ | — | 24.1 | $ | 33.45 | 0.9 | $ | 29.53 | 0.0 | $ | — | 3.6 | $ | 28.17 | ||||||||||
Additional information related to the plans as of December 31, 20012002 is as follows:
Options Outstanding Options Exercisable
------------------- -------------------
Wtd Avg
remaining Wtd Avg
Range of Options contractual Exercise Options Wtd Avg
exercise prices outstanding Life (yrs) Price Exercisable Exercise Price
- ------------------------- ---------------- ----------------- ---------------- --------------------------- ------------------
$0.01-$20.00 8,773,259 6.0 $10.38 4,817,959 $7.95
$20.01-$40.00 5,568,143 8.7 $34.63 1,209,581 $33.08
$40.01-$60.00 2,008,095 8.8 $49.96 305,008 $52.99
$60.01-$80.00 4,613,685 8.2 $62.10 1,107,861 $62.01
$80.01-$100.00 25,600 8.6 $80.68 5,468 $80.70
---------- ---------
20,988,782 7.5 $32.06 7,445,877 $21.97
========== =========follows (shares in millions):
| | Options Outstanding | Options Exercisable | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Range of exercise prices | Options outstanding | Wtd Avg remaining contractual life (yrs) | Wtd Avg Ex. Price | Options Exercisable | Wtd Avg Ex. Price | |||||||
| $0.01-$10.00 | 4.1 | 4.2 | $ | 5.40 | 3.8 | $ | 5.17 | |||||
| $10.01-$20.00 | 4.5 | 6.0 | $ | 16.71 | 3.2 | $ | 15.97 | |||||
| $20.01-$30.00 | 4.7 | 7.4 | $ | 25.47 | 1.9 | $ | 24.82 | |||||
| $30.01-$40.00 | 5.3 | 7.5 | $ | 37.00 | 2.4 | $ | 37.19 | |||||
| $40.01-$50.00 | 5.0 | 8.7 | $ | 42.41 | 1.2 | $ | 43.03 | |||||
| $50.01-$60.00 | 0.7 | 6.8 | $ | 56.58 | 0.4 | $ | 56.59 | |||||
| $60.01-$70.00 | 3.9 | 7.0 | $ | 60.96 | 1.9 | $ | 60.91 | |||||
| $70.01-$80.00 | 0.4 | 7.7 | $ | 72.23 | 0.2 | $ | 72.30 | |||||
| 28.6 | 6.9 | $ | 32.64 | 15.0 | $ | 27.39 | ||||||
In MayJune 2001, the Company's shareholders voted to increase the maximumCompany introduced an employee stock purchase plan ("ESPP") under which 3.0 million shares of common stock were reserved for issuance. Eligible employees may purchase a limited number of shares of the Company's common stock reservedat 85% of the market value at plan-defined dates. Employees purchased 163,345 shares and 43,976 shares for issuance$4.0 million and $1.5 million during 2002 and 2001, respectively, under the 1999 Plan from 14,250,000 to 19,250,000 shares. There were 7,108,595 and 330,000 shares available for future option grants at
December 31, 2001 under the 1999 Plan and the Non-Employee Directors Plan, respectively.plan.
The Company has adopted the disclosure only provisions of SFAS 123 as they pertain to financial statement recognition of compensation expense attributable to option grants.grants and shares issued pursuant to the ESPP. As such, no compensation cost has been recognized for grants under the Company's optionstock compensation plans. If the Company had elected to recognize compensation cost for all ofgrants under its
68
stock optioncompensation plans consistent with SFAS 123, the Company's net earnings and earnings per shareresults on a pro forma basis would be:
2001 2000 1999
---- ---- ----
Net earnings - as reported $148,960 $111,156 $93,371
Net earnings - pro forma $69,143 $58,329 $70,492
Basic earningsbe (in millions, except per share-as reported $0.70 $0.53 $0.49
-pro forma $0.32 $0.28 $0.37
Diluted earnings per share-as reported $0.68 $0.50 $0.44
-pro forma $0.31 $0.26 $0.33share data):
| | 2002(1) | 2001 | 2000 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| Net (loss) earnings — as reported | $ | (1,098.0 | ) | $ | 149.0 | $ | 111.2 | ||
| Net (loss) earnings — pro forma | $ | (1,192.6 | ) | $ | 67.0 | $ | 49.3 | ||
| Basic (loss) earnings per share—as reported | $ | (4.40 | ) | $ | 0.70 | $ | 0.53 | ||
| —pro forma | $ | (4.78 | ) | $ | 0.31 | $ | 0.24 | ||
| Diluted (loss) earnings per share—as reported | $ | (4.40 | ) | $ | 0.68 | $ | 0.50 | ||
| —pro forma | $ | (4.78 | ) | $ | 0.30 | $ | 0.22 | ||
Note:
The pro forma expense related to the stock options is recognized over the vesting period, generally five years. The fair value of each option grant was estimated using the Black-Scholes option pricing model with the following weighted average assumptions for each year:
2001 2000 1999
---- ---- ----
Risk-free interest rate 4.72% 6.20% 5.78%
Expected life of options - years 6 7 7
Expected
| | 2002 | 2001 | 2000 | ||||
|---|---|---|---|---|---|---|---|
| Risk-free interest rate | 4.16 | % | 4.72 | % | 6.20 | % | |
| Expected life of options — years | 6 | 6 | 7 | ||||
| Expected stock price volatility | 53 | % | 69 | % | 69 | % | |
| Expected dividend yield | N/A | N/A | N/A |
To better estimate the future expected stock price volatility, 69% 69% 65%
Expected dividend yield N/A N/A N/Aduring 2002 the Company changed its method of calculating historical volatility from using daily stock price observations to using monthly observations.
The weighted average fair value of options granted during 2002, 2001, and 2000 was $20.56, $25.23, and 1999 was $26.18, $44.03, and $18.19,$42.80, respectively.
14.
In connection with the Acquisition, the Company assumed outstanding warrants to purchase common stock, which are as follows as of December 31, 2002:
| Shares (in 000's) | Exercise Price | Expiration | |||
|---|---|---|---|---|---|
| 365.5 | $ | 9.30 | February 2007 | ||
| 53.8 | $ | 9.30 | March 2008 | ||
| 419.3 | |||||
Additional warrants to purchase 5,147 shares of the Company's common stock at an exercise price of $55.13 are issuable on the date of the first commercial sale of FluMist.
69
15. INCOME TAXES
The components of the provision (benefit) for income taxes are as follows:
Year ended December 31, 2001 2000 1999
---- ---- ----
Current:
Federal $3,306 $ -- $ --
State -- -- --
Foreign 254 80 --
------- ------- -------
Total current expense 3,560 80 --
Deferred:
Federal 71,072 60,505 (10,502)
State 4,874 3,851 3,407
Foreign -- -- --
------- ------- -------
Total deferred expense (benefit) 75,946 64,356 (7,095)
------- ------- -------
Total tax expense (benefit) $79,506 $64,436 ($7,095)
======= ======= ========follows (in millions):
| | Year ended December 31, | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | ||||||||
| Current: | |||||||||||
| Federal | $ | (1.9 | ) | $ | 3.3 | $ | — | ||||
| State | — | — | — | ||||||||
| Foreign | 0.1 | 0.3 | 0.1 | ||||||||
| Total current expense (benefit) | (1.8 | ) | 3.6 | 0.1 | |||||||
| Deferred: | |||||||||||
| Federal | 48.7 | 71.1 | 60.5 | ||||||||
| State | 1.3 | 4.8 | 3.8 | ||||||||
| Foreign | — | — | — | ||||||||
| Total deferred expense (benefit) | 50.0 | 75.9 | 64.3 | ||||||||
| Total tax expense (benefit) | $ | 48.2 | $ | 79.5 | $ | 64.4 | |||||
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, are as follows:
2001 2000
---- ----
Deferred tax assets:
Net operating loss carryforwards $107,054 $172,276
U.S. General business credit carryforwards 31,313 26,818
Accrued expenses not currently deductible 20,590 16,655
Accounts receivable allowances and reserves 8,697 6,410
Deferred revenue 4,638 13,143
Other 5,823 1,747
-------- --------
Total deferred tax assets 178,115 237,049
Valuation allowance (14,474) (19,969)
-------- --------
Net deferred tax assets $163,641 $217,080
======== ========follows (in millions):
| | 2002 | 2001 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Deferred tax assets: | |||||||||
| Net operating loss carryforwards | $ | 194.7 | $ | 107.1 | |||||
| U.S. general business credit carryforwards | 46.8 | 31.3 | |||||||
| Accrued expenses not currently deductible | 28.6 | 20.6 | |||||||
| Property and equipment | 13.3 | — | |||||||
| Accounts receivable allowances and reserves | 13.0 | 8.7 | |||||||
| Deferred compensation | 7.0 | — | |||||||
| Deferred revenue | 1.5 | 4.6 | |||||||
| Prepaid and long term debt | 5.4 | — | |||||||
| California capitalized research expenses | 4.1 | ||||||||
| Other | 9.9 | 11.1 | |||||||
| Total deferred tax assets | 324.3 | 183.4 | |||||||
| Deferred Tax Liabilities: | |||||||||
| Unrealized gains on investments | (13.5 | ) | (5.3 | ) | |||||
| Acquired intangibles | (30.7 | ) | — | ||||||
| Total deferred tax liabilities | (44.2 | ) | (5.3 | ) | |||||
| Valuation allowance | (32.3 | ) | (14.5 | ) | |||||
| Net deferred tax assets | $ | 247.8 | $ | 163.6 | |||||
70
The provision (benefit) for income taxes varies from the income taxes provided based on the federal statutory rate (35%) as follows:
Year ended December 31, 2001 2000 1999
---- ---- ----
Tax at U.S. federal statutory rate $79,964 $73,295 $30,197
State taxes, net of federal benefit 1,599 2,503 2,702
Change in valuation allowance - 177 (48,525)
Change in valuation allowance reflected in equity - - 9,964
U.S. General business credits (4,855) (12,420) (2,921)
Foreign taxes, net - - 94
Change in state statutory rate 2,413 - -
Other 385 881 1,394
------- ------- -------
Total $79,506 $64,436 $(7,095)
======= ======= =======
| | Year ended December 31, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2002 | 2001 | 2000 | |||||
| (Benefit) tax at U.S. federal statutory rate | (35.0 | )% | 35.0 | % | 35.0 | % | ||
| State taxes, net of federal benefit | 0.3 | 0.7 | 1.2 | |||||
| Change in valuation allowance | 0.2 | — | 0.1 | |||||
| Nondeductible IPR&D | 39.3 | — | — | |||||
| U.S. general business credits | (0.4 | ) | (2.1 | ) | (5.9 | ) | ||
| Effect of foreign operations | 0.1 | — | — | |||||
| Change in state statutory rate | — | 1.1 | — | |||||
| Other | 0.1 | 0.1 | 0.4 | |||||
| Total | 4.6 | % | 34.8 | % | 30.8 | % | ||
At December 31, 20012002 the Company had consolidated net operating loss carryforwards for federalU.S. income tax reporting purposes of approximately $272.4$490 million expiring between 2009 to 2020.2010 and 2021. The Company also has U.S. general business credit carryforwards comprised of federal research and experimentation and orphan drug credit carryforwards of approximately $31.3$52 million at December 31, 20012002 expiring through 2021.2022. The timing and manner in which the Company will utilize the net operating loss and general business credit carryforwards in any year, or in total, will be limited by provisions of the Internal Revenue Code Section 382, regarding changes in ownership of the Company.
