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MEDIMMUNE, INC. FORM 10-K TABLE OF CONTENTSUNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C.
Washington, D.C. 20549FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,20012003
Commission File Number:0-19131000-19131MEDIMMUNE, 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)
| 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
(Address of principal executive office)
(Zip
(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
(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 [ ].ý.
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 248,493,923250,941,192 shares of voting stockand non-voting common equity held by non-affiliates of the registrant, based on the closing price on March 14, 2002June 30, 2003, was $10,449,169,462.$9.1 billion. Common Stock outstanding as of March 14, 2002: 249,915,151February 29, 2004: 248,227,030 shares.
Documents Incorporated by Reference:
Document Part
Portions of Form 10-K
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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
Synagis, CytoGam, Ethyol, RespiGam, NeuTrexin and NeuTrexinVitaxin are registered trademarks of the Company. Numax and VitaxinFluMist are trademarks of the Company. FluMist is a trademark of Aviron, a wholly owned subsidiary of MedImmune, Inc.
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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 - lookingforward-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 Food and Drug Administration and, if it does,
whether it will be successfully launched; 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 product liability, intellectual
property or other types of litigation; 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; andare 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.report. MedImmune cautions that RSV disease occursand influenza occur 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 wereis received, such products wouldwill ultimately achieve commercial success. Unless otherwise indicated, the information in this annual report is as of December 31, 2001.2003. This annual report will not be updated as a result of new information or future events.
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EXPLANATORY NOTE
Effective January 10, 2002, MedImmune, Inc. acquired Aviron 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 Report on Form 10-K (i.e., Items
1 through 7A) gives effect to the Aviron acquisition 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)."
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MedImmune, Inc. (together with its subsidiaries, "MedImmune" or "the Company"the "Company") was founded in 1988 and is a biotechnology company that uses advances in biological sciences to discover, develop, manufacture and commercialize 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.
Founded in 1988, MedImmune is headquartered in Gaithersburg, Maryland with five products on the market and a diverse product pipeline.has three primary operating subsidiaries: MedImmune Oncology, Inc., MedImmune Vaccines, Inc. and MedImmune Ventures, Inc. The Company is focused on
using advances in immunologypromotes three main products: Synagis® (palivizumab) and other biological sciencesFluMist™ (Influenza Virus Vaccine Live, Intranasal) to develop important new products that address significantly unmet
medical needs in areasprevent two common respiratory infectious diseases; and Ethyol® (amifostine) to reduce undesired side effects of infectious diseasecertain anti-cancer chemo- and immune regulation. The Company also focuses on oncology through its wholly owned
subsidiary,radiotherapies.
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 launched Synagis (palivizumab)operates five facilities in the United States for preventing respiratory syncytial virus ("RSV")and Europe to manufacture one or more components of each of these products and promotes these products in high-risk pediatric patients. Synagis was the first monoclonal antibody approved for an infectious disease 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 syncytial virus
immune globulin intravenous (human)). Through MedImmune Oncology'sU.S. through its own sales and marketing group,organization. In addition, the Company markets Ethyol
(amifostine)has entered into agreements with other companies to manufacture certain components of these products, promote these products outside of the U.S. and NeuTrexin (trimetrexate glucuronatesupport the Company's promotional efforts in the U.S.
MedImmune also has clinical, research and development staff in the U.S., through which it is developing a pipeline of product candidates for injection). Thepotential commercialization. In addition to its internal efforts, the Company owns or leases five manufacturing facilities: a
multi-use biologics facility in Frederick, Maryland; a fillhas established clinical, research, development and finish facility in Nijmegen, the Netherlands; a pilot manufacturing
facility at its headquarters in Gaithersburg, Maryland; a fillingcommercialization collaborations with other companies and packaging plant in Philadelphia, Pennsylvania; and a bulk
supply facility in Speke, England.
organizations.
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"(the "FDA") for the prevention of serious lower respiratory tract disease caused by RSVrespiratory syncytial virus ("RSV") in pediatric patients at high risk of acquiring 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.disease, such as premature infants. 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"("BPD"), are at increased risk for acquiring severe RSV disease (pneumonia and bronchiolitis), often requiring hospitalization. Each yearIn 2003, based on additional clinical trial data, the FDA approved expansion of the definition of high-risk patients to include children with certain heart diseases present at birth (hemodynamically significant congenital heart disease ("CHD")).
Synagis is most commonly administered by intramuscular injection once per month during anticipated periods of RSV prevalence in the United States, more than 125,000 infants are hospitalized withcommunity. In the northern hemisphere, the RSV disease. The mortality rateseason typically commences in October and lasts through April or May. As such, the sales of hospitalized infants with RSV
infectionthis product reflect this seasonality and occur primarily in the first and fourth quarters of the lower respiratory tractcalendar year. In the U.S., Synagis is about two percent.
There are approximately 325,000 infants at high risk of acquiring severe RSV disease born annually 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 safeco-promoted by MedImmune and generally well tolerated, and the proportions 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,by 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.Laboratories ("Abbott").
Outside the United States,U.S., 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 Abbott
had submitted regulatory applications requesting approval to market Synagis in 5829, 2004, 49 countries outside the United StatesU.S. had approved Synagis for marketing. In July 2003, AI announced that the European Agency for the Evaluation of Medicinal Products had granted a positive opinion for the use of Synagis in young children born with CHD to prevent lower respiratory tract infection caused by RSV.
2
In 2003, 2002 and had
received approval2001, the Company reported $849 million, $672 million and $518 million, respectively in worldwide net revenues from Synagis representing 86%, 85% and 89% of the 46 countries listed here: Argentina, Austria, Australia, Bahrain, Belgium, Brazil, 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, Netherlands, New Zealand, Nicaragua, Norway, Poland,
Portugal, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Kingdom, Uruguay,Company's total net revenues in 2003, 2002 and Venezuela. On
January 17, 2002, Synagis2001, respectively.
Ethyol
Ethyol is used to prevent certain unwanted side effects of specific types of chemo- and radiotherapies that are used to treat cancer. In the U.S., Ethyol was initially approved by the Japanese Ministry of Health, Labor, and Welfare. Net revenueFDA in 1995 to reduce the Company 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 for the reduction of 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 the Company's supplemental new drug application under the FDA's Accelerated Approval Regulations to include treatment of patients with non-small cell lung cancer ("NSCLC"). ItProducts 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. Early in 2003, the Company met with the FDA to discuss the their belief that the study did not meet the Accelerated Approval requirement, as well as the FDA's request that another trial be conducted. The Company is currently discussing an appropriate study design with the FDA. 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. MedImmune does not believe that the withdrawal of this indication, should the FDA decide to do so, will meaningfully impact the market potential for Ethyol.
In 1999, the FDA also indicatedapproved the use of Ethyol for the reduction of the incidence of moderate-to-severe xerostomiadry mouth (xerostomia) in patients undergoing post-operative radiation treatment for head and neck cancer, where the radiation port includeswhen a substantialsignificant portion of the parotid glands.glands are located in the radiation treatment field. Xerostomia, (chronic dry mouth) is caused by a reduction of salivary function. Itboth acute and chronic, is a frequent and debilitating condition associated with radiationin which saliva production is reduced due to damage caused to the head and neck region.salivary glands by 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. According to
Since 2001, MedImmune has been the American Cancer Society,
approximately 40,000 casessole marketer of head and neck cancer are diagnosed each yearEthyol in the United States. Radiation therapy, often in
conjunction with surgery and/or chemotherapy, is standard treatment for head and neck cancer.U.S. 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 U.S., the Company on April 1, 2002, pursuant to the 1995 co-promotion agreement between the two
companies whereby ALZA was responsible for sales and marketing of 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 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.Schering-Plough Corporation ("Schering"). This product has been approved for marketing in 60 countries worldwide, including the United States.
In 2003, 2002 and 2001, MedImmune reported worldwide net revenues for Ethyol of Ethyol$100 million, $81 million and $20 million, respectively, which represented nine percent, ten percent, and three percent of the Company's total net revenues in each of these three years.
FluMist
FluMist is a vaccine approved for marketing in June 2003 by the FDA for the prevention of disease caused by influenza A and B viruses in healthy children and adolescents, 5-17 years of age, and healthy adults, 18-49 years of age. FluMist is delivered as a nasal mist and is a live, attenuated vaccine, meaning that it uses live viruses that have been modified and weakened to stimulate the immune system to prevent the flu. Each year in the U.S., the influenza virus infects an estimated 17 million to 50 million people, many of whom are otherwise healthy children and adults. In September 2003, the Advisory Committee on Immunization Practices (ACIP) of the U.S. Centers for Disease Control and Prevention ("CDC") issued a Supplemental Recommendation for the use of live, attenuated influenza vaccine to its annual Recommendations for the Prevention and Control of Influenza.
3
FluMist is the subject of a collaborative arrangement with Wyeth. FluMist is manufactured by MedImmune, distributed in the U.S. exclusively by Wyeth and co-promoted in the U.S. by MedImmune and Wyeth. Outside of the U.S., Wyeth has exclusive rights to FluMist worldwide, excluding Australia, New Zealand, North Korea, South Korea, and some South Pacific countries.
MedImmune's FluMist-associated revenues are dependent on payments from Wyeth for: transfer of product to Wyeth; achievement of certain milestones; royalties on net sales; and reimbursement for certain expenses. Vaccination against the influenza virus in the northern hemisphere typically commences in October and may last through January. Once the Company has gained some historical experience with respect to the impact of returns and discounting, the timing of when the Company (recorded as product sales)reports revenues attributable to FluMist is expected to reflect this seasonality.
In 2003, MedImmune reported $46 million in net revenues for FluMist, or about four percent of the company's total revenues. This amount was derived solely from sales outside
the United States were $6 million.milestone and reimbursement payments from Wyeth. The Company is continuingdid not record any sales-related revenue in 2003 due to evaluate Ethyolthe uncertainty associated with returns and discounts 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 vaccine's launch season.
Other Products
The Company plans to expandalso markets the applicabilityfollowing three additional products for which it reported a total of $43 million, $38 million, and usefulness$43 million in worldwide net product sales in 2003, 2002 and 2001, respectively. These amounts represent four percent of Ethyol to potential new indications by conducting trials that evaluate its
ability to reduce mucositisthe Company's total reported net revenues in non-small cell lung cancer patients caused by radiation or chemotherapy. There can be no assurance
that data from these clinical trials will establish2003 and 2002 and seven percent of the efficacy of EthyolCompany's total reported net revenues in these populations, or that results from these trials
will not adversely affect the perception of Ethyol in the marketplace.
2001.
Product Candidates
A large portion of patients with persistent or recurrent ovarian cancer following first-line
therapy with cisplatin and/or alkylating agent-based combination chemotherapy. In November 2000, MedImmune Oncology signed an
agreement to sell to MGI Pharma ("MGI") worldwide rights to Hexalen and allMedImmune's operating expenses are 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 filed 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, the Company has received a total of $39.5its product candidates. Research and development expenses were $156 million in up-front payments, an equity investment,2003, $148 million in 2002 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.
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,$83 million 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 the programs in the indications2001. MedImmune 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 throughfocuses 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 diseases 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 programsefforts in the indications currently studied or at all.
Numaxtherapeutic areas of infectious diseases, immunology and oncology. 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 Products
The Company and its subsidiaries continuealso continues 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 overin the next 12 months; however,future, but there can be no assurance that any of the new programs under review will generate viable marketable products. As such, the Company continually evaluates all product opportunities.candidates and may, from time to time, discontinue the development of any given program and focus its attention and resources elsewhere. 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
4
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.
Productsresearch and Product Development Programsdevelopment efforts and expenditure of significant amounts of capital.
The following table sorted by stage of development, describessummarizes the Company's marketedcurrent product candidate programs and development-stage products.
MARKETED PRODUCTS
Synagis Used to prevent RSV diseaseeach is described in pediatric patients at high risk of RSV disease
CytoGam Used to prevent CMV disease associated with transplantation of kidney, lung, liver,
pancreasgreater detail below:
| Infectious Disease | Immunology | Oncology | ||
|---|---|---|---|---|
| CAIV-T (liquid) | Vitaxin® | Ethyol | ||
Synagis (liquid) | Anti-IL-9 antibody | HPV | ||
Numax™ | HMGB-1 | Vitaxin | ||
Epstein-Barr Virus vaccine | Siplizumab | |||
S. pneumoniae vaccine | MT-103 | |||
hMPV antibody and vaccine | EphA2 | |||
PIV-3/RSV/hMPV combination vaccine | PCDGF | |||
| EphA4 |
Infectious Disease
5
elderly. During 2003, GSK continued its preclinical research efforts with vaccine candidates and initiated a Phase 1 clinical study.
Immunology
Oncology
6
dose escalation of hematologic and neurologic toxicities associated with the
administration of carboplatin/paclitaxelchemotherapy in elderly patients with non-small cell lung cancer
Ethyol Potential preventionnewly diagnosed, previously untreated acute myelogenous leukemia, the most common type of mucositis associated with combined chemotherapyleukemia reported in adults.
7
including breast and pancreatic carcinomas and that targeted intervention against EphA4 may decrease the proliferation and metastatic behavior of these malignant cells.
Collaborations, Alliances and Investments
To build, advance and promote its product portfolio, MedImmune seeks to prevent Streptococcus pneumoniae
vaccine
Marketing, Research, Developmentaugment its own internal programs and Collaborative Agreements
The Company's internal research programs are augmented bycapabilities with collaborative projects with a number of scientificoutside partners. As part ofFor its strategy,marketed products, the Company has established a number of license agreements, co-promotion arrangements, manufacturing, supply and 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,laboratories to which the Company entered into two agreements with Abbott Laboratories ("Abbott"). The first agreement callscurrently pays royalties. For more information on these collaborations, please see Note 15, "Collaborative Arrangements" to MedImmune's Consolidated Financial Statements. Similarly, for Abbott
to co-promote Synagisproduct candidates now in the United States 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. The Company manufactures and sells
Synagis to Abbott at a price based on end-user sales. As of February 1, 2002,development, the Company and Abbott 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. 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.
Wyeth (formerly American Home Products Corporation)
In January 1999, Aviron signed a worldwide collaborative agreement with Wyeth Lederle Vaccines, a subsidiary of Wyeth, 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 U.S. Wyeth holds the marketing rights for an initial term of seven years from the first commercial sale of
FluMist in the U.S. and an initial term of eight years from the first commercial sale of FluMist outside the U.S., with an option to
extend its rights both in the U.S. and internationally for an additional four years. Extending both U.S. and international rights
trigger payments to the Company in excess of $140 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. 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 by 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, 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
In December 1997, the Company entered into a strategic alliance with GlaxoSmithKline PLC ("GSK") 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, 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 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 the final development 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 of
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 GSK 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, 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 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, 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. 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
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 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 alliance 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
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 license 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 researchsecured 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 property and technology relatingentered into strategic alliances with outside parties for various aspects of research, development, manufacturing and commercialization to which the cold-adapted influenza vaccineCompany will owe future royalties if the product candidates are licensed and proprietary master donor strains of influenza viruses usefulcommercialized. These entities and outside parties are described in the productionpreceding "Product Candidates" section.
The Company also believes that investing in early stage biotechnology companies allows the Company to benefit from other innovations in the industry. Accordingly, the Company has established a wholly owned venture capital subsidiary, MedImmune Ventures, Inc., that makes minority investments in biotechnology companies that the Company believes have promising technology. Occasionally, the Company will make these investments in connection with strategic alliances as it did previously with Genaera Corporation and A&G Pharmaceuticals, Inc. and in 2003 with Micromet AG and Critical Therapeutics, Inc. In 2003, the Company also invested in: Tercica, Inc., a biopharmaceutical company focused on the development and commercialization of vaccines against influenzatherapies to treat disorders of the endocrine system, including human growth and potentially fordiabetes; Applied Genetic Technologies Corporation, a drug research company developing novel human therapeutics, principally a gene therapy treatment for Alpha-One Antitrypsin Deficiency (A1AD), a form of emphysema; and other uses. Specifically, Aviron obtainedVaxInnate Corporation, an early stage company engaged in the exclusive right to develop, manufacture, use, marketdevelopment of immunostimulating agents, including vaccines 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.immunosuppressive agents. In connection with such investments, the Company's acquisition of Aviron, these warrants were exchanged for warrantsCompany will sometimes be entitled 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, ofappoint a warrant for approximately 5,150 shares of MedImmune common stock at an exercise price equal to 125%member of the acquisition priceboard 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 Agreements
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 covering development of pilus-based anti-bacterial
vaccines, dated July 1994; 2) 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 supply of MF59, a proprietary vaccine adjuvant to be used for B19 parvovirus 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-Mouse technology, dated June 2000; 6) University of Texas covering
Fc technology to increase the half life of an antibody, 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)
Purdue Research Foundation for the development of EphA2 technology, dated October 2001; 9) Sang-A Pharm. Co., Ltd. for the
development, manufacture, 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, the
Company has 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 salesdirectors of these products.
portfolio companies, and in such cases, a Company employee is generally appointed to serve in that role.
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, the Company now employs approximately 320 people devoted to sales and marketing of
its products in the United States. Approximately 6070 sales and managed care representatives cover approximately 500650 hospitals, managed care organizations, and clinics in the United States,U.S., which specialize in transplantation and/or pediatric/neonatal care or transplantation for the promotion of Synagis, FluMist 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 specialty110 biologic sales specialists cover the topapproximately 10,000 pediatric practices in the United StatesU.S. for the promotion and detailing of Synagis and RespiGam. ApproximatelyFluMist. In addition, 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. In total, the Company now employs approximately 320 people devoted to sales and marketing of its products in the United States.
The Company has also entered into co-promotion agreements for its products. For the promotion of Synagis in the U.S., the Company has a co-promotion agreement with Abbott, through itsthe Ross Products division.division of Abbott. Through its 500 sales representatives, the Ross Products division details Synagis to approximately 27,000 office-based pediatricians and 6,000 birth hospitals.
Sales outside
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In the United StatesU.S., the Company also relies upon specialty distributors and wholesalers to deliver Synagis to its customers, including physicians, hospitals and pharmacies. During 2003, MedImmune launched the Synagis Distribution Network ("SDN"), which significantly reduced the number of distributors involved in the distribution of Synagis to attempt to ensure high-quality and consistent services for patients. There are made through distributors. Abbott serves asa relatively small number of specialty distributors who provide such services. There can be no assurances that these distributors will adequately provide their services to either the Company's exclusive distributor forend users or to the Company, nor can there be any guarantee that these service providers remain solvent. The Company also reduced the number of wholesalers involved with Synagis outside ofto properly manage the SDN.
For FluMist, the Company has a co-promotion agreement with Wyeth to market the vaccine in the United States. SchericoThrough approximately 450 sales representatives, sales managers, and managed care specialists, the Wyeth sales team details FluMist to office-based pediatricians and primary care physicians, while MedImmune's representatives detail the product to pediatric infectious disease/respiratory thought leaders, pharmacies and employers. FluMist is distributed directly to physician's offices, pharmacies, and vaccination clinics by Wyeth.
As discussed in Note 4, "Segment, Significant Customer and Geographic Information," of the exclusive distribution partner for EthyolCompany's Consolidated Financial Statements, the Company has four major customers who individually provided over 10% of its total revenue during the last three years. Note 4 also contains information concerning the geographic areas in which the Company operates. The Company faces risks related to foreign currency exchange rates, as discussed under the caption "Risk Factors—Changes in foreign currency exchange rates or interest rates could result in losses."
Manufacturing and Supply
MedImmune operates five commercial manufacturing facilities in the countries comprisingU.S. and Europe. In addition, 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 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. SynagisCertain materials necessary for the Company's commercial manufacturing of its products are proprietary products of other companies, and in some cases, such proprietary products are specifically cited in the Company's drug application with the FDA such that they must be obtained from that specific, sole source. In December 1997addition, certain materials necessary for the Company's commercial manufacturing of its products are only available through one approved single source supplier though it is available from more than one supplier. The Company entered into acurrently attempts to manage the risk associated with such sole sourced and single sourced materials by active inventory management and, where feasible, alternate source development. MedImmune attempts to remain apprised of the financial condition of its suppliers, their ability to supply the Company's needs and the market conditions for these raw materials. Also, certain materials required in the commercial manufacturing of the Company's products are derived from biological sources. The Company maintains screening procedures with respect to certain biological sources, where appropriate, and supply agreement with Boehringer Ingelheim Pharma KG ("BI")is investigating alternatives 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 facility isthem. Raw materials may be subject to inspection and approval bycontamination and/or recall. A material shortage, contamination, and/or recall could adversely impact or disrupt MedImmune's commercial manufacturing of its products.
Synagis—The primary manufacturing facility for supply of Synagis in 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. WhileU.S. is 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 ("FMC"). 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 product is completed by two vendors: Sicor, Inc. and siplizumab, if and when siplizumab is cleared for marketing by
the FDA. The Company's amendment to its BLA for approval of the facility for productionBoehringer Ingleheim Pharma KG ("BI").
Supplemental supply of Synagis was approved in December 1999. In
August 2001, the Company received approval from the FDA to begin selling Synagis manufactured with an improved fermentation process,
called "Enhanced Yield 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, the Company may encounter risks associated with commercial
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, VitaxinU.S. market is manufactured by BI under a manufacturing 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. and Fredericksupplemental supplier for the U.S. market,
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BI is responsible for obtaining and maintaining 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 U.S. 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 reduce its reliance for supply of Synagis outside the U.S. to any one manufacturing plant. The original termsite.
Ethyol—All bulk drug substance for Ethyol is produced by contract manufacturers. In 2003, filling and finishing of all product was completed at the agreement was
for three years. In 2001,Company's manufacturing facility in Nijmegen, the 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 thatsale in the U.S.
CytoGam—CytoGam is produced from human plasma collected from donors who have been screened to have high concentrations of antibodies against cytomegalovirus or respiratory syncytial virus, respectively. The collected human plasma is converted into an intermediate raw material known as Fraction II+III paste. This step was completed at MedImmune's FMC for CytoGam from 2000 until 2002, when the Company would be ablemade the decision to secure an alternate
provider without increased costs oroutsource the process to Precision Pharma Services, Inc. The intermediate paste is processed into bulk product, filled and packaged by the Massachusetts Biologic Laboratories. The Company is exploring opportunities to use its plasma production suite, formerly involved in the manufacture of CytoGam, in a timely manner.
manner that would support the production of its other marketed and developmental-stage recombinant products.
FluMist—FluMist Since 1998, supplies for all frozen FluMist clinical trials have beenis produced at several facilities either owned or leased by the Company's Aviron subsidiary.Company. 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 byfacilities leased from Evans Vaccines, Limited ("Evans")a wholly owned subsidiary of Chiron Corporation in Speke, the United Kingdom. Blending and filling of FluMist into its trivalent formulation and filling of the final vaccine into the AccuSpray™ applicators, the non-invasive nasal spray delivery system developed and supplied by Becton Dickinson, takes place at Aviron'sthe Company'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 2002-20032004-2005 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
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, respectively. Human plasma for CytoGam and RespiGam is converted to an intermediate raw material
(Fraction II+III paste). The State Lab, which holds the sole product and establishment licenses for CytoGam and RespiGam, processes
the Fraction II+III paste into bulk product. In December 2000, the Company received approval from the FDA for an amendment to the
establishment license held by the State Lab to allow production of Fraction II + III paste for CytoGam at the FMC. The Company has
an agreement with Aventis Pasteur ("AP") to fill and package CytoGam and RespiGam. If the State Lab or AP is unable to satisfy the
Company's product requirements on a timely basis or is prevented for any reason 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.
season.
Patents, Licenses and Proprietary Rights
The following table summarizes the patents issued in the United States owned or licensed by the Companyproducts 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.
Productsproduct candidates currently being developed or considered for development by the Company are in the area of biotechnology, an area in which there areis extensive patent filings. The Company relies on patent protection against use of its 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 meaningful protection against competitors with similar technology. The Company currently owns or in-licenses over 100 patents worldwide related to its products or product candidates. The Company also owns or in-licenses at least 100 additional applications for patents currently pending in the U.S. A list of the U.S. patents the Company owns or in-licenses is filed as an exhibit hereto as Exhibit 99.1 and is incorporated by reference into this document.
The Company believes that there are other patents issued to third parties and/or patent applications filed by third parties whichthat could have applicabilityrelate 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
10
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. As described in Note 17 to the Consolidated Financial Statements, the Company has chosen to file litigation to challenge certain intellectual property rights of third parties.
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 StatesU.S. and other countries. In the United States,U.S., 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 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.
Orphan Drug Designation
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 designatedcurrently qualify as orphan drugs 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 potential use in indications that have not yet been approved by the FDA as follows:
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
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Ethyol to prevent side effects of cisplatin in kidney transplantsovarian cancer patients, and the use of RespiGam to prevent RSV disease in high-risk infants expired in 1997.2002 and 2003, respectively.
Environmental and Safety Regulations
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 whetherAt any time, any agency willmay adopt any regulation whichregulations that would have a material adverse effect on the Company's operations.operations and the Company is unable to predict when or whether this might happen. 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.
Foreign Regulation
Sales of pharmaceutical and biopharmaceutical products outside the United StatesU.S. 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 foreignother countries must be obtained prior to the commencement ofbefore 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 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.venture arrangements.
The Company is aware of certain potentially competitive products targeting areas of medical interest to the Company, including influenza, respiratory syncytial virus ("RSV"),RSV, psoriasis, human papillomavirus ("HPV")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.available for the prevention of RSV disease. However, the Company is aware of one product in the United States,U.S., 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, injectible vaccines (Aventis-Pasteur,
Medeva/Evans and Wyeth). Approximatelyinjectable vaccines. From these three distributors, approximately 80 million doses of these inactivated vaccines arehave traditionally been sold annually in the United States. The
Company is also awareU.S. In 2002, Wyeth announced its
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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,U.S., the Company believes that Bristol-Myers Squibb CompanyAventis SA holds the largest share of the chemotherapy market both in terms of approved products and annual sales, and therefore dominates the marketplace. OtherTo the Company's knowledge, other companies maintaining ana significant active oncology marketing and sales presence include Schering-PloughAmgen, Inc., AstraZeneca, Bristol-Myers Squibb Company, Chiron Corporation, Pharmacia & Upjohn, AstraZeneca,Eli Lilly and Company, Genentech, GSK, Hoffmann-La Roche, Inc., Johnson & Johnson, Immunex Inc. (a subsidiary of American Home Products), Amgen, Inc., Chiron Corporation, Aventis SA, Eli LillyPfizer, and Company
and GlaxoSmithKline p.l.c.Schering-Plough Corporation. 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.
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
- ------------------------------------------ --- --------- -----
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Officers and Key Employees of the Company
| Name | Age | Position | Officer/Key Employee Since | |||
|---|---|---|---|---|---|---|
| Wayne T. Hockmeyer, Ph.D. | 59 | Chairman of the Board; President, MedImmune Ventures, Inc. | 1988 | |||
| David M. Mott | 38 | Chief Executive Officer, President and Vice Chairman of the Board | 1992 | |||
| James F. Young, Ph.D. | 51 | President, Research and Development | 1989 | |||
| Armando Anido, R.Ph. | 46 | Senior Vice President, Commercial Operations | 1999 | |||
| Edward J. Arcuri, Ph.D. | 53 | Senior Vice President, Manufacturing Operations | 2002 | |||
| Edward M. Connor, M.D. | 51 | Senior Vice President, Chief Medical Officer | 1999 | |||
| Gail Folena-Wasserman, Ph.D. | 49 | Senior Vice President, Development | 2002 | |||
| Bernardus N. Machielse, Drs. | 43 | Senior Vice President, Quality | 2003 | |||
| Lota S. Zoth, C.P.A. | 44 | Vice President and Controller, Acting Chief Financial Officer | 2004 |
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. HeDr. Hockmeyer 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. Prior to founding MedImmune,
he served as a commissioned officer in the United States Army from 1966 to 1986. 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,2002, Dr. Hockmeyer was appointed by Governor Parris Glendening to the Maryland Economic Development Commission and the Maryland Technology Development
Corporation. Heawarded a Doctor of Sciencehonoris causa from Purdue University. Dr. Hockmeyer is a member of the Board of Directors of Digene Corporation, Intermune Pharmaceuticals, Inc., GenVec, Inc., TolerRx,
Diversa and Advancis Pharmaceutical Corp. Dr. HockmeyerMaryland Economic Development Commission. He is also a member of the Board of Directors of the Biotechnology Industry
Organization, the Technology Council of Maryland, a member ofAdvancis Pharmaceutical Corp., Diversa Corporation, GenVec, Inc., InterMune Pharmaceuticals, Inc., Idenix Pharmaceuticals, Inc., Tercica, Inc., and TolerRx Inc. Dr. Hockmeyer does not intend to seek re-election to the Board of VisitorsDirectors of the University of Maryland Biotechnology
Institute, and the University of Maryland Baltimore County.
InterMune Pharmaceuticals, Inc. or Diversa Corporation when his current term on those boards expires in May 2004.
David M. Mott—Mr. Mott was appointed Chief Executive Officer and Vice Chairman in October 2000.2000 and was also appointed President in February 2004. 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 Chairman of the Board of Directors of Conceptis Technologies, a member of the board of the Biotechnology Industry Organization (BIO), 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 bachelorBachelor of artsArts degree from Dartmouth College.
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 this 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 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. HeDr. Young 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
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microbiology and immunology from Baylor College of Medicine in Houston, Texas, and bachelorBachelor of scienceScience degrees in biology and general science from Villanova University. 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 toYoung is a member of the Board of Directors in July 1988. Prior to joining the Company, Dr. Top served asof Iomai Corporation.
Armando Anido, R.Ph.—Mr. Anido was appointed Senior Vice President, for Clinical
and Regulatory Affairs at Praxis Biologics from 1987 to 1988. Prior to 1987, Dr. Top served for 22 yearsCommercial Operations 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.
Mr. AnidoFebruary 2004. He 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 appointedpromoted to the position Senior Vice President, Manufacturing Operations in February 2002 followingSeptember 2003. Previously, Dr. Arcuri served as Senior Vice President, Manufacturing, MedImmune Vaccines, since joining MedImmune as a part of the Company's acquisition of Aviron.Aviron in January 2002. 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 toappointed Senior Vice President, Clinical DevelopmentChief Medical Officer in 1999.February 2004. He joined the Company in 1994 as the Director of Clinical Studies and was promoted in 1995 to Vice President of Clinical Development and in 1999 to Senior Vice President, 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.
Gail Folena-Wasserman, Ph.D.—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.
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.
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. 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
Bernardus N. Machielse, Drs.—Drs. Machielse was appointed Senior Vice President, Quality, in September 2003. Drs. Machielse joined MedImmune in May 1999 as Vice President, Quality. Prior to joining MedImmune, Drs. Machielse was Vice President of DecemberQuality Control and Quality Assurance for Xoma Corporation of Berkeley, California. He also spent several years in various manufacturing and quality positions at Centocor BV of the Netherlands. Drs. Machielse holds a Bachelor of Science degree in Medical Biology and a Master of Science degree in Biochemistry from the University of Utrecht, The Netherlands.
Lota S. Zoth, C.P.A.—Ms. Zoth became Acting Chief Financial Officer of MedImmune in January 2004. She joined the Company in August 2002 as Vice President and Controller. Prior to joining MedImmune, Ms. Zoth was Senior Vice President and Corporate Controller for PSINet, Inc, who filed a petition for bankruptcy on May 31, 2001, we had 877 full time employees. We consider2001. Between 1998 and 2000, Ms. Zoth was Vice President, Corporate Controller and Chief Accounting Officer of Sodexho Marriott Services, Inc. Prior to Sodexho Marriott, Ms. Zoth was Vice President, financial analysis, for Marriott International, Inc.'s food and management services division. Ms. Zoth is a CPA, and holds a B.B.A. in accounting from Texas Tech University.
15
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 FACTORS2003, the Company had approximately 1,650 full-time permanent employees.
Approximately 100 of the Company's employees in The United Kingdom are members of a labor union, with which the Company renegotiates employment terms periodically. There can be no guarantee that the annual negotiations will lead to an outcome that is favorable to the Company. If negotiations were to break down between the Company and the union, there can be no guarantee that the Company would be able to manufacture an 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 ourthe Company's 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 ourthe Company's other filings with the Securities and Exchange Commission.
The Company's revenues are largely dependent on sales of Synagis.
Sales of Synagis accounted for approximately 86% of the Company's total product sales in 2003 and the Company's revenues will continue to be largely dependent on sales of Synagis for the foreseeable future. Any perceived or actual event or series of events that have an effect on sales of Synagis will have a detrimental impact on the Company. Events which would affect sales of Synagis include, but are not limited to, any product liability claims (whether supported or not), any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfy product demand, any unsuccessful sales or marketing strategies and any change in the reimbursement rate for Synagis by private or public insurance carriers or programs. In addition, Synagis is a biological product regulated and approved for marketing in the U.S. by the FDA and any adverse change in the marketing approval or label for Synagis required by the FDA will have a detrimental impact on the Company. The Company has also created an exclusive network for distribution of Synagis, which will have the effect of preventing certain entities from obtaining Synagis and may have the effect of changing the reimbursement rate for Synagis by private or public insurance carriers or programs, any of which could result in reduced sales.
The seasonal nature of oura significant portion of Company's business can exaggerate the consequences of any factor that adversely affects our sales and may causecauses significant fluctuations in our quarterly operating results.
Our principal product,
Sales of three of the Company's products, Synagis, accounted for approximately 89% of our total product sales for the year 2001.FluMist, and RespiGam, are seasonal in nature. 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 Synagisand RespiGam sales occur duringprimarily in the first and fourth quarters of the calendar year and FluMist sales occur primarily in the fourth quarter of the calendar year. This high concentration of product sales in a portion of the year exaggeratescauses quarter-to-quarter operating results to vary widely and would exaggerate the adverse consequences on our profitsthe Company's revenues of any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfy product demand, the inability to estimate the impact of returns and rebates, or of any unsuccessful sales or marketing strategies during the RSV season and may cause
our quarter-to-quarter operating results to vary widely.applicable sales season. Furthermore, ourthe Company's current product base would limit ourits ability to offset in the second and third quarters any lower-than-expected sales of Synagis sales during the RSV season,first and fourth quarters.
16
The Company may not be able to successfully commercialize FluMist.
There can be no assurance that FluMist will achieve commercial success. There are a number of factors which make the commercialization of FluMist difficult. These factors include, but are not limited to, significant competition in the marketplace by other influenza virus vaccines, the higher cost of manufacturing FluMist relative to competing vaccines, perceived or actual risks related to the use of a live virus vaccine, lack of acceptance by the targeted patient population of the need for vaccination against influenza, lack of reimbursement coverage by private or public insurance carriers or programs, lack of product accessibility by potential consumers, an inability to develop alternative channels for sales, such as pharmacies, due to state or federal regulations or for other reasons and difficult storage requirements for the transport and storage of the product. Furthermore, commercialization is dependent upon successful manufacturing of the product, which may be adversely affected if the Company is unable to perform the complex annual update of the FluMist formulation for new influenza strains, if there are problems or difficulties in the complex manufacturing process or if there is a sudden loss of inventory. There can also be no assurance that the Company could cause our annual financial
resultssuccessfully manufacture a quadravalent vaccine, should such a vaccine ever be required. The Company's FluMist product sales revenues are dependent to a large extent on the price at which doses are sold (which is set by Wyeth) and the number of returned doses (which is governed by Wyeth's return goods policy). Since these values are not within the Company's control, there can be below expectations.no assurance that the Company's cost of goods will not exceed its revenues for this product. If we arethe Company is unable to successfully commercialize FluMist, the anticipated benefits of ourits acquisition of Aviron willmay not be realized.
We acquired Aviron in January 2002 for approximately $1.6 billionrealized, and the Company's results of MedImmune common stock. The principal asset of Aviron is its
lead product candidate, FluMist, which is a vaccine delivered as a nasal mistoperations would be negatively impacted by impairment charges for the prevention of influenza. FluMist is not
currently approved for marketing, but its Biologic License Application is pending before the U.S. Food and Drug Administration
("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. We will not realize the anticipated benefits of the Aviron
acquisition unless FluMist achieves commercial success.
If we fail to manage our growth properly, our business will suffer.
As a result of our acquisition of Aviron in January 2002 and the recent expansion of our marketing efforts for Synagis and Ethyol,
our workforce has expanded from 842 employees at January 31, 2001 to 1,519 employees at January 31, 2002. To accommodate our rapid
growth and compete effectively, we will need to continue to improve our 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 manufacture 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 our business.
We have invested heavily in our 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 riskwrite-down of manufacturing difficulties.
Our manufacturing operations, which we have only recently begun on a commercial scale, expose usand intangible assets related 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; and
o inability to manufacture products at a cost that is competitive with third party manufacturing operations.
Furthermore, we have never produced FluMist on a commercial scale. Our lack of significant experience in commercial manufacturingFluMist.
The Company may make it more time consuming or expensive for us to address these problems and could adversely affect our operations.
We are dependent on third party manufacturers and suppliers which may not perform as we expect.
We are currently, and for the foreseeable future expect to be, dependent on a limited number of contract manufacturers for some or
all of the manufacture of our current and future products (if any). Although we are able 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. 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. 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 on a timely basis, without increased
cost or at all. In addition, since we do not have the capabilitybring its product candidates to fill and package any of the Synagis we produce at our Frederick
Manufacturing Center, we depend 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 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 rely
on a limited number of suppliers to obtain substantially all of the plasma used as raw material for the production of CytoGam and
RespiGam. We also depend on third parties to manufacture the drug substance for Ethyol. There can be no assurance that third party
manufacturers will give our orders highest priority, or that we would be able to readily find substitute manufacturers without
significant delays or increased costs.
Our researchmarket.
Research and development activities are costly and may not be successful.successful, and there can be no assurance that any of the Company's product candidates will be approved for marketing by the FDA or the equivalent regulatory agency of any other country. A considerablesignificant portion of ourthe Company's annual operating budget is spent on research, development and clinical activities. In 2001, we 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. Further, we relyThere can also be no assurance that the Company will be able to generate additional product candidates for its pipeline, either through internal research and development, or through the in-licensing of products or technology. Even if a product candidate is approved for marketing by the applicable regulatory agency, there can be no assurance that the Company will be able to successfully manufacture the product on numerousa commercial scale or effectively commercialize the product.
A significant portion of the Company's business is dependent on third parties.
The Company licenses a significant portion of the technology necessary for its business from third parties and relies on third parties for a significant portion of the clinical development, supply of components, manufacturing, distribution, and promotion of the Company's products. The actions of these third parties are outside of the Company's control and the failure of these third parties to assistact in various statesaccordance with their obligations to the Company would have a material adverse effect on the Company's business. Even if the Company is legally entitled to damages for a failure of the development process. Third-party contract costs are
typically substantial. In addition, thea third party contractors we use mayto fulfill its obligations to the Company, there can be unableno assurance that such damages will adequately compensate the Company for indirect or consequential losses such as the damage to complete their work in a timely fashionproduct brand or inthe Company's reputation. If a manner that is satisfactorythird party does not fulfill its obligations to us. Should they be unable to meet our needs, wethe Company, the Company may have to incur substantial additional costs, which could have a material adverse effect on the Company's business.
17
Defending product liability claims could be costly and divert focus from the Company's business operations and product recalls may be necessary.
The Company's products contain biologically active agents that can have the effect of altering the physiology of the person using the product. Accordingly, as a developer, tester, manufacturer, marketer and seller of biological products, the Company may be subject to product liability claims that may be costly to defend regardless of whether the claims have merit. If a claim were to be successful, there is no guarantee that the amount of the claim would not exceed the limit of the Company's insurance coverage. Further, a successful claim could reduce revenues related to the product, result in the FDA taking regulatory action (including suspension of product sales for an indefinite period) or result in significant negative publicity for the Company or damage to the product brand. Any of these occurrences could have a material adverse effect on the Company's business and could result in a clinical trial interruption or cancellation. Additionally, product recalls may be necessary either in connection with product liability claims or for other reasons. Any such recall would adversely affect sales of that product.
The Company may not be able to meet the market demand for its products.
The Company generally does not have or contract for redundant supply, production, packaging or other resources to manufacture its products. As a result, the Company is at risk for business interruption if there is any disruption in the manufacturing chain. Difficulties or delays in the Company's or the Company's contractors' manufacturing of existing or new products could increase the Company's costs, cause the Company to lose revenue or market share and damage the Company's reputation. In addition, 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.
The Company may lose product due to difficulties in the manufacturing process.
The Company's manufacturing operations expose it to a variety of significant risks, including: product defects; contamination of product or product loss; environmental problems resulting from our business.
We are dependent onproduction process; sudden loss of inventory and the inability to manufacture products at a cost that is competitive with third party marketing partners whichmanufacturing operations. Furthermore, MedImmune has not produced FluMist for commercial use for a sustained period and may not performencounter additional unforeseeable risks as we expect.
We depend on strategic alliancesthe Company develops additional commercial manufacturing experience with our marketing partners to accomplish many of our sales goals. For example, we have agreements
with Abbott Laboratories under which its Ross Products Division co-promotes Synagis with usthis product. In addition, the Company's facilities in the United States.Kingdom are unionized and may be subject to manufacturing interruptions due to labor action.
Contamination of our raw materials could adversely affect the Company.
As with other biotechnology companies, the manufacture of our products requires raw materials obtained from a variety of sources including but not limited to animal products or by-products. If these raw materials contain contaminants that are not removed by our marketing
partners fail to devote sufficient effort and attention to achieving those goals,approved purification processes, it could result in a material adverse effect on our product sales, financial condition and results of operations and might negatively impact our ability to manufacture those products for an indefinite period of time, regardless of whether such contamination has any proven effect on the safety or efficacy of the product.
Reimbursement by government and third-party payers is critical for the success of the Company's products.
The cost to individual consumers for purchase of the Company's products can be significant. Accordingly, sales of Company products are dependent to a large extent on the insurance
18
reimbursement available for the Company's products. Actions by government and third-party payers to contain or reduce the costs of health care by limiting reimbursement, increasing procedural hurdles to obtain reimbursement or by other means may have a material adverse effect on sales of the Company products. In addition, there have been numerous proposals in the U.S., both at the state and federal level, as well as in other countries that would, if adopted, affect the reimbursement of the Company's products and have a material adverse effect on the Company's business.
The Company relies upon a limited number of pharmaceutical wholesalers and distributors that could impact the ability to sell the Company's products.
The Company relies largely upon specialty pharmaceutical distributors and wholesalers to deliver its currently marketed products to the end users, including physicians, hospitals, and pharmacies. There can be adversely affected.
no assurance that these distributors and wholesalers will adequately fulfill the market demand for the Company's products, 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 its top customers were to declare bankruptcy or otherwise become unable to pay its obligations to MedImmune.
Obtaining and maintaining regulatory approvals to develop, manufacture and market the Company's products is costly and time consuming.
The development, manufacturing and marketing of all of the Company's products are subject to regulatory approval by the FDA in the U.S., as well as similar authorities in other countries. The approval process for each product is lengthy and subject to numerous delays, which are generally not in the Company's control. There can be no assurance that any product candidate will be approved for marketing and, if approved, such approval may be limited in scope in such a manner that would harm the product's potential for market success. Even after a product is approved for marketing, it is still subject to continuing regulation. For example, if adverse event information about a product becomes available, the Company may be required by applicable authorities to recall the product or notify health care providers of additional risks associated with use of the product. In addition, even if the Company has complied with all applicable laws and regulations, the applicable regulatory authorities have the authority to and may revoke or limit approvals or licenses without consulting or obtaining the consent of the Company. If the Company fails to comply with applicable requirements, it may be subject to: fines; seizure of products; total or partial suspension of production; refusal by the applicable authority to approve product license applications; restrictions on the Company's ability to enter into supply contracts; and criminal prosecution. If the Company is unable to obtain approvals on a timely basis or at all, if the scope of approval is more limited than expected by the Company or if the Company is unable to maintain approvals, its ability to successfully market products and to generate revenues will be impaired.
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 its products we develop. Wein development. There are currently developing, or considering
developing, productsextensive patent filings in the biotechnology industry an industry in which there are extensive patent filings. Theand the patent position of biotechnology firmscompanies 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, thereThere 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 couldmay be necessary from time to time in order to enforce ourMedImmune's intellectual property rights. There has
beenAny such litigation will involve substantial litigation regarding patent and other intellectual property rights in the biotechnology industry. We are not aware
at this time of any infringement of our patents. If we were required to litigate, there could be substantial cost involved and significant diversion of our business efforts.
the Company's resources and there can be no assurance that any of the Company's litigation matters will result in an outcome that is beneficial to the Company.
19
If we failthe Company fails to obtain and maintain any required patentintellectual property licenses from third parties, ourits product development and marketing efforts couldwill be limited.
We believe that there are patents
Patents have been and will be issued to third parties, and/orand patent applications have been filed by third parties, which could apply to
eachthat claim one or more inventions used in the development, manufacture or use of ourthe Company's products andor product candidates. These patents and/or applications could limit our(including any patents issuing from pending patent applications), if valid and enforceable, would preclude the Company's ability to manufacture, use or sell our products. In suchthese products unless the Company obtains a case, we may belicense from the applicable third party. These third parties are not generally required to obtainprovide the Company with a patent license in order to avoid infringing a third party's
intellectual property rights. Suchand, as such, obtaining any such licenses may not be possible or could be costly and impose significant royalty burdens on us. If such a license were necessary, therethe Company. There can be no assurance that it woulda license will be available on terms acceptable to usthe Company or at all, which could have a material adverse effect on ourthe Company's business. In addition, there can be no assurance that the Company will be able to obtain an exclusive license to any such patent, and as a result, the third parties or their sublicencees may be able to produce products that compete with those of the Company. Litigation may be necessary to challenge the intellectual property rights of third parties and would involve significant cost and significant diversion of management's time and resources. There can be no assurance that any such litigation will result in an outcome that is beneficial to the Company.
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% of our product sales in 2001. We are not aware of any
competing product being marketed anywhere in the world for the prevention of RSV disease other than our product RespiGam.
Nevertheless, competitionCompetition 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. WereIf a competitor to developdevelops a better product or technology, ourthe Company's products or technologies could be rendered obsolete, decreasing ourresulting in decreased product sales and resulting in a material adverse effect on ourto the Company's business. ComplianceFor example, the master virus donor strain used to create FluMist is not protected by patents and is, instead, protected by trade secrets associated with governmentthe technology of creating cold-adapted, temperature sensitive live influenza virus vaccines. There can be no assurance that a competitor will not create a competing influenza virus vaccine based upon similar technologies. Even if a competitor creates a product that is not technologically superior, the Company's products may not be able to compete with such products, decreasing the Company's sales.
The Company is subject to numerous complex laws and regulations and compliance with these laws and regulations is costly and time-consuming.
Substantially all of our 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 bytime consuming.
U.S. federal government entities, most significantly the FDA, in the United States,U.S. Securities and Exchange Commission, the Internal Revenue Service, The Occupational Safety & Health Administration, the Centers for Medicare and Medicaid Services and the U.S. Department of Veteran's Affairs, as well as regulatory authorities in foreign countries. Thereeach state and other countries have each been empowered to administer certain laws and regulations applicable to the Company. Many of the laws and regulations administered by these agencies are complex and compliance requires substantial time, effort and consultation with outside advisors by the Company. Because of this complexity, there can be no assurance that required approvals will be obtained. If we were unable to obtain these approvals on a timely basis or at all, our 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 we were to fail to comply with applicable requirements, we 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 granted to us. Currently, we are
marketing Ethyol for the treatment of patients with NSCLC. This indication was approved under the FDA's Accelerated Approval
Regulations. These regulations require that we conduct clinical studies to verify and describe the clinical benefit of the approved
indication.
We have completed trials which we anticipateCompany's efforts will be sufficient to meetensure compliance or to ensure that it is in technical compliance with all such laws and regulations at any given time. In addition, the FDA's requirements.Company is subject to audit, investigation and litigation by each of these entities to ensure compliance, each of which can also be time consuming, costly, divert the attention of senior management and have a significant impact on the Company's business, even if the Company is found to have been in compliance or the extent of the Company's non-compliance is deemed immaterial. If the FDACompany is found to not satisfied that we
have metbe in compliance
20
with any of these laws and regulations, the requirements, itCompany and, in some cases its officers, may withdraw its approvalbe subject to fines, penalties, criminal sanctions and other liability, any of Ethyol in the NSCLC indication. Should the FDA revoke any product or
establishment licenses granted to us, itwhich could have a material adverse effect on ourthe Company's business.
Product liability claims
The Company may result from sales of our products and product recalls may be necessary.
As a developer, tester, manufacturer, marketer and seller of healthcare products, we are potentially subject to product liability
claims. Our 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. Defending a product liability claim could be costly and divert our focus from
business operations. Although we carry insurance that we regard as reasonably adequate to protect us from potential claims, there
can be no assurance that we willnot be able to hire or retain highly qualified personnel or maintain our current product liability insurance at a reasonable cost, or at all. If a
claim were successful, there is no guarantee that the amountkey relationships.
The success of the claim would not exceed the limit of our insurance coverage.
Further, a successful claim could resultCompany's business depends, in the recall of some or all of our products. Any of these occurrences could have a
material adverse effectlarge part, on our business. Additionally, blood products like CytoGamits continued ability to attract and RespiGam are occasionally recalled from the
market because of risks of contamination from infectious agents or for other reasons which are often beyond our control. Anyretain highly qualified scientific, manufacturing and sales and marketing personnel, as well as senior management such recall of our blood products would adversely affect our sales.
The loss of key personnel could harm our business.
Our success depends upon the continued contributions of our executive officers and scientific and technical personnel. Many key
responsibilities have been assigned to a relatively small number of individuals. Our key personnel includeas Mr. David M. Mott, the Company's Chief Executive Officer, President and Vice Chairman of the Board; Mr. Melvin D. Booth, President and Chief Operating Officer; and Dr. James F. Young, the Company's President, Research and Development. We have an employment agreementIn addition, the Company relies on its ability to develop and maintain important relationships with eachleading research institutions and key distributors. Competition for these types of them. The competition for qualified
personnel and relationships is intense among pharmaceutical, biopharmaceutical and biotechnology companies, and the loss of servicesCompany's inability to attract or certain key personnelretain such employees and relationships could adversely affect ourhave a material effect on its business. We doThe Company does not maintain or intend to purchase "key man" life insurance on any of our personnel.
its personnel and, accordingly, the Company's business may be subject to disruption upon the sudden or unexpected loss of a key employee.
If the Company fails to manage its growth properly, the business will suffer.
The Company has expanded significantly in recent years due to both acquisition and internal growth. To accommodate its rapid growth and compete effectively, the Company will need to continue to improve its management, operational and financial information systems and controls, generate more revenue to cover a higher level of operating expenses, continue to attract and retain new employees, accurately anticipate demand for products manufactured and maintain adequate manufacturing capacity. This rapid growth and increased scope of operations present risks not previously encountered and could result in substantial unanticipated costs and time delays in product manufacture and development, which could materially and adversely affect the 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 2001,2003, the daily closing price of ourMedImmune common stock on the Nasdaq stock market ranged from a high of $52.36$40.30 to a low of $28.31.$23.30. 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 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 in exchange contracts may not mitigate
21
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. ExpendituresIn addition, expenditures relating to ourthe Company's manufacturing operations in the United Kingdom 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 StatesU.S. 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.
Investor Information
MedImmune files annual, quarterly and current reports, proxy statements and other information with the SEC. You can inspect, read and copy these reports, proxy statements and other information at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You can also obtain copies of these materials at prescribed rates by writing to the Public Reference Section of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of the public reference facilities by calling the SEC at 1-800-SEC-0330. The successSEC also maintains a web site (http://www.sec.gov) that makes available reports, proxy statements and other information regarding issuers that file electronically with it.
MedImmune makes available free of our products may be limitedcharge on or through its internet website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonable practicable after such material is electronically filed with or furnished to the SEC. MedImmune's internet address is http://www.medimmune.com. The information on MedImmune's website is not incorporated 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 our products. For example, approximately 24% of all Synagis vials sold in the United States during the
2000-2001 RSV season were covered by Medicaid reimbursement programs. In many foreign markets, pricing and profitability of
pharmaceutical products is subject to governmental control. 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. The adoption by
the federal government or state governments of any such proposals could limit the commercial success of our existing or any future
products.
reference into this report.
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,As of February 29, 2004, 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 thesubstantially completed construction of the first phase of a new headquarters facility, over the next several years, at a total estimated costcomplex totaling 220,000 square feet consisting of $80 million. The construction project is expected to break ground in April
2002.a research and development facility and administrative offices. The Company owns the land and facility, and expects to take occupancy of the first phase, which will feature a complex totaling 218,000 square feet, in the
fall of 2003.March 2004. At that time, the Company expects tomay sublease a largesome portion of its current facilities. The Company has also purchased 11.9 additional acres of land at the headquarters site for its anticipated future expansion of the headquarters facility.
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 isdevelopment-stage projects. 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 toof warehouse space through December 2005.
MedImmune Vaccines operates a lease that extends through 2003.
The Company's Aviron subsidiary occupies 104,800number of facilities, including: 102,000 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, Aviron leasesperiods; 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. Aviron also occupies 64,050years each; approximately 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, Aviron
leases2008; approximately 69,00072,000 square feet of office, laboratory and manufacturing space in Santa Clara, California, pursuant to
22
a lease agreement 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 occupies2004; approximately 8,900 square feet of a manufacturing facility in Speke, U.K.,the United Kingdom, pursuant to a sublease expiring in June 2006, and2006. In Speke, MedImmune Vaccines also leases approximately eight acres of land adjacent to thenear its 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 17 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 Consolidated 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.
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ITEM 5. MARKET FOR MEDIMMUNE, INC.'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Company's common stock trades on The Nasdaq StockNational Market under the symbol "MEDI"."MEDI." At March 14, 2002,February 29, 2004, the Company had 1,9091,975 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.
| | 2003 | 2002 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | High | Low | High | Low | ||||||||
| First Quarter | $ | 34.60 | $ | 26.80 | $ | 48.35 | $ | 37.30 | ||||
Second Quarter | 42.09 | 31.52 | 41.05 | 24.80 | ||||||||
Third Quarter | 40.88 | 31.69 | 30.43 | 20.37 | ||||||||
Fourth Quarter | 35.00 | 22.79 | 29.24 | 20.45 | ||||||||
Year End Close | $ | 25.38 | $ | 27.17 | ||||||||
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.