Deferred taxes are not provided for the earnings of the Company's foreign subsidiaries, as those earnings are considered permanently reinvested in the operations of the foreign subsidiaries. Additionally, at December 31, 2002, the Company had foreign net operating loss carryforwards of $29 million for U.K. income tax purposes. The Company has provided a full valuation allowance against the deferred tax asset arising from the foreign net operating losses since realization of these tax benefits cannot be reasonably assured.
The change in the valuation allowance was an increase of $17.8 million and a decrease of $5.5 million in 2002 and 2001, respectively. The changes in 2002 relate primarily to acquired losses and tax credits from the Company's subsidiary, MedImmune Vaccines. The portion of the valuation allowance for which subsequently recognized tax benefits will be first applied to reduce goodwill was $15.6 million at December 31, 2002.
Due to state tax law changes during the year ended December 31, 2001, the Company's net deferred tax asset decreased, resulting in a net tax expense of $2.4 million during 2001. This net adjustment is comprised of a reduction of $7.9 million in the deferred tax asset related to the state tax effect of net operating loss carryforwards and other future deductible items, as well as a reduction of $5.5 million in the valuation allowance associated with a portion of those deferred tax assets.
Because management is uncertain of uncertainties regarding the realization of the tax benefit associated with a portion of the deferred tax assets attributable to the state net operating losses, foreign net operating losses, and the general business credits which were generated by USBthe Company's subsidiary, MedImmune Oncology (formerly USB), prior to its acquisition by the Company, a full valuation allowance remains for these deferred tax assets at December 31, 20012002 and 2000.
15. Collaborative Arrangements
2001.
16. COLLABORATIVE ARRANGEMENTS
Abbott Laboratories—In December 1997, the Company signed two agreements with Abbott Laboratories ("Abbott").Laboratories. The first agreement calls for Abbott to co-promote Synagis in the United States. The second agreement allows Abbott International, a division of Abbott, to exclusively distribute Synagis
71
outside the United States. Under the terms of the United States co-promotion agreement, the Company is required to pay Abbott receives aan increasing percentage of net United States sales based on definedAbbott achieving certain sales thresholds over the annual sales thresholds.contract year. Expenses associated with the co-promotion agreement are included in selling, general and administrative expenses on the accompanying statements of operations. Each company is responsible for its own selling expenses. Under the terms of the distribution agreement, the Company manufactures and sells Synagis to Abbott International at a price based on end-user sales. Pursuant to the distribution agreement, the Company received a $15 million payment in each of the years 1999, 1998 and 1997. In accordance with SAB 101, a portion of these payments was deferred in 2000 and is being recorded as other revenue as the Company fulfills certain obligations under the agreement. During 2001, the Company revised its estimate of the total cost to fulfill its obligations under the agreement, based on significant progress at less effort than originally expected towards obtaining regulatory approval in Japan, which was officially granted during January 2002. The Company recorded the cumulative effect of this change in estimate, which resulted in the recognition of additional revenues of $3.6 million during the year ended December 31, 2001, which are included in other revenues. During 2002, Synagis received regulatory approval in Japan and Canada, and therefore expects to fulfill its remaining obligations under the agreement during the second quarter of 2003. The Company could receive up to an additional $15 million based on the achievement of certain milestones.
sales goals.
ALZA Corporation—In December 1995, U.S. Bioscience, Inc.the Company entered into an exclusive marketing and distribution agreement with ALZA Corporation
("ALZA") for Ethyol in the United States. Under the terms of the agreement, ALZA had exclusive rights to market Ethyol in the United States and was responsible for sales and marketing of the product. The original term of the agreement expired in April 2001, and during 2000 ALZA exercised a one-time option to extend the agreement to April 1, 2002. In September 2001, the Company amended the agreement with ALZA to accelerate to October 1, 2001 the transfer to the Company of Ethyol marketing rights. Under the terms of the agreement, the Company received $35 million in up-front and milestone payments prior to 2000. In accordance with SAB 101, a portion of these payments was deferred in 2000 and is recorded as other revenue in 2001, as the Company fulfilled certain obligations under the agreement and completed the transfer of marketing rights. Under the terms of the agreement, the Company's oncology/immunology sales force co-promoted the product with ALZA in the United States. The Company sold Ethyol to ALZA at a price based on a percentage of the net sales price of Ethyol in the United States, and ALZA then sold Ethyol to the distributors and wholesalers that supply Ethyol for prescription sales.
In anticipation of the October 2001 transfer, the Company ceased sales of Ethyol to ALZA during the third quarter of 2001, and purchased ALZA's remaining Ethyol inventory at historical cost as of September 30, 2001, which was recorded as a reduction to product sales in the amount of $2.3 million. During the third quarter of 2001, the Company recognized the remaining deferred revenues of $2.2 million, which are included in other revenues, and recorded to selling general and administrative expense $13.4 million in termination fees due to ALZA, which isare included in accrued expenses as of December 31, 2001. Beginning October 1, 2001, the Company records all revenues from domestic sales of Ethyol, and beginning April 1, 2002, the Company will paypays ALZA a declining royalty for nine years, based on sales of Ethyol in the United States.
ALZA was co-promoting NeuTrexin
CSL Limited—In June 1998, the Company entered into a collaboration agreement with CSL Limited, of Victoria, Australia for the development, sale and Hexalendistribution of FluMist in Australia, New Zealand and some countries in the United States until mid-1999. At that time,South Pacific. The Company and CSL are conducting clinical trials in Australia for FluMist. Under the agreement, CSL will sponsor the marketing application with the Therapeutic Goods Administration, Australia's equivalent to the FDA. CSL will have exclusive rights to sell and distribute FluMist in these countries, and the Company regained solewill share profits from these sales. The Company will also benefit from expansion of CSL's current flu vaccine in pediatric and healthy adult market segments following the approval to market FluMist in the territory. In addition, CSL has agreed
72
under an option agreement to grant warrants to the Company to purchase CSL common stock upon CSL's attainment of certain milestones.
Evans Vaccines Limited—In July 1999, the Company entered into an agreement with a division of Celltech Group Plc, which was later acquired by PowderJect Pharmaceuticals Plc and is now called Evans Vaccines Limited, for the manufacture of key components of FluMist, specifically the bulk manufacture of monovalents and diluent, as well as use of the manufacturing facilities. During October 2000, the Company restructured its agreement with Evans in order to gain direct control over FluMist manufacturing operations. The Company obtained responsibility for bulk manufacture of FluMist in Evans' Speke, England facility, hired approximately 100 Evans employees who had been working on FluMist, and entered into subleases through June 2006 for the distribution,FluMist manufacturing areas on the existing site. In connection with the restructuring of the manufacturing agreement, the Company made an initial payment of $15.0 million and additional payments of $3.9 million each in September 2001 and 2002. The Company is obligated to make three additional annual payments of $3.9 million in September 2003 through September 2005, which are included in other current liabilities and Obligations to Evans in the accompanying consolidated balance sheet as of December 31, 2002. The Company is also obligated to make other additional payments of $19 million, less accrued interest, which will be paid over the term of the agreement based on net sales of FluMist, if and when approved for marketing, with the unpaid balance, if any, due January 2006. The balance of $18.6 million as of December 31, 2002 is included in Obligations to Evans in the accompanying consolidated balance sheet. In addition, the Company is obligated to make payments during the term of the agreement of $150,000 per year for the use of the Company's unit in the Evans manufacturing plant, payments up to an aggregate of $2.0 million for attaining specific milestones, and promotionpayments for other support services based on the costs of these productsservices incurred. The Company expenses rent and other support services as the costs are incurred, and expenses milestones as they become due.
GlaxoSmithKline—In December 1997, the Company and GlaxoSmithKline entered into a strategic alliance to develop and commercialize HPV vaccines for the prevention of cervical cancer and genital warts. In exchange for exclusive worldwide rights to the Company's HPV technology, GSK agreed to provide the Company with an up-front payment, research funding of $22.7 million through 2002, potential developmental and sales milestones which together could total up to $48 million in the United States.
future, as well as royalties on any product sales and an equity investment of $5 million. Under the terms of the agreement, the companies will collaborate on research and development activities. The Company conducted Phase 1 and Phase 2 clinical trials and manufactures clinical material for those studies. GSK is responsible for the final development of the product, as well as regulatory, manufacturing, and marketing activities. In January 1998, the Company received a $15 million payment from GSK upon commencement of the agreement. In accordance with SAB 101, a portion of this payment was deferred in 2000 and is being recorded as other revenue as the Company fulfills certain obligations under the agreement. During 2001, the Company revised its estimate of the total cost to fulfill its obligations under the agreement, based on significant progress at lower cost than previously estimated. The Company recorded the cumulative effect of this change in estimate, which resulted in additional revenues of $0.5 million, for a total of $0.9 million for the year ended December 31, 2001, which are included in other revenues. Research funding of $0.2 million, $2.8 million and $7.8 million associated with the agreement has been included in other revenues for the years ended December 31, 2002, 2001, and 2000, respectively.