Recent Sales of Unregistered Securities
On July 15, 2003, the Company issued and sold an aggregate principal amount of $500,000,000 of 1% convertible senior notes due 2023 in a transaction not involving a public offering in reliance on an exemption from registration under Section 4(2) of the Securities Act of 1933 (the "Securities Act"). The initial purchasers of the notes in that offering were UBS Securities LLC and Merrill Lynch, Pierce, Fenner & Smith Incorporated. These initial purchasers purchased the convertible notes at an aggregate purchase price equal to 98% of the aggregate principal amount of the convertible notes. We have been advised by the initial purchasers that they resold the notes only to "qualified institutional buyers" in reliance on Rule 144A under the Securities Act. Under certain specified circumstances, the notes are convertible into 14.6671 shares of our common stock, par value $0.01 per share, per $1,000 principal amount of notes, subject to adjustment. This results in an initial conversion price of approximately $68.18 per share. The notes also have a contingent interest feature requiring contingent interest to be paid to holders of the notes in certain specified circumstances.
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ITEM 6. SELECTED CONSOLIDATED 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
| | 2003 | 2002(1,3) | 2001(3) | 2000(3) | 1999(2,3) | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (in thousands, except per share data) | |||||||||||||||
| RESULTS FOR THE YEAR | ||||||||||||||||
Total revenues | $ | 1,054,334 | $ | 852,684 | $ | 620,664 | $ | 541,955 | $ | 384,361 | ||||||
| Gross profit | 702,798 | 589,065 | 442,807 | 369,943 | 267,608 | |||||||||||
| Earnings (loss) before cumulative effect of a change in accounting principle | 183,204 | (1,098,015 | ) | 148,960 | 144,977 | 93,371 | ||||||||||
| Net earnings (loss) | 183,204 | (1,098,015 | ) | 148,960 | 111,156 | 93,371 | ||||||||||
Basic earnings (loss) per share | ||||||||||||||||
Earnings (loss) before cumulative effect of a change in accounting principle | 0.73 | (4.40 | ) | 0.70 | 0.69 | 0.49 | ||||||||||
| Net earnings (loss) | 0.73 | (4.40 | ) | 0.70 | 0.53 | 0.49 | ||||||||||
| Diluted earnings (loss) per share | ||||||||||||||||
| Earnings (loss) before cumulative effect of a change in accounting principle | 0.72 | (4.40 | ) | 0.68 | 0.66 | 0.44 | ||||||||||
| Net earnings (loss) | 0.72 | (4.40 | ) | 0.68 | 0.50 | 0.44 | ||||||||||
YEAR END POSITION | ||||||||||||||||
Cash and marketable securities | $ | 1,900,149 | $ | 1,423,056 | $ | 777,690 | $ | 526,254 | $ | 270,394 | ||||||
| Total assets | 2,794,670 | 2,188,289 | 1,236,855 | 1,016,597 | 657,210 | |||||||||||
| Long-term debt | 682,076 | 218,356 | 9,544 | 10,302 | 11,856 | |||||||||||
| Shareholders' equity | 1,699,218 | 1,677,234 | 1,044,273 | 843,582 | 537,079 | |||||||||||
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 | $ | 541,955 | $ | 386,208 | ||||||||||||
| Net earnings | 144,977 | 94,505 | ||||||||||||||
| Earnings per share | ||||||||||||||||
| Basic | 0.69 | 0.50 | ||||||||||||||
| Diluted | 0.66 | 0.45 | ||||||||||||||
25
QUARTERLY FINANCIAL DATA (UNAUDITED)
(thousands, except per share amounts)
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(3) | June 30(3) | March 31(3) | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | (thousands, except per share amounts) | ||||||||||||
| 2003 Quarter Ended | |||||||||||||
Net product sales | $ | 398,566 | $ | 82,283 | $ | 80,596 | $ | 431,109 | |||||
| Gross profit | 266,339 | 51,757 | 56,933 | 327,769 | |||||||||
| Net earnings (loss) | 76,599 | (16,370 | ) | 13,454 | 109,521 | ||||||||
| Net earnings (loss) per share: | |||||||||||||
| Basic | $ | 0.31 | $ | (0.07 | ) | $ | 0.05 | $ | 0.44 | ||||
| Diluted | $ | 0.30 | $ | (0.07 | ) | $ | 0.05 | $ | 0.43 | ||||
| | Dec. 31(3) | Sept. 30(3) | June 30(3) | March 31(3) | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 Quarter Ended(1) | ||||||||||||||
Net product sales | $ | 351,003 | $ | 60,842 | $ | 57,866 | $ | 321,195 | ||||||
| Gross profit | 267,632 | 38,273 | 42,081 | 241,079 | ||||||||||
| 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) | |||
26
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 you on our financial conditionpredict. Readers are referred to the "Forward-Looking Statements" and results"Risk Factors" sections in Part I, Item 1 of operations. During 2001,this document.
INTRODUCTION
Since 1988, MedImmune achieved total revenues
of $618.7 million, a 14% increase from 2000, and net earnings grew 34% to $149.0 million. The following discussion should be read in
conjunction with the accompanying financial statements and related notes.
OVERVIEW
Since inception, we have incurred significant operating expenses developing our products and experienced substantial operating
losses until achieving profitability in 1998. The profitability was driven by 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.focused on using biotechnology to produce innovative products to prevent or treat infectious disease, autoimmune disease and cancer. In November 1999,January 2002, we completedacquired Aviron a merger with U.S. Bioscience,California-based vaccines company (the "Acquisition") subsequently renamed MedImmune Vaccines, Inc. ("USB", now known as MedImmune Oncology, Inc.) in a transaction
accounted for as a pooling-of-interests. As a consequence, historicalThe operating results of MedImmune and USBVaccines, Inc. 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.
During January 2002, we completed the acquisition of Aviron through an exchange offer and merger transaction valued at approximately
$1.6 billion, net of cash. Aviron is a biopharmaceutical company headquartered in Mountain View, California, 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. 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 effectivebeginning January 10, 2002. Under
MedImmune currently actively markets four products, Synagis, Ethyol, CytoGam and FluMist and has a diverse pipeline of development-stage products. We are focused on developing important new products, particularly vaccines and antibodies that address significant medical needs in the termsareas of infectious diseases, immunology and oncology.
Aviron's leading product candidate at the time of the transaction, we
exchanged approximately 34.0Acquisition was FluMist, the first U.S. vaccine delivered as a nasal mist. On June 17, 2003, the biologics license application for the commercial sale of FluMist was approved by the FDA. FluMist is indicated for active immunization for the prevention of disease caused by influenza A and B viruses in healthy people, 5 to 49 years of age. MedImmune manufactures FluMist and co-promotes FluMist with Wyeth.
OVERVIEW
The Company's financial condition strengthened from 2002 to 2003, with cash and marketable securities increasing from $1.4 billion to $1.9 billion. We improved our capital structure by issuing $500 million of 1% Convertible Senior Notes (the "1% Notes") on favorable terms. We used the proceeds from the 1% Notes to reinvest in our company through the repurchase of $229.8 million in common shares which are held in treasury and capital expansion of our research and development, manufacturing and administrative facilities. From an operating results perspective, our diluted earnings per share in 2003 were $0.72 compared to a net loss per share in 2002 of $4.40. Excluding the impact of the Acquisition, diluted earnings per share grew 81% from $0.42 in 2002 to $0.76 in 2003. We also surpassed the one billion dollar mark for revenues, which totaled $1.05 billion in 2003. While we were disappointed with the launch year results of the recently-approved FluMist product, the Company continued to show strong top-line and bottom-line year-over-year growth, and improved financial condition as of December 31, 2003.
As we look to the future, we intend to continue commercializing our core products and developing our pipeline, with the long-term goal of strong revenue and earnings growth. The disappointing launch of FluMist in 2003 caused us to reassess our expectations of near-term growth for FluMist. We have completed a reevaluation of the FluMist program, and we intend to continue to develop the product. We are refocusing on this development over the next two or three years, and we do not expect FluMist to be profitable before 2007. We have not yet made final decisions regarding price, forecast or structure of the Wyeth relationship for the 2004/2005 influenza season and beyond.
27
Other product development objectives include a target of three new INDs in each of 2004, 2005 and 2006. We anticipate that we will have four products in Phase 3 in 2005. Further, we anticipate having at least two new product introductions over the next five years.
We also have the following expectations for 2004:
Product sales—We believe that the growth rate of our product sales, while still at double-digit levels, will decelerate in 2004. Due to the significant contribution of Synagis, we believe our revenues and operating results will reflect for the foreseeable future the seasonality of that product's use to prevent RSV disease, which occurs primarily during the winter months. We do not expect FluMist sales in the 2004/2005 influenza season to exceed sales from the 2003/2004 influenza season.
Other revenues—We anticipate the level of other revenues to decrease in 2004 largely due to decreases in milestone payments associated with the approval and commercialization of FluMist. 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 2004 or thereafter.
Gross margin—We expect that gross margins may vary significantly from quarter to quarter, based on the product mix. We expect that our annual gross margin percentage for 2004 will be lower than 2003, largely the result of the low volume of FluMist revenues to cover the manufacturing costs of the product.
Research and development expense—We expect research and development expenses to increase significantly in 2004 compared to 2003. This is largely due to the initiation of four Phase 2 studies for Vitaxin, post-marketing commitments and additional trials associated with FluMist, and the continued progress of Numax and our other pipeline candidates.
In the event that MedImmune were to allow Wyeth to exit from the FluMist relationship in 2004, we would write off approximately 31.6$75 million shares of Avironunamortized intangible assets and would likely incur additional operating expenses.
Over the next five years, we believe our financial position will strengthen, as we anticipate that our cash and marketable securities, net of debt repayments, repurchases of common stock, capital expansion funding and an
additional 7.1 million of our common shares are issuable upon exercise of Aviron's outstanding optionsresearch and warrants. In addition,
holders of Aviron's $200 million of convertible notesdevelopment expenditures, 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.
grow.
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 - We generally sell our products to a limited number of wholesalers and distributors.
Revenue Recognition—We recognize revenue onfrom product sales when there is persuasive evidence ofthat an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectibility is probable. These criteria are generally met whenreasonably assured. During 2003, we shipped 4.1 million doses of FluMist to Wyeth and received payments totaling $51.9 million. Wyeth is contractually responsible for distributing the product isto third parties. At the end of the influenza season, Wyeth's actual net sales for the season are used to calculate the final transfer price per dose and the amount of product royalties due to MedImmune. Actual net sales consists of any amounts actually received by our customers. In certainWyeth for the sale of FluMist less agreed-upon amounts paid or credited by Wyeth related to the sale of the Company's distributionproduct such as for returns, promotional
28
discounts, rebates, taxes and freight. Prior to the calculation of actual net sales, our ability to recognize revenue is dependent upon our ability to estimate the sales volume for the season and the expected impact of the reduction to sales. As of December 31, 2003, we concluded that the variables associated with the product transfer price were not determinable, largely due to low sales volume and the lack of returns history and comparable rebate redemption rates for rebates for this new product. As a result, we have not recognized the revenue associated with the 4.1 million doses shipped to Wyeth during 2003. We believe the transfer price for the 2003/2004 flu season will be determinable when actual net sales are calculated in 2004, at which time we will record the associated product sales and cost of goods sold.
We receive royalties from licensees, which are based on third-party sales of licensed products or technologies. Royalties are recorded as earned in accordance with the contract terms when third-party results can be reliably measured and collectibility is reasonably assured. We receive royalties from Wyeth based on its sales of FluMist under our worldwide collaborative agreements, as amended. We have not recorded any royalty revenue from Wyeth as of December 31, 2003. The same variables discussed above that affect actual net sales for Wyeth also impact the total sales price receivedproduct royalties that Wyeth is required to remit to us. When the variables are determinable in 2004, we expect to record the product royalties as other revenue.
Revenue from certain guaranteed payments where we continue involvement through a development collaboration or an obligation to supply product is recognized ratably over the customerdevelopment or supply period.
We may record deferred revenues related to milestone payments and other up front payments. Deferred revenue for manufacturing obligations is variablerecognized as product is delivered. Deferred revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in part,the respective agreements, as long as the milestones are substantive and at risk. Revenue under research and development cost reimbursement contracts is recognized as the related costs are incurred.
Inventory—We capitalize inventory costs associated with marketed products and certain products prior to regulatory approval and product launch, based on the end-user sales
price. Whenmanagement's judgment of probable future commercial use and net realizable value. We could be required to expense previously capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by regulatory bodies, a delay in commercialization, or other potential factors. Conversely, our gross margins may be favorably impacted if some or all of the other revenue criteria have been met, the Company recognizes revenuerelated production costs were expensed prior to the extent thatproduct being available for commercial sale.
We are required to state our inventory at lower of cost or market. In assessing 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 netultimate realization 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 its sales that will
occur to this end-user market and records allowances at a level that management believes is sufficient to cover estimated
requirements for rebates. If our estimates of government rebates vary significantly 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 costs to be incurred under the collaborative agreement. 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. 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 losses resulting from the inability
of our customers to make required payments. If 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,inventories, we are required to pay Abbott an increasing percentagemake judgments as to multiple factors affecting our inventories and compare these with current or committed inventory levels. In the highly regulated industry in which we operate, raw materials, work-in-process and finished goods inventories have expiration dates that must be factored into our judgments about the recoverability of net domestic salesinventory costs. Additionally, if a product's pricing is such that we may not fully recover the cost of inventory, we must consider that in our judgments as well.
FluMist inventories have required a significant amount of judgment since the Acquisition in January 2002. One reason is that the finished FluMist product has a shelf life of nine months. Most of the inventory components for FluMist have expiration dates that range from nine to 24 months. The annual FluMist production cycle begins in October of the year prior to the influenza season in which the product will be consumed. For example, the production cycle for the 2002/2003 season began in October 2001. All production costs for the 2002/2003 season were fully reserved as we assessed the probability of approval by the FDA in time to commercialize the product for the 2002/2003 season was
29
remote. During 2003, we disposed of $18.7 million of fully reserved inventory related to the 2002/2003 flu season.
Beginning in October 2002, production costs incurred for the 2003/2004 season were partially reserved based on Abbott achieving certain sales thresholds overmanagement's assessment of the probability of approval and net realizable value. Approval was received from the FDA on June 17, 2003. At that time, approximately one-half of the annual contract year.production costs for the 2003/2004 season had already been fully reserved, $22.3 million in Q4 2002 and $19.6 million in Q1 2003. The contract year extends from Julyproduction cycle for the 2003/2004 season ended in mid-October 2003.
The production cycle for the 2004/2005 season began in mid-October 2003. For all inventory components on hand as of December 31, 2003, we reviewed the following assumptions to June each year and generally coincides withdetermine the annual respiratory
syncytial virus ("RSV") season, which occurs primarilyamount of any necessary reserves: the expected sales volume; the expected price to be received for the product; potential changes in the fourthinfluenza strains recommended by the Centers for Disease Control and first quartersPrevention for each season's vaccine; and anticipated changes in the Northern Hemisphere.manufacturing process. During the fourth quarter of 2003, we determined that additional reserves of approximately $37.5 million were required to reflect total FluMist inventories at estimated realizable value. These reserves are comprised of the following: raw materials and work-in-process components—$13.3 million; 2003/2004 finished goods inventory—$13.3 million; and 2004/2005 finished goods inventory—$10.9 million.
The table below summarizes the activity within the components of FluMist inventories:
| | Gross Inventory | Reserves | Net Inventory | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| FluMist Details | ||||||||||
As of December 31, 2002 | $ | 62.5 | $ | (47.5 | ) | $ | 15.0 | |||
| Q1 production, net | 19.6 | (19.6 | ) | — | ||||||
| Q1 disposals | (3.1 | ) | 3.1 | — | ||||||
| Q2 production, net | 20.7 | — | 20.7 | |||||||
| Q2 disposals | (13.1 | ) | 13.1 | — | ||||||
| Q3 production, net | 18.8 | 0.1 | 18.9 | |||||||
| Q3 disposals | (2.5 | ) | 2.5 | — | ||||||
| Q4 production, net | 20.7 | (17.7 | ) | 3.0 | ||||||
| Q4 disposals | (1.5 | ) | 0.5 | (1.0 | ) | |||||
| Q4 valuation adjustments | — | (20.3 | ) | (20.3 | ) | |||||
| December 31, 2003 | $ | 122.1 | $ | (85.8 | ) | $ | 36.3 | |||
For our other products, we periodically assess our inventory balances to determine whether net realizable value is below recorded cost. Factors we consider include expected sales volume, production capacity and expiration dates. No significant inventory adjustments were recorded for the other products.
Sales Allowances and Other Sales Related Estimates—
Reductions to Gross Product Sales
The Company records allowances for discounts, returns, chargebacks and rebates due to government purchasers as reductions to gross product sales. The timing of actual returns, chargebacks and discounts taken, and rebates paid to government purchasers can lag the sale of the product by several periods and varies by state. As such, a significant amount of judgment is required when estimating the impact of sales allowances on gross sales for a reporting period. Our starting point for estimating each of these is our historical experience by product, updated for changes in facts and circumstances as appropriate. Because of the seasonal nature of our largest product, Synagis, our sales discounts, returns, chargebacks and rebates fluctuate throughout the year. If our historical trends are
30
not indicative of the future, or our actual sales are materially different from projected amounts, or if our assessments prove to be materially different than actual occurrence, our results could be affected.
We estimate the amount of rebates due to government purchasers quarterly based on historical experience, along with updates, and based on our best estimate of the proportion of sales that will be subject to this reimbursement, largely comprised of Medicaid payments to state governments. During the first quarter of 2003, we lowered our estimate of rebates due to government purchasers to reflect favorable historical experience and a change in our estimate of the proportion of the sales that are subject to reimbursement. As we reviewed our estimates in the second and third quarters of 2003, there were no new significant facts or circumstances that indicated a need for further adjustment. During the fourth quarter of 2003, we became aware of recent efforts by several states to collect rebates for product administered in certain settings for which reimbursement was not sought in the past. After analyzing the situation, we determined that the new facts and circumstances warranted an increase in our estimate of rebates due to government purchasers. As such, we recorded additional reserves for rebates due to government purchasers of approximately $13.7 million during the fourth quarter of 2003. In addition, we increased our estimate of the proportion of current sales that will be subject to reimbursement, given the change in circumstance.
For the years ended December 31, 2003, 2002, and 2001, allowances for discounts, returns, chargebacks and rebates due to government purchasers resulted in a net reduction to gross product sales of approximately 9% each year. Reserves for discounts, returns, chargebacks and rebates that were accrued and not yet paid as of December 31, 2003 and 2002 were $51.4 million and $35.9 million, respectively. Reserves for discounts, returns, and chargebacks are netted against trade receivables and reserves for government reimbursements are included in accrued expenses in the accompanying balance sheets.
Selling, General and Administrative Expenses
We estimate our co-promotion expense and sales commissions by applying an estimated rate that is based upon an estimate of projected sales for the season to our actual sales for the period. We decreased co-promotion expense by $2.0 million in 2003 and increased co-promotion expense by $2.1 million in 2002, resulting from the final reconciliation of net sales and resulting co-promotion expense for the entire2002/2003 and 2001/2002 contract year to determineyears.
We estimate the level of bad debts as a proportionate percentage of gross trade accounts receivable balances outstanding at the end of the period, based upon our assessment of the concentration of credit risk, the financial condition and environment of our customers, and the level of credit insurance we obtain on our customers' balances. Because of the seasonal nature of our largest product, Synagis, our accounts receivable balances fluctuate significantly. Accordingly, our allowance for doubtful accounts also fluctuates. Our accounts receivable balances tend to be highest at the end of December and March, while the September balances are somewhat lower as our selling season is just beginning, and the June balances are negligible, reflecting the close-out of the prior season. For the year ended December 31, 2003, we recorded a $3.8 million reduction in bad debt expense, to
apply acrosslargely based on our current assessment of the factors above. For all Synagis sales during that contract year. Any adjustments to the co-promotionperiods presented, we have reclassified bad debt expense that result from variances
between estimatedas selling, general and actual net sales are recorded as an adjustment toadministrative expense in the quarter they become known. During 2001, 2000
and 1999, the adjustments were immaterial. If actual net sales are significantly different from the estimates, the adjustment to
co-promotion expense may be significant.
Taxes - our Consolidated Statements of Operations.
Income 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 - A tax reserve is recorded when the Company cannot assert
31
that it is probable that a tax position claimed on a return will be sustained upon challenge by the tax authority. Any change in the balance of a tax reserve during the year is treated as an adjustment to current year tax expense.
Intangible Assets—We record an inventory reservehave recorded and valued significant intangible assets that we acquired as a result of the Acquisition. We engaged independent valuation experts who reviewed our critical assumptions and assisted us in determining a value for estimated obsolescence or unmarketable inventory in an amount equalthe identifiable intangibles. Of the $129.4 million of acquired intangible assets, $90.0 million was assigned to the difference between the cost of inventory and the estimated market value 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 section of the
Frederick facility, which currently has excess capacity. These charges are expected to continueworldwide collaborative agreement with Wyeth for the foreseeable future until the
plasma production sectiondevelopment, manufacture, distribution, marketing, promotion, and sale of the facility is fully utilized for its intended purpose.
Investments - We record investments in marketable securities at fair value, with unrealized gains and losses reported, net of tax,
as a component of other comprehensive income.FluMist. 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 record an investment impairment
charge 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 reported 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. The gains
and losses on these derivatives that are reported in other comprehensive income are reclassified as earnings in the periods in 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 forCompany estimated the fair value of the hedge.
CommitmentsWyeth 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 Contingencies -anticipated approval dates. The remaining $39.0 million was assigned to a contract manufacturing agreement with Evans Vaccines Limited. 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. We review intangible assets for impairment annually or when an event that could result in an impairment occurs. As of December 31, 2003, we have entered into manufacturing, supply and purchase agreements in order to provide production
capability for our products, and to provide a supplynot identified any impairment of certain raw materials. We are involved in litigation and administrative
proceedings arisingthe intangible assets, of which $96.7 million remain unamortized.
During 2003, we reduced goodwill recorded 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 changesAcquisition by $2.4 million, reflecting additional deferred tax assets for adjustments relating to pre-acquisition items.
RESULTS OF OPERATIONS
To present our results in our assessmentthe same manner as we view the performance of the probabilitybusiness 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 a loss
contingency could have a material impactintangible assets, compensation expense associated with the assumption and vesting of unvested stock options, retention and severance payments; and the amortization of the premium on our resultsconvertible subordinated notes. Inclusion of operations insuch Acquisition related expenses is consistent with generally acceptable accounting principles. Where we exclude such expenses, we use the period the assessment changes.
RESULTS OF OPERATIONS
2001 Comparedterm "adjusted."
Comparison of 2003 to 2000
Revenues
2002
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
| | 2003 | 2002 | Growth | ||||||
|---|---|---|---|---|---|---|---|---|---|
| | (In Millions) | ||||||||
| Synagis | $ | 849.3 | $ | 671.7 | 26 | % | |||
Ethyol | 100.2 | 81.2 | 23 | % | |||||
FluMist | — | — | — | ||||||
Other Products | 43.1 | 38.0 | 13 | % | |||||
$ | 992.6 | $ | 790.9 | 25 | % | ||||
Product sales of $579.5grew 25% in 2003 to $992.6 million as compared to $790.9 million in 2001 grew 17% over 2000 levels of $495.8 million2002, primarily due to increased sales of Synagis, andSynagis. Of the overall increase in product sales, approximately 16 points of the 25 percentage points were also impacted bydue to an increase in domestic sales volumes, while price increases, net
32
of increases in sales allowances contributed five points to sales growth. The remaining four points of growth are due to an increase in our reacquisition of Ethyol domestic marketing rights from ALZA. international sales.
Synagis—Synagis our largest product, accounted for approximately 89%86% and 86%, respectively,85% of our 20012003 and 20002002 product sales. Sales of Synagis for the year ended December 31, 2001
increasedsales, respectively. We achieved a 21% over 2000. Contributing to the growth in 2001 sales was a 20% increase in domestic Synagis sales to $479.7$777.1 million in 20012003, up from $399.5$641.3 million in 2000. The2002. This growth was attributablelargely due to increased demandsales volume in the United States, resultingwhich resulted in a 19%16% increase in domestic sales unit volumes, andunits sold. Also aiding growth was a 3.6%price increase that took effect in the domestic selling price of Synagis effective in the second quarter of
2001. The increase in sales wasJune 2003, partially offset by an increase in Medicaid rebates,sales allowances, which are accounted for as a reduction toof product sales, as Synagis usage by patients eligible for Medicaid grew over the prior year. Contributing to the growth insales. Our reported international sales during 2001 was anof Synagis to AI, our exclusive distributor of Synagis outside of the United States, more than doubled to $72.2 million in 2003 compared to $30.4 million in 2002, driven primarily by a more than two-fold increase in unit volumes over 2002 levels. The increase in unit volume was offset by an decrease in the realized 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 increaseWe 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. 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 Abbott to expand
the number of countries where we are licensed to sell Synagis. As of February 1, 2002, international registrations have been filed
in 58 countries for the approval of Synagis, for which approval in the United States and 46 foreign countries had been obtained.
There can be no assurance that approvals by the appropriate regulatory authorities will continue to be granted. Additionally, we may
not 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.
agreement.
Ethyol—Ethyol accounted for approximately 4% and 5%10% of our product sales in 2001both 2003 and 2000, respectively.2002. Domestic Ethyol revenues decreased 5% from
$21.4sales increased 25% to $94.4 million in 2000 to $20.32003, up from $75.5 million in 2001. Sales2002. This 25% increase is the result of Ethyol for the year ended December 31, 2001 were impacted by our early
assumption ofa 15% increase in domestic marketing responsibility for Ethyol from ALZA. The transfer of marketing responsibility from ALZA was
originally scheduledunits sold in 2003 compared 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 sales of Ethyol to ALZA during
the third quarter of 2001,2002 and we purchased ALZA's remaining Ethyol inventory as of September 30, 2001, which we 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. 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 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 had
recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price.increase which occurred in August 2003. Our 2003 international sales of Ethyol to our distribution partner, Schering-Plough Corporation ("Schering"), declined slightly to $6.0 million during 2001 as
compared to $6.5 million in 2000, as unitSchering, were consistent with 2002 sales decreased 3%.of $5.7 million. We record Ethyol international product sales based on a percentage of Schering's end-user sales, as defined in our agreement.