In July 2000, the Company granted GlaxoSmithKline a worldwide, exclusive license to itsStreptococcus pneumoniae vaccine technology in exchange for an up-front payment of $10 million and future milestones totaling more than $20 million, plus royalties on any product sales. Under the terms of the agreement, GSK is responsible for all clinical development, manufacturing and sales and marketing activities for theS. pneumoniae vaccine. The Company completed the technology transfer to GSK by the end of 2000. The up-front payment is included in other revenue in 2000.
73
Schering-Plough Corporation—In May 1993, U.S. Bioscience, Inc.MedImmune Oncology entered into an exclusive marketing and distribution agreement with Scherico, Ltd. ("Scherico"), an affiliate of Schering-Plough Corporation, for Ethyol in the countries comprising the EU and European Free Trade Association. Under this agreement, Scherico purchases Ethyol from the Company at a price based on a percentage of the net sales of Ethyol in Germany, United Kingdom, Spain, Italy and France. Scherico's exclusive rights to market the product will continue through December 31, 2003. At the end of the exclusive period, the Company may co-promote Ethyol with Scherico for two years, through December 31, 2005. Thereafter, the Company will reacquire sole marketing rights, subject to an obligation to pay Scherico a royalty based on a percentage of net sales, if any, from the European territories for a period of three years. Scherico may terminate the agreement at any time by providing 180 days written notice. Prior to 2000, the Company received payments of $11 million under the terms of the agreement, a portion of which was deferred in 2000 in accordance with SAB 101, and is being recorded as other revenue as the Company fulfills certain obligations under the agreement.
The Company also entered into licensing agreements for Ethyol and NeuTrexin with affiliates of Schering for several territories outside the United States. The licensees are required to pay the Company compensation based on their net sales of the products, and the Company sells the products to the licensees at an agreed upon price.
GlaxoSmithKline
Wyeth—In December 1997,January 1999, the Company and GlaxoSmithKline ("GSK") entered intosigned a strategic alliance to develop and commercialize human
papillomavirus (HPV) vaccinesworldwide collaborative agreement with Wyeth Lederle Vaccines, a subsidiary of Wyeth, for the preventiondevelopment, manufacture, distribution, marketing, promotion, and sale of cervical cancer and genital warts. In exchange forFluMist. Under this agreement, Wyeth has exclusive worldwide rights to the Company's HPV technology, GSKmarket FluMist, excluding Korea, Australia, New Zealand and some South Pacific countries. The two companies have agreed to provideco-promote FluMist in the United States, with the Company withfocusing on non-traditional channels. Wyeth holds the marketing rights in the United States for an up-front payment, future fundinginitial term of seven years from the first commercial sale of FluMist in the United States. Outside the United States (with the exclusions noted above), Wyeth holds the marketing rights for an initial term of eight years from the first commercial sale of FluMist outside the United States. Wyeth has the option to extend its rights in the United States for an additional four years and potential developmental
and sales milestonesinternationally for an additional three years, the aggregate of which together could total over $85result in payments to the Company ranging from $145 million as well as royalties on any product sales.to $400 million. Under the terms of the agreement with Wyeth, the two companies willare to collaborate on researchthe regulatory, clinical and development activities. The Company conducts Phase 1 and Phase 2 clinical
trials and manufactures clinical materialmarketing programs for those studies. GSK is responsible forFluMist within the final developmentUnited States.
As a part of the product, as well as
regulatory, manufacturing,collaboration, the Company is to receive certain payments related to the achievement of key milestones and marketing activities.events for FluMist. In January 1998,December 2002, the Company received a $15$25.0 million payment from GSK upon
commencement ofWyeth as compensation for manufacturing costs incurred in preparing for the agreement. In accordance with SAB 101, a portion of this payment was deferred in 2000then-expected 2002 FluMist launch. Under the agreements, as recently amended, potential milestones and is being recorded as
other revenue asrelated payments to the Company fulfills certain obligations under the agreement. During 2001, the Company revised its estimate of the
total cost to fulfill its obligations under the agreement, based on significant progress at lower cost than previously estimated.
The Company recorded the cumulative effect of this change in estimate, which resulted in additional revenues of $0.5from Wyeth include: $20 million for a
totalFDA approval in the United States; $20 million for advisory body recommendations and expanded label claims; up to $25 million in supply goal payments; up to $17.5 million for FDA approval of $0.9use in multiple target populations; $10 million for the year ended December 31, 2001, which are includedsubmission of a license application in other revenues. Research fundingEurope; $27.5 million for FDA approval of $2.8a liquid formulation of FluMist; and up to $50 million $7.8upon licensure in international regions. Additionally, Wyeth is committed to provide the Company with up to $20 million and $6.2 million associated with the agreement has been included in other revenuesfinancing, contingent upon regulatory approval of FluMist. The total potential future value for the years ended December 31,
2001, 2000,license fees, milestones, financing support and 1999, respectively.
In July 2000,term extension options that the Company granted GlaxoSmithKline a worldwide, exclusive licensecould receive from Wyeth could range from approximately $300 million to its Streptococcus pneumoniae vaccine technology
in exchange for an up-front payment of $10 million and future milestones totaling more than $20 million, plus royalties on any
product sales.$600 million.
Under the terms of the agreement, GSKWyeth will distribute FluMist and record all product sales. The Company will receive approximately 50% of FluMist revenues, paid in the form of product transfer payments and royalties. These payments are higher in the United States than internationally. The Company incurs expenses to manufacture, supply and co-promote FluMist. There is responsiblepotential for allthe manufacturing cost incurred by the Company to exceed transfer payments received from Wyeth. Wyeth reimburses the Company for a portion of the product's clinical development manufacturing and sales and marketing activities
74
expenses, and has agreed to spend up to $100 million over the first three years for the S. pneumoniae vaccine. The Company completed the technology transfer to GSK by the endcommercialization of 2000. The
up-front payment is included in other revenue in 2000.
Wyeth
On November 8, 1993, the Company signed a definitive agreement with American Cyanamid Company, which was later acquired by American
Home Products which is now called Wyeth, to co-promote and share profits or losses on the Company's original RSV product, RespiGam,
which was licensed for marketing by the FDA on January 18, 1996. Pursuant to an amendment to the agreement signed in December 1999,
Wyeth's obligation to co-promote RespiGamFluMist in the United States was terminated. In addition, Wyeth no longer shares in any profits or
losses of RespiGam in the United States. The Company recorded a credit of $6.8 million to selling, general and administrative
expense in 1999 related to the signing of the amendment.
Other Agreements—The Company has entered into research, development and license agreements with various federal and academic laboratories and other institutions to further develop its products and technology and to perform clinical trials. Under these agreements, the Company is obligated to provide funding and milestone payments of approximately $27.9$7.1 million and $7.4$7.5 million in 20022003 and 2003, respectively. The Company has also
agreed to make milestone payments2004, respectively, and $294.9 million in the aggregate amount of $119.4 million onupon the occurrence of certain events in the future, such as the granting by the FDA of a license for product marketing in the United States for some of the product candidates covered by these agreements.States. In exchange for the licensing rights for commercial development of proprietary technology, the Company has agreed to pay royalties on sales using such licensed technologies.
16. Forward Exchange Contracts
The Company enters into foreign forward exchange contracts to hedge against foreign exchange rate fluctuations that may occur on
certain of the Company's foreign currency denominated obligations. As of December 31, 2001 the Company had no outstanding forward
contracts. As of December 31, 2000, the Company had outstanding forward Euro contracts in the amount of $11.1 million, all expiring
within one year. Fair value of the outstanding contracts at December 31, 2000 was $0.5 million. Unrealized gains and losses on
foreign forward exchange contracts that are designated and effective as hedges are deferred and recognized in the same period that
the hedged obligation is recognized. During the year ended December 31, 2001, net unrealized gains on forward exchange contracts of
$0.1 million, net of tax, were reclassified as earnings during the year as the related inventory was sold. As of December 31, 2001,
deferred gains on forward exchange contracts included in accumulated other comprehensive income are immaterial. During the year
ended December 31, 2001, the Company did not reclassify any material gains or losses relating to ineffective hedges to current
period earnings. The notional principal amounts for off-balance sheet instruments provide one measure of the transaction volume
outstanding as of year end, and does not represent the amount of the Company's exposure to credit or market loss. The Company's
exposure to market risk will vary over time as a function of currency rates. As of January 1, 2001 the Company adopted SFAS 133
"Accounting for Derivatives and Similar Financial Instruments." See Note 2.
17. COMMITMENTS AND CONTINGENCIES
Manufacturing, Supply and Purchase Agreements
Agreements—The Company has entered into manufacturing, supply and purchase agreements in order to provide production capability for CytoGam and RespiGam, and to provide a supply of human plasma for production of both products. No assurance can be given that an adequate supply of plasma will be available from the Company's suppliers. HumanPrior to November 2002, human plasma for CytoGam iswas converted to an intermediate raw material (Fraction II+III paste) at the FMC. Effective November 2002 and through June 2004, Precision Pharma Services is providing all manufacturing of the Company's Frederick manufacturing facility.Fraction II+III paste. The intermediate material is then supplied to the manufacturer of the bulk product, the State Lab.MBL. Pursuant to the agreements with the State Lab,MBL, the Company paid $3.2 million in 2002, $6.8 million in 2001, and $8.7 million in 2000 and $8.3 million in 1999 for production and process development. The Company has an informal arrangementa commercial agreement with the State LabMBL for planned production of CytoGam and RespiGam through June 20032004 for $8.4$15.6 million, and $0.6 million, respectively, subject to production level adjustments. If the State Lab,MBL, which holds the sole product and establishment licenses from the FDA for the manufacture of CytoGam and RespiGam, is unable to satisfy the Company's requirements for CytoGam on a timely basis or is prevented for any reason from manufacturing CytoGam, the Company may be unable to secure an alternative manufacturer without undue and materially adverse operational disruption and increased cost. The Company also has an agreementagreements with Aventis Pasteur tothrough April 2003 and MBL through June 2004 for the fill and packagefinish of CytoGam through 2002.product.
In December 1997, the Company entered into an agreement with Boehringer Ingelheim Pharma KG ("BI"),BI, to provide supplemental manufacturing of the Company's second generation RSV product, Synagis. The Company paid $6.7 million in 2002, $14.3 million in 2001, and $26.4 million in 2000 and $21.1 million in 1999 related to production and scale-up of production as part of this agreement. The Company has firm commitments with BI for planned production through March 20042005 for approximately 43.742.6 million Euros. Should the manufacturer be unable to supply Synagis to the Company for any reason, there can be no assurance that the Company will be able to secure an alternate manufacturer in a timely basis or without increased cost.
The Company has additional agreements with Chiron and BI for the filling, finishing and packaging of Synagis product, manufactured at the FMC.
In August 1998, the Company signed a worldwide multi-year supply agreement with Becton Dickinson for the supply of its AccuSpray non-invasive nasal spray delivery system for administration of FluMist. The Company has firm commitments with Becton Dickinson for future purchases of sprayers of $7.7 million and $1.6 million in 2003 and 2004, respectively. Under the agreement, the Company advanced a total of $2.0 million to Becton Dickinson for facility expansion of plant capacity, which will be recovered against future payments for sprayers supplied under the agreement. As of December 31, 2002, $0.5 million of the advance has not been recovered and is included in other assets in the accompanying balance sheet.
In August 2000, the Company entered into a production agreement with PCI, to perform secondary production (i.e., assembly, labeling and packaging) of FluMist. As part of this agreement, the
75
Company is obligated to pay PCI annual non-refundable minimum payments of $1.1 million for each contract year, regardless of the level of actual production. Payments of $1.1 million were made for each of the years 2002 and 2001. Future minimum payments of $1.1 million each are required to be made in 2003 and 2004. Should the actual level of future production exceed the contract minimum, then actual payments will be correspondingly higher.
The Company has issued irrevocable standby letters of credit to guarantee performance under certain agreements related to the construction project for the Company's new headquarters and research and development facility. The undiscounted maximum potential amount of future payments that the Company could be required to make under such guarantees, in the aggregate, is approximately $1.9 million.
18. OTHER OPERATING EXPENSES
Other operating expenses whichprimarily reflect other manufacturing related costs that are not associated with commercially saleable products. Expenses in 2002 include $77.7 million in pre-production costs and inventory reserves for FluMist, primarily manufacturing startup costs incurred
prior to FDA approvalresulting from preparations for the Company's Frederick Manufacturing Center ("FMC") as well asproposed 2002 commercial launch; $12.9 million for the impairment of certain plasma manufacturing assets (see Note 8); and $9.6 million in excess capacity related to the plasma production portion of the FMC. Expenses in 2001 and 2000 also include a $1.3 million charge to reserve for noncurrent raw plasma inventory
not eligible for processing at the FMC. Expenses in both 2000 and 1999 also include charges of $1.8 million and $1.4 million,
respectively,amounts for the write-off of certain equipment associated with the Company'sexcess plasma production activities. Other operating
expenses are expectedcapacity as well as manufacturing startup costs incurred prior to continue until the plasma production portion ofFDA approval for the FMC, is fully utilized.
and certain other plasma-related charges.
19. PENSION PLAN
The Company has defined contribution 401(k) pension plans and other defined contribution plans available to all full-time employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. Participants are always fully vested in their contributions. The Company also makes employer contributions.contributions, which primarily vest pro ratably over four years of service. During 2002, 2001, 2000, and 19992000, the Company contributed approximately $2.0 million, $1.1 million, $0.9 million, and $1.1$0.9 million, respectively, in cash to the plans. Prior
to the merger with U.S. Bioscience, a deferred compensation program was provided for certain executives of U.S. Bioscience. The
program was terminated in December 1999 and all vested balances were paid in full. Expense related to the deferred compensation plan
was $0.1 million in 1999.
20. LEGAL PROCEEDINGS
In 1998, MediGene AG ("MediGene") initiated a legal action against Loyola University of Chicago ("Loyola") and the Company in the U.S.United States District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference by the Company with an alleged prospective business relationship between MediGene and Loyola. The claims relate to human
papillomavirus vaccine technology allegedly covered by contracts between MediGene and the Company and by a license agreement from
Loyola to the Company, under which the Company granted a sublicense to GlaxoSmithKline. MediGene seekssought damages from the Company ranging from $31.3approximately $40 million to $86.9 million based on the tortious interference claim, and/or damages ranging from $10.2 million to
$31.3 million based on the breach of contract claim. MediGene also seeks ownership of the patents in question, as well as recission
of the Company's license agreement from Loyola or rights as a third-party beneficiary thereof. On December 22, 2000 and March 15,
2001, the$115 million. The District Court granted summary judgment motions in favor of the Company on all claims. The District Court ordered entry of
final judgment in favor ofclaims and MediGene appealed. In January 2003 the Company on March 19, 2002. On March 27, 2002 MediGene filedparties reached a notice of appealsettlement resolving this matter at no cost to the United States
Court of Appeals for the Federal Circuit.Company.
In October 2000, Celltech Chiroscience Limited ("Celltech") commenced a legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court. Celltech alleges that the Company failed to pay royalties with respect to its sales of Synagis as required by a license agreement dated January 19, 1998. Under the agreement, the Company obtained from Celltech a worldwide license to make, use and/or sell product under a patent (and related applications) pertaining to humanized antibodies. In the proceeding, Celltech seekssought payment of a 2% royalty based on net sales of Synagis sold or manufactured in the United States, with interest, and certain costs, including attorney's fees. The Company has filed answering papers denying that any royalties are due on the basis that Celltech's U.S.United States patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. On July 20, 2001,October 28, 2002, the High Court of Justice ordered a hearing, which is expected to take placeruled in late 2002 or early 2003, on whether it will dismissfavor
76
of the Company and dismissed Celltech's case on this basis. Celltech has filed an appeal, which is scheduled for argument in June 2003.
On November 29, 2001, the Company received a letter from counsel for Celltech enclosing a copy of a patent granted by the European Patent Office on November 14, 2001. That letter requested various information concerning the manufacture and sale of Synagis in Europe and sought confirmation that the Company would pay royalties on such sales pursuant to the license agreement dated January 19, 1998. AsOn September 16, 2002, Celltech (now known as Celltech R&D Limited) commenced a second legal proceeding against the Company in the U.K. High Court of March 25, 2002,Justice, Chancery Division, Patents Court, based on the license agreement dated January 19, 1998. Celltech seeks payment of a 2% royalty based on net sales of Synagis sold or manufactured in Germany, with interest and certain costs, including attorney fees. To date, the Company had not made the royalty payments that were the subject of Celltech's November 29, 2001 letter or its September 16, 2002 lawsuit. The Company filed answering papers in December 2002 denying that it owes the royalties that Celltech seeks through its second proceeding. There can be no guarantee that the Company will be successful in this dispute.
On April 5, 2002, the Company filed a suit against Centocor, Inc. ("Centocor") in the United States District Court for the District of Maryland. The Company currently pays Centocor a royalty for sales of Synagis made or sold in the United States pursuant to a patent Sublicense Agreement between the parties dated as of September 15, 2000 (the "Sublicense Agreement"). In the litigation, the Company seeks a declaratory judgment that it has no obligation to continue paying royalties to Centocor on the basis that the patent is invalid, unenforceable and Celltech haddoes not cover Synagis. Additionally, the Company seeks an injunction preventing Centocor from enforcing this patent. On July 1, 2002, Centocor moved to dismiss this action on the basis that it did not include the Trustees of Columbia University in the City of New York ("Columbia") and the Board of Trustees of the Leland Stanford University ("Stanford") as the owners of the patent. On December 12, 2002, the Maryland Court denied Centocor's motion to dismiss the Company's action and directed the Company to amend its Complaint to add Columbia and Stanford as defendants, which it did in January 2003. Centocor, Columbia and Stanford have filed their answers to the amended complaint. There can be no assurance that the Company will be successful in this dispute
On July 9, 2002, Centocor, Columbia and Stanford initiated any legal proceedingan action against the Company based on its European patent.
On December 18, 2001, Genentech, Inc. ("Genentech") announced that it had been granted a patent relating to certain methods and
compositions used to produce antibodies by recombinant DNA technology. Four years ago, in anticipation of any potential impact the
issuance of Genentech's patent could have on the production of Synagis, the Company obtained a license to this patent. The Company
has received from Genentech a letter, dated January 7, 2002, stating that Genentech expects to receive from the Company royalty
payments pursuant to such license. The Company is in the processUnited States District Court for the Northern District of evaluating whether anyCalifornia. In the California litigation, Centocor, Columbia and Stanford sought a declaratory judgment that the patent at issue in the Sublicense Agreement is valid claim of Genentech's patent, as
recently issued, covers production of Synagis. If so,and enforceable and that the Company would pay royaltiesbe liable for patent infringement but for the Sublicense Agreement, as well as a declaratory judgment that the Sublicense Agreement is enforceable. The Company moved to Genentechdismiss the California action, among other arguments, on U.S. net salesthe basis that a prior action was filed in the U. S. District Court for the District of Synagis
commencing December 18, 2001. Pending resolutionMaryland and the California action should not go forward. On October 21, 2002 the Court ruled in favor of this issue, the Company has made certain royalty paymentsand dismissed the California litigation. Columbia and Stanford filed an appeal from the dismissal of the California action, but then agreed to Genentechdismiss their appeal with prejudice.
On January 14, 2003, a lawsuit was filed by the County of Suffolk New York ("Suffolk") in the United States District Court, Eastern District of New York, naming the Company along with approximately 25 other pharmaceutical and biotechnology companies as defendants. The complaint asserts claims under protestthe federal RICO statute, as well as various state, statutory and with reservationcommon laws to recover monetary damages, civil penalties, declaratory and injunctive relief, disgorgement of allprofits, treble and punitive damages suffered as a result of its rights.defendants' alleged unlawful practices related to prescription medications paid for by Medicaid. Suffolk alleges that the defendants manipulated the "average wholesale price" ("AWP") causing Suffolk to pay artificially inflated prices for covered drugs.