FluMist—During 2003, we shipped 4.1 million doses of FluMist to Wyeth and received payments totaling $51.9 million. Wyeth is contractually responsible for distributing the product to third parties. At the end userof the influenza season, actual net sales for the season will be used to calculate the final transfer price per dose and the amount of product royalties due to MedImmune. Actual net sales consists of any amounts actually received by Wyeth for the sale of FluMist less agreed-upon amounts paid or credited by Wyeth related to the sale of the product such as for returns, promotional discounts, rebates, sales taxes and freight. Prior to the calculation of actual net sales, our ability to recognize revenue is dependent upon our ability to estimate the sales volume for the season and the expected impact of the reduction to sales. As of December 31, 2003, we concluded that the variables associated with the product transfer price were not determinable, largely due to low sales volume and the lack of returns history and comparable redemption rates for rebates for this new product. As a result, we have not recognized the revenue associated with the 4.1 million doses shipped to Wyeth during 2003. We believe the decreasetransfer price will be determinable when actual net sales are calculated in international2004, at which time we will record the associated product sales was primarily due to reductions in inventory stocking
levels at our international distribution partner.
and cost of goods sold.
Other Products—Sales of other products in 2001,2003, which include sales of CytoGam, NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, were comparableincreased $5.1 million, or 13% compared to 2000 sales. Results for the year ended December 31, 2000 also included netlast year. The increase was largely due to a 10% increase in our sales of Hexalen. We sold this product to MGI Pharma in November 2000 and, therefore we no longer record product sales of Hexalen; rather, we
recognize royalty income and other income pursuant to our agreement with MGI Pharma, which are included in other revenues for 2001.
The level of future product sales will be dependent on several factors, including, but not limited to, the timing and extent of
future regulatory approvals of our products and product candidates, availability of finished product inventory, approval and
commercialization of competitive products and the degree of acceptance of our products in the marketplace.CytoGam.
Revenues—Other Revenues
Other revenues for the year ended December 31, 2001 decreased $5.52003 remained consistent with 2002 at $61.8 million. Other revenues in 2003 are largely comprised of contractual payments received from Wyeth under our collaborative agreement for FluMist. The payments, which amounted to $45.9 million, or 12%,related to $39.2milestone payments, supply goal payments, and funding for clinical development and marketing programs. We also received $7.5 million in 20012003 from $44.7AI for achieving a milestone related to international sales levels of Synagis and we recorded $3.1 million in 2000.revenue under other collaborative agreements. Other revenues during both years consisted primarilyin 2002 are comprised largely of revenues under collaborative agreements. We recognized revenue of
$21.4$32.7 million in 2001 versus $21.1 million in 2000 related to upfrontpayments from Wyeth for compensation of 2002 FluMist manufacturing costs and milestone payments under these agreements. We recognize
non-refundable fees and milestone payments in connection with research andfunding for clinical 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 whichmarketing programs In 2002, we have deferred a portion of the upfront and milestone payments also
33
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$17.2 million 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$8.7 million in revenue recorded under other revenues
undercollaborative agreements.
We have accounted for major collaborative agreements entered into before January 1, 2002 using the arrangement. Other revenues in both years also include royalty income from ALZA in accordance with the termscontingency-adjusted performance model and have deferred a portion of the Ethyol
distribution agreement. Otherup front and milestone payments received. Based on current estimates, we expect to record the remaining revenues during 2000 also included $10.0from our collaboration with Schering-Plough Corporation of $0.8 million related to the license agreement signed with GSK for
our Streptococcus pneumoniae vaccine technology. 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,ratably over 2004 and the extent to which we achieve certain
milestones provided for in existing agreements.
2005.
Cost of Sales -
| 2003 | 2002 | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Acquisition- Related Adjustments | Adjusted | Historical | Acquisition- Related Adjustments | Adjusted | ||||||||||
| (in millions) | |||||||||||||||
| $ | 289.8 | $ | (2.7 | ) | $ | 287.1 | $ | 201.8 | — | $ | 201.8 | ||||
Cost of sales for 20012003 increased 9%44% to $138.7$289.8 million from $127.3$201.8 million for 2002. Excluding Acquisition-related adjustments in both periods, cost of sales for 2003 increased 42% to $287.1 million from $201.8 million in 20002002, mainly due to increases in product sales volumes.volumes and inventory valuation adjustments for FluMist of $37.5 million. Gross margins on product sales for 2003 were 71%, down three percentage points from last year, largely due to the year ended December 31, 2001 improved to 76% from 74%valuation adjustments for the year ended December 31, 2000. Gross margins in
2001FluMist inventory. Partially offsetting this decrease were principally improved aslower costs for CytoGam, and a resultfavorable impact of increased salesa value-added tax refund for transfers of Synagis which has more favorable margins, as well as lower
manufacturing costs following implementation of an improved manufacturing process at the Frederick Manufacturing Center ("FMC")
which increases Synagis yields. Additionally, marginsmanufactured 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. 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 2002 should be lower than 2001, as a result of expenses for initial manufacturing operations of Aviron
in anticipation of possible FDA approval of FluMist, which may or may not be granted.
Europe.
Research and Development Expenses -
| 2003 | 2002 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Acquisition- Related Adjustments | Adjusted | Historical | Acquisition- Related Adjustments | Adjusted | |||||||||||
| (in millions) | ||||||||||||||||
| $ | 156.3 | $ | (2.6 | ) | $ | 153.7 | $ | 147.9 | $ | (9.3 | ) | $ | 138.6 | |||
Research and development expenses of $83.0$156.3 million in 20012003 increased 25%6% from $66.3$147.9 million in 2000, primarily2002. Excluding Acquisition-related adjustments in both periods, research and development expenses for 2003 were $153.7 million, up 11% over 2002. The increase is due largely to payments made in 2003 associated with gaining access to new data and technologies including a larger number$10.0 million payment to Critical Therapeutics, Inc. as part of active clinical trials. During 2001, wea new collaboration to co-develop biologic products to treat severe inflammatory diseases. Additionally in 2003, the Company initiated nine new clinical trialsfour Phase 2 studies for Vitaxin and agreed to pay $10.0 million for data from the completed patient enrollment in 12 trials. Currently, our clinical trials include a Synagisinternational Phase 3 study in infants with congenital heart
disease, a trial with adults usingstudies for a liquid formulation of Synagis, threethe live, attenuated influenza virus vaccine. This data may have the potential to accelerate the evolution of MedImmune's long-range plans for its intranasally delivered flu vaccine program in the United States.
In 2002, the Company completed several late-stage clinical trials, including Phase 2 clinical trials with siplizumab, and onethe Phase 1 human papillomavirus vaccine
trials, one Phase 13 Synagis clinical trial and three Phase 2 trials for usein congenital heart disease patients that led to approval of MEDI-507an expanded indication by the FDA 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 in 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.September 2003.
34
During 2001,2003, 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
| Product Candidates | Description | Stage of Development | ||
|---|---|---|---|---|
| Vitaxin | Melanoma, Prostate Cancer, Rheumatoid Arthritis, Psoriasis | Phase 2 | ||
| CAIV-T (liquid FluMist) | A liquid, refrigerator-stable version of FluMist | Phase 3 | ||
| FluMist-Frozen | Intranasally delivered virus vaccine to prevent influenza infection | Phase 4 and label expansion | ||
| Ethyol | Subcutaneous administration in NSCLC patients-reduction of esophogitis and pneumocytis | Phase 2 | ||
| Numax | Third-generation anti-RSV antibody | Phase 1 |
Additionally, we have multiple programs in infants with
congenital heart disease Phase 3
Siplizumab Potential treatment for psoriasis Phase 2
Urinary tract infection Potential vaccine to prevent urinary tract
vaccine infections caused by E. coli Phase 2
Human papillomavirus vaccine Potential vaccine to prevent cervical cancer Phase 2
Vitaxin Potential anti-angiogenic product to impede tumor
growth, and potential rheumatoid arthritis therapy 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.
preclinical development.
Selling, General, and Administrative Expense -Expenses
| 2003 | 2002 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Acquisition- Related Adjustments | Adjusted | Historical | Acquisition- Related Adjustments | Adjusted | |||||||||||
| (in millions) | ||||||||||||||||
| $ | 340.9 | $ | (8.2 | ) | $ | 332.7 | $ | 299.6 | $ | (11.9 | ) | $ | 287.7 | |||
Selling, general and administrative ("SG&A") expense was $194.8 million and $157.3expenses increased 14% to $340.9 million in 20012003 compared to $299.6 million for the 2002 period. Excluding Acquisition-related amounts relating to retention payments, stock option acceleration and 2000, respectively, anstock compensation for unvested stock options assumed and amortization of intangibles, SG&A expenses were $332.7 million, up 16% over 2002. The increase is largely attributable to increased co-promotion expense, reflective of 24%.the increase in Synagis sales. As a percentage of product sales, adjusted SG&A expense decreased to 34% of product sales in the 2003 period from 36% in the 2002 period, due to product sales growing at a faster rate than expenses.
Other Operating Expenses
| 2003 | 2002 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Acquisition- Related Adjustments | Adjusted | Historical | Acquisition- Related Adjustments | Adjusted | |||||||||||
| (in millions) | ||||||||||||||||
| $ | 26.1 | $ | (3.1 | ) | $ | 23.0 | $ | 100.0 | $ | (20.8 | ) | $ | 79.2 | |||
Other operating expenses, which reflect manufacturing start-up costs and other manufacturing-related costs, were $26.1 million in 2003 compared to $100.0 million in 2002. Adjusted other operating expenses were $23.0 million for 2003, compared to $79.2 million in 2002. The decrease is principally due to the shift in the costs of FluMist manufacturing that are capitalized in inventory beginning in the second quarter of 2003, but were expensed as other operating costs in the prior year. Additionally, 2002
35
other operating expenses include impairment charges of $12.9 million relating to the write-off of certain plasma manufacturing assets, as the Company outsourced its production of CytoGam during 2002.
In-Process Research and Development
We incurred charges of $1,179.3 million in the first quarter of 2002 for the write-off of purchased in-process research and development in conjunction with the Acquisition. The write-off represented the fair value of purchased in-process technologies at the acquisition date, calculated as the sum of probability-adjusted commercial scenarios. This method was based upon management's estimates of the probability of FDA approval and commercial success for FluMist.
Interest Income and Expense
We earned interest income of $56.9 million for 2003, compared to $49.4 million in 2002, reflecting higher cash balances available for investment, partially offset by a decrease in interest rates, which lowered the overall portfolio yield. Interest expense for 2003, net of amounts capitalized, was $10.3 million, up from $9.1 million for 2002. Excluding the Acquisition-related amounts of $2.4 million in 2003 and $1.8 million in 2002 for the amortization of premium on the 51/4% Convertible Subordinated Notes ("the 51/4% Notes"), adjusted interest expense increased to $7.9 million in 2003 from $7.3 million in 2002, due to interest expense generated by the 1% Notes issued in July 2003.
Gain (Loss) on Investment Activities
We incurred a gain on investment activities of $3.4 million for 2003, compared to a loss of $14.1 million for 2002. The 2003 gain consisted of gains on the sale of our publicly traded equity investments, net of declines in fair value of other investments that were judged to be other than temporary. Investment losses in 2002 consisted primarily of impairment charges on investments related to declines in fair value that were judged to be other than temporary.
Income Taxes
We recorded income tax expense of $108.0 million for the year ended December 31, 2003, based on an effective tax rate of 37.1%. Excluding items not deductible for tax purposes, principally the write-off of purchased in-process research and development, the resulting effective tax rate for 2002 was 37.2%.
Net Earnings / (Loss)
| 2003 | 2002 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Historical | Acquisition- Related Adjustments | Adjusted | Historical | Acquisition-Related Adjustments | Adjusted | |||||||||||
| (in millions) | ||||||||||||||||
| $ | 183.2 | $ | 9.2 | $ | 192.4 | $ | (1,098.0 | ) | $ | 1,204.6 | $ | 106.6 | ||||
Net earnings for 2003 were $183.2 million, or $0.73 per share basic and $0.72 per share diluted, compared to a net loss for 2002 of $1.1 billion or $4.40 per share. Excluding the after-tax impact of the Acquisition-related amounts totaling $9.2 million in 2003 and $1.2 billion in 2002, adjusted net earnings were $192.4 million in 2003, or $0.77 basic and $0.76 diluted earnings per share and $106.6 million, or $0.43 basic and $0.42 diluted per share in 2002.
Shares used in computing basic and diluted earnings per share in 2003 on a historical basis were 250.1 and 253.8, respectively. Shares used in computing net loss per share on a historical basis for 2002 were 249.6 million. On an adjusted basis, shares used in computing basic and diluted earnings per share
36
in 2003 were 250.1 and 253.8, respectively, while shares used in computing basic and diluted earnings (loss) per share for 2002 were 249.6 million and 252.7 million, respectively.
We do not believe inflation had a material effect on our financial statements.
2002 Compared to 2001
Revenues—Product Sales
| | 2002 | 2001 | Growth | ||||||
|---|---|---|---|---|---|---|---|---|---|
| | (in millions) | ||||||||
| Synagis | $ | 671.7 | $ | 518.0 | 30 | % | |||
| Ethyol | 81.2 | 20.5 | 296 | % | |||||
| Other Products | 38.0 | 43.0 | (12 | )% | |||||
| $ | 790.9 | $ | 581.5 | 36 | % | ||||
Product sales grew 36% to $790.9 million, compared to $581.5 million in 2001, primarily due to increased sales of Synagis and the impact of reacquiring the domestic marketing rights to Ethyol from ALZA as of October 1, 2001.
Synagis—Synagis accounted for approximately 85% and 89%, respectively, of our 2002 and 2001 product sales. We achieved a 33% increase in domestic Synagis sales to $641.3 million in 2002, up from $481.3 million in 2001. This growth was largely due to increased demand in the United States, and resulted in a 30% increase in domestic units sold. Also aiding growth was a 3.5% price increase that took effect in June 2002, partially offset by an increase in sales allowances, which were accounted for as a reduction to product sales. Our reported international sales of 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 was 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 AI under the terms of our international distribution agreement. Based on information received from AI, we believe that end-user sales have increased over the 2001 year. We recorded Synagis international product sales based on AI's sales price to customers, as defined in the agreement.
Ethyol—Ethyol accounted for approximately 10% and 4% of our product sales in 2002 and 2001, respectively. On October 1, 2001 we reacquired domestic marketing rights to Ethyol from ALZA and have since recorded all revenues from domestic sales of Ethyol to wholesalers and distributors. As part of this agreement, no third quarter 2001 supply sales were made to ALZA, and we purchased ALZA's remaining Ethyol inventory at their original purchase price, which was recorded as a reduction to product sales. Beginning April 1, 2002, we pay ALZA a declining royalty through 2011 based on net sales of Ethyol in the United States. Domestic Ethyol sales were $75.5 million in 2002, as compared to $14.4 million in 2001. The increase was 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 returns of $2.3 million, relating to our assumption of Ethyol marketing rights. Prior to October 1, 2001, we recorded Ethyol domestic product sales based on ALZA's net unit selling price as defined in the agreement. Our international sales of Ethyol to our distribution partner, Schering, were $5.6 million for 2002, down 7% from the prior year sales of $6.0 million.
37
Other Products—Sales of other products in 2002, which included sales of CytoGam, NeuTrexin, RespiGam, and by-products that resulted from the CytoGam manufacturing process, decreased $5.0 million, or 12% compared to 2001. The decrease was due to marginal declines in all of our other product lines.
Revenues—Other Revenues
Other revenues increased 58% to $61.8 million for 2002 compared to $39.2 million in 2001. The increase was largely attributable to $25 million received from Wyeth, our marketing partner for FluMist, for compensation of 2002 FluMist manufacturing costs under amendments to the collaborative agreements. An increase of $9.7 million in revenues from the sale of excess production capacity to a third party and $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 was 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 were nearing completion of Phase 1 and 2 clinical trials and our preparation of clinical material.
Cost of Sales
Cost of sales for 2002 increased 46% to $201.8 million from $138.7 million in 2001, due to the increase in sales volumes and additional royalties owed for Synagis, partially offset by manufacturing cost reductions following implementation of an improved manufacturing process at the FMC which enhanced the yields for Synagis. As a result, gross margins for 2002 were down two percentage points to 74% from 76% for the year ended December 31, 2001.
Research and Development Expenses
Research and development expenses of $147.9 million in 2002 increased 78% from $83.0 million in 2001. Excluding Acquisition-related amounts of $9.4 million in 2002 for retention payments, stock option acceleration and stock compensation expense for unvested options assumed, adjusted research and development expenses were $138.6 million, up 67% over 2001. This increase was largely due to the on-going activities of MedImmune Vaccines and payments of approximately $19.0 million to gain access to various technologies and intellectual property to advance our pipeline. The increases were offset by decreases in clinical trial expenses, as several of our clinical trials were either completed, cancelled or delayed during 2002. During 2002, we completed several important clinical trials, including a successful Phase 3 trial for Synagis in children with congenital heart disease and three Phase 2 trials for siplizumab.
During 2002, we completed the preliminary analysis of three Phase 2 trials 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. We also completed two Phase 2 trials of ourE. coli urinary tract infection vaccine, and have determined that there was not a sufficient level of efficacy in prevention of urinary tract infections to proceed with additional trials. Our ongoing clinical program also included several product candidates 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 had multiple programs in preclinical development.
Selling, General, and Administrative Expenses
Selling, general and administrative ("SG&A") expenses increased 52% to $299.6 million in 2002 compared to $196.8 million for the 2001 period. Excluding Acquisition-related amounts of $11.9 million
38
in expense in 2002 relating to retention payments, stock option acceleration and stock compensation for unvested stock options assumed and amortization of intangibles, adjusted SG&A expenses were $287.5 million, up 46% over 2001. As a percentage of product sales, adjusted SG&A expense increased to 36% of product sales in the 2002 period from 34% in the 2001 from 32%period. The increase in 2000. A portionthis ratio was largely reflective of the increaseimpact 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 expenseexpenses 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 2001 versus 2000 is reflectivewas favorably impacted as $13.4 million of expenses related to our accelerated acquisition of Ethyol marketing rights from ALZA. We recorded $13.4 millionALZA was included in termination fees relating to our agreement with ALZA.
In addition, we incurred increased salary and related expensesSG&A 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 been resolved. For 2002, we expect SG&A expenses to decrease
slightly as a percentage of total revenues.
Other Operating Expenses -
Other operating expenses, which reflectreflected manufacturing start-up costs and other manufacturing related costs, increased to $100.0 million in 2001 to2002 from $9.6 million from $9.2in 2001. Excluding Acquisition-related amounts of $20.8 million in 2000.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 slight increase is mainly attributableover 2001 was primarily related to charges in 2001$56.9 million of $1.3 million to record certain plasma inventories at their net realizable value.pre-production costs and inventory reserves for FluMist. The plasmamajority of the cost incurred for FluMist was intendedassociated with preparing for the start-up operationsaborted 2002 commercial launch. Additionally, we incurred a $12.9 million charge for the write-off of ourCytoGam manufacturing plant and was not approved for use inequipment as 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 theCompany had outsourced CytoGam production process at our Frederick facility. Currently,activities as of November 2002. Also included in other operating expense for both periods was excess capacity costs associated with the plasma production section of the Frederick facility has excess capacity, which
results inFMC.
In-Process Research and Development
We incurred charges to other operating expenses. These charges are expected to continueof $1,179.3 million for the foreseeable future untilyear ended December 31, 2002 for the plasma
production sectionwrite-off of purchased in-process research and development in conjunction with the Acquisition. The write-off represented the fair value of purchased in-process technologies at the acquisition date, calculated utilizing the sum of the facilityprobability-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 believe that there would be any alternative future use for the in-process technologies that were written off.
FluMist is fully utilized. Other operating expensesa 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 is currently being developed by our partner Wyeth. While there are expectedother flu vaccines currently marketed by other companies, FluMist is, to increase significantly in 2002our knowledge, the only live virus vaccine administered as a resultnasal mist.
The valuation of manufacturing-relatedthe acquired in-process research and start-up costs associated with Aviron's operations in anticipationdevelopment was based upon certain estimates and assumptions by management. The valuation was based upon management's estimates of possiblethe probability of FDA approval of
FluMist,and commercial success for FluMist. Management's projections were based on assumptions, which may or may not be granted.
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.
Interest Income and Expense -
We earned interest income of $49.4 million for 2002, compared to $36.5 million duringin 2001, versus $29.6 million in 2000, reflecting higher cash balances available for investment, and a shift in our investment strategylargely due to include investments with longer maturities,the Acquisition, partially offset by a decline
39
decrease in interest rates, which lowered ourthe overall portfolio yield. Interest expense for 2002, net of amounts capitalized, was comparable$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% Notes, adjusted interest expense was $10.9 million. The increase over 2001 was due to the related interest expense assumed in 2001the 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 $9.5 million on our minority interest investments related to 2000.declines in fair value that were judged to be other than temporary.
Income Taxes -
We recorded income tax expense of $79.5$48.2 million for the year ended December 31, 2001,2002. Excluding items not deductible for tax purposes, principally the write-off of purchased in-process research and development, the resulting in an effective tax rate of
34.8%was 37.2%. This compareswas compared to tax expense of $64.4$79.5 million recorded for the year ended December 31, 2000,2001, based on an effective tax rate of 30.8%34.8%. The variation in thehigher effective tax rate for 2002 versus 2001 versus 2000 results from differences in the amount ofis due to lower credits takenestimated to be available for research and development activities, andincluding 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
Net loss
Net loss for the year ended December 31, 2001, the value of our state deferred tax assets decreased. We believe this change in tax law will
ultimately lower our tax rates; however, we were required 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,2002 was $1.1 billion, or $0.16 on a diluted$4.40 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 which 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 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. Netnet earnings for the year ended December 31, 2001 wereof $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 220.1 million, respectively. Net earnings forThe increase in share count primarily reflects the year ended December
31, 2000, which include34.0 million additional shares issued in conjunction with 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.Acquisition.
We do not believe inflation had a material effect on our financial statements.
These results were consistent with our objectives for the year and with the continued development of our products. The factors that
affected 2001 results may continue 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 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 contributed to the sales increase. International sales increased 233% to $27.5 million in 2000 and reflected primarily an
increase in unit volume 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 product as well as inventory stocking by Abbott International. Sales made 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 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 $36.5 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% internationally 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, we
estimated that end user demand for Ethyol 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 accordance with the SAB, we recognized $21.1 million 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
Sources and Uses of Cash
The Company's capital requirements have been funded from operations, cash and investments on hand, and issuance of common stock and convertible debt. Cash and marketable securities were $787.7increased 34% to $1.9 billion at December 31, 2003 from $1.4 billion at December 31, 2002. This increase is largely due to cash received from the issuance of $500 million in 1% Notes due in July 2023 as well as cash generated from operations. Working capital increased 49% to $712.0 million at December 31, 2001, an increase of 50% over 2000. Working capital was $429.92003 from $476.8 million at December 31, 2001, versus $526.3 million at December 31, 2000. The decrease in working capital reflects our decision
during 20012002, primarily due to invest a portioncash received from the issuance of our cash in longer-term investments, which are not included in working capital.
the 1% Notes.
Operating Activities
Activities—Net cash provided by operating activities increased to $250.9$357.7 million in 2001the year ended December 31, 2003 as compared to $173.0$263.5 million in 2000,the comparable 2002 period, primarily as the result of higher earnings. Additionally, allowancesnet earnings for tradethe period and the utilization of deferred tax assets to offset our current tax liability. Also affecting cash generated from operating activities were increases in accounts receivable increased $9.6 million to adequately reserve
for increased government rebates primarily affecting Synagis sales. Accounts payable and inventories, partially offset by an increase in accrued expenses increased $25.5 million,
primarily for increased amounts due to Abbott Laboratories for Synagis co-promotion expense due to the increase in domestic Synagis
sales, and $13.4 million for termination fees due to ALZA.
Synagis.
40
Investing Activities
Activities—Cash used for investing activities during 2001 amounted to $188.22003 was $238.3 million, as compared to $199.3$347.0 million in 2000, excluding
capitalized interest of $0.3 million.2002. Cash used for investing activities in 20012003 included net additions to our investment portfolio of $168.4$95.0 million $10.0 million of which was an investmentand $112.9 in convertible preferred equity securities of a strategic partner
related to the in-licensing of the IL-9 asthma antibody technology; $18.3 million for capital expenditures, primarily for land purchases and construction of the first phase of our new corporate headquarters in Gaithersburg, Maryland, and for the continued expansion of our manufacturing facilities in Pennsylvania, and Speke, the Synagis manufacturing area atUnited Kingdom. We also invested $30.4 million in preferred equity securities and convertible bonds through our Frederick manufacturing facility 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.
venture capital subsidiary.
Financing Activities
Activities—Financing activities generated $23.6$266.2 million in cash in 2001,for 2003, as compared to $74.8$42.0 million in 2000.2002. Approximately $24.3$44.4 million was received upon the issuance of common stock relating primarily to the exercise of employee stock options in 2001,2003, as compared to $76.3$46.7 million received in 2000,2002, reflecting increased option exercises by employees subsequent to the lower
average price forAcquisition in 2002.
In July 2003, the Company completed the issuance of $500 million of 1% Notes due 2023. Net proceeds to the Company were $489.4 million, net of expenses, underwriters' discounts and commissions. At the time of issuance, we stated our intent to use a portion of the proceeds from the 1% Notes to repurchase shares of our common stock under the stock repurchase program, and for general corporate purposes, which may include the retirement of existing debt obligations, possible acquisitions or other external growth opportunities. As of December 31, 2003, we have repurchased and retired $32.4 million principal amount of the 51/4% notes at a cost of $33.1 million. A gain of $0.5 million was recorded in accordance with the transactions, representing the acceleration of the premium recorded on these notes in accordance with the Acquisition.
In July 2003, our Board of Directors authorized the repurchase, over a two-year period, of up to $500 million of the Company's common stock in the open market or in privately negotiated transactions, pursuant to terms management deems appropriate and at such times it may designate. Under the stock repurchase program, we repurchased 6.2 million shares of our common stock at a total cost of $229.8 million, or an average cost of $36.83 per share through December 31, 2003. The Company also entered into a 10b5-1 trading plan to repurchase shares in the open market during 2001. In 2001those periods each quarter when trading in our common stock is restricted under our insider trading policy. Of the shares repurchased, approximately 0.7 million shares were purchased under the 10b5-1 trading plan. As of February 29, 2004, we had not purchased any additional shares since October 7, 2003, but intend to resume repurchasing during 2004. The Company will hold repurchased shares as treasury shares and 2000, repayments on long-term debt were $0.7 millionintends to use them for general corporate purposes, including but not limited to acquisition-related transactions and $1.5 million,
respectively.for issuance upon exercise of outstanding stock options.
We are obligated in 2002 to provide $27.9 million in funding for various clinical trials, research and development and license
agreements with certain institutions. We have also agreedexpect to make milestone paymentscapital expenditures in the future in the aggregate amountrange of $119.4$100-125 million the timing of which is uncertain and dependent on the occurrence of certain eventsduring 2004 for projects such as the granting by the FDAcontinued construction of a
license for product marketing in the United States for some 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 landour corporate headquarters in Gaithersburg, Maryland which will serve asand FluMist manufacturing facilities in Speke, the siteUnited Kingdom, construction of a new pilot plant in Gaithersburg, Maryland, and land purchases relating to future expansion phases of our new corporate headquarters.headquarters facility. The Company anticipates these projects will be funded from cash generated from operations and investments on hand. We have 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 and we expect to take occupancy of the first phase of our headquarters facility, a complex of approximately 220,000 square feet, in March 2004. The majority of our existing space in Gaithersburg is leased through 2006, a portion of which will be offered for sublease. There can be no guarantee that we will be successful in subleasing the space.