77
As to the Company, Suffolk's actions relates to Synagis. In addition, Suffolk argues that the defendants (including the Company) did not report the "best price" under the Medicaid Program.
The Company is also evaluating whether anyinvolved in other legal proceedings arising in the ordinary course of its other antibody-based product
candidates, if and when approved for marketing by the U.S. Food and Drug Administration, could require a license under the Genentech
patent.
On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol Gesellschaft") filed a complaint for refrain,
information and damages with the Regional Court of Hamburg against MedImmune Oncology on the grounds of trademark infringement in
respect of the use of the trademark "Ethyol" in Germany. No monetary amount is currently being sought in the litigation by Ichthyol.
Ichthyol is seeking injunctive relief against the use of the trademark Ethyol in Germany. The suit was dismissed on January 29, 1997
by the Regional Court of Hamburg. Ichthyol Gesellschaft filed an appeal, and a judgment was rendered in favor of MedImmune Oncology
in the appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on points of law with the Federal Court of
Justice, and in June 1999, Ichthyol Gesellschaft filed the grounds for the appeal on points of law. By judgment of May 3, 2001, the
Federal Court of Justice reversed the judgment of the Higher Regional Court and remitted the case to that court for another hearing.
By order of December l9, 2001, the Higher Regional Court ordered Ichthyol to make further submissions concerning the relevant facts
and legal questions. Ichthyol recently filed its submissions. Another hearing will probably be held this summer.business. After consultation with its legal counsel, the Company believes that it has meritorious defenses to the claims referred to above and is determined to defend its position vigorously. While it is impossible to predict with certainty the eventual outcome of these proceedings, the Company believes they are unlikely to have a material adverse effect on its financial position but might have a material adverse effect on its results of operations for a particular period.
21. SUBSEQUENT EVENTS
During January 2002, the Company completed its acquisition of Aviron through an exchange offer and merger transaction pursuant to
the definitive merger agreement between the two parties dated December 3, 2001. Aviron is a biopharmaceutical company headquartered
in Mountain View, California, focused on prevention of diesease through innovative vaccine technologies. Aviron's lead product
candidate is FluMist, a live, attenuated virus vaccine delivered as a nasal mist for the prevention of influenza.
Under the terms of the agreement, the Company exchanged approximately 34.0 million of its common shares for approximately 31.6
million shares of Aviron common stock, and an additional 7.1 million shares are issuable upon the exercise of Aviron's outstanding
options and warrants. In addition, holders of Aviron's $200 million of convertible notes will be able to convert the notes into a
total of 3.4 million shares of the Company's common stock at a conversion price of $58.14 per share. The transaction was valued at
approximately $1.6 billion, net of Aviron cash. Following the exchange, a wholly-owned subsidiary of the Company merged into Aviron,
as a result of which Aviron has become a wholly-owned subsidiary of the Company. The acquisition will be accounted for as a
purchase. Effective January 10, 2002, the results of operations of Aviron will be included in the results of the combined entity.
The purchase price allocation has not yet been finalized. The Company is currently performing a valuation of all tangible and
intangible assets and liabilities, including the acquired in-process research and development and other intangible assets. The
Company's preliminary estimate is that the purchase price will be allocated as $1,145 million of in-process research and
development, $447 million of cash and marketable securities, and the remainder to other tangible and intangible assets and
liabilities. The Company will not finalize the purchase accounting until it completes the valuation of all tangible and intangible
assets and liabilities. Accordingly, the Company is not able to present a condensed balance sheet as of January 10, 2002.
During March 2002, the Company paid approximately $13.4 million to acquire 25 acres of land in Gaithersburg, Maryland, which will
serve as the site of the Company's new corporate headquarters. The Company has contracted with a designer and general contractor for
the construction of the new facility over the next several years, at a total estimated cost of $80 million. The construction project
is expected to break ground in April 2002. The Company expects to take occupancy of the first phase, which will feature a complex
totaling 218,000 square feet, in the fall of 2003.
78
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of MedImmune, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, of shareholders' equity and of cash flows present fairly, in all material respects, the financial position of MedImmune, Inc. and its subsidiaries at December 31, 20012002 and December 31, 2000,2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001,2002, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
/s/
As discussed in Note 4 to the financial statements, the Company changed its method of revenue recognition for contract revenues, effective January 1, 2002.
/s/ PricewaterhouseCoopers LLP
January 24, 2002 except for Notes 20 and 21
as to which the date is March 27, 2002
2003
McLean, Virginia
Report of Management
79
The management of the Company is responsible for the preparation of the financial statements and related financial information included in this annual report. The statements were prepared in conformity with accounting principles generally accepted in the United States of America and, accordingly, include amounts that are based on informed estimates and judgments.
Management maintains a system of internal controls to provide reasonable assurance that assets are safeguarded and that transactions are properly authorized and accurately recorded. The concept of reasonable assurance is based on the recognition that there are inherent limitations in all systems of internal accounting control and that the costs of such systems should not exceed the benefits expected to be derived. The Company continually reviews and modifies these systems, where appropriate, to maintain such assurance. The system of internal controls includes careful selection, training and development of operating and financial personnel, well-defined organizational responsibilities and communication of Company policies and procedures throughout the organization.
The selection of the Company's independent accountants, PricewaterhouseCoopers LLP, has been approved by the Board of Directors and ratified by the shareholders. The Audit Committee of the Board of Directors, comprised solely of outside directors, meets periodically with the Company's independent accountants and management to review the financial statements and related information and to confirm that they are properly discharging their responsibilities. In addition, the independent accountants and the Company's legal counsel meet with the Audit Committee, without the presence of management, to discuss their findings and their observations on other relevant matters. Recommendations made by PricewaterhouseCoopers LLP are considered and appropriate action is taken to respond to these recommendations.
/s/David M. Mott
Chief Executive Officer
/s/Gordon S. Macklin
Chairman of the Audit Committee
| /s/ DAVID M. MOTT David M. Mott Vice Chairman and Chief Executive Officer | ||
/s/ MELVIN D. BOOTH Melvin D. Booth President and Chief Operating Officer | ||
/s/ GREGORY S. PATRICK Gregory S. Patrick Senior Vice President and Chief Financial Officer | ||
/s/ LOTA S. ZOTH Lota S. Zoth Vice President and Controller |
80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF MEDIMMUNE, INC.
Information with respect to directors is included in the Company's Proxy Statement to be filed pursuant to Regulation 14A (the "Proxy Statement") under the caption "Election of Directors," and such information is incorporated herein by reference. Set forth in Part I, Item 1, are the names and ages (as of February 28, 2002)2003), the positions and offices held by, and a brief account of the business experience during the past five years of each executive officer.
All directors hold office until the next annual meeting of shareholders and until their successors are elected and qualified. Officers are elected to serve, subject to the discretion of the Board of Directors, until their successors are appointed.
ITEM 11. EXECUTIVE COMPENSATION
The section entitled "Executive Compensation" and the information set forth under the caption "Election of Directors-Director Compensation" included in the Proxy Statement are incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The common stock information in the section entitled "Principal Shareholders" of the Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The section entitled "Certain Transactions" of the Proxy Statement is incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES
Based on an evaluation of the Company's disclosure controls and procedures as of January 24, 2003, our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company's disclosure controls and procedures are effective in connection with the Company's filing of this annual report on Form 10-K for the year ended December 31, 2002.
There were no significant changes in the Company's internal controls or in any other factors that could significantly affect those controls, subsequent to the date of the most recent evaluation of the Company's internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses.
81
ITEM 14.15. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following documents or the portions thereof indicated are filed as a part of this report.
Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index beginning on page E1 and such listing is incorporated by reference.
reference.
82
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
MEDIMMUNE, INC.
/s/ David M. Mott
Date: March 26, 2002 By: David M. Mott
Vice Chairman and
Chief Executive Officer
Date: March 26, 2002 /s/ Gregory S. Patrick
By:
| MEDIMMUNE, INC. | ||
Date: March 4, 2003 | /s/ DAVID M. MOTT David M. Mott Vice Chairman and Chief Executive Officer Principal Executive Officer | |
Date: March 4, 2003 | /s/ GREGORY S. PATRICK Gregory S. Patrick Senior Vice President and Chief Financial Officer Principal Financial Officer | |
Date: March 4, 2003 | /s/ LOTA S. ZOTH Lota S. Zoth Vice President and Controller Principal Accounting Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
Date: March 26, 2002 /s/ Wayne T. Hockmeyer
Wayne T. Hockmeyer, Chairman
/s/
| Date: March 4, 2003 | /s/ WAYNE T. HOCKMEYER Wayne T. Hockmeyer, Chairman | |
Date: March 4, 2003 | /s/ M. JAMES BARRETT M. James Barrett, Director | |
Date: March 4, 2003 | /s/ MELVIN D. BOOTH Melvin D. Booth, Director | |
Date: March 4, 2003 | /s/ JAMES H. CAVANAUGH James H. Cavanaugh, Director | |
Date: March 4, 2003 | /s/ BARBARA HACKMAN FRANKLIN Barbara Hackman Franklin, Director | |
Date: March 4, 2003 | /s/ GORDON S. MACKLIN Gordon S. Macklin, Director | |
Date: March 4, 2003 | /s/ FRANKLIN H. TOP, JR. Franklin H. Top, Jr., Director | |
Date: March 4, 2003 | /s/ ELIZABETH WYATT Elizabeth Wyatt, Director |
83
I, David M. James Barrett
Date: March 26, 2002 M. James Barrett,Director
/s/Mott, certify that:
| Date: March 4, 2003 | /s/ DAVID M. MOTT David M. Mott Vice Chairman and Chief Executive Officer |
84
CERTIFICATION:
I, Melvin D. Booth, Date: March 26, 2002 Melvin D. Booth, Director
/s/ James H. Cavanaugh
Date: March 26, 2002 James H. Cavanaugh, Director
/s/ Barbara Hackman Franklin
Date: March 26, 2002 Barbara Hackman Franklin, Director
/s/ Gordoncertify that:
| Date: March 4, 2003 | /s/ MELVIN D. BOOTH Melvin D. Booth President and Chief Operating Officer |
85
I, Gregory S. Macklin
Date: March 26, 2002 GordonPatrick, certify that:
| Date: March 4, 2003 | /s/ GREGORY S. PATRICK Gregory S. Patrick Senior Vice President and Chief Financial Officer |
86
CERTIFICATION:
I, Lota S. Macklin, Director
/s/ Franklin H. Top, Jr.
Date: March 26, 2002 Franklin H. Top, Jr., Director
| Date: March 4, 2003 | /s/ LOTA S. ZOTH Lota S. Zoth Vice President and Controller |
87
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Shareholders of MedImmune, Inc.:
Our audits of the consolidated financial statements referred to in our report dated January 24, 2002, except for Notes 20 and 21, as
to which the date is March 27, 2002,2003, appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion, the financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.
/s/
/s/ PricewaterhouseCoopers LLP
McLean, Virginia
January 24, 2002
Schedule27, 2003
88
MedImmune, Inc.
Valuation and Qualifying Accounts
(in
(in thousands)
Balance at Balance at
beginning end of
Description of period Additions Deductions period
------------ --------- --------- ---------- ------
For the year ended
December 31, 2001
Trade and Contract
Receivables Allowance $15,720 $76,753 ($68,113) $24,360
Trade Receivables Bad
Debt Reserve 1,562 2,274 (1,316) 2,520
Inventory Reserve 6,230 12,703 (9,793) 9,140
Physical Asset Reserve 2,463 -- (89) 2,374
------- ------- ------- -------
$25,975 $91,730 ($79,311) $38,394
======= ======= ======== =======
For the year ended
December 31, 2000
Trade and Contract Receivables Allowance $16,103 $58,898 ($59,281) $15,720
Trade Receivables
Bad Debt Reserve 1,304 1,575 (1,317) 1,562
Inventory Reserve 8,004 3,550 (5,324) 6,230
Physical Asset Reserve 828 2,536 (901) 2,463
------- ------- -------- -------
$26,239 $66,559 ($66,823) $25,975
======= ======= ========= =======
| Description | Balance at beginning of period | Additions | Deductions | Balance at end of period | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| For the year ended December 31, 2002 | ||||||||||||
| Sales Allowances | $ | 6,891 | $ | 10,086 | $ | (6,381 | ) | $ | 10,596 | |||
| Trade Receivables Bad Debt Reserve | 2,520 | 4,948 | — | 7,468 | ||||||||
| Inventory Reserve | 9,140 | 59,921 | (31,929 | ) | 37,132 | |||||||
| Physical Asset Reserve | 2,374 | 71 | — | 2,445 | ||||||||
| $ | 20,925 | $ | 75,026 | $ | (38,310 | ) | $ | 57,641 | ||||
| For the year ended December 31, 2001 | ||||||||||||
| Sales Allowances | $ | 5,698 | $ | 3,773 | $ | (2,580 | ) | $ | 6,891 | |||
| Trade Receivables Bad Debt Reserve | 1,562 | 1,095 | (137 | ) | 2,520 | |||||||
| Inventory Reserve | 6,230 | 12,703 | (9,793 | ) | 9,140 | |||||||
| Physical Asset Reserve | 2,463 | — | (89 | ) | 2,374 | |||||||
| $ | 15,953 | $ | 17,571 | $ | (12,599 | ) | $ | 20,925 | ||||
| For the year ended December 31, 2000 | ||||||||||||
| Sales Allowances | $ | 7,263 | $ | 535 | $ | (2,100 | ) | $ | 5,698 | |||
| Trade Receivables Bad Debt Reserve | 1,357 | 259 | (54 | ) | 1,562 | |||||||
| Inventory Reserve | 8,004 | 3,550 | (5,324 | ) | 6,230 | |||||||
| Physical Asset Reserve | 828 | 2,536 | (901 | ) | 2,463 | |||||||
| $ | 17,452 | $ | 6,880 | $ | (8,379 | ) | $ | 15,953 | ||||
S-1
For the year ended
December 31, 1999
Trade and Contract
Receivables Allowance $29,589 $43,779 ($57,265) $16,103
Trade Receivables Bad
Debt Reserve 368 1,390 (454) 1,304
Inventory Reserve 9,747 803 (2,546) 8,004
Physical Asset Reserve -- 1,682 (854) 828
------- ------- -------- -------
$39,704 $47,654 ($61,119) $26,239
======= ======= ======== =======
S-2
c) Item
ITEM 601 Exhibits
2.1(29) Agreement and Plan of Merger, dated as of December 2, 2001, among MedImmune, Inc., Apple Merger Corp. and
Aviron
3.1(4) Restated Certificate of Incorporation, dated May 14, 1991
3.2(3) By-Laws, as amended
3.3(24) By-Laws, as amended
3.4 Certificate of Amendment to the Restated Certificate of Incorporation, dated August 5, 1996*
3.5 Certificate of Amendment to the Restated Certificate of Incorporation, dated June 15, 1998*
3.6 Certificate of Amendment to the Restated Certificate of Incorporation, dated May 18, 2000*
3.7 By-Laws, as amended*
4.1 (19) Amended and Restated Rights Agreement, dated as of October 31, 1998, between MedImmune, Inc., and American
Stock Transfer and Trust Company, as Rights Agent
4.2 Certificate of Designations of Series B Junior Preferred Stock*
4.3 Warrant for Common Stock, issued to University of Michigan (incorporated by reference to Exhibit 4.14 to
Aviron's Annual ReportEXHIBITS
| 2.1 | Agreement and Plan of Merger, dated as of December 2, 2001, among MedImmune, Inc., Apple Merger Corp. and Aviron, incorporated by reference to exhibit 2.1 filed with the Company's Registration Statement Form S-4 (333-74838) filed on | |
3.1 | Restated Certificate of Incorporation, dated May 14, 1991, incorporated by reference to exhibit 3.1 filed in connection with the Company's Registration Statement No. 33-43816. | |
3.1.1 | Certificate of Amendment to the Restated Certificate of Incorporation, dated August 5, 1996, incorporated by reference to exhibit 3.4 filed with the Company's Annual Report on Form 10-K for December 31, 2001. | |
3.1.2 | Certificate of Amendment to the Restated Certificate of Incorporation, dated June 15, 1998, incorporated by reference to exhibit 3.5 filed with the Company's Annual Report on Form 10-K for December 31, 2001. | |
3.1.3 | Certificate of Amendment to the Restated Certificate of Incorporation, dated May 18, 2000, incorporated by reference to exhibit 3.6 filed with the Company's Annual Report on Form 10-K for December 31, 2001 | |
3.7 | By-Laws, as amended, incorporated by reference to exhibit 3.7 filed with the Company's Annual Report on Form 10-K for December 31, 2001. | |
4.1 | Amended and Restated Rights Agreement, dated as of October 31, 1998, between MedImmune, Inc., and American Stock Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 99.2 filed with the Company's Registration Statement on Form 8A/A, filed with the Securities and Exchange Commission on December 1, 1998. | |
4.2 | Certificate of Designations of Series B Junior Preferred Stock, incorporated by reference to exhibit 4.2 filed with the Company's Annual Report on Form 10-K for December 31, 2001. | |
4.3 | Warrant for Common Stock, issued to University of Michigan, incorporated by reference to Exhibit 4.14 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999. | |
4.4 | Indenture entered into between Aviron and HSBC Bank USA as Trustee, dated February 7, 2001, incorporated by reference to Exhibit 4.22 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
4.5 | Officer's Certificate pursuant to Section 2.01 of the Subordinated Indenture, dated February 7, 2001, incorporated by reference to Exhibit 4.22 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
4.6 | Warrant for Common Stock, issued to University of Michigan, incorporated by reference to Exhibit 4.25 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. | |
10.1(1) | RSV Research Agreement dated August 1, 1989 between the Company, PPI and the Massachusetts Health Research Institute, Inc. ("MHRI"), incorporated by reference to exhibit 10.4 filed in connection with the Company's Registration Statement No. 33-39579. | |
E-1
10.2 | RSV License Agreement dated August 1, 1989 between the Company, PPI and MHRI, incorporated by reference to exhibit 10.5 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.3 | RSV Supply Agreement dated August 1, 1989 between the Company, PPI, MHRI and the Massachusetts Public Health Biologic Laboratory ("MPHBL"), incorporated by reference to exhibit 10.6 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.4 | CMV License Agreement dated April 23, 1990 between the Company and MHRI, incorporated by reference to exhibit 10.7 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.4.1 | First Amendment to CMV License Agreement dated May 3, 1991 between the Company and MHRI, incorporated by reference to exhibit 10.8 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.5 | CMV Research Agreement dated April 23, 1990 between the Company, MHRI and MPHBL, incorporated by reference to exhibit 10.9 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.6 | License Agreement dated November 8, 1989 between the Company, PPI, and the Henry M. Jackson Foundation for the Advancement of Military Medicine ("HMJ"), incorporated by reference to exhibit 10.10 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.7 | License Agreement dated July 1, 1989 between the Company and the National Technical Information Service ("NTIS"), incorporated by reference to exhibit 10.17 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.8 | License Agreement dated September 1, 1989 between the Company and NTIS, incorporated by reference to exhibit 10.18 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.9 | Restated Stockholders' Agreement dated May 15, 1991, incorporated by reference to exhibit 10.21 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.10 | Lease Agreement between Clopper Road Associates and the Company dated February 14, 1991, incorporated by reference to exhibit 10.22 filed in connection with the Company's Registration Statement No. 33-39579. | |
10.10.1 | First Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 8, 1993, incorporated by reference to exhibit 10.59 filed with the Company's Annual Report on Form 10-K for December 31, 1996. | |
10.10.2 | Second Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 30, 1993, incorporated by reference to exhibit 10.60 filed with the Company's Annual Report on Form 10-K for December 31, 1996. | |
10.10.3 | Third Amendment of Lease between Clopper Road Associates and MedImmune, Inc. effective as of January 1, 1995, incorporated by reference to exhibit 10.61 filed with the Company's Annual Report on Form 10-K for December 31, 1996. | |
10.10.4 | Fourth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996, incorporated by reference to exhibit 10.62 filed with the Company's Annual Report on Form 10-K for December 31, 1996. | |
E-2
10.10.5 | Fifth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996, incorporated by reference to exhibit 10.63 filed with the Company's Annual Report on Form 10-K for December 31, 1996. | |
10.10.6 | Sixth Amendment of Lease between ARE-QRS Corp. and MedImmune, Inc. dated September 10, 1997, incorporated by reference to exhibit 10.75 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.10.7 | Seventh Amendment of Lease between ARE-QRS CORP. and MedImmune, Inc. effective August 1, 1998, incorporated by reference to exhibit 10.94 filed with the Company's Annual Report on Form 10-K for December 31, 1998. | |
10.11 | 1991 Stock Option Plan, incorporated by reference to exhibit 10.23 filed in connection with the Company's Registration Statement No. 33-46165. | |
10.12(1) | Termination, Purchase and Royalty Agreement between CLI and the Company, dated December 24, 1992, incorporated by reference to exhibit 10.30 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1992. | |
10.12.1(1) | Amendment to Termination, Purchase and Royalty Agreement between Connaught Technology Corporation and MedImmune, Inc. dated December 31, 1995, incorporated by reference to exhibit 10.30 filed with the Company's Annual Report on Form 10-K for December 31,1995. | |