The Company's 51/4% Notes are redeemable beginning in February 2004. The Company intends to redeem the entire remaining amount of the issue at approximately 103% of its principal amount in the fallfirst quarter of 2003.2004. The Company's existing funds, together with funds contemplatedredemption is expected to be generatedfinanced from product salescash and investment income,investments on hand.
41
Contractual Obligations and Commitments—The following table summarizes our contractual obligations and commitments that will require significant cash outlays in the future:
| | Total | 2004 | 2005 | 2006 | 2007 | 2008 | Beyond | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Contractual Obligations | |||||||||||||||||||||||
Long-term debt(1) | $ | 675.7 | $ | 0.9 | $ | 1.0 | $ | 1.0 | $ | 1.3 | $ | 168.1 | $ | 503.4 | (2) | ||||||||
| Facilities leases | 54.3 | 8.8 | 6.5 | 4.5 | 2.8 | 2.5 | 29.2 | ||||||||||||||||
| Purchase obligations | 136.1 | 59.2 | 20.4 | 11.5 | 7.5 | 7.5 | 30.0 | ||||||||||||||||
| Evans liability | 26.8 | 3.9 | 22.9 | ||||||||||||||||||||
| Total contractual obligations | $ | 892.9 | $ | 72.8 | $ | 50.8 | $ | 17.0 | $ | 11.6 | $ | 178.1 | $ | 562.6 | |||||||||
| Other Commercial Commitments | |||||||||||||||||||||||
| Standby letters of credit | $ | 2.2 | $ | 2.2 | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||
| Obligations under Collaborative Agreements(3) | 16.6 | 7.5 | 2.3 | 1.9 | 1.1 | 0.8 | 3.0 | ||||||||||||||||
| Total other commercial commitments | $ | 18.8 | $ | 9.7 | $ | 2.3 | $ | 1.9 | $ | 1.1 | $ | 0.8 | $ | 3.0 | |||||||||
42
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, 20012003 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, 20002002 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, 2001,2003, 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
monthsone month to fiveseven years. Our investment guidelines are intended to limit the amount of investment exposure as to institution,issuer, 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 debt 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):
| | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | Total | Fair Value | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. Gov't and Agencies | $ | 30.0 | $ | — | $ | 11.0 | $ | 15.0 | $ | 31.9 | $ | 15.0 | $ | — | $ | 102.9 | $ | 109.1 | |||||||||
| Interest Rate | 3.8 | % | — | 5.5 | % | 4.8 | % | 4.4 | % | 6.5 | % | — | |||||||||||||||
Corp. Debt Securities | $ | 196.9 | $ | 153.4 | $ | 183.2 | $ | 208.3 | $ | 264.3 | $ | 112.9 | $ | 15.4 | $ | 1,134.4 | $ | 1,214.5 | |||||||||
| Interest Rate | 5.8 | % | 6.6 | % | 5.6 | % | 5.5 | % | 4.1 | % | 6.1 | % | 7.5 | % | |||||||||||||
Foreign Bank Debt Securities | $ | 7.5 | $ | 8.0 | $ | 23.0 | $ | — | $ | 2.8 | $ | — | $ | — | $ | 41.3 | $ | 45.3 | |||||||||
| Interest Rate | 4.0 | % | 4.1 | % | 7.4 | % | — | 5.9 | % | — | — | ||||||||||||||||
We are exposed to equity price risks and risk of impairment related to our minority interest investments. MedImmune Ventures, Inc., the marketable equity securities includedCompany's wholly-owned venture capital subsidiary, manages the Company's current portfolio of minority interest investments and endeavors to make additional investments in ourpublic or private biotechnology companies focused on discovering and developing human therapeutics. MedImmune Ventures will invest primarily in areas of strategic interest to the Company, including infectious disease, immunology and oncology. The cost basis of MedImmune Venture's investment portfolio. Asholdings was $39.2 million as of December 31, 2001, we owned approximately 907,000 shares of stock2003, and is expected to increase in a publicly-traded company with which we previously formed a
strategic alliance. Inthe future as it continues to invest in accordance with FAS 115, "Accountingits investment strategy.
MedImmune Venture's minority interest investments are subject to adjustment for Certain Investmentsother-than-temporary impairments. We recognize impairment charges in Debtthe consolidated statements of operations when a decline in the fair value of an investment falls below its cost value and Equity Securities,"is judged to be other than temporary. We consider various factors in determining whether we should recognize an impairment charge, including: the length of time and extent to which the fair value has been less than our cost basis; the financial condition and near-term prospects of the issuer; fundamental changes to the business prospects of the investee; share prices of subsequent offerings; and our intent and ability to hold the investment at itsfor a period of time sufficient to allow for any anticipated recovery in market price. Sincevalue. During 2003 and 2002, the company's initial public offering in July 2000,Company recorded impairment losses of $1.7 million and $14.0 million, respectively, based on the market priceduration and magnitude of the shares has
fluctuated significantly.declines in fair value, as well as
43
the financial condition and near-term prospects of the investee companies. We did not incur any impairment losses during the year ended December 31, 2001. We expect thisthe volatility in the fair value of our minority investments to continue and, thus, the value assigned to this investmentthe investments could change significantly from its market valueperiod to period.
As of $11.2 million at December 31, 2001. For each2003, the MedImmune Venture's portfolio included approximately 1.8 million shares of common stock in two publicly traded companies with which the Company previously formed strategic alliances. In accordance with our investment strategy, we intend to liquidate our holdings in these equity securities over a period of approximately one percent change inyear, now that our business objectives have been reached. To hedge the risk of market fluctuations relative to these investments, we entered into equity derivative contracts during the second half of 2003, which have been designated as cash flow hedges. As of December 31, 2003, the unrealized gain on the marketable equity securities related to this hedge was $13.2 million, while the fair value of the underlying security,derivative contracts was a liability of $3.5 million, resulting in a net unrealized gain on the fair valuehedging transaction. During the fourth quarter of our investment would change by approximately $0.12003, we recognized net gains on sales of a portion of the holdings of $4.4 million.
The remainder of MedImmune Venture's portfolio as of December 31, 2003 consists of minority interest investments in privately held biotechnology companies. The investments are maintained on the cost or equity method of accounting, according to the facts and circumstances of the individual investment. 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. As of December 31, 2000,2003, the investments had a cost basis of $36.7 million.
Following the Acquisition, the Company's subsidiary, MedImmune Vaccines, assumed the obligation for $200.0 million in 51/4% Notes due 2008. These 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 because they bear interest at fixed rates. During 2003, the Company purchased $32.4 million principal amount of the 51/4% Notes in the open market for $33.1 million, resulting in a net gain of $0.5 million on early extinguishment recorded to earnings. As of December 31, 2003, the notes are convertible into an aggregate of 2.9 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 51/4% 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 these notes at December 31, 2003, based on quoted market prices, was $173.4 million.
During July 2003, we issued $500 million of convertible notes due 2023. These notes bear interest at 1.0% per annum payable semi-annually in arrears. Beginning with the six-month interest period commencing July 15, 2006, if the average trading price of these notes during specified periods equals or exceeds 120% of the principal amount of such notes, we will pay contingent interest equal to 0.175% per six-month period of the average trading price per $1,000 of the principal amount during such periods. As a result, if the market value of these notes appreciates significantly in the future, we could be obligated to pay significant amounts of contingent interest beginning in 2006. The estimated fair value of the investment1% Notes at December 31, 2003, based on quoted market prices, was $15.5$475.0 million.
During 2001, we invested approximately $10.0 million in the convertible preferred equity securities of a strategic partner, which is
a publicly-traded biopharmaceutical company. In accordance with accounting principles generally accepted in 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 impairments on a periodic basis, and determined that no such other-than-temporary impairments
occurred during 2001.
Changes in interest rates do not affect interest expense incurred on our remaining outstanding indebtedness of $9.5$8.0 million and $10.3$8.8 million at December 31, 20012003 and 2000,2002, 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. The estimated fair value of ourthe remaining long-term debt at December 31, 20012003 and 2000,2002, based on quoted market prices or discounted cash flows at currently available borrowing rates, was $10.0$8.4 million and $10.9$9.3 million, respectively. The Company's contractMaturities for all long term debt for the purchasenext five years are as follows: 2004, $0.9 million; 2005, $1.0 million; 2006, $1.0 million; 2007, $1.3 million; and 2008, $168.1 million.
44
Expenditures relating to our manufacturing operations in the United Kingdom and the Netherlands are paid in local currency. We have not hedged our expenditures relating to these manufacturing operations; therefore, foreign currency exchange rate fluctuations may result in increases or decreases in the amount of Synagis from BI isexpenditures recorded. Additionally, certain of our distribution agreements outside the United States provide for us to be paid based upon sales in local currency. As a result, changes in foreign currency exchange rates could adversely affect the amount we expect to collect under these agreements.
The Company has entered into a supplemental manufacturing contract denominated in Euros. Fluctuations in the Euro-U.S. Dollar exchange rate may lead to changes in the U.S. Dollar cost of manufacturing. To reduce the risk of unpredictable changes in these costs, the Company may, from time to time, enter into forward foreign exchange contracts. Currently, we have firm commitments with BI for planned production through March 2004and fill/finish for approximately 43.778 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.Euros. As of December 31, 2001,2003, the Company did not have any open foreign exchange forward contracts. As of December 31, 2000,2002, the Company had outstanding forward Euro contracts in the amount of
$11.1to purchase 1.1 million Euros, all expiring within one year. Fair value of the outstanding contracts at December 31, 20002002 was $0.5$0.3 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. ChangesDuring 2002, we entered into foreign exchange forward contracts to purchase 12.5 million British Pounds (GBPs) to fund payments due under construction contracts denominated in fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a
derivative isGBPs. The contracts were originally designated as partcash flow hedges, but were later determined to be ineffective and subsequently cancelled, resulting in a net gain of a hedge transaction and if it is, depending on$0.2 million recorded to 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 be reclassified as earnings in the periods in which the
related inventory is sold. The ineffective portion, if any, of all hedges will be recognized in current-period earnings.
45
ITEM 8. CONSOLIDATED 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)
| | December 31, 2003 | December 31, 2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| ASSETS: | |||||||||
| Cash and cash equivalents | $ | 515,502 | $ | 130,056 | |||||
| Marketable securities | 272,765 | 396,882 | |||||||
| Trade receivables, net | 161,229 | 113,774 | |||||||
| Inventory, net | 91,703 | 59,963 | |||||||
| Deferred tax assets | 29,322 | 25,735 | |||||||
| Other current assets | 32,233 | 17,023 | |||||||
| Total Current Assets | 1,102,754 | 743,433 | |||||||
Marketable securities | 1,111,882 | 896,118 | |||||||
| Property and equipment, net | 273,597 | 183,992 | |||||||
| Deferred tax assets, net | 151,280 | 222,038 | |||||||
| Intangible assets, net | 96,694 | 113,275 | |||||||
| Goodwill | 13,614 | 15,970 | |||||||
| Other assets | 44,849 | 13,463 | |||||||
| Total Assets | $ | 2,794,670 | $ | 2,188,289 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY: | |||||||||
| Accounts payable | $ | 22,116 | $ | 19,773 | |||||
| Accrued expenses | 218,035 | 157,359 | |||||||
| Product royalties payable | 81,808 | 74,048 | |||||||
| Advances from Wyeth | 51,910 | — | |||||||
| Deferred revenue | 813 | 6,789 | |||||||
| Other current liabilities | 16,033 | 8,684 | |||||||
| Total Current Liabilities | 390,715 | 266,653 | |||||||
Long-term debt | 681,223 | 217,554 | |||||||
| Obligations to Evans | 21,627 | 24,755 | |||||||
| Other liabilities | 1,887 | 2,093 | |||||||
| Total Liabilities | 1,095,452 | 511,055 | |||||||
| Commitments and Contingencies | |||||||||
SHAREHOLDERS' EQUITY: | |||||||||
| Preferred stock, $.01 par value; authorized 5,525 shares; none issued or outstanding | — | — | |||||||
| Common stock, $.01 par value; authorized 420,000 shares; outstanding 248,036 at December 31, 2003 and 251,262 at December 31, 2002 | 2,543 | 2,513 | |||||||
| Paid-in capital | 2,673,059 | 2,613,075 | |||||||
| Deferred compensation | (1,379 | ) | (6,823 | ) | |||||
| Accumulated deficit | (772,936 | ) | (956,140 | ) | |||||
| Accumulated other comprehensive income | 27,733 | 24,609 | |||||||
| 1,929,020 | 1,677,234 | ||||||||
| Less: Treasury stock at cost; 6,239 shares as of December 31, 2003 and no shares at December 31, 2002 | (229,802 | ) | — | ||||||
| Total Shareholders' Equity | 1,699,218 | 1,677,234 | |||||||
| Total Liabilities and Shareholders' Equity | $ | 2,794,670 | $ | 2,188,289 | |||||
The accompanying notes are an integral part of these financial statements.
46
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, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2001 | |||||||||
| Revenues | ||||||||||||
| Product sales | $ | 992,554 | $ | 790,906 | $ | 581,514 | ||||||
| Other revenue | 61,780 | 61,778 | 39,150 | |||||||||
| Total revenues | 1,054,334 | 852,684 | 620,664 | |||||||||
| Costs and Expenses | ||||||||||||
| Cost of sales | 289,756 | 201,841 | 138,707 | |||||||||
| Research and development | 156,318 | 147,942 | 82,985 | |||||||||
| Selling, general, and administrative | 340,902 | 299,562 | 196,826 | |||||||||
| Other operating expenses | 26,138 | 100,029 | 9,606 | |||||||||
| Acquired in-process research and development | — | 1,179,321 | — | |||||||||
| Total expenses | 813,114 | 1,928,695 | 428,124 | |||||||||
| Operating income (loss) | 241,220 | (1,076,011 | ) | 192,540 | ||||||||
| Interest income | 56,854 | 49,355 | 36,516 | |||||||||
| Interest expense | (10,335 | ) | (9,110 | ) | (590 | ) | ||||||
| Gain (loss) on investment activities | 3,438 | (14,074 | ) | — | ||||||||
| Earnings (loss) before income taxes | 291,177 | (1,049,840 | ) | 228,466 | ||||||||
| Provision for income taxes | 107,973 | 48,175 | 79,506 | |||||||||
| Net earnings (loss) | $ | 183,204 | $ | (1,098,015 | ) | $ | 148,960 | |||||
| Basic earnings (loss) per share | $ | 0.73 | $ | (4.40 | ) | $ | 0.70 | |||||
| Shares used in calculation of basic earnings (loss) per share | 250,144 | 249,625 | 213,378 | |||||||||
| Diluted earnings (loss) per share | $ | 0.72 | $ | (4.40 | ) | $ | 0.68 | |||||
| Shares used in calculation of diluted earnings (loss) per share | 253,817 | 249,625 | 220,101 | |||||||||
The accompanying notes are an integral part of these financial statements.
47
MedImmune, Inc.
Consolidated Statements of Cash Flows
(in
(in thousands)
For
| | For the year ended December 31, | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2001 | |||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||||
| Net earnings(loss) | $ | 183,204 | $ | (1,098,015 | ) | $ | 148,960 | |||||||
| Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: | ||||||||||||||
| Acquired in-process research and development | — | 1,179,321 | — | |||||||||||
| Deferred taxes | 86,978 | 50,806 | 76,398 | |||||||||||
| Deferred revenue | (5,976 | ) | (7,050 | ) | (21,430 | ) | ||||||||
| Depreciation and amortization | 37,662 | 36,820 | 9,124 | |||||||||||
| Advances from Wyeth | 51,910 | — | — | |||||||||||
| Amortization of premium (discount) on marketable securities | 14,821 | 9,752 | (2,024 | ) | ||||||||||
| Amortization of deferred compensation | 4,046 | 19,228 | — | |||||||||||
| Amortization of bond premium | (3,130 | ) | (1,819 | ) | — | |||||||||
| (Gain) loss on investment activities | (3,438 | ) | 14,074 | — | ||||||||||
| Impairment of long-lived assets | — | 14,058 | — | |||||||||||
| Increase in sales allowances | 10,877 | 17,427 | 9,599 | |||||||||||
| Losses on writedowns of inventory | 58,965 | 44,671 | 2,910 | |||||||||||
| Change in restructuring liability for cash employee termination costs | (661 | ) | (5,142 | ) | — | |||||||||
| Other | 3,693 | 796 | (138 | ) | ||||||||||
| Increase (decrease) in cash due to changes in assets and liabilities: | ||||||||||||||
| Trade receivables | (36,743 | ) | 3,944 | (2,866 | ) | |||||||||
| Inventory | (86,590 | ) | (43,959 | ) | (6,559 | ) | ||||||||
| Other assets | (14,507 | ) | (2,220 | ) | 2,697 | |||||||||
| Accounts payable and accrued expenses | 45,321 | 4,627 | 25,451 | |||||||||||
| Product royalties payable | 7,760 | 26,328 | 7,166 | |||||||||||
| Other liabilities | 3,469 | (105 | ) | 1,627 | ||||||||||
| Net cash provided by operating activities | 357,661 | 263,542 | 250,915 | |||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||||
| Investments in securities available for sale | (659,914 | ) | (1,008,936 | ) | (842,589 | ) | ||||||||
| Maturities of securities available for sale | 345,611 | 467,254 | 312,954 | |||||||||||
| Proceeds from sales of securities available for sale | 219,305 | 137,393 | 371,230 | |||||||||||
| Net cash acquired in acquisition of Aviron | — | 146,853 | — | |||||||||||
| Capital expenditures, net of capitalized interest | (112,940 | ) | (80,871 | ) | (18,258 | ) | ||||||||
| Investments in strategic alliances | (30,405 | ) | (8,735 | ) | (11,499 | ) | ||||||||
| Net cash used in investing activities | (238,343 | ) | (347,042 | ) | (188,162 | ) | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||||
| Proceeds from issuance of common stock | 44,409 | 46,664 | 24,339 | |||||||||||
| Share repurchases | (229,802 | ) | — | — | ||||||||||
| Proceeds of 1% Notes, net of issuance costs | 489,361 | — | — | |||||||||||
| Debt prepayments | (33,124 | ) | — | — | ||||||||||
| Repayments on long-term obligations | (4,694 | ) | (4,639 | ) | (742 | ) | ||||||||
| Net cash provided by financing activities | 266,150 | 42,025 | 23,597 | |||||||||||
| Effect of exchange rate changes on cash | (22 | ) | 276 | (69 | ) | |||||||||
Net increase (decrease) in cash and cash equivalents | 385,446 | (41,199 | ) | 86,281 | ||||||||||
| Cash and cash equivalents at beginning of year | 130,056 | 171,255 | 84,974 | |||||||||||
| Cash and cash equivalents at end of year | $ | 515,502 | $ | 130,056 | $ | 171,255 | ||||||||
| Supplemental cash flow data: | ||||||||||||||
| Cash paid during the year for interest | $ | 13,701 | $ | 11,013 | $ | 559 | ||||||||
| Cash paid (received) paid during the year for income tax payments (refunds) | $ | 32,740 | $ | (2,320 | ) | $ | 505 | |||||||
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% notes due in cash equivalents 86,281 48,404 (8,160)
Cash and cash equivalents at beginning of year 84,974 36,570 44,730
-------- -------- -------
Cash and cash equivalents at end of year $171,255 $84,974 $36,570
========= ======== =======
2008.
The accompanying notes are an integral part of these financial statements.
48
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
=========== ====== ======== ======== ====== ====== ==========
(in thousands)
| | Common Stock, $.01 par | | | | | | | | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | | | | | Treasury Stock | | ||||||||||||||||||||||
| | Paid-in Capital | Deferred Compensation | Accumulated Earnings (Deficit) | Accumulated Other Comprehensive Income (Loss) | | |||||||||||||||||||||||
| | Shares | Amount | Shares | Amount | Total | |||||||||||||||||||||||
| Balance, December 31, 2000 | 211,348 | $ | 2,113 | $ | 842,815 | $ | — | $ | (7,085 | ) | 5,739 | — | $ | — | $ | 843,582 | ||||||||||||
| Net earnings | — | — | — | — | 148,960 | — | — | — | 148,960 | |||||||||||||||||||
| Change in 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 | ) | |||||||||||||||||
| Change in 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 | |||||||||||||||||
| Net earnings | — | — | — | — | 183,204 | — | — | — | 183,204 | |||||||||||||||||||
| Change in foreign currency translation adjustment | — | — | — | — | — | 1,651 | — | — | 1,651 | |||||||||||||||||||
| Unrealized gain on investments, net of tax | — | — | — | — | — | 3,713 | — | — | 3,713 | |||||||||||||||||||
| Unrealized loss on cash flow hedges, net of tax | — | — | — | — | — | (2,240 | ) | — | — | (2,240 | ) | |||||||||||||||||
| Comprehensive income | — | — | — | — | — | — | — | — | 186,328 | |||||||||||||||||||
| Common stock options exercised | 2,807 | 28 | 39,866 | — | — | — | — | — | 39,894 | |||||||||||||||||||
| Issuance of common stock under the employee stock purchase plan | 206 | 2 | 4,781 | — | — | — | — | — | 4,783 | |||||||||||||||||||
| Repurchases of common stock | — | — | — | — | — | — | (6,239 | ) | (229,802 | ) | (229,802 | ) | ||||||||||||||||
| Tax benefit associated with the exercise of stock options | — | — | 16,023 | — | — | — | — | — | 16,023 | |||||||||||||||||||
| Amortization of deferred compensation for the vesting of stock options | — | — | — | 4,758 | — | — | — | — | 4,758 | |||||||||||||||||||
| Reversal of deferred compensation for cancellation of stock options | — | — | (686 | ) | 686 | — | — | — | — | — | ||||||||||||||||||
| Balance, December 31, 2003 | 254,275 | $ | 2,543 | $ | 2,673,059 | $ | (1,379 | ) | $ | (772,936 | ) | $ | 27,733 | $ | (6,239 | ) | $ | (229,802 | ) | $ | 1,699,218 | |||||||
The accompanying notes are an integral part of these financial statements.
MedImmune, Inc.
Notes to Consolidated Financial Statements
statements
49
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 four products, Synagis, Ethyol, CytoGam, and FluMist, and maintains a diverse research and development pipeline. The Company is focused on developing vaccines and antibodies 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
Presentation—The consolidated financial statements include the accounts of the Company and its wholly-ownedwholly 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 disease 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 86%, 85% and 89% of total product sales for the years ended December 31, 2003, 2002, and 2001, respectively.
FluMist is a nasally delivered live attenuated vaccine used to prevent influenza, which is most prevalent in the fall and winter months. The majority of FluMist sales are expected to occur between October and January 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 debt securities of U.S. corporations, including commercial paper and notes, debt securities of United States corporations, international bank
certificates of deposit,banks, and United StatesU.S. 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 amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon
50
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,issuer, maturity, and investment type. Maturities generally range from three monthsone month 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—The Company's wholly-owned venture capital subsidiary, MedImmune Ventures, Inc., manages the Company's current portfolio of minority interest investments and endeavors to make additional investments in public or private biotechnology companies, primarily in areas of strategic interest to the Company. 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. Minority interest investments in publicly traded companies are categorized 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 2003, the Company has not realized
any significantdetermined the decline in fair value of one investment was other than temporary, based on the financial condition and near-term prospects of the investee company. During 2002, the Company determined 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 years ended December 31, 2003 and December 31, 2002, the Company recorded impairment losses onof $1.7 million and $14.0 million, respectively, to write-down the cost basis 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, 2003 and 2002 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 of Synagis, the Company's largest selling product, comprised approximately 89%,
86%, and 82% of total product salesalso minimizes its credit risk from these customers by purchasing insurance coverage for the years ended December 31, 2001, 2000, and 1999, respectively.certain customers. As of December 31, 2001,2003, trade accounts receivable included twofour customers that each accounted for 29%27%, 16%, 15% and 26%12%, of net trade accounts receivable, respectively. As of December 31, 2000,2002, trade accounts receivable included three customers that each accounted for 32%,
22%, 21% and 15%19% of net trade accounts receivable, respectively.
Inventory
Inventory is
Inventory—Inventories are stated at the lower of cost or market.market, and consist of currently marketed products and may include certain product candidates awaiting regulatory approval. Cost is determined using a weighted-average approach that approximates the first-in, first-out method. WhereWith respect to inventory for product candidates, the Company has a firm contract for their purchase, by-productsconsiders the probability that resultrevenues will be obtained from productionthe future sale of the Company's principal products are accounted for as a reductionrelated inventory together with the status of the cost ofproduct candidate within the principal products.regulatory approval process. Currently, the Company does not have any inventory for product candidates. 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 theits estimated marketrealizable value based upon assumptions about future demand and market conditions.
51
Product Sales
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. As more fully explained in the "Critical Accounting Estimates" section of Management's Discussion and Analysis, no FluMist transfer price or royalty revenue was recognized in 2003, as the Company determined the amounts were not fixed or determinable.
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 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,payers, 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. The Company maintains
allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments.reimbursements. Allowances for discounts, returns, chargebacks, government rebates and bad debts, which are netted against accounts receivable, totaled $26.9$12.8 million and $17.3$18.1 million at December 31, 20012003 and 2002, respectively. Allowances for government reimbursements were $42.4 million and $26.2 million as of December 31, 2003 and 2002, respectively, and are included in accrued expenses in the accompanying balance sheets.
Other Revenues—
Contract Revenues—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 Company implemented SAB 101 as of January 1, 2000, which 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.
For contracts executed prior to January 1, 2002, contract revenues are recognized during each period in accordance with the contingency-adjusted performance model. Revenue from non-refundable up front license fees, milestones, or other payments where we continue involvement through a development collaboration is recognized on a straight-line basis over the development period, unless there are specific output measures that indicate a different basis is more appropriate.
In connection with the Company's adoption of SAB 101 using the contingency-adjusted performance model, a portion of the up front 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, 2003 and December 31, 2002, the remaining balance of deferred revenue with respect to amounts received under these agreements was $0.8 million and $3.9 million, respectively.
For new contracts executed or acquired after January 1, 2002, the Company changed its accounting method for contract revenues to use the milestone payment method when all milestones to be received
52
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. 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 (the year of adoption) is not material.
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 as a cost of sales concurrently with the recognition of product revenue. Royaltyrevenue, net of allowances for estimated chargebacks, returns, discounts, and government rebates, based on a contractually stipulated royalty percentage. Any adjustments to royalty expense includedthat result from variances between estimated and actual net sales are recorded as an adjustment to expense in costthe quarter they become known.
Research and Development Expenses
Licensing Fees—In the normal course of sales, was $86.3 million, $69.2 million,business, the Company enters into collaborative research and $46.7 million fordevelopment and in-licensing agreements to acquire access to technology. These collaborative agreements usually require the years ended December 31, 2001, 2000 and 1999, respectively.
Contract Revenues
Contract revenues are recognized over the fixed term of the contract as the related expenses are incurred. UpfrontCompany to pay up front fees and milestone payments, under collaborativesome of which are significant. All up front payments are expensed as incurred. The agreements may also require that the Company provide funding to its partners for research programs. These costs are recognized when they are earned in accordance with the applicable performance
requirementsexpensed as incurred.
Other—The Company accrues estimated costs for clinical and contractual terms, 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 ispreclinical studies performed by contract research organizations or by internal staff based on a percentagethe total of completion model of
actualthe costs incurred relative tothrough the total projected costs. Whenbalance sheet date. The Company monitors the performance criteria for a non-refundable milestone payment
are met, the costprogress 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),trials and revenue is recognized for that milestonetheir related activities to the extent ofpossible, and adjusts the ratio of performance to
date. Recognized revenues are subject to revisions as the collaboration efforts progressaccruals accordingly.
Selling, General and estimated costs to complete are
revised.
Administrative Expenses—
Co-promotion Expense
InExpenses—Co-promotion expense in connection with the Company's agreement with Abbott LaboratoriesAI to co-promote Synagis in the United States,U.S. is recognized as general and administrative expense concurrently with the Companyrecognition of product revenue, net of allowances for estimated chargebacks, returns, discounts, and government rebates, and is required to pay
Abbott an increasing percentage of net domestic salescalculated 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") season, which occurs primarily in the fourth and first quarters in the Northern Hemisphere. The Company estimates its net
sales and resultinga contractually stipulated 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.percentage. 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
Bad debt expense—The Company estimates the level of bad debts as a percentage of gross trade accounts receivable balances outstanding at the end of the period, based upon our assessment of the concentration of credit risk, the financial condition and environment of our customers, and the level of credit insurance obtained on customer balances. Because of the seasonal nature of our largest product, Synagis, our accounts receivable balances fluctuate significantly. Accordingly, the allowance for doubtful accounts also fluctuates. For all periods presented, bad debt expense has been reclassified as selling, general and administrative expense in the Consolidated Statements of Operations.
53
Advertising Expense—The Company expenses production costs of advertising as incurred. Advertising costs for television time and space in publications are deferred until the first advertisement occurs. Advertising expense for the years ended December 31, 2003, 2002 and 2001 2000,was $8.1 million, $7.4 million, and 1999, the adjustments were immaterial.
$7.0 million, respectively.
Property and Equipment
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 of the facility 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, 2003, 2002, and 2001 2000, and
1999 was $9.1$24.0 million, $7.3$20.7 million, and $5.0$9.1 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 $3.3$6.8 million, $4.1$7.0 million, and $2.9$3.3 million for the years ended December 31, 2003, 2002, and 2001, 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 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 annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets at December 31 are comprised of the following (in millions):
| | 2003 | 2002 | |||||
|---|---|---|---|---|---|---|---|
| Worldwide collaborative agreement with Wyeth | $ | 90.0 | $ | 90.0 | |||
| Contract manufacturing agreement with Evans | 39.0 | 39.0 | |||||
| Other intangible assets | 0.4 | 0.4 | |||||
| 129.4 | 129.4 | ||||||
| Less accumulated amortization | (32.7 | ) | (16.1 | ) | |||
| $ | 96.7 | $ | 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 years ended December 31, 2003 and 2002 was $13.7 million and $16.1 million, respectively. No amortization expense was incurred in 2001. The estimated aggregate amortization for each of the next five years is as follows: 2004, $16.4 million; 2005, $16.4 million; 2006, $12.0 million; 2007, $7.7 million; and 2008, $7.7 million.
54
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 annually or whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. During 2003, the Company hasreduced goodwill recorded no impairment losses.
Forward Exchange Contracts
in the acquisition by $2.4 million, reflecting additional deferred tax assets for adjustments relating to pre-acquisition items.
Derivative Instruments—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 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
As of December 31, 2002, the Company had outstanding forward Euro contracts for the purchase of 1.1 million Euros, all expiring within one year, with a fair value of $0.3 million. As of December 31, 2003 and December 31, 2001, and 2000 duethe Company had no outstanding forward contracts. During the year ended December 31, 2002, net unrealized gains on forward exchange contracts, net of tax, of $0.6 million, were reclassified as earnings during the year as the related inventory was sold. During the year ended December 31, 2002, the Company reclassified a gain of $0.2 million to current period earnings for hedge ineffectiveness related to forward exchange contracts, respectively.
The Company intends to liquidate its holdings in certain equity securities in its portfolio, over a period of approximately one year. To hedge the short
maturitiesrisk of these instruments.
market fluctuations, the Company has entered into equity derivative contracts which have been designated as cash flow hedges. As of December 31, 2003, the unrealized gain on the marketable equity securities related to this hedge was $13.2 million while the fair value of the derivative contracts was a liability of $3.5 million, resulting in a net unrealized gain on the hedging transaction.
Income Taxes
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 on MedImmune Vaccine's acquired deferred tax assets 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
55
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
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 51/4% Notes is measured using the if-converted method. The 1% Notes are considered contingent convertible securities, meaning they are eligible for conversion to common stock only if certain requirements are met, and were excluded from the diluted earnings per share calculations for all periods presented. 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. Income—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 Transfersunrealized gains 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—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-valueintrinsic- 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 withDecember 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS No. 123, "Accounting for Stock-Based Compensation"Compensation ("SFAS 123")," to provide alternative methods of transition for a voluntary change to the Company
makes 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 accountsfor stock-based employee compensation. In addition, SFAS 148 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 Company's foreign subsidiaries have been translated from their respective functional currenciesmethod used on reported results. The alternative methods of transition and additional disclosure requirements of SFAS 148 were effective January 1, 2003.
56
The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to U.S. dollarsstock-based employee compensation (in millions, except per share data):
| | 2003 | 2002 | 2001 | |||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Net earnings (loss), as reported | $ | 183.2 | $ | (1,098.0 | ) | $ | 149.0 | |||
| Add: stock-based employee compensation expense included in historical results for the vesting of stock options assumed in conjunction with the Acquisition, calculated in accordance with FIN 44, "Accounting for Certain Transactions Involving Stock Compensation-an Interpretation of APB 25, net of related tax effect | 2.5 | 12.1 | — | |||||||
| Deduct: stock-based employee compensation expense determined under the fair value based method for all awards, net of related tax effect | (87.5 | ) | (96.3 | ) | (82.0 | ) | ||||
| Pro forma net earnings (loss) | $ | 98.2 | $ | (1,182.2 | ) | $ | 67.0 | |||
| Basic earnings (loss) per share, as reported | $ | 0.73 | $ | (4.40 | ) | $ | 0.70 | |||
| Basic earnings (loss) per share, pro forma | $ | 0.39 | $ | (4.74 | ) | $ | 0.31 | |||
| Diluted earnings (loss) per share, as reported | $ | 0.72 | $ | (4.40 | ) | $ | 0.68 | |||
| Diluted earnings (loss) per share, pro forma | $ | 0.39 | $ | (4.74 | ) | $ | 0.31 | |||
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 exchange rate in effect atBlack-Scholes option pricing model with the balance sheet date. Income statement amounts have been translatedfollowing weighted average assumptions for each year:
| | 2003 | 2002 | 2001 | ||||
|---|---|---|---|---|---|---|---|
| Risk-free interest rate | 3.27 | % | 4.16 | % | 4.72 | % | |
| Expected life of options—years | 5 | 6 | 6 | ||||
| Expected stock price volatility | 51 | % | 53 | % | 69 | % | |
| Expected dividend yield | N/A | N/A | N/A |
To better estimate the future expected stock price volatility, during 2002 the Company changed its method of calculating historical volatility from using daily stock price observations to using monthly observations over the expected life of the options.
The weighted average exchange rates forfair value of options granted during 2003, 2002, and 2001 was $16.55, $20.56, and $25.23, respectively.
Defined Contribution Plans—The Company sponsors a defined contribution plan under Section 401(k) of the year.Internal Revenue Code covering substantially all full-time U.S. 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 gainsCompany also makes employer contributions, which primarily vest pro ratably over three years of service. During 2003, 2002, and losses resulting from2001, the changesCompany contributed approximately $2.4 million, $1.9 million, and $1.1 million, respectively, in exchange rates from yearcash to year
have been reported separately as a component of other comprehensive income (loss).
Reclassification
the plan. The Company also sponsors various defined contribution savings plans covering its full-time non-U.S. employees.
Reclassification—Certain prior year amounts have been reclassified to conform to the current presentation.
Use of Estimates
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.
57
New Accounting Standards—In 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities, an interpretation of Accounting Research Bulletin No. 51." FIN No. 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In accordance with the adoption provisions of FIN No. 46, during 2003 the Company adopted the provisions as they relate to the Company's contractual relationships with variable interest entities established subsequent to January 31, 2003, with an immaterial impact to the Company's consolidated financial position, results of operations and cash flows. The effective date for applying the provisions of FIN No. 46 for interests held by public entities in variable interest entities created before February 1, 2003 has been deferred to periods ending after March 14, 2004. The Company believes the impact of applying the consolidation provisions of FIN No. 46 relative to its investments in variable interest entities established prior to February 1, 2003 will be immaterial to its consolidated financial position, results of operations and cash flows.
3. ACCOUNTING CHANGEACQUISITION
On January 10, 2002, the Company completed the Acquisition through an exchange offer and merger transaction. Through the Acquisition, the Company obtained a new product, FluMist, which is a nasally delivered, live, attenuated virus vaccine. 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 common stock are issuable. Originally, the holders of Aviron's Notes could have converted the 51/4% 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 2003, the Company retired approximately $32.4 million of the 51/4% Notes. As of December 31, 2003 the 51/4% Notes may be converted into approximately 2.9 million shares of the Company's common stock, based on a conversion price of $58.14. The Company has notified the holders of the 51/4% Notes of its intention to redeem as of March 31, 2004.
The Company's 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.
58
The following table summarizes the final estimated fair values (in millions) of the assets acquired and liabilities assumed in accordance with the acquisition.
| Assets: | |||
| Cash and marketable securities | $ | 417.5 | |
| Other current assets | 24.9 | ||
| Other assets | 45.8 | ||
| Deferred tax assets | 130.0 | ||
| Intangible assets | 129.4 | ||
| In-process research and development | 1,179.3 | ||
| Goodwill | 13.6 | ||
| 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 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 allocation of the purchase price, none of which is expected to be deductible for tax purposes. In December 1999,2003, the SecuritiesCompany further reduced goodwill and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101
summarizesincreased deferred tax assets by $2.4 million to reflect an adjustment relating to pre-acquisition items. In 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
59
$0.3 million. The Company performed its annual impairment analysis during the fourth quarter of 2003, and determined that the goodwill was not impaired.
Restructuring Liability—Included in the final allocation of acquisition cost was 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.
During 2003, the Company incurred $0.7 million of restructuring charges, resulting in a $0.3 million reserve balance at December 31, 2003. At December 31, 2002, the remaining restructuring reserve, which consisted of other facility-related costs, was $1.0 million.
Transaction Costs—Included in the final allocation of acquisition costs were transaction costs of $9.8 million, which primarily consist of investment banking, accounting and legal fees incurred by the Company.
Pro Forma Data—The following unaudited pro forma condensed combined supplemental data present the revenues, net earnings and earnings per share of the SEC's views in applying accounting principles generally accepted incombined entity as though the United States of America to
certain revenue transactions in financial statements. The implementation of SAB 101business combination had been completed as of January 1, 2000 affected amounts
previously recognized as revenue relating2002 and 2001, respectively. This data gives effect to up-front payments or milestone payments received by the Company in yearsactual operating results prior to 2000
under arrangementsthe acquisition, adjusted to include the pro forma effect of amortization of intangibles, deferred stock compensation costs, the elimination of the non-recurring charge 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 additionalacquired in-process research and development, activitiesthe tax effects to the pro forma adjustments and the recognition of the tax benefits arising from Aviron's net loss for the 2001 period. This data is not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated or other activities in future periods.
Accounting principles generally acceptedthat may be achieved 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 $0.06future (in millions, except per diluted share. The effect on
2000 net earnings (includingshare data).
| | Year Ended December 31, | |||||
|---|---|---|---|---|---|---|
| | 2002 | 2001 | ||||
| Revenues | $ | 852.7 | $ | 637.7 | ||
| Net earnings | $ | 81.3 | (1) | $ | 56.5 | |
| Diluted earnings per share | $ | 0.32 | (1) | $ | 0.22 | |
4. SEGMENT, GEOGRAPHIC AND PRODUCT 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 fourEffective for the 2003/2004 RSV season, the Company reduced the number of U.S. specialty distributors in its Synagis network from over 100 in the 2002/2003 season to about a dozen specialty distributors. In addition, the Company reduced the number of Synagis wholesalers and home health care agencies it will use. The changes were made to achieve a higher level of service to patients through contractual requirements for the members of the pharmaceutical wholesalers and distributorsSynagis network to whichprovide the downstream service related to Synagis. The Company sells its products. Threebelieves the selection criteria used in this process should also mitigate any risks associated with a higher concentration of the four companies individually accounted for at least ten percent of the Company's product sales prior to the mergers.credit among fewer creditors. Customers
60
individually accounting for at least ten percent of the Company's product sales during the past three years are as follows:
2001 2000 1999
---- ---- ----
| | 2003 | 2002 | 2001 | ||||
|---|---|---|---|---|---|---|---|
| Amerisource—Bergen Corp. | 29 | % | 27 | % | 26 | % | |
| Cardinal Health, Inc. | 18 | % | 17 | % | 18 | % | |
| McKesson HBOC, Inc. | 12 | % | 13 | % | 13 | % | |
| Caremark Rx, Inc. | 10 | % | 11 | % | 12 | % | |
| Total % of product sales | 69 | % | 68 | % | 69 | % | |
The Company A 26% 27% 27%has contractual agreements with AI, for distribution of Synagis outside of the United States and with affiliates of Schering for international distribution of Ethyol. The Company B 18% 19% 22%
Company C 13% 16% 15%
Company D 12% 11% 11%
--- --- ---
Total % of product sales 69% 73% 75%
=== === ===
The Companyalso 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 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
======== ======== ========
| | 2003 | 2002 | 2001 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| United States | $ | 911.3 | $ | 752.9 | $ | 533.5 | |||
| All other | 81.3 | 38.0 | 48.0 | ||||||
| Total product sales | 992.6 | 790.9 | 581.5 | ||||||
| Other revenue, primarily U.S. | 61.7 | 61.8 | 39.2 | ||||||
| Total revenues | $ | 1,054.3 | $ | 852.7 | $ | 620.7 | |||
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
======== =======
| | 2003 | 2002 | 2001 | ||||||
|---|---|---|---|---|---|---|---|---|---|
| United States | $ | 222.5 | $ | 161.0 | $ | 92.5 | |||
| All other | 51.1 | 23.0 | 2.9 | ||||||
| Total long-lived assets | $ | 273.6 | $ | 184.0 | $ | 95.4 | |||
Other revenue of $61.7 million, $61.8 million, and $39.2 million $44.7 million,in 2003, 2002, 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.
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5. INVESTMENTSMARKETABLE SECURITIES
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, 2003: | ||||||||||||||||
| Equity Securities | $ | 2.5 | $ | 2.5 | $ | 15.7 | $ | 13.2 | $ | — | ||||||
| U.S. Government and Agencies | 102.9 | 106.9 | 109.1 | 2.2 | — | |||||||||||
| Corporate Debt Securities | 1,134.2 | 1,187.3 | 1,214.5 | 30.8 | (3.6 | ) | ||||||||||
| Foreign Bank Debt Securities | 41.3 | 43.0 | 45.3 | 2.3 | — | |||||||||||
| Total | $ | 1,280.9 | $ | 1,339.7 | $ | 1,384.6 | $ | 48.5 | $ | (3.6 | ) | |||||
| 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 | ) | |||||
The amortized cost and fair market value of investments at December 31, 20012003 and 2000,2002, 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
======== ======== ======== ========
| | 2003 | 2002 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Cost/ Amortized Cost | Fair Value | Cost/ Amortized Cost | Fair Value | ||||||||
| Equity Securities | $ | 2.5 | $ | 15.7 | $ | 1.9 | $ | 1.9 | ||||
| Due in one year or less | 253.7 | 257.0 | 393.4 | 395.0 | ||||||||
| Due after one year through two years | 164.6 | 171.7 | 252.6 | 259.6 | ||||||||
| Due after two years through five years | 761.2 | 780.2 | 496.3 | 521.9 | ||||||||
| Due after five years through seven years | 157.7 | 160.0 | 110.4 | 114.6 | ||||||||
| Total | $ | 1,339.7 | $ | 1,384.6 | $ | 1,254.6 | $ | 1,293.0 | ||||
Gross gains recognized on sales of securities in 2003, 2002 and 2001 and 2000 were $2.1$5.9 million, $0.9 million and $1.6$2.1 million, respectively, as determined by specific identification. Gross losses recognized on sales of securities were immaterial during both2003, 2002 and 2001, and 2000, as determined by specific identification.
During 1999, there2002, the Company determined that the declines in fair value below the cost basis of certain investments were other than temporary, based primarily on the duration and magnitude of the declines in fair value 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 $4.5 million to write-down the cost basis of the investments to fair value. The Company recorded no material gains orsuch losses on sales of securities.
in 2003.
62
6. INVENTORY
Inventory, net of valuation reserves, at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
Raw materials $16,805 $14,715
Work
| | 2003 | 2002 | ||||
|---|---|---|---|---|---|---|
| Raw materials | $ | 11.6 | $ | 30.4 | ||
| Work in process | 39.3 | 19.4 | ||||
| Finished goods | 40.8 | 10.2 | ||||
| $ | 91.7 | $ | 60.0 | |||
During 2003, the Company recorded $37.5 million of valuation reserves in process 13,731 21,091
Finishedcost of goods 22,155 13,159
------- -------
52,691 48,965
Less noncurrent (1,855) (2,332)
------- -------
$50,836 $46,633
======= =======
Noncurrent inventorysold to reflect total FluMist inventories at December 31, 2001 and 2000 is comprised of some 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.
Inventory balances are net of reserves for RespiGam inventory, for which minimal product sales are expected to result for the
foreseeable future. RespiGam inventory and reserve balances were $4.9 million and $5.9 million, and $4.2 and $4.7 million, at
December 31, 2001 and 2000, respectively.
realizable value.
7. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
Land and land improvements $ 2,313 $ 2,186
Buildings and building improvements 54,291 50,936
Leasehold improvements 15,236 15,750
Laboratory, manufacturing and facilities 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
======= =======
| | 2003 | 2002 | |||||
|---|---|---|---|---|---|---|---|
| Land and land improvements | $ | 27.9 | $ | 15.7 | |||
| Buildings and building improvements | 55.2 | 52.6 | |||||
| Leasehold improvements | 36.2 | 33.9 | |||||
| Laboratory, manufacturing and facilities equipment | 57.0 | 50.1 | |||||
| Office furniture, computers, and equipment | 40.4 | 28.5 | |||||
| Construction in progress | 135.6 | 56.7 | |||||
| 352.3 | 237.5 | ||||||
| Less accumulated depreciation and amortization | (78.7 | ) | (53.5 | ) | |||
| $ | 273.6 | $ | 184.0 | ||||
As of December 31, 20012003, construction in progress includes $62.7 million of engineering and 2000, buildings includesconstruction costs associated with four facilities. They are: 1)and other professional fees related to the portionfirst phase of the Company's Frederick manufacturingheadquarters and research and development facility, that was granted approval by the FDA for the productionwhich will feature a complex totaling approximately 220,000 square feet. In addition, construction in progress includes $70.0 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) the Company's manufacturing facilityfacilities in Nijmegen,Pennsylvania and Speke, the Netherlands.United Kingdom. As of December 31, 2001,2002, construction in progress primarily includes
engineering, construction,included costs associated with the headquarters and equipmentresearch and development facility, and the projects in Pennsylvania and the United Kingdom. Additionally, there were 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.
during 2002. The Company expects to take occupancy of the new headquarters and research and development facility in the first quarter of 2004. The second phase of construction, which is for the Pilot Plant Facility, commenced in September 2003 at a total estimated cost of $82 million. The Company expects the second phase of the project to be complete in the fourth quarter of 2005.
In connection with the Acquisition, the Company acquired property, plant and equipment valued at approximately $42.5 million, comprised primarily of leasehold improvements, lab, manufacturing and office equipment, and partially-constructed manufacturing facilities.
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, recorded in other operating expenses, during the fourth quarter of 2002 for the write-off of certain plasma manufacturing assets.
63
Interest costs capitalized in connection with the Company's construction activities totaled $2.9 million and $0.9 million in 2003 and 2002, respectively. Interest costs capitalized during 2001 were not material.
8. ACCRUED EXPENSES
Accrued expenses at December 31, isare 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
======= =======
| | 2003 | 2002 | ||||
|---|---|---|---|---|---|---|
| Co-promotion expenses | $ | 73.0 | $ | 60.1 | ||
| Rebates due to government purchasers | 42.4 | 26.2 | ||||
| Research and development expense | 27.5 | 16.1 | ||||
| Sales and marketing costs | 19.2 | 17.2 | ||||
| Construction costs | 13.1 | 3.5 | ||||
| Bonuses | 9.8 | 11.0 | ||||
| Other | 33.0 | 23.3 | ||||
| $ | 218.0 | $ | 157.4 | |||
9. 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, 2003, 2002, and 2001 2000,was $9.3 million, $9.0 million, and 1999 was $2.2 million, $3.4 million, and $2.6 million, respectively.
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
| Year Ending December 31, | | ||
|---|---|---|---|
| 2004 | $ | 8.8 | |
| 2005 | 6.5 | ||
| 2006 | 4.5 | ||
| 2007 | 2.8 | ||
| 2008 | 2.5 | ||
| Thereafter | 29.2 | ||
| $ | 54.3 | ||
The Company expects to take occupancy of the first phase of our headquarters and research and development facility, a complex of approximately 220,000 square feet, in March 2004. The majority of the existing space in Gaithersburg is leased through 2006, 1,780
Thereafter --
-------
$9,757
=======
a portion of which will be offered for sublease. There can be no guarantee that the Company will be successful in subleasing the space.
64
10. LONG-TERM DEBT
Long-term debt at December 31, is comprised of the following (in thousands)millions):
2001 2000
---- ----
4%
| | 2003 | 2002 | |||||
|---|---|---|---|---|---|---|---|
| 1% Convertible Senior Notes, due 2023 | $ | 500.0 | $ | — | |||
| 51/4% Convertible Subordinated Notes, due 2008 | 174.1 | 209.6 | |||||
| 4% notes due to Maryland Department of Business and Economic Development, due 2016 | 5.1 | 5.4 | |||||
| 7.53% note due to Maryland Industrial Development Finance Authority, due 2007 (collectively with the 4% notes referred to as the "Maryland Notes") | 2.6 | 3.1 | |||||
| Note due to Cooperative Rabobank, B.A., due 2009, variable interest rate | 0.3 | 0.3 | |||||
| 682.1 | 218.4 | ||||||
| Less current portion included in other current liabilities | (0.9 | ) | (0.8 | ) | |||
| $ | 681.2 | $ | 217.6 | ||||
Maturities of the Company's long-term debt, which do not include the premium on the 51/4 notes, for the next five years are as follows: 2004, $0.9 million; 2005, $1.0 million; 2006, $1.0 million; 2007, $1.3 million; and 2008, $168.1 million.
1% Convertible Senior Notes—During July 2003, the Company issued $500 million aggregate principal amount of convertible senior notes due 2023 in a private placement. These notes bear interest at 1% per annum payable semi-annually in arrears on January 15 and July 15 of each year. Beginning July 2006, the Company will pay contingent interest on these notes during a six-month interest period if the average trading price of these notes is above a specified level. Under certain circumstances, these notes will be convertible into the Company's common stock at an initial conversion price of approximately $68.18 per share. On or after July 15, 2006, the Company may at its option redeem all or a portion of these notes for cash at a redemption price equal to 100% of the principal amount of the 1% Notes to be redeemed, plus any accrued and unpaid interest; contingent interest, if any; and liquidated damages, if any. In addition, on each of July 15, 2006, July 15, 2009, July 15, 2013, and July 15, 2019, holders may require the Company to purchase all or a portion of their 1% Notes for cash at 100% of the principal amount of the 1% Notes to be purchased, plus any accrued and unpaid interest; contingent interest, if any; and liquidated damages, if any. The estimated fair value of the 1% Notes as of December 31, 2003 was $475.0 million, based on quoted market prices.
Convertible Subordinated Notes—Following the Acquisition, MedImmune Vaccines remained obligated for its outstanding indebtedness, which included $200.0 million aggregate principal amount of the 51/4% Notes. Approximately $211.4 million of the acquisition cost was allocated to the 51/4% Notes, which represented the fair value as of the acquisition date, based on quoted market prices. During 2003, the Company retired approximately $32.4 million principal amount of the 51/4% Notes for approximately $33.1 million. The retirement resulted in a net ordinary gain of $0.5 million reflecting the accelerated amortization of premium. The outstanding 51/4% Notes are convertible into an aggregate of 2.9 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 51/4% 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. The Company elected on February 25, 2004 to redeem the entire remaining amount of the issue at approximately 103% of its principal amount in the first quarter of 2004. The estimated fair value of the 51/4% Notes as of December 31, 2003 and December 31, 2002 was $173.4 million and $198.2 million, respectively, based on quoted market prices.
65
Collateralized Loans—The Maryland DepartmentNotes are collateralized by the land, buildings and building fixtures 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
====== ======
Principal and interest payments on the MarylandFMC. The agreements include a provision for early retirement of the notes began in 1998.by the Company. 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, USB Pharma B.V. entered into a mortgage loan with Cooperative Rabobank B.A. in the amount of 1.2 million Dutch guildersis held by Company's subsidiary, USB Pharma B.V., and is 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 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%.
Maturitiesas 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. Interest paid was $0.6 million, $0.5 million, and $5.2 million, for the years ended December 31, 2001, 2000,2003 and 1999,December 31, 2002 was 5.05% and 5.85%, respectively. The estimated fair values of the Company's long-term debtcollateralized loans at December 31, 20012003 and 2000,2002, respectively, based on quoted market prices or discounted cash flows based onusing currently available borrowing rates, was $10.0were $8.4 million and $10.9$9.3 million compared to itsthe carrying values of $9.5$8.0 million and $10.3$8.8 million.
11. Shareholders' Equity
In July 1997, the Company's Board of Directors adopted a Stockholder Rights Plan.SHAREHOLDERS' EQUITY
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,May 2003, the Company closed two private placements resulting inCompany's shareholders approved an amendment to the issuanceCompany's Restated Certificate of 1.2 million newIncorporation to increase the authorized number of shares of common stock from 320 million to institutional investors420 million.
In July 2003, our Board of Directors authorized the repurchase, over a two-year period, of up to $500 million of the Company's common stock on the open market or in privately negotiated transactions, pursuant to terms management deems appropriate and at such times it may designate. Under the stock repurchase program, we repurchased 6.2 million shares of our common stock at a total cost of $229.8 million, or an average cost of $36.83 per share through December 31, 2003. The Company also entered into a 10b5-1 trading plan to repurchase shares in the open market during those periods each quarter when trading in our common stock is restricted under our insider trading policy. Of the shares repurchased, approximately 0.7 million shares were purchased under the 10b5-1 trading plan. As of February 29, 2004, we had not purchased any additional shares since October 7, 2003. The Company will hold repurchased shares as treasury shares and intends to use them for general corporate purposes, including but not limited to acquisition-related transactions and for issuance upon exercise of outstanding stock options.
66
12. EARNINGS PER SHARE
The following is a reconciliation of the denominators of the diluted EPS computation for the years ended December 31, 2003, 2002, and 2001. There are no reconciling items to the numerator for the EPS computation for the periods reported.
| | 2003 | 2002 | 2001 | |||||
|---|---|---|---|---|---|---|---|---|
| Denominator (in millions): | ||||||||
| Weighted average shares outstanding | 250.1 | 249.6 | 213.4 | |||||
| Effect of dilutive securities: | ||||||||
| Stock options and warrants | 3.7 | — | 6.7 | |||||
| Denominator for diluted EPS | 253.8 | 249.6 | 220.1 | |||||
The Company incurred a net proceedsloss for the year ended December 31, 2002 and, accordingly, did not assume exercise or conversion of $20.0 million.potential common shares for the year, as follows, because to do so would have been 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 | |
If option exercise prices are greater than the average market price of the Company's common stock for the period presented, the effect of including such options in the earnings per share calculation is anti-dilutive. As a result, options to purchase 14.8 million shares of the Company's common stock with exercise prices ranging from $32.38 to $83.25 per share were outstanding during 2003, but were excluded from the computation of diluted earnings per share. Additionally, options to purchase 6.6 million shares of the Company's common stock with exercise prices ranging from $40.50 to $83.25 were outstanding during 2001, but were excluded from the computation of diluted earnings per share. The 1% Notes are considered contingent convertible securities, meaning they are eligible for conversion to common stock only if certain requirements are met, and were excluded from the diluted earnings per share calculations for all periods presented. The 1% Notes represent 7.3 million potential shares of common stock issuable upon conversion.
13. COMMON STOCK EQUIVALENTS
The Company currently grants stock options under certain of the following stock option plans. At the Company's annual meeting in May 2003, the Company's shareholders approved the establishment of the 2003 Non-Employee Directors Stock Option Plan, and reserved 800,000 shares of common stock for issuance thereunder. In addition, the Company's shareholders voted to increase the maximum
67
number of shares of common stock reserved for issuance under the 1999 Plan from 25,250,000 to 31,250,000 shares.
| Plan | Description | Shares Authorized (in millions) | ||
|---|---|---|---|---|
| Old Plan | Provides option incentives to employees, consultants and advisors of the Company | 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 | 31.3 | ||
| 2003 Non-Employee Directors Plan | Provides option incentives to non-employee directors | 0.8 |
The following compensation plans, for which no future grants will be made, were acquired by the Company in 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 and advisors of the Company | 1.0 | ||
| 1996 Non-Employee Directors Stock Option Plan | Provided option incentives to elected non-employee directors of MedImmune Oncology | — |
In addition, the private placements, warrantsfollowing compensation plans, for which no future grants will be made, were acquired by the Company in 2002 in connection with its acquisition of MedImmune 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 purchase 0.2five year period and have a maximum term of 10 years. The Company has reserved a total of 11.5 million shares of common stock at $24.82for issuance under these plans as of December 31, 2003.
68
Related stock option activity, is as follows (shares in millions):
| | 1991 and 1999 Plans | Non-employee Directors Plans | 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) | ||||||||||||
| 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 | |||||||||||
| Granted | 5.4 | 30.18 | 0.2 | 35.87 | — | — | — | — | ||||||||||||
| Exercised | (2.0 | ) | 11.61 | (0.1 | ) | 2.02 | — | — | (0.5 | ) | 21.30 | |||||||||
| Canceled | (1.4 | ) | 41.33 | — | — | — | — | (0.5 | ) | 33.86 | ||||||||||
| Balance Dec 31, 2003 | 26.1 | $ | 34.00 | 1.0 | $ | 30.52 | 0.0 | $ | — | 2.6 | $ | 29.82 | ||||||||
Additional information related to the plans as of December 31, 2003 is as follows (shares 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.millions):
| | Options Outstanding | | | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | Options Exercisable | ||||||||||||
| | | Wtd Avg remaining contractual life (yrs) | | ||||||||||
| Range of exercise prices | Options outstanding | Wtd Avg Ex. Price | Options Exercisable | Wtd Avg Ex. Price | |||||||||
| $ | 0.01-$10.00 | 3.0 | 3.1 | $ | 5.06 | 3.0 | $ | 5.06 | |||||
| $ | 10.01-$20.00 | 3.4 | 5.3 | $ | 17.16 | 3.1 | $ | 17.02 | |||||
| $ | 20.01-$30.00 | 7.9 | 7.9 | $ | 27.47 | 3.1 | $ | 26.22 | |||||
| $ | 30.01-$40.00 | 6.1 | 7.0 | $ | 36.51 | 3.4 | $ | 37.23 | |||||
| $ | 40.01-$50.00 | 4.6 | 7.5 | $ | 42.38 | 2.3 | $ | 42.67 | |||||
| $ | 50.01-$60.00 | 0.6 | 6.4 | $ | 56.54 | 0.4 | $ | 56.57 | |||||
| $ | 60.01-$70.00 | 3.7 | 6.0 | $ | 60.94 | 2.7 | $ | 60.89 | |||||
| $ | 70.01-$80.00 | 0.4 | 6.5 | $ | 72.27 | 0.3 | $ | 72.33 | |||||
| 29.7 | 6.6 | $ | 33.51 | 18.3 | $ | 31.70 | |||||||
In June 2001, the Company introduced an employee stock purchase plan ("ESPP") under which 3,000,0003.0 million shares of common stock were reserved for issuance. Eligible employees may purchase a limited number of shares of the Company's common stock at 85% of the market value at plan-defined dates. Employees purchased 206,176 shares, 163,345 shares, and 43,976 shares for $4.8 million, $4.0 million, and $1.5 million during 2003, 2002, and 2001 respectively, under thisthe plan.
12. EARNINGS PER SHARE
The following is a reconciliation
69
In connection with the Acquisition, the Company assumed outstanding warrants to purchase common stock, which are as follows as of the numerators and denominators of the diluted EPS computation for the years ended December 31, 2001, 2000, and 1999.
2001 2000 1999
---- ---- ----
Numerator (in thousands):
Net earnings $148,960 $111,156 $93,371
Interest on 7% convertible notes, net
of amounts capitalized and related taxes -- -- 720
-------- -------- -------
Numerator 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 following table shows2003:
| Shares (in 000's) | Exercise Price | Expiration | |||
|---|---|---|---|---|---|
| 365.5 | $ | 9.30 | February 2007 | ||
| 53.8 | $ | 9.30 | March 2008 | ||
| 419.3 | |||||
Under an agreement assumed in the number of shares and related price ranges of those shares that were excluded fromAcquisition, the EPS computations
above. These optionsCompany is also obligated to issue a warrant to purchase 5,147 shares of common stock were outstanding in the periods reported, but were not included in the
computation of diluted earnings per share as theat an 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. COMMON STOCK OPTIONS
The Company currently grants stock options under certain of the following stock option plans:
Shares Authorized for Option
Plan Description Grants
---- ----------- ------
Old Plan Provides option incentives to employees, consultants 1,500,000
and advisors of the Company
1991 Plan Provides option incentives to employees, consultants 33,000,000
and advisors of 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 advisors 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 USB
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 31,077,759 shares of common stock for issuance under these plans as of December 31, 2001. Related stock option activity,
is as follows:
Options Granted Prior to
Establishment of the 1991 Non-Employee
Plan 1991 and 1999 Plans Directors Plan USB Plans
------------------------- -------------------- -------------- ---------
Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg.
Exercise Exercise Exercise Exercise
Price Per Price Per Price Per Price Per
Shares Share Shares Share Shares Share Shares Share
- ------------------------------------------------------------------------------------------------------------------------------------
Balance,
Dec. 31, 1998 915,612 $0.76 20,856,648 4.79 675,000 3.62 2,404,443 $21.23
Granted - - 6,473,100 22.35 120,000 24.04 235,341 22.33
Exercised (882,012) 0.79 (7,117,674) 3.24 (165,000) 2.82 (1,019,685) 20.07
Canceled - - (349,938) 12.04 - - (142,476) 22.08
-------- ---------- -------- ---------
Balance,
Dec. 31, 1999 33,600 0.13 19,862,136 10.94 630,000 7.72 1,477,623 22.12
Granted - - 7,209,500 59.75 150,000 72.75 - -
Exercised (30,600) 0.13 (5,984,307) 7.76 (165,000) 5.33 (1,341,829) 21.77
Canceled - - (745,292) 38.75 - - (1,125) 35.28
-------- ---------- -------- ---------
Balance,
Dec. 31, 2000 3,000 0.13 20,342,037 28.15 615,000 24.23 134,669 25.52
Granted - - 4,731,980 38.14 150,000 47.20 - -
Exercised (3,000) $0.13 (3,014,418) 7.15 (22,500) 12.51 (60,196) 20.70
Canceled - - (1,886,740) 43.87 - - (1,050) 21.96
-------- ---------- -------- ----------
Balance,
Dec. 31, 2001 - - 20,172,859 $32.17 742,500 $29.22 73,423 $29.52
========= ========== ======== ==========
Additional information related to the plans as of December 31, 2001 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
========== =========
In May 2001, the Company's shareholders voted to increase the maximum number of shares of common stock reserved for issuance 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.
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. As such, no compensation cost has been recognized for the Company's option
plans. If the Company had elected to recognize compensation cost for all of its stock option plans consistent with SFAS 123, the
Company's net earnings and earnings per share 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 earnings 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 $0.33
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 stock price volatility 69% 69% 65%
Expected dividend yield N/A N/A N/A
The weighted average fair value of options granted during 2001, 2000, and 1999 was $26.18, $44.03, and $18.19, respectively.
$55.13.
14. 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, | | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2001 | ||||||||
| Current: | |||||||||||
| Federal | $ | 33.0 | $ | (1.9 | ) | $ | 3.3 | ||||
| State | 7.4 | — | — | ||||||||
| Foreign | 0.2 | 0.1 | 0.3 | ||||||||
| Total current expense (benefit) | 40.6 | (1.8 | ) | 3.6 | |||||||
| Deferred: | |||||||||||
| Federal | 83.1 | 48.7 | 71.1 | ||||||||
| State | (15.7 | ) | 1.3 | 4.8 | |||||||
| Foreign | — | — | — | ||||||||
| Total deferred expense | 67.4 | 50.0 | 75.9 | ||||||||
| Total tax expense | $ | 108.0 | $ | 48.2 | $ | 79.5 | |||||
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
70
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):
| | 2003 | 2002 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Deferred tax assets: | |||||||||
| Net operating loss carryforwards | $ | 135.7 | $ | 194.7 | |||||
| U.S. general business credit carryforwards | 34.7 | 46.8 | |||||||
| Accrued expenses not currently deductible | 29.0 | 28.6 | |||||||
| Property and equipment | 13.2 | 13.3 | |||||||
| Accounts receivable allowances and reserves | 26.7 | 13.0 | |||||||
| Deferred compensation | 6.8 | 7.0 | |||||||
| Deferred revenue | 8.4 | 1.5 | |||||||
| Prepaid and long term debt | 4.3 | 5.4 | |||||||
| California capitalized research expenses | 2.4 | 4.1 | |||||||
| Other | 5.1 | 9.9 | |||||||
| Total deferred tax assets | 266.3 | 324.3 | |||||||
| Deferred tax liabilities: | |||||||||
| Unrealized gains on investments | (15.0 | ) | (13.5 | ) | |||||
| Acquired intangibles | (27.8 | ) | (30.7 | ) | |||||
| Total deferred tax liabilities | (42.8 | ) | (44.2 | ) | |||||
| Valuation allowance | (42.9 | ) | (32.3 | ) | |||||
| Net deferred tax assets | $ | 180.6 | $ | 247.8 | |||||
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, | |||||||
|---|---|---|---|---|---|---|---|---|
| | 2003 | 2002 | 2001 | |||||
| Tax at U.S. federal statutory rate | 35.0 | % | (35.0 | )% | 35.0 | % | ||
| State taxes, net of federal benefit | (0.2 | ) | 0.3 | 0.7 | ||||
| Change in valuation allowance | 3.7 | 0.2 | — | |||||
| Nondeductible in-process R&D | — | 39.3 | — | |||||
| U.S. general business credits | (0.8 | ) | (0.4 | ) | (2.1 | ) | ||
| Effect of foreign operations | — | 0.1 | — | |||||
| Change in state statutory rate | — | — | 1.1 | |||||
| Other | (0.6 | ) | 0.1 | 0.1 | ||||
| Total | 37.1 | % | 4.6 | % | 34.8 | % | ||
At December 31, 20012003 the Company had consolidated net operating loss carryforwards for federalU.S. income tax reporting purposes of approximately $272.4$300 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$48 million at December 31, 20012003 expiring through 2021.2023. Included in the 2003 current tax expense is a benefit of $16.7 million related to the exercise of employee stock options, which was recorded directly to paid-in-capital. 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 SectionSections 382 and 383, regarding changes in ownership of the Company.
71
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.
Duesubsidiaries and the Company intends to statecontinue to reinvest its undistributed international earnings to expand its international operations. It is not practicable to estimate the amount of additional tax law changes duringthat might be payable on the year endedforeign earnings should they become subject to U.S. tax. Additionally, at December 31, 2001,2003, the Company had foreign net operating loss carryforwards of $30.7 million for U.K. income tax purposes. The Company has provided a full valuation allowance against foreign net operating losses since realization of these tax benefits cannot be reasonably assured.
The change in the valuation allowance was a net increase of $10.7 million and $17.8 million in 2003 and 2002, respectively. The changes in 2003 are primarily comprised of adjustments for the Company's state net deferredoperating losses. The changes in 2002 relate primarily to acquired losses and tax asset decreased, resulting in a
netcredits from the Company's subsidiary, MedImmune Vaccines. The portion of the valuation allowance for which subsequently recognized tax expense of $2.4benefits will be applied to reduce goodwill was $15.6 million during 2001. This net adjustment is comprised of a reduction of $7.9 million inat December 31, 2002. During 2003, certain adjustments were made to the deferred tax asset relatedthat arose on the acquisition of Aviron, resulting in adjustments 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.goodwill.
Because management is uncertain of 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 U.S. Bioscience, Inc.) prior to its acquisition by the Company, a full valuation allowance remains for these deferred tax assets at December 31, 20012003 and 2000.
2002.
15. Collaborative ArrangementsCOLLABORATIVE ARRANGEMENTS
Abbott Laboratories—The Company has entered into a co-promotion agreement with the Ross Product division of Abbott Laboratories In December 1997, the Company signed two agreements with Abbott Laboratories ("Abbott"). The first agreement calls for Abbott to
co-promotepromotion of Synagis in the United States. The secondU.S. and a distribution agreement allowswith Abbott International a division of Abbott, to exclusively distribute Synagis outside of 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 Statesdomestic sales based on definedachieving certain sales thresholds over the annual sales thresholds. 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.contract year. 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 Companyand 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.2001. The Company could receive up to an
additional $15recognized $7.5 million based onin revenues during 2003 for the achievement of certain milestones.
sales goals, and could receive an additional $7.5 million in sales goal payments under the agreement.
ALZA Corporation
Corporation—In December 1995, U.S. Bioscience, Inc. 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 SeptemberOctober 2001, the Company amendedreacquired the agreement withdomestic marketing rights to Ethyol from ALZA to accelerate to October 1, 2001 the transfer to the CompanyCorporation, and recorded termination fees of Ethyol marketing rights. Under the terms of the
agreement, the Company received $35$13.4 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 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 is included in accrued expenses as of December 31, 2001.expense. 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
Evans Vaccines Limited—The Company manufactures key components of FluMist, specifically the bulk monovalents and Hexalendiluent, at a facility in Speke, the United Kingdom, pursuant to a sublease arrangement with Evans Vaccines Limited, a division of Chiron. The manufacturing areas on the existing site are subleased through June 2006. In connection with the agreements, the Company made an initial payment of $15.0 million and additional payments of $3.9 million each in September 2001, 2002 and 2003. The Company is obligated to make two additional annual payments of $3.9 million in September 2004 and September 2005, which are included in other current liabilities and Obligations to Evans in the United States until mid-1999. At that time,accompanying consolidated balance sheet as of December 31, 2003. The Company is also obligated to make additional payments of $19 million, less accrued interest, which will be paid over the
72
term of the agreement based on net sales of FluMist, with the unpaid balance, if any, due January 2006.
GlaxoSmithKline (GSK)—The Company and GSK are developing a vaccine against human papillomavirus ("HPV") to prevent cervical cancer under a strategic alliance. 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 the studies. GSK is responsible for the final development of the product, as well as regulatory, manufacturing, and marketing activities. In exchange for exclusive worldwide rights to the Company's HPV technology, GSK agreed to provide the Company regained sole
responsibilitywith an up front payment of $15 million, research funding of $23 million through 2002, potential developmental and sales milestones which together could total up to $48 million in the future, as well as royalties on any product sales and an equity investment of $5 million. Research funding of $0.5 million, $0.2 million and $2.8 million associated with the agreement has been included in other revenues for the distribution,years ended December 31, 2003, 2002, and 2001, respectively.
In 2000, the Company granted a worldwide, exclusive license to itsStreptococcus pneumoniae vaccine technology to GSK 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 has rights to a vaccine against certain subunits of Epstein-Barr virus ("EBV"), a herpesvirus that is the leading cause of infectious mononucleosis. The vaccine is being developed by GSK under a worldwide collaborative agreement, excluding North Korea and promotion of these products inSouth Korea. Under the United States.
agreement, the Company could receive future milestone payments, and royalties from GSK based on any net product sales.
Schering-Plough Corporation
In May 1993, U.S. Bioscience, Inc.Corporation—The Company has entered into an exclusive marketing and distribution agreementa collaboration arrangement with Scherico, Ltd. ("Scherico"),
an affiliateaffiliates of Schering-Plough Corporation (Schering), for distribution of Ethyol in the countries comprising the EU andEuropean Union, the European Free Trade Association.
Under this agreement, Scherico purchases Ethyol from the Company at a price based on a percentageAssociation and other countries outside of the net sales of Ethyol in
Germany, United Kingdom, Spain, Italy and France. Scherico'sU.S. Schering's exclusive rights to market the product will continuecontinued through December 31, 2003. At the end of the exclusive period,2003, and the Company may co-promote Ethyol with SchericoSchering for two years, through December 31, 2005. Thereafter, the Company will reacquire sole marketing rights, subject to an obligation to pay SchericoSchering 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
In December 1997,
Wyeth—The Company has entered into a set of complex collaboration agreements with Wyeth related to intranasally delivered live, attenuated influenza virus vaccine products. FluMist is the subject of the collaborative arrangement with Wyeth. FluMist is manufactured by the Company, distributed in the U.S. exclusively by Wyeth, and co-promoted in the U.S. by the Company and GlaxoSmithKline ("GSK") entered into a strategic alliance to develop and commercialize human
papillomavirus (HPV) vaccines forWyeth. Outside of the prevention of cervical cancer and genital warts. In exchange forU.S., Wyeth has exclusive worldwide rights to FluMist worldwide, excluding Australia, New Zealand, North Korea, South Korea, and some South Pacific countries. The parties amended the Company's HPV technology, GSK agreedagreements in September 2003, including modifications to providethe formula used to calculate the product transfer payments from Wyeth to the Company, withand adjustments to the optional term extension and related payment provisions in the U.S. and international territories.
Wyeth holds the marketing rights in the United States for eleven years from the first commercial sale of FluMist. Outside the United States (with the exclusions noted above), Wyeth holds the marketing rights for an up-front payment, future funding and potential developmental
and sales milestones which together could total over $85 million, as well as royalties on any product sales.initial term of eight years from the first international commercial sale of
73
FluMist. Under the terms of the agreement with Wyeth, the two companies willare to collaborate on research and development activities. The Company conducts Phase 1 and Phase 2the regulatory, 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,programs for FluMist within 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 $2.8 million,
$7.8 million, and $6.2 million associated with the agreement has been included in other revenues for the years ended December 31,
2001, 2000, and 1999, respectively.
In July 2000, the Company granted GlaxoSmithKline a worldwide, exclusive license 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.United States.
Under the terms of the agreement, GSKWyeth distributes FluMist and records all product sales. The Company is responsiblepaid in the form of product transfer payments and royalties, which are higher in the United States than internationally. The Company shipped approximately 4.1 million doses of FluMist to Wyeth during 2003, but did not recognize any sales-related revenue in 2003 due to the lack of certainty associated with returns and discounts in the vaccine's launch season. The Company incurs expenses to manufacture, supply and co-promote FluMist. There is potential 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 activitiesexpenses, and anticipates spending up to $100 million over the first three years for commercialization of FluMist in the S. pneumoniae vaccine. TheUnited States. During 2003, the Company completed the technology transfer to GSK by the end of 2000. The
up-front paymentreceived $8.4 million in reimbursements from Wyeth for marketing expenses, which is included in other revenue in 2000.
Wyeth
On November 8, 1993,revenues.
As a part of the collaboration, 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 amendmentreceive certain payments related to the agreement signed in December 1999,
Wyeth's obligation to co-promote RespiGamachievement of key milestones and events for FluMist. During 2003, the Company received $37.5 million for FDA approval in the United States, was terminated. In addition, Wyeth no longer shares in any profits or
losses of RespiGamfor achieving the supply goal in the United States.first season, and for achieving ACIP guideline recommendations. In December 2002, the Company received $25.0 million from Wyeth as compensation for manufacturing costs incurred in preparing for the then-expected 2002 FluMist launch. Under the agreements, as amended, potential future milestones and related payments to the Company from Wyeth include: $15 million for advisory body recommendations and expanded label claims; an additional $12.5 million in supply goal payments; up to $17.5 million for FDA approval of use in multiple target populations; $10 million for the submission of a license application in Europe; $27.5 million for FDA approval of a liquid formulation of FluMist; and up to $50 million upon licensure in international regions. Additionally, Wyeth is committed to provide the Company with up to $20 million in financing, contingent upon regulatory approval of FluMist. The total potential future value for the license fees, milestones, financing support and term extension options that the Company recorded a credit of $6.8could receive from Wyeth could range from approximately $153 million to selling,$190 million.
In general, the Company and administrative
expense in 1999 related to the signingWyeth share responsibility for clinical development of intranasally delivered live, attenuated influenza virus vaccine products. A liquid, refrigerator-stable version of the amendment.
trivalent, live, attenuated, cold-adapted influenza virus vaccine, CAIV-T, is being developed under the collaborative agreement with Wyeth. CAIV-T may have the potential to replace FluMist (a frozen vaccine) since frozen vaccines pose distribution and commercial challenges. Wyeth has been conducting late-stage clinical trials with CAIV-T and has begun collecting and evaluating that data. In connection with the 2003 amendments, the Company agreed to pay $10 million to Wyeth for the purchase and use of clinical trial data from Wyeth's international CAIV-T trials.
Other Agreements
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 million and $7.4$7.2 million in 20022004, and 2003, respectively. The Company has also
agreed to make milestone payments$16.3 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
74
provide a supply of human plasma for production of both products. The Company has an agreement with BioLife Plasma Services and is committed to purchase $7.7 million of source plasma in 2004. 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, the Company contracted Precision Pharma Services to manufacture all of the Company's Frederick manufacturing facility.Fraction II+III paste. The Company paid Precision Pharma Services $2.4 million in 2003. The intermediate material is then supplied to the manufacturer of the bulk product, the State Lab.MBL. The Company paid MBL $8.1 million in 2003. Pursuant to the agreements with the State Lab,MBL, the Company paid $3.2 million in 2002, and $6.8 million in 2001 $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 20032006 for $8.4$14.0 million, and $0.6 million, respectively, subject to production level adjustments. Because RespiGam has been replaced in the marketplace by the Company's second generation product, Synagis, the manufacture of RespiGam has been discontinued as of the end of 2003. 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 agreement with Aventis Pasteur to fill and
package CytoGam through 2002.
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 has a firm commitment for $6.5 million in 2004 with BI for the filling, finishing and packaging of Synagis product manufactured at the FMC. The Company paid $18.1 million in 2003, $6.7 million in 2002, and $14.3 million in 2001 $26.4 million in
2000, and $21.1 million in 1999 related to production and scale-up of production as part of thisan additional agreement. The Company has firm commitments with BI for planned production through March 20042012 for approximately 43.7 million Euros.$92.1 million. 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.
18. OTHER OPERATING EXPENSES
Other operating expenses, which reflect other manufacturing
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 $3.8 million in both 2004 and 2005.
In August 2000, the Company entered into a production agreement with Packaging Coordinators, Inc. ("PCI"), to perform secondary production (i.e., assembly, labeling and packaging) of FluMist. As part of this agreement, the Company is obligated to pay PCI annual non-refundable minimum payments for each contract year, if the price for units invoiced to the Company during a production year totals less than the minimum payment. Payments of $1.1 million were made for each of the years 2002 and 2001. The Company amended its agreement with Cardinal Health 406, Inc., formerly known as PCI, in December 2003. Future minimum payments totaling $4.2 million are committed through December 31, 2006. 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 costs, include primarily manufacturing startup costs incurred
prior to FDA approvalthe construction project for the Company's Frederick Manufacturing Center ("FMC") as well as excess capacity related to the plasma
production portionnew headquarters and research and development facility. The undiscounted maximum potential amount of the FMC. Expenses in 2001 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, for the write-off of certain equipment associated with the Company's plasma production activities. Other operating
expenses are expected to continue until the plasma production portion of the FMC is fully utilized.
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. During
2001, 2000, and 1999future payments that the Company contributed $1.1 million, $0.9 million, and $1.1 million, respectively, in cashcould be required 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 Companymake under such guarantees, 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.aggregate, is approximately $2.2 million.
17. LEGAL PROCEEDINGS
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 allegesin which it alleged that the Company failed to pay royalties with
75
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. In October 2002, the UK Court ruled in the Company's favor and dismissed Celltech's case. That dismissal was upheld on appeal in July 2003. Celltech sought appellate review by the House of Lords, and that request was denied in January 2004, bringing an end to this particular litigation.
In September 2002, Celltech commenced a second legal proceeding against the Company in the U.K. 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. The Company has filed answering papers in December 2002 denying that anyit owes the royalties are due onthat Celltech seeks through its second proceeding. This matter is schedule for trial before 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, theUK 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,March 2004. To date, 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 hadhas 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.September 2002 lawsuit.
The Company has received from Genentechbecome aware that a letter, dated January 7, 2002, stating that Genentech expects to receive fromnew United States patent was issued on October 14, 2003 in the name of Celltech Therapeutics Limited, which the Company royalty
payments pursuantunderstands is an affiliated entity of Celltech (the "Adair Patent"). If the manufacture or sale of Synagis® or any of the Company's other products is ultimately found to such license. The Company is in the process of evaluating whetherbe covered by any valid claim of Genentech'sthis new patent as
recently issued, covers productionand/or any other Celltech patent that is the subject of Synagis. If so, the Companylicense agreement with Celltech, the Company's total royalty obligation would pay royalties to Genentech on U.S.equal 2% of the net sales of Synagis
commencing December 18, 2001. Pending resolution of this issue,the products that are so covered. To date, the Company has not made certainany royalty payments to Celltech under the license agreement with Celltech. In January 2004, the Company filed a declaratory judgment action in the United States District Court for the District of Columbia concerning the Adair patent and alleging patent invalidity and non-infringement with regard to Synagis.
In April 2002, the Company filed a suit against Centocor, Inc. ("Centocor") in the United States District Court for the District of Maryland. That action was amended in January 2003 to add 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. 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 (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 does not cover Synagis. Additionally, the Company seeks an injunction preventing Centocor from enforcing this patent. This matter is ongoing and no trial date is scheduled.
In January 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. In August 2003, the County of Westchester, New York ("Westchester") filed and served a similar suit against the Company and approximately 25 other pharmaceutical and biotechnology defendants. Likewise, in September 2003, the County of Rockland, New York ("Rockland") also filed and served a similar suit against the Company and approximately 25 other pharmaceutical and biotechnology defendants. Suffolk, Westchester and Rockland allege that the defendants manipulated the "average wholesale price" ("AWP") causing the Counties to pay artificially inflated prices for covered drugs. In addition, the Counties argue that the defendants (including the Company) did not accurately report the "best price" under the Medicaid program. The plaintiffs seek declaratory and injunctive relief, disgorgement of profits, treble and punitive damages suffered as a result of defendants' alleged unlawful practices related prescription medication paid for by Medicaid. All three of these cases have been consolidated (for pre-trial purposes) and transferred to the United States Court for the District of Massachusetts in Re: Pharmaceutical Industry Average Wholesale Price Litigation (AWP Multidistrict Litigation). A Motion
76
to dismiss the complaint against the Company relative to the County of Suffolk has been argued before the Court and a decision is pending.
In April 2003, the Company filed a suit against Genentech, Inc. ("Genentech"), Celltech R&D Ltd. and City of Hope National Medical Center ("City of Hope") in the United States District Court for the Central District of California. The Company currently pays Genentech a royalty for sales of Synagis® made or sold in the United States pursuant to a patent license agreement between the parties covering United States Patent No. 6,331,415B1 (the "Cabilly Patent"). In the complaint, the Company alleges that the Cabilly Patent was obtained as a result of a collusive agreement between Genentech and Celltech that violates federal and California antitrust laws as well as California's unfair business practices act. Additionally, the Company alleges that the Cabilly Patent is invalid and unenforceable under protestfederal patent law and is not infringed. The Company thus seeks a declaration that it owes no royalty payments under existing licensing agreements with reservation of all of its rights.Genentech. In December 2003, the court granted motions filed by Celltech and Genentech to dismiss the federal and California antitrust claims and claims under California's unfair business practices act. Discovery is proceeding relative to the allegations in the suit that the Cabilly patent is invalid and unenforceable under federal patent law and is not infringed by Synagis.
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 against it 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,There can be no assurance that 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 headquarteredwill be successful 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 termsany of the agreement,litigation it has initiated. In its ordinary course of business, the Company exchanged approximately 34.0 million of its common shareshas provided indemnification to various parties for approximately 31.6
million shares of Aviron common stock,certain product liability claims 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 ofclaims that 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 includedproducts were not manufactured 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,accordance with applicable federal standards. While the Company is not able to present a condensed balance sheet asaware of January 10, 2002.
During March 2002, the Company paid approximately $13.4 million to acquire 25 acres of land in Gaithersburg, Maryland, whichany current claims under these provisions, there can be no assurance that such claims 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,not arise in the fallfuture or that the effect of 2003.
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REPORT OF INDEPENDENT ACCOUNTANTS
AUDITORS
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'
equitycash flows and of cash flowsshareholders' equity present fairly, in all material respects, the financial position of MedImmune, Inc. and its subsidiaries at December 31, 20012003 and December 31, 2000,2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001,2003, 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/ PricewaterhouseCoopers LLP
As discussed in Note 2 to the financial statements, the Company changed its method of revenue recognition for contract revenues, effective January 24, 2002 except for Notes 20 and 21
as to which the date is March 27, 2002
McLean, Virginia
Report of Management1, 2002.
| /s/ | PRICEWATERHOUSECOOPERS LLP | ||
| McLean, Virginia February 13, 2004, except for Note 10 as to which the date is February 25, 2004 | |||
78
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 Audit Committee of the Board of Directors and ratified by the Board of Directors and 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 Chief Executive Officer, President and Vice Chairman | |||
| /s/ | LOTA S. ZOTH | ||
| Lota S. Zoth Vice President and Controller, Acting Chief Financial Officer | |||
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Vice Chairman, President and Chief Executive Officer and Vice President, Controller and Acting Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable, and not absolute, assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible
79
controls and procedures. Accordingly, no evaluation or implementation of a control system can provide complete assurance that all control issues and all possible instances of fraud have been or will be detected.
As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Vice Chairman, President and Chief Executive Officer and Vice President, Controller and Acting Chief Financial Officer, of the effectiveness of the Company's disclosure controls and procedures, as required by Rule 13a-15(b) promulgated under Exchange Act. Based upon that evaluation, the Company's Vice Chairman, President and Chief Executive Officer and Vice President, Controller and Acting Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level.
In addition, the management of the Company, with the participation of the Company's Vice Chairman, President and Chief Executive Officer and Vice President, Controller and Acting Chief Financial Officer, have determined that there was no change in the Company's internal control over financial reporting that occurred during Q4 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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)May 20, 2004), 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 and key employees 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. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by this item is incorporated by this item is incorporated by reference to the applicable information in the 2004 Proxy Statement under the caption "Appointment of Independent Auditors."
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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.
Schedule I - I—Valuation and Qualifying Accounts Page S-1
| Date Filed | Event Reported | |
|---|---|---|
| October 23, 2003 | MedImmune reports record revenues for 2003 third quarter and nine-month period. | |
| November 18, 2003 | MedImmune provides update to FluMist launch and revises guidance for fourth quarter and full year. |
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.
81
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: Gregory S. Patrick
| MEDIMMUNE, INC. | |
Date: March 9, 2004 | /s/ DAVID M. MOTT David M. Mott Chief Executive Officer, President, and Vice Chairman Principal Executive Officer |
Date: March 9, 2004 | /s/ LOTA S. ZOTH Lota S. Zoth Vice President, Controller and Acting Chief Financial Officer Principal Accounting and Financial Officer |
82
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/ M. James Barrett
Date: March 26, 2002 M. James Barrett,Director
/s/ 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/ Gordon S. Macklin
Date: March 26, 2002 Gordon S. Macklin, Director
/s/ Franklin H. Top, Jr.
Date: March 26, 2002 Franklin H. Top, Jr., Director
| Date: March 9, 2004 | /s/ WAYNE T. HOCKMEYER Wayne T. Hockmeyer, Chairman | |
Date: March 9, 2004 | /s/ M. JAMES BARRETT M. James Barrett, Director | |
Date: March 9, 2004 | /s/ MELVIN D. BOOTH Melvin D. Booth, Director | |
Date: March 9, 2004 | /s/ JAMES H. CAVANAUGH James H. Cavanaugh, Director | |
Date: March 9, 2004 | /s/ BARBARA HACKMAN FRANKLIN Barbara Hackman Franklin, Director | |
Date: March 9, 2004 | /s/ GORDON S. MACKLIN Gordon S. Macklin, Director | |
Date: March 9, 2004 | /s/ ELIZABETH WYATT Elizabeth Wyatt, Director | |
Date: March 9, 2004 | /s/ DAVID BALTIMORE David Baltimore, Director |
83
REPORT OF INDEPENDENT ACCOUNTANTSAUDITORS 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,February 13, 2004, except for Notes 20 and 21,Note 10, as to which the date is March 27, 2002,February 25, 2004, appearing in this Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 14(a)15(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/ PricewaterhouseCoopers
/s/PRICEWATERHOUSECOOPERS LLP
McLean, Virginia
January 24, 2002
Schedule
February 13, 2004
84
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, 2003 | ||||||||||||
| Sales Allowances | $ | 10,596 | $ | 74,464 | $ | (76,105 | ) | $ | 8,955 | |||
| Trade Receivables Bad Debt Reserve | 7,468 | 28,760 | (32,425 | ) | 3,803 | |||||||
| Inventory Reserve | 51,132 | 179,561 | (142,546 | ) | 88,147 | |||||||
| Physical Asset Reserve | 305 | — | — | 305 | ||||||||
| $ | 69,501 | $ | 282,785 | $ | (251,076 | ) | $ | 101,210 | ||||
| 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 | 73,921 | (31,929 | ) | 51,132 | |||||||
| Physical Asset Reserve | 2,374 | 71 | (2,140 | ) | 305 | |||||||
| $ | 20,925 | $ | 89,026 | $ | (40,450 | ) | $ | 69,501 | ||||
| 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 | ||||
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 Report on Form 10-K for the year ended December 31, 1999, filed with the Securities and
Exchange Commission March 8, 2000).
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,
filed with the Securities and Exchange Commission March 27, 2001).
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, filed with the Securities and Exchange Commission March 27, 2001).
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 filed with the Securities and
Exchange Commission May 15, 2001).
10.1(1)(3) License Agreement dated November 15, 1990 between the Company and Merck & Co., Inc. ("Merck")
10.2(3) Plasma Supply Agreement dated May 31, 1990 between the Company and Plasma Alliance, Inc.
10.3 (3) Termination Agreement dated June 29, 1990 between the Company and Pediatric Pharmaceuticals, Inc. ("PPI")
(formerly MedImmune, Inc.)
10.4(3) RSV Research Agreement dated August 1, 1989 between the Company, PPI and the Massachusetts Health Research
Institute, Inc. ("MHRI")
EXHIBITS
| 3.1 | Restated Certificate of Incorporation, as restated as of February 25, 2004.* | |
| 3.2 | By-Laws, as amended and restated as of February 25, 2004.* | |
| 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 | 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. | |
| 10.2 | 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. | |
| 10.3 | 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. | |
| 10.4 | 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. | |
| 10.5 | (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. |
| 10.6 | (1) | License Agreement, dated June 4, 1997, between Genentech, Inc. and MedImmune, Inc., incorporated by reference to exhibit 10.180 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
E1
10.5(3) RSV License Agreement dated August 1, 1989 between the Company, PPI and MHRI
10.6(3) RSV Supply Agreement dated August 1, 1989 between the Company, PPI, MHRI and the Massachusetts Public Health
Biologic Laboratory ("MPHBL")
10.7(3) CMV License Agreement dated April 23, 1990 between the Company and MHRI
10.8(3) First Amendment to CMV License Agreement dated May 3, 1991 between the Company and MHRI
10.9(3) CMV Research Agreement dated April 23, 1990 between the Company, MHRI and MPHBL
10.10(3) License Agreement dated November 8, 1989 between the Company, PPI, and the Henry M. Jackson Foundation for the
Advancement of Military Medicine ("HMJ")
10.11(1)(3) License Agreement dated November 15, 1990 between Company and Merck & Co., Inc.
10.11(3) Research Agreement dated November 8, 1989 between the Company, PPI and HMJ
10.12(1)(3) Research and License Agreement dated April 1, 1990 between the Company and New York University
10.13 (1)(3) Research and License Agreement dated January 2, 1991 between the Company and the University of Pittsburgh
10.14 (3) Patent License Agreement between the Company and the National Institutes of Health regarding parvovirus
10.15 (3) License Agreement dated September 1, 1988 between the Company and Albany Medical College of Union College
10.16 (3) License Agreement dated July 5, 1989 between the Company, Albert
Einstein College of Medicine of Yeshiva University, The Whitehead Institute and Stanford University
10.17 (3) License Agreement dated July 1, 1989 between the Company and the National Technical Information Service
("NTIS")
10.18 (3) License Agreement dated September 1, 1989 between the Company and NTIS
10.19 (5) Form of Stock Option Agreement, as amended
10.20 (3) Convertible Preferred Stock and Warrant Purchase Agreement between HCV, Everest Trust and the Company dated
January 12, 1990 with form of Warrant
10.21 (3) Restated Stockholders' Agreement dated May 15, 1991
10.22 (3) Lease Agreement between Clopper Road Associates and the Company dated February 14, 1991
10.23 (7) 1991 Stock Option Plan
10.24 (3) Sublease between the Company and Pharmavene, Inc.
10.25 (4) Agreement between New England Deaconess Hospital Corporation and the Company, dated as of August 1, 1991
10.26 (1)(4) Research Collaboration Agreement between Merck and the Company effective as of November 27, 1991
| 10.7 | (1) | License for Winter Patent, dated August 13, 1997, between Medical Research Council and MedImmune, Inc., incorporated by reference to exhibit 10.181 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
| 10.8 | (1) | 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., incorporated by reference to exhibit 10.182 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
| 10.9 | (1) | License Agreement, dated effective December 1, 1997, between the University of Iowa Research Foundation and MedImmune, Inc., incorporated by reference to exhibit 10.183 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
| 10.10 | (1) | 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. |
| 10.11 | (1) | 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, incorporated by reference to exhibit 10.184 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
| 10.12 | (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, as amended by the Amendment effective as of November 26, 1997, incorporated by reference to exhibit 10.23.1 filed with the Company's Annual Report on Form 10-K for December 31, 2002, as further amended by the Amendment No. 2, effective as of November 26, 1997, incorporated by reference to exhibit 10.23.2 filed with the Company's Annual Report on Form 10-K for December 31, 2002. |
| 10.13 | (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, as amended by the Amendment effective as of April 28, 1999, incorporated by reference to exhibit 10.26.1 filed with the Company's Annual Report on Form 10-K for December 31, 2002, as further amended by the Second Amendment dated effective as of October 8, 1999, incorporated by reference to exhibit 10.26.2 filed with the Company's Annual Report on Form 10-K for December 31, 2002, as further amended by the Third Amendment dated effective as of July 1, 2003, incorporated by reference to exhibit 10.26.3 filed with the Company's Quarterly Report on Form 10-Q for September 30, 2002. |
| 10.14 | (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. |
| 10.15 | (1) | 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. |
| 10.16 | 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. | |
| 10.17 | 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, as amended by the Amendment dated effective October 15, 1993, incorporated by reference to Exhibit 10.14.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993. | |
E2
10.27 (1)(4) Co-promotion Agreement between Merck and the Company effective as of November 27, 1991
10.28 (1)(4) License Agreement between Merck and the Company effective as of November 27, 1991
10.29 (1)(5) Letter Agreement between Merck and the Company, dated January 26, 1993
10.30 (1)(5) Termination, Purchase and Royalty Agreement between CLI and the
Company, dated December 24, 1992
10.30.1(1)(12) Amendment to Termination, Purchase and Royalty Agreement between Connaught Technology Corporation and
MedImmune, Inc. dated December 31, 1995
10.31 (1)(5) Research and License Agreement between Cell Genesys, Inc. and the Company, dated April 29, 1992
10.31(a)(5) Unredacted pages 2-5 of Exhibit 10.31
10.32 (5) Form of 1993 Non-Employee Director Stock Option Plan
10.33 (1)(8) Sponsored Research and License Agreement between Georgetown University and the Company dated February 25, 1993
10.34 (1)(8) License Agreement between Roche Diagnostic Systems, Inc. and the Company dated March 8, 1993
10.35 (1)(8) Pip/Tazo Co-Promotion Agreement between American Cyanamid Company and the Company dated November 8, 1993
10.35.1(12) Agreement dated October 26, 1995 between American Cyanamid Company and the Company
10.36(1)(8) RSVIG Co-Development and Co-Promotion Agreement between American Cyanamid Company and the Company dated
November 8, 1993
10.36.1(12) Agreement dated October 26, 1995 between American Cyanamid Company and the Company
10.37 (1)(8) RSV MAB Co-Development and Co-Promotion Agreement between American Cyanamid Company and the Company dated
November 8, 1993
10.37.1(12) Agreement dated October 26, 1995 between American Cyanamid Company and the Company
10.38 (1)(8) RSV Vaccine Co-Development and Co-Promotion Agreement between American Cyanamid Company and the Company dated
November 8, 1993
10.38.1(12) Agreement dated October 26, 1995 between American Cyanamid Company and the Company
10.39 (1)(10) Fraction II + III Paste Supply Agreement between Baxter Healthcare Corporation and the Company dated
September 1, 1994
10.40 (11) Employment Agreement between David P. Wright and the Company dated January 2, 1995
10.41 (11) Employment Agreement between Bogdan Dziurzynski and the Company dated February 1, 1995
10.42 (11) Employment Agreement between Wayne T. Hockmeyer and the Company dated February 1, 1995
| 10.18 | 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. | |
| 10.19 | 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, as amended by Amendment No. 1 dated effective as of November 6, 1997, incorporated by reference to Exhibit 10.27.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997. | |
| 10.20 | (2) | Amifostine Manufacturing and Supply Agreement, dated as of January 1, 2001 between MedImmune Oncology and PPG Industries, Inc.* |
| 10.21 | (2) | Terms and Conditions for the Manufacture of Products by Ben Venue Laboratories, Inc., dated as of October 17, 2003.* |
| 10.22 | (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, as amended by the Amendment dated effective August 31, 1996, 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. |
| 10.23 | (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, as amended by the Amendment No. 2, dated effective 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, as further amended by Amendment No. 3 dated effective as of September 4, 2001, 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. |
| 10.24 | (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, as amended by the Letter Amendment dated effective as of 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. |
| 10.25 | 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, as amended by Amendment No. 1 dated effective 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, as further amended by Amendment No. 2 dated effective as of 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. | |
| 10.26 | (1)(2) | 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, as amended by the First Amendment dated effective as of August 1, 2000, incorporated by reference to Exhibit 10.32 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, as further amended by the Second Amendment dated December 31, 2003.* |
E3
10.43 (11) Employment Agreement between David M. Mott and the Company dated February 1, 1995
10.44 (11) Employment Agreement between Franklin H. Top, Jr. and the Company dated February 1, 1995
10.45 (11) Employment Agreement between James F. Young and the Company dated February 1, 1995
10.46 (1)(11) License Agreement between Symbicom AB and the Company dated May 20, 1994
10.47 (1)(11) License Agreement between the University of Kentucky Research Foundation and the Company effective June 10,
1994
10.48 (1)(11) Research and Development Agreement between the University of Kentucky Research Foundation and the Company
effective June 10, 1994
10.49 (1)(11) Research and License Agreement between Washington University and the Company effective July 1, 1994
10.50 (1)(11) Research and License Agreement between Washington University and the Company effective March 1, 1995
10.51 (1)(9) License Agreement between Baxter Healthcare Corporation and MedImmune, Inc. effective June 2, 1995
10.52 (1)(9) Stock Purchase Agreement between Baxter Healthcare Corporation and MedImmune, Inc. dated June 22, 1995
10.53 (2)(10) Alliance Agreement between BioTransplant, Inc. and MedImmune, Inc. dated October 2, 1995
10.54 (12) Stock Purchase Agreement dated October 25, 1995 between MedImmune, Inc. And American Home Products
10.55 (2)(12) Collaboration and License Agreement dated as of July 27, 1995 between MedImmune, Inc. And Human Genome
Sciences, Inc.
10.56 (12) Stipulation of Settlement in reference to MedImmune, Inc. Securities Litigation, Civil Action No. PJM93-3980
10.57 (2)(13) Plasma Supply Agreement dated effective as of February 8, 1996, by and between DCI Management Group, Inc. and
MedImmune, Inc.
10.58 (2)(13) License and Research Support Agreement dated as of April 16, 1996, between The Rockefeller University and
MedImmune, Inc.
10.59(14) First Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 8, 1993.
10.60(14) Second Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 30, 1993.
10.61(14) Third Amendment of Lease between Clopper Road Associates and MedImmune, Inc. effective as of January 1, 1995.
10.62(14) Fourth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996.
10.63(14) Fifth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996.
| 10.27 | (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. |
| 10.28 | (1) | Supply Agreement between the Registrant and Becton Dickinson 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. |
| 10.29 | (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, as amended by the First Amendment, 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. |
| 10.30 | (1) | International FluMist™ 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. |
| 10.31 | (1) | FluMist™ 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, as amended by the FluMist™ 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, as further amended by the Second Amendment, 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. |
| 10.32 | (1) | Master Amendment Agreement between Registrant and Wyeth dated September 30, 2003, incorporated by reference to exhibit 10.195 filed with the Company's Quarterly Report on Form 10-Q for September 30, 2003. |
| 10.33 | (1) | 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. |
| 10.34 | (1) | 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. |
| 10.35 | (1) | 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. |
| 10.36 | (1) | 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. |
| 10.37 | (1) | Know How License 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. |
| 10.38 | (2) | Second Amended and Restated Production Agreement by and between Cardinal Health 406, Inc. and MedImmune Vaccines, Inc., dated December 31, 2003.* |
E4
10.64(1)(14) Engineering, Procurement, Construction and Validation Services Agreement between MedImmune, Inc. and Fluor
Daniel, Inc. effective as of July 31, 1996.
10.65(2)(14) Research and License Agreement between OraVax Merieux Co. and MedImmune, Inc. effective as of November 1, 1996
10.66 (15) Employment Agreement between Wayne T. Hockmeyer and MedImmune, Inc. effective April 1, 1997.
10.67 (15) Employment Agreement between David M. Mott and MedImmune, Inc. effective April 1, 1997.
10.68 (15) Employment Agreement between Franklin H. Top and MedImmune, Inc. effective April 1, 1997.
10.69 (15) Employment Agreement between David P. Wright and MedImmune, Inc. effective April 1, 1997.
10.70 (15) Employment Agreement between James F. Young and MedImmune, Inc.effective April 1, 1997.
10.71 (15) Employment Agreement between Bogdan Dziurzynski and MedImmune, Inc. effective April 1, 1997.
10.72 (16) Master Loan & Security Agreement, dated June 16, 1997 by and between Transamerica and MedImmune, Inc.
10.73 (1)(16) Patent License Agreement, (MEDI-493) dated July 17, 1997 by and between Protein Design Labs and MedImmune,Inc.
10.74 (1) Patent License Agreement, (MEDI-507) dated July 17, 1997 by and between Protein Design Labs and MedImmune,Inc.
10.75 (17) Sixth Amendment of Lease between ARE-QRS Corp. and MedImmune, Inc. dated September 10, 1997.
10.76(1)(17) Co-Promotion Agreement between Abbott Laboratories and MedImmune, Inc. dated November 26, 1997
10.77(1)(17) Contract Research and Development Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November
27, 1997.
10.78(1)(17) Manufacturing Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997.
10.79(1)(17) Distribution Agreement between MedImmune, Inc. and Abbott International, Ltd. dated November 26, 1997.
10.80(1)(17) License Agreement between Loyola University of Chicago and MedImmune, Inc. dated December 3, 1997.
10.81(1)(17) Research Collaboration and License Agreement between SmithKline Beecham and MedImmune, Inc. dated
December 10, 1997.
10.82 (18) Termination of MEDI-SB Letter Agreement of October 10, 1996.
10.83 (18) Second Amendment between MedImmune, Inc. and Lonza Biologics PLC of 228 Bath Road, Slough, Berkshire SL1 4DY
England
10.84(22) Employment Agreement between Wayne T. Hockmeyer and MedImmune, Inc. effective November 1, 1998.
10.85(22) Employment Agreement between Melvin Booth and MedImmune, Inc. effective November 1, 1998.
| 10.39 | 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, as amended by the First Amendment dated effective as of 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; as further amended by the Second Amendment dated effective 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; as further amended by the Third Amendment 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; as further amended by the Fourth Amendment 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; as further amended by the Fifth Amendment 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; as further amended by the Sixth Amendment 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; as further amended by the Seventh Amendment dated 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. | |
| 10.40 | (1) | 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. |
| 10.41 | (1) | 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. |
| 10.42 | (1) | 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. |
| 10.43 | (1) | 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. |
| 10.44 | (1) | 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. |
| 10.45 | (1) | 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. |
| 10.46 | (1) | 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. |
| 10.47 | (1) | 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. |
| 10.48 | 1991 Stock Option Plan, incorporated by reference to exhibit 10.23 filed in connection with the Company's Registration Statement No. 33-46165. | |
E5
10.86(22) Employment Agreement between David M. Mott and MedImmune, Inc. effective November 1, 1998.
10.87(22) Employment Agreement between Franklin H. Top and MedImmune, Inc. effective November 1, 1998.
10.88(22) Employment Agreement between David P. Wright and MedImmune, Inc. effective November 1, 1998.
10.89(22) Employment Agreement between James F. Young and MedImmune, Inc.effective November 1, 1998.
10.90(22) Employment Agreement between Bogdan Dziurzynski and MedImmune, Inc. effective November 1, 1998.
10.91(2)(22) License Agreement between Connaught Laboratories, Inc. and MedImmune, Inc. effective November 20,1998.
10.92(2)(22) Termination of Purchase and Royalty Agreement Second Amendment between Connaught Technology Corporation and
MedImmune, Inc. effective September 30, 1998.
10.93(22) Purchase Contract Agreement between Aid Association and MedImmune, Inc. effective November 25, 1998.
10.94 Seventh Amendment of Lease between ARE-QRS CORP. and MedImmune, Inc. effective August 1, 1998.
10.95 (20)(2) Research and Assignment and License Agreement, dated as of February 24, 1999 by and between IXSYS, Inc. and
MedImmune, Inc.
10.96 (20)(2) License Agreement, dated as of February 24, 1999 by and between IXSYS, Inc. and MedImmune, Inc.
10.97(20)(2) Selection Agreement, dated as of February 24, 1999 by and between IXSYS, Inc. and MedImmune, Inc.
10.98(20)(2) Stock Purchase Agreement, dated as of February 24, 1999 by and between IXSYS, Inc. and MedImmune, Inc.
10.99 (21) Employment Agreement between Armando Anido and MedImmune, Inc. effective August 30, 1999
10.100 (21) Amendment to Lease Agreement
| 10.49 | 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. | |
| 10.50 | Employment agreement, dated as of October 1, 2003, by and between Wayne T. Hockmeyer, Ph.D. and MedImmune, Inc.*10.50 | |
| 10.51 | 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 | |
| 10.52 | Employment Agreement between David M. Mott and the Company dated August 15, 2002, incorporated by reference to exhibit 10.189 filed with the Company's Annual Report on Form 10-K for December 31, 2002. | |
| 10.53 | Part-Time Employment Agreement between Melvin D. Booth and the Company dated December 31, 2003.* | |
| 10.54 | Employment Agreement between James F. Young and the Company dated August 15, 2002 incorporated by reference to exhibit 10.191 filed with the Company's Annual Report on Form 10-K for December 31, 2002. | |
| 10.55 | Employment Agreement between Armando Anido and the Company dated August 15, 2002 incorporated by reference to exhibit 10.192 filed with the Company's Annual Report on Form 10-K for December 31, 2002. | |
| 10.56 | Employment Agreement between Edward M. Connor and the Company dated August 15, 2002 incorporated by reference to exhibit 10.193 filed with the Company's Annual Report on Form 10-K for December 31, 2002. | |
| 10.57 | Employment Agreement between Gail M. Folena-Wasserman and the Company dated August 15, 2002 incorporated by reference to exhibit 10.194 filed with the Company's Annual Report on Form 10-K for December 31, 2002. | |
| 10.58 | Agreement and General Release between Gregory S. Patrick and the Company dated December 31, 2003.* | |
| 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* | |
| 31.1 | Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 31.2 | Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 32.1 | Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 99.1 | Patent Table* |
Notes:
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