10.12.2(2) | Termination of Purchase and Royalty Agreement Second Amendment between Connaught Technology Corporation and MedImmune, Inc. effective September 30, 1998, incorporated by reference to exhibit 10.92 filed with the Company's Annual Report on Form 10-K for December 31, 1998. | |
10.13 | Form of 1993 Non-Employee Director Stock Option Plan, incorporated by reference to exhibit 10.32 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1992. | |
10.14(1) | Sponsored Research and License Agreement between Georgetown University and the Company dated February 25, 1993, incorporated by reference to exhibit 10.33 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1993. | |
10.15(1) | License Agreement between Roche Diagnostic Systems, Inc. and the Company dated March 8, 1993, incorporated by reference to exhibit 10.34 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1993. | |
10.16 | Agreement dated October 26, 1995 between American Cyanamid Company and the Company, related to the RSV MAB Co-Development and Co-Promotion Agreement between American Cyanamid Company and the Company dated November 8, 1993, incorporated by reference to exhibit 10.37.1 filed in connection with the Company's Annual Report on Form 10-K for December 31, 1995. | |
10.17(1) | Stock Purchase Agreement between Baxter Healthcare Corporation and MedImmune, Inc. dated June 22, 1995, incorporated by reference to exhibit 10.52 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995. | |
10.18(2) | Alliance Agreement between BioTransplant, Inc. and MedImmune, Inc. dated October 2, 1995, incorporated by reference to exhibit 10.53 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995. | |
E-3
10.19 | Stock Purchase Agreement dated October 25, 1995 between MedImmune, Inc. and American Home Products, incorporated by reference to exhibit 10.54 filed with the Company's Annual Report on Form 10-K for December 31,1995. | |
10.20 | Master Loan & Security Agreement, dated June 16, 1997 by and between Transamerica and MedImmune, Inc., incorporated by reference to exhibit 10.72 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997. | |
10.21(1) | Patent License Agreement, (MEDI-493) dated July 17, 1997 by and between Protein Design Labs and MedImmune, Inc., incorporated by reference to exhibit 10.73 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997. | |
10.22(1) | Patent License Agreement, (MEDI-507) dated July 17, 1997 by and between Protein Design Labs and MedImmune, Inc., incorporated by reference to exhibit 10.74 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997. | |
10.23(1) | Co-Promotion Agreement between Abbott Laboratories and MedImmune, Inc. dated November 26, 1997, incorporated by reference to exhibit 10.76 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.23.1(2) | Amendment to Co-Promotion Agreement, effective as of November 26, 1997, by and between Abbott Laboratories through its Ross Products Division and MedImmune, Inc.* | |
10.23.2(2) | Amendment No. 2 to Co-Promotion Agreement, effective as of November 26, 1997, by and between Abbott Laboratories through its Ross Products Division and MedImmune, Inc.* | |
10.24(1) | Contract Research and Development Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997, incorporated by reference to exhibit 10.77 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.25(1) | Manufacturing Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997, incorporated by reference to exhibit 10.78 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.26(1) | Distribution Agreement between MedImmune, Inc. and Abbott International, Ltd. dated November 26, 1997, incorporated by reference to exhibit 10.79 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.26.1(2) | Amendment to the Distribution Agreement, effective as of April 28, 1999, by and between MedImmune, Inc. and Abbott International, Ltd.* | |
10.26.2(2) | Second Amendment to the Distribution Agreement, effective as of October 8, 1999, by and between MedImmune, Inc. and Abbott International, Ltd.* | |
10.27(1) | License Agreement between Loyola University of Chicago and MedImmune, Inc. dated December 3, 1997, incorporated by reference to exhibit 10.80 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
10.28(1) | Research Collaboration and License Agreement between SmithKline Beecham and MedImmune, Inc. dated December 10, 1997, incorporated by reference to exhibit 10.79 filed with the Company's Annual Report on Form 10-K for December 31, 1997. | |
E-4
10.29 | Termination of MEDI-SB Letter Agreement of October 10, 1996, incorporated by reference to exhibit 10.82 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998. | |
10.30 | Second Amendment between MedImmune, Inc. and Lonza Biologics PLC of 228 Bath Road, Slough, Berkshire SL1 4DY England, incorporated by reference to exhibit 10.83 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998. | |
10.31 | Purchase Contract Agreement between Aid Association and MedImmune, Inc. effective November 25, 1998, incorporated by reference to exhibit 10.93 filed with the Company's Annual Report on Form 10-K for December 31, 1998. | |
10.32 | Amendment to Lease Agreement for MOR Bennington LLLP and MedImmune, Inc., incorporated by reference to exhibit 10.100 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. | |
10.33 | License Agreement Dated January 30, 1995 between Registrant and National Institutes of Health, incorporated by reference to Exhibit 10.6 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994. | |
10.34 | Agreement for Assignment of Rights, dated January 8, 1988, between U.S. Bioscience, Inc. and Wyeth Laboratories, Inc., incorporated by reference to Exhibit 10.18 to the U.S. Bioscience, Inc. Registration Statement on Form 10-K filed with the Securities and Exchange Commission on September 21, 1989. | |
10.35 | Amended and Restated License Agreement, effective as of May 1, 1993, between U.S. Bioscience, Inc. and Southern Research Institute, incorporated by reference to Exhibit 10.8 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
10.36 | Agreement, dated as of November 25, 1988, between U.S. Bioscience, Inc. and Warner-Lambert Company, incorporated by reference to Exhibit 10.23 to the U.S. Bioscience, Inc. Registration Statement on Form 10 filed with the Securities and Exchange Commission on September 21, 1989. | |
10.36.1 | Amendment No. 1, dated March 13, 1992 to Agreement dated as of November 25, 1988, between U.S. Bioscience, Inc. and Warner-Lambert Company, incorporated by reference to Exhibit 10(o)(ii) to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1991. | |
10.37 | Agreement, dated as of January 1, 1995, between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994. | |
10.37.1 | Amendment, dated April 12, 1995, to Agreement dated January 1995 between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996. | |
10.37.2 | Second Amendment, dated May 6, 1996 to Agreement dated January 1, 1995 between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11.2 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996. | |
E-5
10.38 | Agreement, dated as of September 23, 1993, between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
10.38.1 | Amendment, dated April 11, 1995, to Agreement dated September 23, 1993 between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996. | |
10.38.2 | Amendment, dated December 12, 1995, to Agreement dated September 23, 1993 between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12.2 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996. | |
10.39 | License Agreement, dated February 14, 1992, between U.S. Bioscience, Inc. and Schering Overseas Limited, incorporated by reference to Exhibit 10.14 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1992. | |
10.39.1 | Amendment dated October 15, 1993 to License Agreement between U.S. Bioscience, Inc. and Schering Overseas Limited, incorporated by reference to Exhibit 10.14.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
10.40 | Amended and restated License Agreement dated May 10, 1994 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.15 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997. | |
10.41(1) | Distribution and Supply Agreement, dated as of May 10, 1993 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.16 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994. | |
10.41.1(1) | Amendment to Distribution and Supply Agreement, dated as of August 31, 1996 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.16.1 to the U.S. Bioscience, Inc. Current Report on Form 8-K/A dated September 19, 1996. | |
10.42 | Agreement, dated as of March 10, 1994 between U.S. Bioscience, Inc. and Sipsy S.A., incorporated by reference to Exhibit 10.17 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
10.43 | License Agreement, effective November 28, 1990 between U.S. Bioscience, Inc. and National Technical Information Service, incorporated by reference to Exhibit 10.18 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
10.44(1) | Ethyol (Amifostine) Distribution and Marketing Collaboration Agreement between U.S. Bioscience, Inc. and ALZA Corporation dated December 12, 1995, incorporated by reference to Exhibit 5 to the U.S. Bioscience, Inc. Current Report on Form 8-K dated December 22, 1995. | |
10.44.1 | Amendment No. 2 to distribution and Marketing Collaboration Agreement between U.S. Bioscience, Inc. and ALZA Corporation dated as of February 3, 1997, incorporated by reference to Exhibit 10.25.2 to the U.S. Bioscience, Inc. Current Report on Form 8-K dated February 3, 1997. | |
E-6
10.44.2 | Amendment No. 3 to Distribution and Marketing collaboration Agreement between MedImmune Oncology, Inc. and ALZA Corporation, incorporated by reference to exhibit 10.129 filed with the Company's Quarterly Report on Form 10-Q/A for the Quarter ended September 30, 2001. | |
10.45 | License Agreement between U.S. Bioscience, Inc. and Scherico, Ltd. dated as of November 6, 1997, incorporated by reference to Exhibit 10.27 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997. | |
10.45.1 | Amendment No. 1 to License Agreement dated as of November 6, 1997 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.27.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997. | |
10.46 | Agreement between U.S. Bioscience, Inc. and Philip S. Schein, M.D. dated as of March 10, 1998, incorporated by reference to Exhibit 10.28.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997. | |
10.47 | Agreement and Plan of Merger dated as of September 21, 1999 among MedImmune, Inc. and Marlin Merger Sub Inc. and U. S. BioScience, Inc., incorporated by reference to exhibit 10.119 filed on Form S-4 filed on October 12, 1999. | |
10.48(2) | Supply Transfer Agreement between Immunex Corporation and MedImmune, Inc., incorporated by reference to exhibit 10.128 filed with the Company's Quarterly Report on Form 10-Q/A for the Quarter ended June 30, 2001. | |
10.49 | Employment agreement between Edward J. Arcuri, Ph.D. and MedImmune, Inc. dated February 25, 2002, incorporated by reference to exhibit 10.133 filed with the Company's Annual Report on Form 10-K for December 31, 2001. | |
10.50(1) | Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995, incorporated by reference to Exhibit 10.3 to Aviron's Registration Statement on Form S-1 filed with the Securities and Exchange Commission June 5, 1996. | |
10.50.1(1) | Letter Amendment to the Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan dated February 24, 1999, incorporated by reference to Exhibit 10.24 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. | |
10.51 | Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995, incorporated by reference to Exhibit 10.4 to Aviron's Registration Statement on Form S-1 filed June 5, 1996. | |
10.51.1 | Amendment No. 1 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated February 16, 2000, incorporated by reference to Exhibit 10.33 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999. | |
10.51.2 | Amendment No. 2 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated March 29, 2001, incorporated by reference to Exhibit 10.52 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001. | |
10.52(1) | Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995, incorporated by reference to Exhibit 10.6 to Aviron's Registration Statement on Form S-1 filed June 5, 1996. | |
E-7
10.53 | Facility Reservation Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997, incorporated by reference to Exhibit 10.17 to Aviron's Registration Statement on Form S-3 filed December 5, 1997. | |
10.53.1 | First Amendment to Facility Reservation Agreement, dated as of August 1, 2000, by and between Aviron and Packaging Coordinators, Inc., incorporated by reference to Exhibit 10.32 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. | |
10.54 | 1996 Equity Incentive Plan, as amended as of June 1, 2000, incorporated by reference to Exhibit 99.1 to Aviron's Registration Statement on Form S-8 filed August 23, 2000. | |
10.55 | Industrial Lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995, incorporated by reference to Exhibit 10.12 to Aviron's Registration Statement on Form S-1 filed June 5, 1996. | |
10.56(1) | Biological Materials License Agreement between the Registrant and the National Institutes of Health, dated May 31, 1996, incorporated by reference to Exhibit 10.14 to Aviron's Registration Statement on Form S-1/A filed June 20, 1996. | |
10.57(2) | Amended and Restated Production Agreement, dated as of August 1, 2000, by and between Aviron and Packaging Coordinators, Inc., incorporated by reference to Exhibit 10.31 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed November 14, 2000 and Appendix 5 of this exhibit is incorporated by reference to Exhibit 10.17 to Aviron's Registration Statement on Form S-3 filed December 5, 1997. | |
10.58(1) | Supply Agreement between the Registrant and Becton Dickinson and Company dated July 1, 1998, incorporated by reference to Exhibit 10.19 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998. | |
10.59(1) | United States License and Co-Promotion Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999, incorporated by reference to Exhibit 10.20 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998. | |
10.59.1(2) | First Amendment to United States License and Co-Promotion Agreement between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.177 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
10.60(1) | International FluMist(TM) License Agreement between the Registrant and Wyeth dated January 11, 1999, incorporated by reference to Exhibit 10.21 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998. | |
10.61(1) | FluMist(TM) Supply Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999, incorporated by reference to Exhibit 10.22 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998. | |
10.61.1 | FluMist(TM) Supply Agreement Amendment, dated January 1, 2001, incorporated by reference to Exhibit 10.49 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.61.2(2) | Second Amendment to FluMist Supply Agreement between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.178 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
E-8
10.62 | Real Property Lease by and between the Registrant and Spieker Properties, L.P. dated February 5, 1999, incorporated by reference to Exhibit 10.25 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. | |
10.63(1) | First Amendment to the Influenza Vaccine Collaboration and License and Distribution Agreement by and between the Registrant and CSL Limited, A.C.N. dated June 7, 1999, incorporated by reference to Exhibit 10.26 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. | |
10.64 | Real Property Lease by and between the Registrant and MELP VII L.P., dated October 20, 1999, incorporated by reference to Exhibit 10.30 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999. | |
10.65 | 1999 Non-Officer Equity Incentive Plan, as amended as of September 24, 2001, incorporated by reference to exhibit 4.1 to Aviron's Registration Statement on Form S-8 filed October 23, 2001. | |
10.66 | Stock Option Agreement for C. Boyd Clarke, incorporated by reference to Exhibit 99.4 to Aviron's Registration Statement on Form S-8 filed August 23, 2000. | |
10.67(2) | Agreement for Lease of AVU Premises at Gaskill Road, Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.38 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.68(2) | Underlease of AVU Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.39 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.69(2) | Agreement for Lease of AVU Extension Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.40 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.70(2) | Underlease of AVU Extension Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.41 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.71(2) | Agreement for the Sale and Purchase of Leasehold Property known as Plot 6 Boulevard Industry Park, Halewood, Merseyside, dated October 10, 2000, incorporated by reference to Exhibit 10.42 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.72(2) | Underlease of Plot 6 Boulevard Industry Park Halewood Merseyside, dated February 17, 2000, incorporated by reference to Exhibit 10.43 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.73(2) | Master Agreement by and between Powderject Pharmaceuticals Limited, Evans Vaccines Limited, the Registrant and Aviron UK, dated October 11, 2000, incorporated by reference to Exhibit 10.44 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.74(2) | Agreement Relating to the Sharing and Provision of Certain Services, by and between Evans Vaccines Limited and Aviron UK Limited, incorporated by reference to Exhibit 10.45 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
E-9
10.75(2) | Transfer Agreement by and between Evans Vaccines Limited and Aviron UK Limited, dated October 11, 2000, incorporated by reference to Exhibit 10.46 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.76(2) | Amended and Restated Contract Manufacture Agreement by and between Evans Vaccines Limited and the Registrant, dated October 11, 2000, incorporated by reference to Exhibit 10.47 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.77(2) | Know How Licence Agreement by and between Evans Vaccines Limited and Aviron UK Limited, dated October 11, 2000, incorporated by reference to Exhibit 10.48 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.78(2) | Amendment Number One (1) to Cooperative Research and Development Agreement AI-000062, by and between NIAID and Aviron, dated as of August 3, 1999, incorporated by reference to Exhibit 10.50 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.79(2) | Amendment Number Two (2) to Cooperative Research and Development Agreement AI-000062, by and between NIAID and Aviron, dated as of June 12, 2000, incorporated by reference to Exhibit 10.51 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000. | |
10.80 | Real Estate Lease entered into between Aviron and The Realty Associates Fund IV, L.P., dated May 8, 2001, incorporated by reference to Exhibit 10.53 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. | |
10.81(2) | Amendment Number Three (3) to Cooperative Research and Development Agreement AI-0062, by and between NIAID and Aviron, dated as of July 16, 2001, incorporated by reference to Exhibit 10.54 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001. | |
10.82(2) | Sublicense Agreement between Centocor, Inc. and MedImmune, Inc., incorporated by reference to exhibit 10.174 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
10.83(2) | Stipulated Sum Agreement between MedImmune, Inc. and HITT Contracting Inc., incorporated by reference to exhibit 10.175 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
10.84(2) | Supplementary General Conditions to the General Conditions of the Contract for Construction Agreement between MedImmune, Inc. and HITT Contracting Inc., incorporated by reference to exhibit 10.176 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
10.85(2) | Letter Agreement Regarding Supply of Frozen Product for 2002 - 2003 Flu Season between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.179 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002. | |
10.86 | Amended employment agreement, dated as of May 31, 2000, by and between Wayne T. Hockmeyer and MedImmune, Inc., incorporated by reference to Exhibit 10.120 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. | |
10.87-10.179 | Reserved | |
E-10
10.180(2) | License Agreement, dated June 4, 1997, between Genentech, Inc. and MedImmune, Inc.* | |
10.181(2) | License for Winter Patent, dated August 13, 1997, between Medical Research Council and MedImmune, Inc.* | |
10.182(2) | Biological Materials License Agreement, effective as of August 24, 1997, between Public Health Service through the Office of Technology Transfer, National Institutes of Health, and MedImmune, Inc.* | |
10.183(2) | License Agreement, dated effective December 1, 1997, between the University of Iowa Research Foundation and MedImmune, Inc.* | |
10.184(2) | License Agreement and Amendment to RSV License Agreement, dated December 16, 2002, between MedImmune, Inc. and the Massachusetts Biologic Laboratories of the University of Massachusetts.* | |
10.185-10.188 | Reserved | |
10.189 | Employment Agreement between David M. Mott and the Company dated August 15, 2002.* | |
10.190 | Employment Agreement between Melvin D. Booth and the Company dated August 15, 2002.* | |
10.191 | Employment Agreement between James F. Young and the Company dated August 15, 2002.* | |
10.192 | Employment Agreement between Armando Anido and the Company dated August 15, 2002.* | |
10.193 | Employment Agreement between Edward M. Connor and the Company dated August 15, 2002.* | |
10.194 | Employment Agreement between Gail M. Folena-Wasserman and the Company dated August 15, 2002.* | |
18.1 | Independent Accountant's Preferability Letter Regarding a Change in Accounting Principle, incorporated by reference to exhibit 18.1 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended March 31, 2002. | |
21 | Subsidiaries of MedImmune, Inc.* | |
23.1 | Consent of PricewaterhouseCoopers LLP* | |
99.1 | Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
99.2 | Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
99.3 | Patent Table* |
Notes: