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MEDIMMUNE, INC. FORM 10-K TABLE OF CONTENTS



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C.Washington, D.C. 20549


FORM 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, 20022003
Commission File Number: 0-19131000-19131


MEDIMMUNE, INC.
(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of
incorporation or organization)
 52-1555759

(I.R.S. Employer
Identification No.)

35 West Watkins Mill Road
Gaithersburg, Maryland 20878
(Address of principal executive office)
(Zip Code)

Registrant's telephone number, including area code:
(301) 417-0770

Securities Registered pursuant to Section 12(b) of the Act:
None

Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)

35 West Watkins Mill Road
Gaithersburg, Maryland 20878
(Address of principal executive office)
(Zip Code)

Registrant's telephone number, including area code:(301) 417-0770

Securities Registered pursuant to Section 12(b) of the Act:None

Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of Class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes 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 oý.

        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 249,222,944250,941,192 shares of voting and non-voting common equity held by non-affiliates of the registrant, based on the closing price on June 30, 20022003, was $6.6$9.1 billion. Common Stock outstanding as of February 25, 2003: 251,521,17229, 2004: 248,227,030 shares.

Documents Incorporated by Reference:

        Portions of the registrant's definitive proxy statement for the annual meeting of stockholders to be held May 22, 200320, 2004 (Part II and III).





MEDIMMUNE, INC.
FORM 10-K
TABLE OF CONTENTS

 
  
PART I  
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders

PART II

 

 
Item 5. Market for MedImmune, Inc.'s Common Stock and Related Shareholder Matters
Item 6. Selected Consolidated Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8. Consolidated Financial Statements and Supplementary Data
 Report of Independent AccountantsAuditors
 Report of Management
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.Controls and Procedures

PART III

 

 
Item 10. Directors and Executive Officers of MedImmune, Inc.
Item 11. Executive Compensation
Item 12. Security Ownership Certain Beneficial Owners and Management
Item 13. Certain Relationships and Related Transactions
Item 14. ControlsPrincipal Accounting Fees and ProceduresServices

PART IV

 

 
ItemITEM 15. Exhibits, Financial Statement Schedule, and Reports on Form 8-K

SIGNATURES

Schedule I

Exhibit Index

Exhibits


(Attached (Attached to this Report on Form 10-K)

Synagis, CytoGam, Ethyol, RespiGam, NeuTrexin and NeuTrexinVitaxin are registered trademarks of the Company. Numax Vitaxin and FluMist are trademarks of the Company.



FORWARD-LOOKINGFORWARD LOOKING STATEMENTS

        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 that 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 U.S. Food and Drug Administration and, if it does, whether it will be successfully manufactured and launched at a favorable price; availability of competitive products in the market; availability of third-party reimbursement for the cost of our products; effectiveness and safety of our products; exposure to litigation, including claims relating to intellectual property, product liability and government or private pricing or reimbursement; foreign currency exchange rate fluctuations; changes in generally accepted accounting principles; growth in costs and expenses; the impact of acquisitions, divestitures and other unusual items; changes in equity markets affecting the value of the Company's equity investments; 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 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, 2002.2003. This annual report will not be updated as a result of new information or future events.


        We make available free of charge on or through our internet website our 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 reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. Our internet address is http://www.medimmune.com.

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PART I

ITEM 1. BUSINESS

        MedImmune, Inc. (together with its subsidiaries, "MedImmune" or "the Company"the "Company") is a global biotechnology company that uses advances in biological sciences to discover, develop, manufacture and marketcommercialize products that treat or prevent infectious diseases, immune system disorders and cancer. The Company's core competencies are in the areas of monoclonal antibodies and vaccines.

        MedImmune was foundedFounded in 1988, andMedImmune is headquartered in Gaithersburg, Maryland.Maryland and has three primary operating subsidiaries: MedImmune Oncology, Inc., MedImmune Vaccines, Inc. and MedImmune Ventures, Inc. The Company established an oncology subsidiary (MedImmune Oncology, Inc.) following the acquisition of U.S. Bioscience, Inc. in November 1999. In January 2002, MedImmune acquired Aviron, a California-based vaccines company for $1.6 billion, which became the Company's vaccines subsidiary (MedImmune Vaccines, Inc.). In July 2002, MedImmune also created a venture capital subsidiary (MedImmune Ventures, Inc.).

        The Company markets Synagispromotes three main products: Synagis® (palivizumab), Ethyol (amifostine), and CytoGam (cytomegalovirus immune globulin intravenous (human)). Synagis is an antibody that provides the immune system with an increased abilityFluMist™ (Influenza Virus Vaccine Live, Intranasal) to prevent infection withtwo common respiratory syncytial virus ("RSV"), the leading cause of lower respiratory tract infectionsinfectious diseases; and pneumonia in infants and children worldwide. Ethyol is a product that reduces the unwanted impact of certainEthyol® (amifostine) to reduce undesired side effects of chemotherapycertain anti-cancer chemo- and radiation therapy when usedradiotherapies.

        MedImmune operates five facilities in the United States and Europe to treat certain typesmanufacture one or more components of cancer. CytoGam is a blood plasma product that provides the immune system with an increased ability to prevent infection with cytomegalovirus ("CMV"), a herpes virus that contributes significantly to morbidity and mortality in organ transplant patients. MedImmune marketseach of these products and promotes these products in the U.S. through its own U.S.-based specialty sales and marketing organization. To support these efforts,In addition, the Company has also entered into certain co-promotion agreements with other companies to market itsmanufacture certain components of these products, promote these products outside of the U.S. and support the Company's promotional efforts in certain geographical regions, including the United States.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 potential commercialization. The Company's product candidate nearest to market is FluMist, an influenza vaccine delivered as a nasal mist, which as of February 28, 2003 was under review by the U.S. Food and Drug Administration ("FDA"). In addition to its internal efforts, the Company has established clinical, research, development and developmentcommercialization collaborations with other companies and organizations for the development of potential products.

        MedImmune operates five commercial manufacturing facilities in the U.S. and Europe. These include a biologics facility in Frederick, Maryland (Frederick Manufacturing Center or "FMC"); a fill and finish facility for Ethyol and NeuTrexin in Nijmegen, the Netherlands; a pilot manufacturing facility in Gaithersburg, Maryland; a FluMist fill and finish plant in Philadelphia, Pennsylvania; and a FluMist bulk supply facility in Speke, England.organizations.

Marketed Products

Synagis

        Synagis is a humanized monoclonal antibody approved for marketing in June 1998 by the FDAU.S. Food and Drug Administration (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.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.

        Patients In 2003, based on additional clinical trial data, the FDA approved expansion of the definition of high-risk patients to include children with certain types ofheart diseases present at birth (hemodynamically significant congenital heart disease ("CHD") are also believed by the Company to be at high-risk of RSV disease. In 2002, MedImmune completed a four-year, double-blind, placebo controlled, Phase 3 clinical study of Synagis in CHD patients under the age of two. In this study,

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Synagis appeared to be safe and effective in preventing RSV-related hospitalizations in young children with CHD. The study was conducted at 76 centers in North America and Europe and involved 1,287 children who were randomized to receive five monthly injections of either Synagis or placebo during the RSV season. Data from this study were presented at the American Academy of Pediatrics 2002 National Meeting in October 2002 and submitted to the FDA in the form of a supplemental Biologics License Application (sBLA) in December 2002.).

        Synagis is co-promotedmost commonly administered by intramuscular injection once per month during anticipated periods of RSV prevalence in the community. In the northern hemisphere, the RSV season typically commences in October and lasts through April or May. As such, the sales of this product reflect this seasonality and occur primarily in the first and fourth quarters of the calendar year. In the U.S., Synagis is co-promoted by MedImmune and by the Ross Products Division of Abbott Laboratories ("Abbott").

        Outside the United States,U.S., the International Division of Abbott ("AI") has the exclusive right to distribute Synagis. As of January 15, 2003, 50February 29, 2004, 49 countries outside the U.S. had approved Synagis for marketing: Argentina, Austria, Australia, Bahrain, Belgium, Brazil, Canada, Chile, Colombia, Costa Rica, Czech Republic, Denmark, El Salvador, Finland, France, Germany, Greece, Guatemala, Honduras, Hong Kong, Hungary, Iceland, Ireland, Israel, Italy, Japan, Jordan, Kuwait, Luxembourg, Malaysia, Mexico,marketing. In July 2003, AI announced that the Netherlands, New Zealand, Nicaragua, Norway, Poland, Portugal, Qatar, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, United Arab Emirates,European Agency for the United Kingdom,Evaluation of Medicinal Products had granted a positive opinion for the United States, Uruguay and Venezuela.use of Synagis in young children born with CHD to prevent lower respiratory tract infection caused by RSV.

        Synagis is administered by intramuscular injection at 15 milligrams per kilogram of body weight and is most commonly given once per month during anticipated periods of RSV prevalence in the community. In the Northern Hemisphere, the RSV season typically commences in October and lasts through April or May. As such, product revenues from the product primarily occur in the fourth and first quarters of the year.2



        In 2003, 2002 and 2001, the Company reported $668$849 million, $672 million and $518 million, respectively in worldwide net revenues from Synagis.Synagis representing 86%, 85% and 89% of the Company's total net revenues in 2003, 2002 and 2001, respectively.

Ethyol

        Ethyol is an intravenous organic thiophosphate cytoprotective agent used to prevent certain unwanted side effects of a specific typetypes of chemotherapychemo- and radiation therapy whenradiotherapies that are used to treat cancer. In the United States,U.S., Ethyol was initially approved by the FDA in 1995 to reduce the cumulative renal (kidney) toxicity associated with repeated administration of cisplatin (a common chemotherapy agent) to patients with advanced ovarian cancer.

        In 1996, the FDA approved MedImmune Oncology'sthe 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)("NSCLC"). Products approved under the Accelerated Approval Regulations require further adequate and well-controlled studies to verify and describe clinical benefit. The Company completed a post-licensure clinical trial in 2001 showing that Ethyol protected against cisplatin-induced renal toxicity. The Company believed this trial would fulfill the Accelerated Approval requirement and submitted its data to the FDA for review in 2002. In late JanuaryEarly in 2003, the Company met with the FDA to discuss the Agency's conclusiontheir belief that the study did not meet the Accelerated Approval requirement, as well as theirthe FDA's request forthat another trial to 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 approved Ethyol'sthe 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 major salivary glands (i.e.,when a significant portion of the parotid glands)glands are located in the radiation pathway.treatment field. Xerostomia, (acuteboth acute and chronic, dry mouth) is a debilitating condition wherein which saliva production is reduced due to damage caused to the salivary glands by the therapeutic radiation. Patients with xerostomia are at increased risk of oral infection, dental cavities and loss of teeth and often have difficulty chewing, swallowing and speaking. The Company continues to evaluate the potential of expanding the applicability and usefulness of Ethyol to new indications, such as the ability to reduce mucositis (ulceration of the mucous membranes lining the mouth and throat) caused by combined radiation and chemotherapy in patients with NSCLC.

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        Since October 1, 2001, MedImmune has been the sole marketer of Ethyol in the United States.U.S. Prior to this date, Ethyol was co-promoted by MedImmune and ALZA Corporation ("ALZA"). Outside the United States,U.S., the Company has various distribution and marketing arrangements for Ethyol, primarily with affiliates of Schering-Plough Corporation ("Schering"). TheThis product has been approved for marketing in 60 countries worldwide.worldwide, including the United States.

        In 2003, 2002 and 2001, MedImmune reported worldwide net salesrevenues for Ethyol of $80 million.$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.

CytoGamFluMist

        CytoGamFluMist 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.

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        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 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 milestone and reimbursement payments from Wyeth. The Company did not record any sales-related revenue in 2003 due to the uncertainty associated with returns and discounts in the vaccine's launch season.

Other Products

        The Company also markets the following three additional products for which it reported a total of $43 million, $38 million, and $43 million in worldwide net product sales in 2003, 2002 and 2001, respectively. These amounts represent four percent of the Company's total reported net revenues in 2003 and 2002 and seven percent of the Company's total reported net revenues in 2001.


Product Candidates

        A large portion of MedImmune's operating expenses are related to the research and development of its product candidates. Research and development expenses were $156 million in 2003, $148 million in 2002 and $83 million in 2001. MedImmune currently focuses its research and development efforts in the therapeutic areas of infectious diseases, immunology and oncology. The Company's key programs during 2002 are described below. The Company and its subsidiaries also continuecontinues to work on feasibility studies in a number of other 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

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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.

Product Candidates—Infectious Diseasesresearch and development efforts and expenditure of significant amounts of capital.

        MedImmune's main focus within the area of infectious disease has been in the prevention and treatment of respiratory viruses. However, the Company also has programs targeting human papillomavirus, Epstein Barr virus, and cytomegalovirus, as described below.

4



FluMist—FluMist is a live, attenuated, intranasal vaccine developed to prevent influenza in healthy people. Influenza is a serious health problem worldwide, leading to 20,000 to 50,000 deaths each year in the United States. As of February 28, 2003, FluMist was under regulatory review by the FDA. Throughout 2002, a number of official actions were taken by the FDA and the Company as a part of the ongoing regulatory review process, including: 1)The following table summarizes the Company's response to the FDA's first Complete Response Letter ("CRL")current product candidate programs and each is described in January 2002 (the first CRL was issued in August 2001); 2) the FDA's issuance of a second CRL in July 2002 and the Company's response in August 2002; 3) a reinspection by the FDA of the Philadelphia blend/fill/finish/packaging plant for FluMist in mid-December 2002; and 4) a special meeting of the FDA's Vaccines and Related Biological Products Advisory Committee ("VRBPAC") in December 2002. At this Advisory Committee Meeting, the panel voted in favor of the product's safety and efficacy in healthy adults and children between the ages of 5 and 49, and for the safety of the product in healthy adults aged 50 to 64 years. In January 2003, the FDA issued a third CRL, to which the company replied in early February 2003.greater 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

        Beyond the data from 20 clinical trials involving more than 20,000 patients that were submitted to the FDA to support the product's initial licensure as an influenza vaccine, MedImmune continues to conduct additional clinical trials. In 2002, MedImmune completed a trial in 1,200 children 12 to 15 months of age to assess the antibody response of dosing FluMist simultaneously with the mumps, measles and rubella (MMR) and chicken pox (varicella) vaccines. The Company expects that additional studies will be necessary, as determined by the FDA, to supplement the amount of efficacy and safety data in healthy adults between 50 and 64 years of age and in healthy children under five years of age. The Company also expects that if and when the FDA grants initial licensure, that it will require the Company to commit to Phase 4 post-licensure studies.

        Should FluMist be approved, it will be co-promoted in the U.S. by MedImmune and Wyeth. Wyeth has exclusive worldwide rights to market FluMist outside the U.S., excluding North and South Korea, Australia, New Zealand and some South Pacific countries.

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Immunology

Oncology

6


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Collaborations, Alliances and Business RelationshipsInvestments

        To build, advance and promote its product portfolio, MedImmune seeks to augment its own internal programs and capabilities with collaborative projects with a number of outside partners. As part of this strategy,For its marketed products, the Company has established a number of license agreements, co-promotion arrangements, manufacturing, supply and

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co-development alliances with pharmaceutical and other biotechnology companies, academic institutions and government laboratories.

Abbott Laboratories—In December 1997,laboratories to which the Company entered into two agreements with 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 through its Ross Products division in exchange for a percentage of net sales in excess of annual sales thresholds. Each company is responsible for its own selling expenses.

        The second agreement allows Abbott to exclusively distribute Synagis outside the United States. Internationally,development, the Company manufactures and sells Synagis to Abbott at a price based on end-user sales. As of February 28, 2003, Synagis had received approval in 50 countries worldwide. No assurance can be given that any of the remaining applications submitted or any future submissions to any other countries for marketing licensure will be approved in a timely manner or at all. Nor can there be any assurances that if approved in the remaining countries, that the product will be reimbursed by the associated payor systems.

ALZA Corporation—The Company acquired U.S. marketing rights to Ethyol from ALZA, effective October 1, 2001. Previously, ALZA was responsible for sales and marketing of Ethyol in the U.S. under a December 1995 co-promotion agreement between the two companies. In accordance with the original agreement, MedImmune Oncology will pay ALZA a gradually diminishing royalty beginning April 1, 2002 until 2011.

BioTransplant, Inc.—In October 1995, the Company and BioTransplant, Inc. ("BTI") formed a strategic alliance for the development of products to treat and prevent organ transplant rejection. The alliance is based upon the development of products derived from BTI's anti-CD2 antibody, BTI-322, the Company's anti-T cell receptor antibody, MEDI-500, and future generations of products derived from these two molecules (such as siplizumab, or humanized BTI-322). Pursuant to the alliance, the Company received an exclusive worldwide license to develop and commercialize BTI-322 and any products based on BTI-322, with the exception of the use of BTI-322 in kits for xenotransplantation or allotransplantation. The Company has assumed responsibility for clinical testing and commercialization of any resulting products. The Company's clinical development efforts are focused on siplizumab.

Boehringer Ingelheim Pharma KG—In December 1997 the Company entered into a manufacturing and supply agreement with Boehringer Ingelheim Pharma KG ("BI") to produce Synagis for the non-U.S. markets and to provide supplemental production capacity for Synagis sold in the United States. BI also fills and packages the Synagis it produces at its facility. The BI facility is subject to inspection and approval by the appropriate regulatory authorities in connection with maintaining its FDA licensure as well as for obtaining and maintaining approval from certain ex-U.S. countries. While the Company's Frederick manufacturing center was licensed for production of Synagis by the FDA in December 1999, it has not yet been licensed by international regulatory agencies. As such, MedImmune will continue to rely upon BI for production of all Synagis to be sold outside the U.S. for the foreseeable future to meet expected worldwide demand for the product, as well as continuing to rely upon BI as a backup for production of Synagis to be sold in the United States.

CSL Limited—In June 1998, the Company entered into a collaboration with CSL Limited ("CSL") of Victoria, Australia for the development, sale and distribution of FluMist in Australia, New Zealand and some countries in the South Pacific. The Company and CSL are jointly conducting clinical trials in Australia for FluMist. Under the agreement, CSL will sponsor the marketing application with the Therapeutic Goods Administration, Australia's ruling regulatory agency. CSL has exclusive rights to sell and distribute FluMist in these countries, and the Company will share the profits from these sales. The Company also would benefit from expansion of CSL's current flu vaccine in pediatric and healthy adult market segments if and when CSL receives regulatory approval to market FluMist in the territory. In addition, CSL has agreed, under an option agreement, to grant warrants to the Company to purchase CSL common stock upon CSL's attainment of certain milestones.

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Evans Vaccines Limited—In July 1999, the Company entered into an agreement with a division of Celltech Group Plc ("Celltech"), which was later acquired by PowderJect Pharmaceuticals Plc and is now called Evans Vaccines Limited ("Evans"), for the manufacture of key components of FluMist at a manufacturing facility in Speke, U.K., specifically the bulk manufacture of monovalents and diluent, as well as use of the manufacturing facilities. During October 2000, the agreement was restructured with Evans so that the Company would gain direct control over FluMist manufacturing operations, subsequent to Evans' purchase of the facility from Medeva Pharma Limited in September 2000. The new agreement, which runs through 2006, transferred responsibility for bulk manufacture of FluMist, as well as approximately 100 Evans' employees who had been working on FluMist, to MedImmune. The Company also acquired the remaining 24 years of a 25-year lease from Celltech of approximately eight adjacent acres of land in Speke. The Company is using an existing 45,000 square foot structure on this property to build a new FluMist manufacturing facility.

GlaxoSmithKline PLC—In December 1997, the Company entered into a strategic alliance with GlaxoSmithKline PLC to research, develop, manufacture and commercialize therapeutic and prophylactic HPV vaccines. In exchange for exclusive worldwide rights to the Company's HPV technology, GSK provided the Company with an up-front payment of $15 million, research funding of $22.7 million through 2002, potential developmental and sales milestones that together could total up to $48 million, royalties on any product sales and an equity investment of $5 million. Under the terms of the agreement, the companies have collaborated on research and development activities. The Company conducted Phase 1 and Phase 2 clinical trials and manufactured clinical material for those studies. GSK is responsible for Phase 3 clinical trials, as well as regulatory, manufacturing and marketing activities.

        In July 2000, the Company granted GSK a worldwide, exclusive license to itsStreptococcus pneumoniae vaccine technology in exchange for an up-front payment of $10 million and future potential milestones totaling more than $20 million, plus royalties on product sales. Under the terms of the agreement, GSK is responsible for all clinical development, manufacturing and sales and marketing activities for theS. pneumoniae vaccine. The Company completed the technology transfer to GSK in late 2000. The Company originally in-licensed from Human Genome Sciences, Inc. and St. Jude's Children's Research Hospital the technology it out-licensed to GSK.

        In October 1995, the Company signed an agreement with GSK to collaborate on Epstein-Barr virus vaccine technology. Under the terms of the agreement, GSK was granted an exclusive license to produce, use and sell non-live EBV (subunit) vaccines incorporating the Company's technology for prophylactic and therapeutic uses on a worldwide basis, except in Korea, in exchange for an up-front payment, future milestone payments and royalties. In addition, GSK obtained a right of first refusal to an exclusive, worldwide license, excluding Korea, under any intellectual property rights relating to any live EBV vaccine technology developed or controlled by the Company during the term of this agreement. The Company retained the right to co-distribute a monovalent formulation of the EBV vaccine in the United States and to have GSK supply the vaccine. GSK agreed to fund the Company's research and development efforts related to the EBV vaccine in specified minimum amounts during the first two years of the agreement. Unless otherwise terminated, this agreement will expire on a country-by-country basis upon the expiration or invalidation of the last remaining patent covered by the agreement or 10 years from the date of first commercial sale of the vaccine, whichever is later. GSK may terminate the agreement with respect to any country at any time.

Massachusetts Health Research Institute and Massachusetts Biologics Laboratories—In August 1989 and April 1990, the Company entered into a series of research, supply and license agreements with Massachusetts Health Research Institute ("MHRI") and Massachusetts Public Health Biologics Laboratories, then a division of the Massachusetts Department of Public Health ("The State Lab"), covering products intended for the prevention or treatment of CMV and RSV infection and

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other respiratory virus infections by immune globulins or monoclonal antibodies. The Company agreed to pay royalties on all sales using the licensed technology.

Michigan, University of—In February 1995, the Company entered into a materials transfer and intellectual property agreement with the University of Michigan. Pursuant to the agreement, the University of Michigan granted the Company exclusive worldwide rightssecured licenses to certain intellectual property and technology relatingentered into strategic alliances with outside parties for various aspects of research, development, manufacturing and commercialization to the cold-adapted influenza vaccine and proprietary master donor strains of influenza viruses useful in the production of vaccines against influenza and potentially for gene therapy and other uses. Specifically, the Company obtained the exclusive right to develop, manufacture, use, market and sell products incorporating any such intellectual property or using the master strains worldwide. Pursuant to the agreement, the Company was required to grant to the university an irrevocable, royalty-free license for research purposes, or for transfer to a subsequent licensee should the agreement be terminated, to (1) all improvements developed by the Company, its affiliates or sublicensees, whether or not patentable, relating to delivery mechanisms and processes for administration and manufacturing of products, as well as packaging, storage and preservation processes for the master strains and (2) all new technical information acquired by the Company, its affiliates or sublicensees relating to the master strains and products. The agreement terminates upon the later of (1) the last to expire of the university's patents licensed to the Company or (2) 20 years from the date of first commercial sale of a product incorporating the university's technology. The Company has the right to terminate for any reason upon 12 months notice to the university.

Packaging Coordinators, Inc.—In 1998, the Company opened a 34,000 square foot manufacturing suite in Philadelphia, Pennsylvania, where doses of FluMist are blended and filled. This suite is located within a facility owned by Packaging Coordinators, Inc., ("PCI"), a division of Cardinal Health, Inc., with which the Company has contracted forwill owe future royalties if the labelingproduct candidates are licensed and packaging of FluMist for commercial sale until October 2004. In August 2000, the Company extended the term of its original agreement with PCI until December 2004, with options to extend for up to two additional three year terms.

Schering-Plough Corporation—In May 1993, the Company entered into an exclusive marketingcommercialized. These entities and distribution agreement with Scherico, Ltd. ("Scherico"), an affiliate of Schering-Plough, for Ethyoloutside parties are described 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.preceding "Product Candidates" section.

        MedImmune also entered into licensing agreements for Ethyol and NeuTrexin with affiliates of Schering-Plough for several additional territories outside the United States.        The licensees are required to pay the Company compensation based on their net sales of the products, and the Company sells the products to the licensees at an agreed upon price.

Wyeth—In January 1999, the Company signed a worldwide collaborative agreement with Wyeth Lederle Vaccines, a subsidiary of Wyeth, for the development, manufacture, distribution, marketing, promotion, and sale of live, attenuated, cold adapted, nasally delivered influenza vaccines ("flu vaccines"). Under this agreement, Wyeth has exclusive worldwide rights to market the flu vaccines, excluding Korea, Australia, New Zealand and some South Pacific countries. The two companies will co-promote the flu vaccines in the United States. Wyeth holds the marketing rights for an initial term of seven years from the first commercial sale of the flu vaccines in the U.S. and an initial term of eight years from the first commercial sale of the flu vaccines outside the United States. Wyeth also has an

11



option to extend its rights in the U.S. for an additional four years and to extend its international rights for an additional three years. Extending both U.S. and international rights triggers payments to the Company in the range of $145 million to $400 million. Under the terms of the collaborative agreement with Wyeth, the two companies are to collaborate on the regulatory, clinical and marketing programs for the flu vaccines. As a part of the collaboration, the Company is to receive certain payments related to the achievement of key milestones and events for the flu vaccines.

        Previously, the Company also had a strategic alliance with American Cyanamid Company, which was later acquired by American Home Products (now Wyeth), which provided for the co-development and co-promotion of RespiGam by the two companies. The agreement, entered intobelieves that investing 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 forearly stage biotechnology companies allows 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 RespiGambenefit from other innovations 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.

Collaborations and Business Relationships—Entered into in 2002

A&G Pharmaceutical, Inc.—In April 2002,industry. Accordingly, the Company entered intohas established a research collaboration with A&G Pharmaceutical, Inc. to license technology relating to PC-Cell Derived Growth Factor, a monoclonal antibody the initial indications of which would apply to breast cancer.

Gensia Sicor Pharmaceuticals, Inc.—In December 2002, MedImmune entered into an agreement with Gensia Sicor Pharmaceuticals, Inc. ("Gensia Sicor") for filling and packaging of Synagis produced at the Company's FMC. The initial term of the agreement is for five years, at the end of which, the agreement automatically renews in one year intervals unless terminated in accordance with the agreement.

Iomai Corporation—In December 2002, the Company made an investment in Iomai Corporation, a private biopharmaceutical company, as part of a Series C Preferred Stock financing round offered by Iomai. Iomai's proprietary transcutaneous immunization technology ("TCI") may allow delivery of vaccines through a skin patch. This investment represented the first undertaken by the Company through itswholly owned venture capital subsidiary, MedImmune Ventures, Inc.

Panacea, 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 February 2002,2003, the Company entered into a research collaboration with Panacea Pharmaceuticals,also invested in: Tercica, Inc. to develop Human Aspartyl (Asparaginyl) Beta-Hydroxylase technology.

ViroNovative, b.v.—In August 2002, MedImmune announced that it had licensed exclusive worldwide rights to human metapneumovirus from ViroNovative, b.v., a private Dutch biotechnologybiopharmaceutical company affiliated with Erasmus Universityfocused on the development and commercialization of therapies to treat disorders of the endocrine system, including human growth and diabetes; 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 VaxInnate Corporation, an early stage company engaged in Rotterdam.

Other Collaborations and Business Relationships

        The Company has a number of other collaborative and business agreements with academic institutions and business corporations, including agreements with: 1) Applied Molecular Evolution ("AME") related to two different agreements, both dated February 1999: one related to the development of four monoclonal antibodies using AMEs directed evolution protein engineering technology to optimize antibodies ("AMEsystem"), and the other related to the in-licensing of worldwide rights to Vitaxin; 2) ARCH Development Corporation related to its HSV and EBVimmunostimulating agents, including vaccines and various recombinant methods and materials, dated July 1992; 3) Becton Dickinson and Company

12



("Becton") for the supply of Becton's AccuSpray™ non-invasive nasal spray delivery system for the administration of FluMist, dated July 1998; 4) Chiron Corporation for the filling and packaging of Synagis produced at MedImmune's FMC, dated April 1998 and updated in 2001; 5) Genaera Corporation to develop and commercialize antibodies or recombinant molecules against IL-9 to prevent symptoms of asthma and other respiratory diseases, dated April 2001; 6) Georgetown University, dated February 1993, the German Cancer Research Center, dated June 1996, and the University of Rochester, dated October 1995, covering development of vaccines for human papillomaviruses; 7) Mount Sinai School of Medicine ("Mount Sinai") associatedimmunosuppressive agents. In connection with patents, patent applications and associated know-how related to recombinant negative-strand RNA virus expression systems and vaccines, attenuated influenza viruses and other technology, dated February 1993; 8) National Institute of Allergy and Infectious Diseases related to clinical and research and development agreements for the FluMist (dated March 1995, updated June 2000), potential pandemic flu strain vaccines (dated September 2000), CMV vaccine (dated June 2000), and PIV-3 vaccine programs (dated May 1996); 9) Precision Pharma Services, Inc., for the contract manufacture of Fraction II+III paste for CytoGam, dated December 2002; 10) Purdue Research Foundation for the development of EphA2 technology, dated October 2001; 11) Specific Pathogen-Free Avian Supply, a division of Charles River Laboratories, for the purchase of pathogen-free hens' eggs for the production of FluMist, dated June 1999 and extended through December 2004.

        The Company has additional license agreements with third parties for CytoGam, RespiGam, Synagis, Ethyol and substantially all of its other potential products. Under such license agreementsinvestments, the Company is obligatedwill sometimes be entitled to pay royalties on any salesappoint a member of the board of directors of these products. In addition, theportfolio companies, and in such cases, a Company has also entered into various agreementsemployee is generally appointed to gain access to various technology and intellectual property to advance its pipeline.serve in that role.

Marketing and Sales

        The Company has developed a sales and marketing organization that it believes is responsive to the increased importance of managed care and the needs of the healthcare industry to provide higher quality care at lower costs. 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 pediatric/neonatal care or transplantation for the promotion of Synagis, FluMist and CytoGam, respectively. Approximately 90 pediatric110 biologic sales specialists cover the topapproximately 10,000 pediatric practices in the United StatesU.S. for the promotion and detailing of Synagis. ApproximatelySynagis and FluMist. 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 the Ross Products division of Abbott Laboratories for the promotion of Synagis in the United States.Abbott. Through its 500 sales representatives, the Ross Products division details Synagis to approximately 27,000 office-based pediatricians and 6,000 birth hospitals. In addition, the Company has a co-promotion agreement with Wyeth to market FluMist in the U.S., if and when the product is approved by the FDA and subsequently launched. Through approximately 500 sales representatives, sales managers, and managed care specialists, the Wyeth sales team would detail FluMist to office-based pediatricians and primary care physicians, while MedImmune's representatives would detail the product to leading infectious disease/respiratory care physicians, thought leaders, pharmacies and employers.

8


        In the U.S., the Company must also relyrelies upon specialty distributors and wholesalers to deliver Synagis to its currently marketed products to the end users,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 a relatively small number of specialty distributors and wholesalers who provide such services. There can be no assurances that these distributors and wholesalers will adequately provide their services to either the end users or to the Company, nor can there be any guarantee that these service providers remain solvent. The Company also reduced the number of wholesalers involved with Synagis to properly manage the SDN.

13


solvent. If        For FluMist, the Company has a co-promotion agreement with Wyeth to market the vaccine in the United States. Through approximately 450 sales representatives, sales managers, and when approved,managed care specialists, the Wyeth sales team details FluMist would beto 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 the end user through a channel customized for FluMistphysician's offices, pharmacies, and vaccination clinics by Wyeth.

        The Company's products are sold outside the United States through distributors. Abbott serves asAs discussed in Note 4, "Segment, Significant Customer and Geographic Information," of the Company's exclusive distributor for Synagis outsideConsolidated Financial Statements, the Company has four major customers who individually provided over 10% of its total revenue during the United States. Scherico islast three years. Note 4 also contains information concerning the exclusive distribution partner for Ethyolgeographic areas in which the countries comprisingCompany operates. The Company faces risks related to foreign currency exchange rates, as discussed under 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.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 U.S. and Europe. In addition, the Company has entered into manufacturing, supply and purchase agreements with 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. Certain 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 addition, 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 currently 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 is investigating alternatives to them. Raw materials may be subject to contamination and/or recall. A material shortage, contamination, and/or recall could adversely impact or disrupt MedImmune's commercial manufacturing of its products.

        SynagisSynagis—The primary manufacturing facility for supply of Synagis in the U.S. is the Company's Frederick Manufacturing Center.Center ("FMC"). The FMC is a biologics facility containing a cell culture production area for the manufacture of recombinant products. Filling and packaging of final Synagis product is completed by several vendors, including Chiron,two vendors: Sicor, Inc. and Boehringer Ingelheim, or Gensia Sicor. In August 2001, the Company received approval from the FDA to begin selling Synagis manufactured with an improved fermentation process, called the Enhanced Yield ProcessIngleheim Pharma KG ("EYP"BI"), which enables the Company to make over 300 percent more Synagis per run than produced previously. In 2002, the Company began selling product manufactured under the new EYP process, having a positive impact on the product's cost of goods..

        Supplemental supply of Synagis for the U.S. market is manufactured by BI under a manufacturing and supply agreement. BI also fills and packages Synagis produced at its German facility. As the sole supplier of Synagis for all territories outside the U.S., and supplemental supplier for the U.S. market,

9



BI is responsible for obtaining and maintaining licensure and approval for making the product at its facility from all appropriate regulatory authorities (includingincluding the FDA).FDA. To provide adequate backup for international supply of Synagis, MedImmune will seek to obtain approval from the appropriate international regulatory agencies to sell Synagis made at FMC outside the United States.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 diversifyreduce its reliance for supply of its largest product onSynagis outside the U.S. to any one manufacturing site.

        Ethyol and NeuTrexinEthyol—All bulk drug substance for Ethyol and NeuTrexin is produced by contract manufacturers. In 2002,2003, filling and finishing of all product was completed at MedImmune Oncology's productsthe Company's manufacturing facility in Nijmegen, the Netherlands. To backup its own filling and finishing capabilities, the Company has an agreement with Ben Venue to fill and finish Ethyol for sale in the United States.U.S.

        CytoGam—CytoGam and RespiGam—CytoGam and RespiGam areis 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 December 2000 until December 2002, when the Company made the decision to outsource the activityprocess to Precision Pharma Services, Inc. The intermediate paste is processed into bulk product, by the Massachusetts State Lab and then filled and packaged by the State Lab or Aventis Pasteur.Massachusetts Biologic Laboratories. The Company is exploring opportunities to use its plasma production suite, formerly involved in the manufacture of CytoGam, in a manner that would support the production of its other marketed and developmental-stage recombinant products.

14



        FluMistFluMist——Since 1998, supplies for all FluMist clinical trials have beenis produced at several facilities either owned or leased by the Company. The master virus seeds are prepared at the Company's Mountain View, California facility. The bulk monovalents and diluent are produced at facilities leased from Evans Vaccines, Limiteda wholly owned subsidiary of Chiron Corporation in Speke, the United Kingdom. Blending of FluMist into its trivalent formulation and filling of the final vaccine into the AccuSprayAccuSpray™ applicators, the non-invasive nasal spray delivery system developed and supplied by Becton Dickinson, and the Company, takes place at the Company's Philadelphia, Pennsylvania facility. None of these existing manufacturing facilities have yet been licensed for the manufacture of FluMist, nor have they manufactured FluMist at a sustained level for commercial supply. The Company has begun the initial stages of commercial scale manufacturing of FluMist for sale during the 2003-20042004-2005 influenza season, pending receipt of marketing approval from the FDA.season.

Patents, Licenses and Proprietary Rights

        ProductsThe products and product 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 licensesin-licenses over 100 patents worldwide related to its products on the market or in development.product candidates. The Company also owns or licensesin-licenses at least 100 additional applications for patents currently pending in the United States.U.S. A list of the U.S. patents the Company owns or has licenses toin-licenses is filed as an exhibit hereto as Exhibit 99.1 and is incorporated by reference into this document as Exhibit 99.3.document.

        The Company believes that there are other patents issued to third parties and/or patent applications filed by third parties that 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 asserted 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

15



or seizure of products, total or partial suspension of production, refusal of the government to approve product license applications, restrictions on the Company's ability to enter into supply contracts and criminal prosecution. The FDA also has the authority to revoke product licenses and establishment licenses previously granted.

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 Drugdrug 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 and Ethyol are currently protected from potential market competition under the Orphan Drug Actqualify as orphan drugs for the following indications: (1) CytoGam has market exclusivity for use in lung, liver, pancreas and heart transplants until December 2005; and (2) Ethyol has market exclusivity for its currently licensed radioprotective indication through June 2006. Ethyol, NeuTrexin and siplizumab have all been designated as orphan drugs for potential use in indications that have not yet been approved by the FDA: 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. Orphan drug designations for the use of

11



Ethyol to prevent side effects of cisplatin in ovarian cancer patients, and the use of RespiGam to prevent RSV disease in high-risk infants recently expired.expired in 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 regulationregulations 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

16



formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with those of the Company. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize products on their own or through joint ventures.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 has been aware of three main distributors of inactivated, injectable vaccines (Aventis-Pasteur, Medeva/Evans and Wyeth).vaccines. From these three distributors, approximately 80 million doses of these inactivated vaccines have traditionally been sold annually in the United States.U.S. In 2002, Wyeth announced its

12



intent to no longer produce the inactivated, injectable vaccine after the completion of the 2002-2003 influenza season. The Company is also aware that Merck has licensed a Russian live virus intranasal vaccine, currently available in 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, Amgen, Inc., Chiron Corporation, Aventis SA, Eli LillyPfizer, and Company, Genentech 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.

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        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.

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Officers and Key Employees of the Company

Name

 Age
 Position

 Officer
Since

Wayne T. Hockmeyer 58 Chairman 1988

David M. Mott

 

37

 

Chief Executive Officer and Vice Chairman

 

1992

Melvin D. Booth

 

57

 

President and Chief Operating Officer

 

1998

James F. Young, Ph.D.

 

50

 

President, Research and Development

 

1989

Franklin H. Top, Jr., M.D.

 

67

 

Medical Director

 

1988

Armando Anido

 

45

 

Senior Vice President, Sales and Marketing

 

1999

Edward J. Arcuri, Ph.D.

 

52

 

Senior Vice President, Manufacturing

 

2002

Edward M. Connor, M.D.

 

50

 

Senior Vice President, Clinical Development

 

1999

Gregory S. Patrick

 

51

 

Senior Vice President and Chief Financial Officer

 

2001

Gail Folena-Wasserman

 

48

 

Senior Vice President, Development

 

2002
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.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. In 2002, Dr. Hockmeyer was awarded a Doctor of Sciencehonoris causa from Purdue University. From 1966 to 1986 he served as a commissioned officer in the United States Army. From 1980 to 1986 he was Chairman of the Department of Immunology at the Walter Reed Army Institute of Research. In 1986, Dr. Hockmeyer joined Praxis Biologics as Vice President of Research and Development and was there until founding MedImmune, Inc. in 1988. Active in other leadership roles, Dr. Hockmeyer is a member of the Maryland Economic Development Commission and the Maryland Technology Development Corporation.Commission. He is also a member of the Board of Directors of Advancis Pharmaceutical Corp., Diversa Corporation, GenVec, Inc., InterMune Pharmaceuticals, Inc., Idenix Pharmaceuticals, Inc., Tercica, Inc., and TolerRx Inc. Dr. Hockmeyer is also a member ofdoes not intend to seek re-election to the Board of Directors of the Biotechnology Industry Organization.InterMune Pharmaceuticals, Inc. or Diversa Corporation when his current term on those boards expires in May 2004.

        David M. MottMott—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

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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.

Melvin D. Booth—Mr. Booth joined the Company in October 1998 as President and Chief Operating Officer and was elected to serve on the Board of Directors in November 1998. Prior to joining the Company, Mr. Booth was President, Chief Operating Officer and a member of the Board of Directors of Human Genome Sciences, Inc. from July 1995 until October 1998. Prior to that time, Mr. Booth was employed at Syntex Corporation from 1975 to 1995, where he held a variety of positions, including President of Syntex Laboratories, Inc. from 1993 to 1995 and Vice President of Syntex Corporation from 1992 to 1995. From 1992 to 1993, he served as the President of Syntex Pharmaceuticals Pacific. From 1991 to 1992, he served as an area Vice President of Syntex, Inc. From 1986 to 1991, he served as the President of Syntex, Inc., Canada. Mr. Booth is a past Chairman of the Pharmaceutical Manufacturers Association of Canada, and is currently a board member of NovaScreen Biosciences Corporation, Focus Technologies, Inc., and Spacehab, Inc. Mr. Booth graduated from Northwest Missouri State University and holds a Certified Public Accountant Certificate.

        James F. Young, Ph.D.Dr. Young was promoted to the position of President, Research and Development, in December 2000. 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. Young is a member of the Board of Directors of Iomai Corporation.

        Franklin H. Top, Jr., M.D.Armando Anido, R.Ph.——Dr. Top became the Company's Medical Director in 1990. Dr. Top joined the Company in June 1988 as Executive Vice President andMr. Anido was elected to the Board of Directors in July 1988. Prior to joining the Company, Dr. Top served asappointed 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.

Armando Anido—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 master'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 Development,Chief 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.

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Gregory S. Patrick—Mr. Patrick joined the Company in February 2001 as Senior Vice President and Chief Financial Officer. Prior to joining the Company, he was Chief Financial Officer for Ventiv Health, Inc., a spin-off of global marketer Snyder Communications, from 1999 through 2001. Prior to this time, Mr. Patrick was employed by Merck & Company, Inc. from 1985 to 1999. During this period, Mr. Patrick held a series of positions, including Vice President and Group Controller in 1999, and Vice President and Controller of the manufacturing division from 1991 to 1999. Mr. Patrick received a master of business administration degree in finance from New York University, and a master of engineering degree and a bachelor of science degree in environmental engineering with a minor in chemical engineering from Rensselaer Polytechnic Institute.

        Gail Folena-Wasserman, Ph.D.Dr. Folena-Wasserman was promoted to Senior Vice President, Development in February 2002. She 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. 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.

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 Quality 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. 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.

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Employees

        The Company considers relations with its employees to be good. As of December 31, 2002,2003, the Company had 1,505approximately 1,650 full-time permanent employees and approximately 100 temporary employees.

        Approximately 100 of the Company's employees in EnglandThe United Kingdom are members of a labor union, with which the Company renegotiates annually.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 wouldwere 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. MedImmune's results may differ significantly from the results discussed in the forward-looking statements as a result of certain factors that 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 thea significant portion of Company's business can exaggerate the consequences of any factor that adversely affects its sales and may causecauses significant fluctuations in quarterly operating results.

        Synagis accounted for approximately 85%Sales of three of the Company's total productproducts, Synagis, FluMist, and RespiGam, are seasonal in nature. Synagis and RespiGam sales in 2002. Synagis is used to protect high-risk infants from serious lower respiratory tract disease caused by RSV. Because RSV occursoccur primarily during the winter months, the major portion of Synagis sales occurs duringin 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 the Company's profitsrevenues 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 quarter-to-quarter operating results to vary widely.applicable sales season. Furthermore, the Company's current product base would limit its 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.

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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 could cause annual financial resultsmake the commercialization of FluMist difficult. These factors include, but are not limited to, be below expectations. In addition, this seasonality

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will be relevantsignificant competition in the marketplace by other influenza virus vaccines, the higher cost of manufacturing FluMist relative to FluMist, which, if approvedcompeting vaccines, perceived or actual risks related to the use of a live virus vaccine, lack of acceptance by the FDA,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 expecteddependent upon successful manufacturing of the product, which may be adversely affected if the Company is unable to be sold primarilyperform the complex annual update of the FluMist formulation for new influenza strains, if there are problems or difficulties in the thirdcomplex manufacturing process or if there is a sudden loss of inventory. There can also be no assurance that the Company could successfully 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 fourth quartersthe number of returned doses (which is governed by Wyeth's return goods policy). Since these values are not within the year, which isCompany's control, there can be no assurance that the most common timeCompany's cost of goods will not exceed its revenues for yearly influenza vaccines.

this product. If the Company is unable to successfully commercialize FluMist, the anticipated benefits of its acquisition of MedImmune Vaccines willAviron may not be realized.realized, and the Company's results of operations would be negatively impacted by impairment charges for the write-down of manufacturing and intangible assets related to FluMist.

The Company may not be able to bring its product candidates to market.

        In January 2002,Research and development activities are costly and may not be successful, and there can be no assurance that any of the Company acquired MedImmune Vaccines for approximately $1.6 billion. The principal asset of MedImmune Vaccines was its leadCompany's product candidate, FluMist, which is a vaccine delivered as a nasal mist for the prevention of influenza. FluMist is not currentlycandidates will be approved for marketing by the FDA or the equivalent regulatory agency of any other country. A significant portion of the Company's annual operating budget is spent on research, development and clinical activities. Currently, numerous products are being developed that may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. There 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 a 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 act in accordance 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 a third party to fulfill its obligations to the Company, there can be no assurance that such damages will adequately compensate the Company for indirect or consequential losses such as the damage to a product brand or the Company's reputation. If a third party does not fulfill its obligations to the Company, the Company may have to incur substantial additional costs, which could have a material adverse effect on the Company's business.

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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 production process; sudden loss of inventory and the inability to manufacture products at a cost that is competitive with third party manufacturing operations. Furthermore, MedImmune has not produced FluMist for commercial use for a sustained period and may encounter additional unforeseeable risks as the Company develops additional commercial manufacturing experience with this product. In addition, the Company's facilities in the United 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 its Biologic License Application ("BLA")not limited to animal products or by-products. If these raw materials contain contaminants that are not removed by our 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 under reviewcritical 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

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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 FDA.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 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 the Company's products may be inadequate or costly to enforce.

        The Company may not be able to obtain effective patent protection for its products in development. There are extensive patent filings in the biotechnology industry and the patent position of biotechnology companies generally is highly uncertain and involves complex legal and factual questions. There can be no assurance that the FDACompany's patent applications will approve FluMist for marketing. Evenresult in patents being issued or that, if it were approved for marketing,issued, such patents will afford protection against competitors with similar technology. Litigation may be necessary to enforce MedImmune's intellectual property rights. Any such litigation will involve substantial cost and significant diversion of the Company's resources and there can be no assurance that FluMistany of the Company's litigation matters will result in an outcome that is beneficial to the Company.

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If the Company fails to obtain and maintain any required intellectual property licenses from third parties, its product development and marketing efforts will be limited.

        Patents have been and will be issued to third parties, and patent applications have been filed by third parties, that claim one or more inventions used in the development, manufacture or use of the Company's products or product candidates. These patents (including any patents issuing from pending patent applications), if valid and enforceable, would achieve commercial success. Indeed, there are a number of issues which could impactpreclude the Company's ability to commercialize FluMist, including: inabilitymanufacture, use or sell these products unless the Company obtains a license from the applicable third party. These third parties are not generally required to performprovide the complex annual update of the FluMist formulation for new influenza strains (because the FDA may delay selection of strains, or because difficulties or delays may be experienced in the technically demanding process followed each year to update the formulation of FluMist); if there are difficultiesCompany with the manufacturing process or a sudden loss of inventory, it could cause significant loss in sales due to the seasonal nature,license and, thereas such, obtaining any such licenses may not be sufficient quantities of vaccine; ifpossible or could be costly and impose significant royalty burdens on the market demand for FluMist exceeds manufacturing capacity, revenuesCompany. There can be no assurance that a license will be available on terms acceptable the Company or at all, which could have a material adverse effect on the 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 limited; and FluMist acceptanceable to produce products that compete with those of the Company. Litigation may be limitednecessary 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 competitors may render the Company's products obsolete.

        If competitors were to develop superior products or technologies, the Company's products or technologies could be rendered noncompetitive or obsolete. Developments in the biotechnology and pharmaceutical industries are expected to continue at a numberrapid pace. Success depends upon achieving and maintaining a competitive position in the development of factors, including perceived effectivenessproducts and technologies. Competition from other biotechnology and pharmaceutical companies can be intense. Many competitors have substantially greater research and development capabilities, marketing, financial and managerial resources and experience in the industry. If a competitor develops a better product or technology, the Company's products or technologies could be rendered obsolete, resulting in decreased product sales and a material adverse effect to the Company's business. For example, the master virus donor strain used to create FluMist is not protected by patents and is, instead, protected by trade secrets associated with the 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 vaccines (includingvirus vaccine based upon similar technologies. Even if a competitor creates a product that is not technologically superior, the inactivated influenza vaccine), unfavorable publicity concerning other vaccines, pricing of FluMist, broad accessibilityCompany's products may not be able to FluMist, reimbursement policies ofcompete 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.

        U.S. federal government entities, most significantly the FDA, the U.S. Securities and third-party payors,Exchange Commission, the frozen storage requirementsInternal Revenue Service, The Occupational Safety & Health Administration, the Centers for those distributingMedicare and shipping the productMedicaid Services and the requirementU.S. Department of frozen storage capacity by those administeringVeteran's Affairs, as well as regulatory authorities in each state and other countries have each been empowered to administer certain laws and regulations applicable to the vaccine. The Company will not realize the anticipated benefitsCompany. Many of the MedImmune Vaccines acquisition unless FluMist achieves commercial success.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 the Company's efforts will be sufficient to ensure compliance or to ensure that it is in technical compliance with all such laws and regulations at any given time. In addition, if manufacturing problems are encountered, or the Company is unablesubject to fully utilizeaudit, 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 Company is found to not be in compliance

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with any of these laws and regulations, the Company and, in some cases its capacity, itofficers, may be subject to fines, penalties, criminal sanctions and other liability, any of which could have a material adverse effect on the Company's business.

The Company may not recoverbe able to hire or retain highly qualified personnel or maintain key relationships.

        The success of the Company's business depends, in large part, on its investment incontinued ability to attract and retain highly qualified scientific, manufacturing facilitiesand sales and marketing personnel, as well as senior management such as Mr. David M. Mott, the Company's Chief Executive Officer, President and Vice Chairman and Dr. James F. Young, the Company's President, Research and Development. In addition, the Company relies on its ability to develop and maintain important relationships with leading research institutions and key distributors. Competition for FluMist in Pennsylvaniathese types of personnel and England.relationships is intense among pharmaceutical, biopharmaceutical and biotechnology companies, and the Company's inability to attract or retain such employees and relationships could have a material effect on its business. The Company does not maintain or intend to purchase "key man" life insurance on any of 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.

        As a result of the MedImmune VaccinesThe Company has expanded significantly in recent years due to both acquisition and the recent expansion of marketing efforts for Synagis and Ethyol, the Company's workforce has expanded from 877 full-time permanent employees at December 31, 2001 to 1,505 full-time permanent employees at December 31, 2002.internal growth. To accommodate its rapid growth and compete effectively, MedImmunethe 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.

There are certain inherent risks in the manufacture of biotechnology and pharmaceutical products.

        MedImmune'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 production process; sudden loss of inventory and the inability to manufacture products at a cost that is competitive with third party manufacturing operations. Furthermore, MedImmune has not produced FluMist for a sustained period for commercial use. In addition, some of the Company's facilities are unionized and may be subject to manufacturing interruptions due to labor action.

        As is common in the industry, the Company relies upon license agreements and supply contracts with third parties, who, in turn may rely upon others for the fulfillment of their contractual obligations

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to the Company. There can be no guarantee that the companies from which MedImmune has licensed technology or from which it secures supplies will be able to comply with their contractual obligations, or that the Company will be able to protect its license or sublicense rights.

The Company is dependent on third party manufacturers and suppliers that may not perform as expected.

        For the foreseeable future, MedImmune expects to be dependent on a limited number of contract manufacturers for some or all of its current and future products. These suppliers also rely upon other suppliers in the supply chain, and in some instances those suppliers may provide heavily concentrated services or goods, and there may be no back up supplier. In addition, in many instances the Company does not have redundant operational or manufacturing capacities, such that it often has only a single source provider for the supply of certain material or the manufacturing process at issue, which may create significant business interruption risk. Although now able to produce the majority of the worldwide supply of Synagis, the Company is unable to produce all of the required supply. Accordingly, it depends on Boehringer Ingelheim to produce a portion of Synagis. BI's facility is subject to inspection and approval by both United States and foreign regulatory authorities to maintain its license to manufacture Synagis. Should BI be unable to supply Synagis for any reason, there can be no assurance that an alternate manufacturer could be secured on a timely basis without increased cost or at all. In addition, since the Company does not have the capability to fill and package Synagis produced at the Frederick Manufacturing Center, the Company depends on Chiron for that portion of the manufacturing process. Chiron's facility is similarly subject to inspection and approval by United States regulatory authorities to maintain its license to fill and package products. Should Chiron be unable to fill and package Synagis for any reason, there can be no assurance that an alternate source could be secured to fill and package Synagis on a timely basis without increased cost or at all.

        The Company relies on a limited number of suppliers to obtain substantially all of the plasma used as raw material for the production of CytoGam and RespiGam. The Company relies upon the State Lab of Massachusetts to manufacture all of the bulk product for CytoGam and to produce all of RespiGam. The Company also relies on Precision Pharma, Inc. to make the intermediate product component for CytoGam and relies upon Aventis Pasteur to package and fill its plasma-derived products. The manufacturing arrangements with the State Lab are renegotiated annually. The Company cannot guarantee that any new arrangements will have terms favorable to it. The Company also cannot guarantee that the contractors upon which it relies to produce its plasma-derived products will be able to meet their obligations.

        The Company depends on third parties to manufacture the drug substance for Ethyol. There can be no assurance that third party manufacturers will give the Company's orders highest priority, or that substitute manufacturers could be found without significant delays or increased costs.

        The Company depends on Specific Pathogen-Free Avian Supply, a division of Charles River Laboratories, for the supply of pathogen-free hens' eggs for bulk manufacture of FluMist. Should Specific Pathogen-Free Avian Supply be unable to supply the eggs for any reason, there can be no assurance that an alternate egg source could be secured on a timely basis, without increased cost or at all. The Company also relies upon Becton Dickinson as the sole source for the custom-made AccuSprayers used to deliver FluMist intranasally. If for any reason, Becton Dickinson would be unable to supply the sprayers in a timely manner, there can be no assurance that a substitute manufacturer could be found without significant delays or increased costs, or that the Company would be able to meet product demand for the following influenza season.

        Because the Company's various manufacturing processes and those of its contractors are highly complex and are subject to a lengthy FDA approval process, alternative qualified production capacity may not be available on a timely basis or at all. Difficulties or delays in the Company's and the

22



Company's contractors' manufacturing of existing or new products could increase our costs, cause us to lose revenue or market share and damage our reputation.

The Company relies upon a limited number of pharmaceutical wholesalers and distributors that could impact the ability to sell the Company's products.

        In the U.S., the Company relies upon specialty distributors and wholesalers to deliver its currently marketed products to the end users, including physicians, hospitals, and pharmacies. There are a relatively small number of specialty distributors and wholesalers who provide such services. There can be no assurances that these distributors and wholesalers will adequately provide their services to either the end users or to the Company, nor can there be any guarantee that these service providers will remain solvent. Given the high concentration of sales to certain pharmaceutical distributors and wholesalers, the Company could experience a significant loss if one of the top four or five customers declared bankruptcy or was otherwise unable to pay its obligations to MedImmune.

        The Company's products are sold outside the United States through distributors. Abbott International serves as the Company's exclusive distributor for Synagis outside of the United States. Scherico is the exclusive distribution partner for Ethyol in the countries comprising the European Territories. Scherico and other affiliates of Schering-Plough have various other licensing and distribution arrangements for Ethyol and NeuTrexin outside of the United States. There can be no guarantee that these distributors will adequately provide services to the Company.

Research and development activities are costly and may not be successful.

        A considerable portion of the Company's annual operating budget is spent on research, development and clinical activities. In 2002, approximately $144.2 million was spent on research and development projects, including costs of clinical trials. Currently, numerous products are being developed that may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. There is also no guarantee that the Company will be able to generate additional product candidates for its pipeline, either through internal research and development, or through the successful in licensing of products or technology.

        Further, the Company relies on numerous third parties to assist in various states of the development process. Third-party contract costs are typically substantial. In addition, the third party contractors used may be unable to complete their work in a timely fashion or in a manner that is satisfactory. Should they be unable to meet the Company's needs, it may have to incur substantial additional costs, which could have a material adverse effect on business.

The Company is dependent on third party marketing partners that may not perform as expected.

        The Company depends on strategic alliances with marketing partners to accomplish many of its sales goals such as its agreement with Abbott Laboratories under which Abbott's Ross Products Division co-promotes Synagis with the Company in the United States. Likewise, MedImmune has an agreement with Wyeth relative to the commercialization of FluMist. The Company also relies on various strategic alliances with marketing partners for international sales of its products, such as Abbott International for Synagis, and various affiliates of Schering-Plough for Ethyol. At this point, the Company has no infrastructure or ability to commercialize a product internationally without the assistance of these international distributors. If the Company's marketing partners, either in the U.S. or international, fail to devote sufficient effort and attention to achieving those goals, its product sales would be adversely affected.

23



The Company is dependent upon developing non-traditional marketing channels to market its products.

        Certain of the Company's products, including FluMist, are dependent upon the creation of non-traditional marketing channels to realize full commercial potential. This includes selling through chain pharmacies and employer health plans, as a complement to traditional detailing to physicians. We cannot assure you that we will successfully develop these marketing channels.

Patent protection for the Company's products may be inadequate or costly to enforce.

        The Company may not be able to obtain effective patent protection for its products in development. The biotechnology industry is one in which there are extensive patent filings. The patent position of biotechnology firms generally is highly uncertain and involves complex legal and factual questions. To date, no consistent policy has emerged regarding the breadth of claims allowed in biotechnology patents. Accordingly, there can be no assurance that the Company's patent applications will result in patents being issued or that, if issued, such patents will afford protection against competitors with similar technology. Litigation could be necessary from time to time to enforce MedImmune's intellectual property rights. There has been substantial litigation regarding patent and other intellectual property rights in the biotechnology industry. The Company is not aware at this time of any infringement of its patents. If required to litigate, there could be substantial cost involved and significant diversion of the Company's business efforts. In addition, the FluMist donor strain is not protected by patents, and is instead, protected by trade secrets associated with the technology of creating cold-adapted, temperature sensitive live influenza vaccines. There can be no assurances that a competitor will not create a competing influenza vaccine based upon similar technologies.

If the Company fails to obtain any required patent licenses from third parties, its product development efforts could be limited.

        The Company believes that there are patents issued to third parties and/or patent applications filed by third parties that could apply to each of its products and product candidates. These patents and/or applications could limit the Company's ability to manufacture, use or sell its products. In such a case, the Company may be required to obtain a patent license to avoid infringing a third party's intellectual property rights. Such licenses could impose significant royalty burdens on the Company. If such a license were necessary, there can be no assurance that it would be available on terms acceptable to the Company or at all, which could have a material adverse effect on its business.

Technological developments by competitors may render the Company's products obsolete.

        If competitors were to develop superior products or technologies, the Company's products or technologies could be rendered noncompetitive or obsolete. Developments in the biotechnology and pharmaceutical industries are expected to continue at a rapid pace. Success depends upon achieving and maintaining a competitive position in the development of products and technologies.

        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 85% of the Company's product sales in 2002. The Company is not aware of any competing product being marketed anywhere in the world for the prevention of RSV disease other than RespiGam. Nevertheless, competition from other biotechnology and pharmaceutical companies can be intense. Many competitors have substantially greater research and development capabilities, marketing, financial and managerial resources and experience in the industry. Were a competitor to develop a better product or technology, the Company's products or technologies could be rendered obsolete, decreasing product sales and resulting in a material adverse effect on the Company's business.

24



Compliance with government regulations is costly and time-consuming.

        Substantially all of the Company's products require costly and time-consuming regulatory approval by governmental agencies. In particular, human therapeutic and vaccine products are subject to rigorous preclinical and clinical testing for safety and efficacy and approval processes by the FDA in the United States, as well as regulatory authorities in foreign countries. There can be no assurance that required approvals will be obtained. If the Company is unable to obtain these approvals on a timely basis or at all, its ability to successfully market products directly and through collaborators, and to generate revenues from sales or royalties, would be impaired.

        All approved products are subject to continuing regulation. If the Company were to fail to comply with applicable requirements, it could be subject to: fines, recall or seizure of products; total or partial suspension of production; refusal by the government to approve our product license applications; restrictions on our ability to enter into supply contracts; and criminal prosecution.

        The FDA also has the authority to revoke product licenses and establishment licenses previously granted. The FDA also has the authority to limit the approved indications/uses for which a product is sold. Many products have multiple indications (uses) for which they can be promoted. Certain products are approved under the FDA's Accelerated Approval Regulations, which require additional studies to verify and describe the clinical benefit of an approved indication. If the FDA does not believe that an additional study meets the requirements of accelerated approval, it may withdraw the approval of a certain indication, thus precluding the Company from promoting the product in that indication/use. Should the FDA revoke any product or establishment licenses granted to the Company, or limit the indications for which a product is sold, it could have a material adverse effect on its business.

The Company's products may receive further scrutiny after approval by regulatory agencies for adverse events relating to the product.

        Prior to approval by the FDA, as well as international regulatory agencies, drug products are subject to rigorous preclinical and clinical testing for safety and efficacy. From these trials, a product's "adverse event profile" is identified. This profile is disclosed on each product's Package Insert, which is printed material accompanying the product to inform physicians and patients as to what side effects they might encounter with a given product's use. Following approval, MedImmune monitors all of its drug products to maintain a current safety database, tracking identified adverse events from a drug's use in broader populations. Such adverse events are reported to the appropriate regulatory authorities. Periodically, discussions with regulatory agencies may occur regarding adverse event reports. Such discussions may result in changes to the disclosure in the Package Inserts for the Company's products and communications with health care professionals to apprise them of such changes. During 2002, modifications were made to the Package Inserts for NeuTrexin, Ethyol and Synagis reflecting information gained from product use.

Product liability claims may result from clinical trials or sales of the Company's products and product recalls may be necessary.

        As a developer, tester, manufacturer, marketer and seller of healthcare products, MedImmune is potentially subject to product liability claims. Its blood products, such as CytoGam and RespiGam, involve heightened risks of claims, including the risk of claims resulting from the transmission of blood-borne diseases. All vaccine products carry risk and the potential for adverse events after introduction to the market is an issue for all vaccines. Indeed, a vaccine could be licensed by the FDA and still be associated with adverse events that reduce or eliminate revenue. For example, in 1998 the FDA approved the use of a vaccine to prevent infant diarrhea, but the product was subsequently withdrawn from the market due to a possible link between a serious bowel disorder and the vaccine, an adverse event that occurred at a frequency not detectable in the clinical trials. In addition, there are a number of theoretical risks related to a live virus vaccine, including reversion to wild type, or recombining to

25



form a new strain that may cause disease. A weakened, live virus may also cause disease resembling a wild-type infection in people with an immune system that is not working properly because of a pre-existing disease or compromised immune system.

        Defending a product liability claim could be costly and divert focus from business operations. Although the Company carries insurance that it regards as reasonably adequate to protect it from potential claims, there can be no assurance that the Company will be able to maintain its current product liability insurance at a reasonable cost, or at all. If a claim were successful, there is no guarantee that the amount of the claim would not exceed the limit of the Company's insurance coverage. Further, a successful claim could result in the recall of some or all of MedImmune's products, or could reduce revenues related to the product. Any of these occurrences could have a material adverse effect on the Company's business, or result in a clinical trial interruption or cancellation. Additionally, blood products like CytoGam and RespiGam are occasionally recalled from the market because of risks of contamination from infectious agents or for other reasons that are often beyond the Company's control. Any such recall of MedImmune's blood products would adversely affect sales.

Restrictions on marketing could impact the Company's ability to promote its products.

        Restrictions on promotion in patient populations as a result of the FDA warning letters on promotional materials could affect sales of the Company's products and could lead to holds on current and future New Drug Applications or Biological License Applications and supplements filed with the FDA.

The loss of key personnel could harm the Company's business.

        MedImmune's success depends upon the continued contributions of its executive officers and scientific and technical personnel. Many key responsibilities have been assigned to a relatively small number of individuals. Our key personnel include Mr. David M. Mott, Chief Executive Officer and Vice Chairman of the Board; Mr. Melvin D. Booth, President and Chief Operating Officer; and Dr. James F. Young, President, Research and Development. The Company has an employment agreement with each of them. The competition for qualified personnel is intense, and the loss of services or certain key personnel could adversely affect the Company's business. MedImmune does not maintain or intend to purchase "key man" life insurance on any of its personnel.

The Company may not be able to hire or retain highly qualified personnel or maintain key relationships.

        The success of the Company's business depends, in large part, on its continued ability to attract and retain highly qualified management, scientific, manufacturing and sales and marketing personnel, and on its ability to develop and maintain important relationships with leading research institutions and key distributors. Competition for these types of personnel and relationships is intense among pharmaceutical, biopharmaceutical and biotechnology companies, and the Company's inability to attract and retain such employees and relationships could have a material effect on its business.

Fluctuations in MedImmune's common stock price over time could cause stockholders to lose investment value.

        The market price of MedImmune's common stock has fluctuated significantly over time, and it is likely that the price will fluctuate in the future. During 2002,2003, the daily closing price of MedImmune common stock on the Nasdaq stock market ranged from a high of $48.35$40.30 to a low of $20.37.$23.30. Investors and analysts have been, and will continue to be, interested in the Company's reported earnings, as well as how the Company performs compared to their expectations. Announcements by the Company or others regarding operating results, existing and future collaborations, results of clinical trials, scientific

26



discoveries, commercial products, patents or proprietary rights or regulatory actions may have a significant effect on the market price of the 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 MedImmune common stock.

Changes in foreign currency exchange rates or interest rates could result in losses.

        The Company has entered into a supplemental manufacturing contract denominated in Euros. Fluctuations in the Euro—U.S. Dollar exchange rate would 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. However, due to the variability of timing and amount of payments under this contract, the forward foreign exchange contracts may not mitigate

21



the potential adverse impact on the Company's financial results.

        Expenditures In addition, expenditures relating to the Company's manufacturing operations in Englandthe United Kingdom and the Netherlands are paid in local currency. MedImmune has not hedged its 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 the Company's distribution agreements outside the United StatesU.S. provide for it to be paid based upon sales in local currency. As a result, changes in foreign currency exchange rates could adversely affect the amount the Company expects to collect under these agreements.

Government investigations or litigation could impact MedImmune's business.Investor Information

        The Federal Government, state governmentsMedImmune files annual, quarterly and private payors are investigatingcurrent reports, proxy statements and have begun to file actions against numerous pharmaceuticalother information with the SEC. You can inspect, read and biotechnology companies alleging thatcopy these reports, proxy statements and other information at the reportingSEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.

        You can also obtain copies of prices for pharmaceutical products has resulted in a false and overstated Average Wholesale Price (AWP), which in turn is alleged to have improperly inflated the reimbursement paidthese materials at prescribed rates by Medicare beneficiaries, insurers, state Medicaid programs, medical plans and others to health care providers who prescribed and administered those products. These same payors are also alleging that companies are not reporting their "best price"writing to the states underPublic Reference Section of the Medicaid program. OneSEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can obtain information on the operation of these cases was recently brought against the Companypublic reference facilities by calling the SEC at 1-800-SEC-0330. The SEC 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 charge 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 described in Note 20electronically filed with or furnished to the Consolidated Financial Statements. These cases could have an adverse effectSEC. MedImmune's internet address is http://www.medimmune.com. The information on the Company's financial results.

The success of the Company's products may be limitedMedImmune's website is not incorporated by government and third-party payors.reference into this report.

        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 the Company products. For example, the Company believes that approximately one-third of Synagis sold in the United States during 2002 was covered by Medicaid reimbursement programs. In many foreign markets, pricing of pharmaceutical products is subject to governmental control and pricing pressure on pharmaceutical products will remain. In the United States there have been, various federal and state proposals to implement similar government controls over pricing and profitability and the Company expects that similar proposals will continue to be advanced. The adoption by the federal government or state governments of any such proposals, and the continued pricing pressures in foreign markets could limit the commercial success of the Company's existing or any future products.

27



ITEM 2. PROPERTIES

        The Company's principal executive and administrative offices and research and development facilities are located in Gaithersburg, Maryland. The facilities occupy approximately 119,000 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 rights to 25 acres of land in Gaithersburg, Maryland, which is 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 thea new headquarters facility, at a total estimated cost of approximately $85 million. The construction project broke ground in March 2002. The Company expects to take occupancy of the first phase, which will feature a complex totaling 220,000 square feet consisting of a research and development facility and administrative offices. The Company owns the land and facility, and expects to take occupancy in the fall of 2003.March 2004. At that time, the Company may sublease some 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 biologics facility in Frederick, Maryland. The biologics facility includes a cell culture production area used for manufacture of products such as Synagis.Synagis and development-stage projects. Until December 2002, this facility was also used for the manufacture of immune globulins and by-products from human plasma. In addition, 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 of warehouse space through December 2005.

        MedImmune Vaccines occupiesoperates a number 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, MedImmune Vaccines leasesperiods; approximately 55,000 square feet of space in Philadelphia, Pennsylvania, pursuant to a lease agreement through December 2004, with options to extend for up to two terms of three years each. MedImmune Vaccines also occupieseach; 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, MedImmune Vaccines leases2008; approximately 72,000 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.

        MedImmune Vaccines occupies2004; approximately 8,900 square feet of a manufacturing facility in Speke, England,the United Kingdom, pursuant to a sublease expiring in June 2006, and2006. In Speke, MedImmune Vaccines also leases approximately eight acres of land near to theits existing site, which includes a 60,700 square foot structure, through 2025. In addition, MedImmune 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

        Information with respect to legal proceedings is included in Note 2017 of Item 8 Consolidated Financial Statements and Supplementary Data and is incorporated herein by reference.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        Not Applicable

2823



PART II

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 February 25, 2003,29, 2004, the Company had 1,9761,975 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-end closing prices for the common stock for the two most recent fiscal years.


 2002
 2001
 2003
 2002

 High
 Low
 High
 Low
 High
 Low
 High
 Low
First Quarter $48.35 $37.30 $54.56 $27.63 $34.60 $26.80 $48.35 $37.30
Second Quarter 41.05 24.80 48.05 29.19
 

42.09

 

31.52

 

41.05

 

24.80
Third Quarter 30.43 20.37 48.08 29.51
 

40.88

 

31.69

 

30.43

 

20.37
Fourth Quarter 29.24 20.45 48.95 33.47
 

35.00

 

22.79

 

29.24

 

20.45
Year End Close $27.17   $46.35  
 

$

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.

24




ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

 
 2002
 2001
 2000
 1999
 1998
 
 
 (in thousands, except per share data)

 
RESULTS FOR THE YEAR                
Total revenues $847,739 $618,679 $540,495 $383,375 $227,221 
Gross profit  585,034  440,822  368,483  266,622  107,988 
 (Loss) earnings before cumulative effect of a change in accounting principle  (1,098,015)(1) 148,960  144,977  93,371(2) 47,187(3)
Net (loss) earnings  (1,098,015)(1) 148,960  111,156  93,371(2) 47,187(3)
Basic (loss) earnings per share                
 (Loss) earnings before cumulative effect of a change in accounting principle  (4.40) 0.70  0.69  0.49  0.28 
 Net (loss) earnings  (4.40) 0.70  0.53  0.49  0.28 
Diluted (loss) earnings per share                
 (Loss) earnings before cumulative effect of a change in accounting principle  (4.40) 0.68  0.66  0.44  0.24 
 Net (loss) earnings  (4.40) 0.68  0.50  0.44  0.24 

YEAR END POSITION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Cash and marketable securities $1,423,056 $777,690(4)$526,254 $270,394 $176,860 
Total assets  2,188,289  1,236,855(4) 1,016,597(4) 657,210(4) 409,249(4)
Long-term debt  218,356  9,544  10,302  11,856  87,910 
Shareholders' equity  1,677,234  1,044,273  843,582  537,079  248,566 

29


PRO FORMA RESULTS

        The following data represents the Company's pro forma financial results assuming retroactive adoption of the change in accounting principle (SAB 101)



  
  
 2000
 1999
 1998
 
 2003
 2002(1,3)
 2001(3)
 2000(3)
 1999(2,3)


  
  
 (in thousands, except per share data)

 
 (in thousands, except per share data)

RESULTS FOR THE YEARRESULTS FOR THE YEAR          

Total revenues

Total revenues

 

$

1,054,334

 

$

852,684

 

$

620,664

 

$

541,955

 

$

384,361
Gross profitGross 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)Net earnings (loss) 183,204 (1,098,015) 148,960 111,156 93,371

Basic earnings (loss) per share

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 shareDiluted 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

YEAR END POSITION

 

 

 

 

 

 

 

 

 

 

Cash and marketable securities

Cash and marketable securities

 

$

1,900,149

 

$

1,423,056

 

$

777,690

 

$

526,254

 

$

270,394
Total assetsTotal assets 2,794,670 2,188,289 1,236,855 1,016,597 657,210
Long-term debtLong-term debt 682,076 218,356 9,544 10,302 11,856
Shareholders' equityShareholders' equity 1,699,218 1,677,234 1,044,273 843,582 537,079

PRO FORMA RESULTS

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)

The following data represents the Company's pro forma financial results assuming retroactive adoption of the change in accounting principle (SAB 101)
Total revenuesTotal revenues     $540,495 $385,222 $204,209 
Total revenues

 

 

 

 

 

 

 

$

541,955

 

$

386,208
Net earningsNet earnings      144,977  94,505(2) 33,058(3)Net earnings       144,977 94,505
Earnings per shareEarnings per share              Earnings per share          
Basic      0.69  0.50  0.19 Basic       0.69 0.50
Diluted      0.66  0.45  0.17 Diluted       0.66 0.45

(1)
Includes a charge for acquired in-process research and development, in connection with the Company's acquisition of MedImmune Vaccines, Inc. (formerly Aviron) on January 10, 2002, and the results of operations of MedImmune Vaccines from the acquisition date.

(2)
Includes deferred income tax benefit of $40,973.

(3)
Includes deferred income tax benefit of $47,428.
(4)
Certain prior year amounts have been reclassified to conform to the current year presentation.

25


QUARTERLY FINANCIAL DATA (UNAUDITED)
(in thousands, except per share data)

2002 Quarter Ended(1)

 
 Dec. 31
 Sept. 30
 June 30
 March 31
 
Net sales $348,730 $59,233 $57,330 $320,668 
Gross profit  265,618  36,937  41,688  240,791 
Net earnings (loss)  84,591  (36,292) (29,456) (1,116,858)(2)
Net earnings (loss) per share:             
 Basic  $0.34  $(0.14) $(0.12) $(4.54)(2)
 Diluted  $0.33  $(0.14) $(0.12) $(4.54)(2)

2001 Quarter Ended

 
 Dec. 31
 Sept. 30
 June 30
 March 31
Net sales $276,021 $39,991 $28,315 $235,202
Gross profit  213,584  23,651  21,188  182,399
Net earnings (loss)  98,506  (18,974) (9,223) 78,651
Net earnings (loss) per share:            
 Basic  $0.46  $(0.09) $(0.04) $0.37
 Diluted  $0.45  $(0.09) $(0.04) $0.36
 
 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)

(1)
Includes the results of operations of MedImmune Vaccines beginning January 10, 2002.

(2)
Includes a $1,179.3 million charge for acquired in-process research and development in connection with the Company's acquisition of MedImmune Vaccines.

(3)
Certain amounts have been reclassified to conform to the current presentation.

3026



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        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 based 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 risks, uncertainties, and assumptions that are difficult to predict. Readers are referred to the "Forward Looking"Forward-Looking Statements" and "Risk Factors" sections in Part I, Item 1 of this document.

OVERVIEWINTRODUCTION

        Since 1988, MedImmune has been focused on using biotechnology to produce innovative products to prevent or treat infectious disease, autoimmune disease and cancer. Having made significant advances in the last several years, MedImmune is now a fully integrated company with the ability and infrastructure to take a product from discovery through development, manufacturing, and into the market via our oncology, pediatric, and hospital-based sales forces.

        DuringIn January 2002, we acquired Aviron a California-based vaccines company (the "Acquisition"), a biopharmaceutical company focused on preventing disease through innovative vaccine technologies. subsequently renamed MedImmune Vaccines, Inc. The operating results of Aviron, which was subsequently renamed MedImmune Vaccines, Inc., have been included in our consolidated operating results beginning January 10, 2002.

        MedImmune currently actively markets three products: our flagship productfour products, Synagis, which we launchedEthyol, 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 United States in 1998, Ethyolareas of infectious diseases, immunology and CytoGam. Ouroncology.

        Aviron's leading product candidate at the time of the Acquisition was FluMist, an influenzathe first U.S. vaccine delivered as a nasal mist, is under regulatory reviewmist. 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 $75 million of unamortized 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 research and development expenditures, will grow.

CRITICAL ACCOUNTING 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 estimates have the greatest impact on the preparation of our consolidated financial statements:statements.

        Acquired In-Process ResearchRevenue Recognition—We recognize revenue from product sales when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed or determinable, and Development—We recorded a chargecollectibility is reasonably assured. During 2003, we shipped 4.1 million doses of $1,179.3 million duringFluMist to Wyeth and received payments totaling $51.9 million. Wyeth is contractually responsible for distributing the year endedproduct to 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 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

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, 20022003, 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 write-off2003/2004 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 purchased in-processgoods 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 product 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 development or supply period.

        We may record deferred revenues related to milestone payments and other up front payments. Deferred revenue for manufacturing obligations is recognized as product is delivered. Deferred revenue associated with performance milestones is recognized based upon the achievement of the milestones, as defined in the respective agreements, as long as the milestones are substantive and at risk. Revenue under research and development in conjunction with the Acquisition. The write-off represents the fair value of purchased in-process technologies at the acquisition date, calculatedcost reimbursement contracts is recognized as the sumrelated costs are incurred.

Inventory—We capitalize inventory costs associated with marketed products and certain products prior to regulatory approval and product launch, based on management's judgment of probability-adjustedprobable future commercial scenarios. This method is baseduse and net realizable value. We could be required to expense previously capitalized costs related to pre-approval or pre-launch inventory upon management's estimatesa 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 probabilityrelated production costs were expensed prior to the product being available for commercial sale.

        We are required to state our inventory at lower of FDA approvalcost or market. In assessing the ultimate realization of inventories, we are required to make judgments as to multiple factors affecting our inventories and commercial success for FluMist. Ascompare these with all biotechnology products,current or committed inventory levels. In the probabilityhighly 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 FDA approval and commercial success for any particular research and development projectinventory costs. Additionally, if a product's pricing is highly uncertain. Management's projections were based on assumptions, which may orsuch that we may not remain valid forfully recover the relevant period, includingcost of inventory, we must consider that in our judgments as well.

        FluMist inventories have required a significant amount of judgment since the estimated impact of four "key" factors: price per dose; dose volume; launch date; and the potential failure of the frozen or liquid formulations of the influenza vaccine. Based on current information, management believesAcquisition in January 2002. One reason is that the estimates and assumptions underlying the fair value analysis are reasonable.

Inventory Reservesfinished FluMist product has a shelf life of nine months. Most of the inventory components for FluMist have expiration dates that range from 9nine to 24 months. Through September 2002,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 produced inventoryassessed the probability of approval by the FDA in anticipation of atime to commercialize the product for the 2002/2003 season was

3129



possible launchremote. During 2003, we disposed of FluMist for$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 management's assessment of the probability of approval and net realizable value. Approval was received from the FDA on June 17, 2003. At that time, we recognized that FDA approval would not be received in time for a launch forapproximately one-half of the 2002/2003 flu season, and we recorded a full reserve for the inventory components we believed would not be used prior to reaching their expiration dates. In the fourth quarter of 2002, we beganannual production of certain inventory components in anticipation of a possible launch of FluMistcosts for the 2003/2004 flu season as FDA approval is expected to be receivedhad already been fully reserved, $22.3 million in Q4 2002 and $19.6 million in Q1 2003. The production cycle for the second quarter of 2003 if not sooner. With respect to2003/2004 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, 2002,2003, we reviewed the following assumptions to determine the amount of any additionalnecessary reserves: the expected date of approval; the expected sales volume; the concentration of viral material in our vaccine;expected price to be received for the product; potential changes in the influenza strains recommended by the Centers for Disease Control and Prevention for each season's vaccine; and anticipated changes in the manufacturing processprocess. 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 other variables associated with product launch efforts. Aswork-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 December 31, 2002, we have $62.5 million of inventory against which we have a reserve of $47.5 million, resulting in a net inventory balance of $15.0 million. Should FluMist be approved for the 2003/2004 flu season and sales levels are higher than expected, we may be able to utilize more inventory than anticipated, and as such, our margins would be favorably impacted in these periods when the inventory is sold. Conversely, should FluMist not be approved, or if sales levels are lower than expected, we may have further reserves or writedowns for obsolete inventory.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

        SalesThe Company records allowances for discounts, returns, chargebacks and otherrebates 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 related estimates—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 sales returns, recorded asrebates due to government purchasers resulted in a net reduction ofto gross product sales by applying rates determined by our past experience to actual salesof 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 period.accompanying balance sheets.

Selling, General and Administrative Expenses

        We estimate our co-promotion expense and sales commissions recorded as selling, general and administrative expense, 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 for the 2002/2003 and 2001/2002 contract years.

        We estimate 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 we obtain on our customers and the expected impact of current reimbursement issues our customers experience. We estimate the aggregate amount of government reimbursements, recorded as a reduction to gross product sales, based upon historical experience and our best estimate of the proportioncustomers' balances. Because of the seasonal sales that willnature 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 subject to this reimbursement, largely comprisedhighest at the end of Medicaid payments to state governments. IfDecember and March, while the September balances are somewhat lower as our historical trendsselling season is just beginning, and the June balances are not indicativenegligible, reflecting the close-out of the future, or our actual seasonal sales are materially different from projected amounts, or if our assessments prove to be materially different than actual occurrence, our results could be affected. Duringprior season. For the fourth quarter of 2002,year ended December 31, 2003, we recorded an additional chargea $3.8 million reduction in bad debt expense, largely based on our current assessment of $2.1 million to co-promotionthe factors above. For all periods presented, we have reclassified bad debt expense resulting from the final reconciliationas selling, general and administrative expense in our Consolidated Statements of gross to net sales for the 2001/2002 contract year. During 2001 and 2000, the adjustments were not material.Operations.

        TaxesIncome Taxes—We record a valuation allowance to reduce our deferred tax assets to the amount that is anticipated to be realized. We consider future taxable income and ongoing tax planning strategies in assessing the need for the valuation allowance. Should we determine that we were able to realize more than the recorded amounts of net deferred tax assets in the future, our net income would increase 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, our net income would decrease in the period such determination was made. A tax reserve is recorded when the Company cannot assert

Investments—We regularly enter into collaborative research and development agreements with strategic partners. As part of the agreements, we may obtain common stock, preferred stock or other equity securities in these strategic partners. These companies may be public or privately held companies. At the time the securities are obtained, we determine if the investment should be accounted for under the cost method, equity method, or consolidation method based upon multiple factors

3231



including: percentage ownershipthat 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 have recorded and valued significant intangible assets that we acquired as a result of the company; representation on board of directors; participationAcquisition. We engaged independent valuation experts who reviewed our critical assumptions and assisted us in policy-making processes; technological dependency; veto rights of partners; our role on key technical or product development committees; revenue dependence; and other extraordinary voting rights. Investments accounted for under the equity method are adjusted quarterlydetermining a value for the Company's proportionate shareidentifiable intangibles. Of the $129.4 million of acquired intangible assets, $90.0 million was assigned to the investee's gains or losses, which may fluctuate significantly from quarter to quarter. Each quarter, we evaluate allworldwide collaborative agreement with Wyeth for the development, manufacture, distribution, marketing, promotion, and sale of our investments, and recognize an impairment charge in the consolidated statements of operations when a decline inFluMist. The Company estimated the fair value of an investment falls below its cost valuethe 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 is judgedanticipated approval dates. The remaining $39.0 million was assigned 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 whicha contract manufacturing agreement with Evans Vaccines Limited. The Company estimated the fair value has been less than our cost basis, the financial condition and near-term prospects of the issuer, fundamental changes toEvans agreement using the business prospectscost 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 not identified any impairment of the investee, share pricesintangible assets, of subsequent offerings, and our intent and abilitywhich $96.7 million remain unamortized.

        During 2003, we reduced goodwill recorded in the Acquisition by $2.4 million, reflecting additional deferred tax assets for adjustments relating to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value.pre-acquisition items.

RESULTS OF OPERATIONS
2002 Compared to 2001

        To present our results in the same manner as we view the performance of the business and the resulting underlying trends, we have presented certain expense categories with and without certain Acquisition-related amounts, including: the acquired in-process research and development charge; amortization of intangible assets, compensation expense associated with the assumption and vesting of unvested stock options, retention and severance payments; and the amortization of the premium on convertible subordinated notes. Inclusion of such Acquisition related expenses is consistent with generally acceptedacceptable accounting principles. Where we exclude such expenses, we use the term "adjusted."

Comparison of 2003 to 2002

Revenues—Product Sales


 2002
 2001
 Growth
  2003
 2002
 Growth
 

 (In Millions)

  (In Millions)

 
Synagis $667.8 $516.4 29% $849.3 $671.7 26%
Ethyol 80.4 20.3 296%
 

100.2

 

81.2

 

23

%

FluMist

 


 


 


 
Other Products 37.8 42.8 (12%)
 

43.1

 

38.0

 

13

%
 
 
   
 



 



 

 

 
 $786.0 $579.5 36%
 

$

992.6

 

$

790.9

 

25

%
 
 
   
 



 



 

 

 

        Product sales grew 25% in 2003 to $992.6 million as compared to $790.9 million in 2002, primarily due to increased sales of Synagis. Of the overall increase in product sales, approximately 16 points of the 25 percentage points were due 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 international sales.

Synagis—Synagis accounted for approximately 86% and 85% of our 2003 and 2002 product sales, respectively. We achieved a 21% increase in domestic Synagis sales to $777.1 million in 2003, up from $641.3 million in 2002. This growth was largely due to increased sales volume in the United States, which resulted in a 16% increase in domestic units sold. Also aiding growth was a price increase that took effect in June 2003, partially offset by an increase in sales allowances, which are accounted for as a reduction of product sales. Our reported international sales of 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 AI under the terms of our international distribution agreement. We record Synagis international product sales based on AI's sales price to customers, as defined in the agreement.

Ethyol—Ethyol accounted for approximately 10% of our product sales in both 2003 and 2002. Domestic Ethyol sales increased 25% to $94.4 million in 2003, up from $75.5 million in 2002. This 25% increase is the result of a 15% increase in domestic units sold in 2003 compared to 2002 and a price increase which occurred in August 2003. Our 2003 international sales of Ethyol to our distribution partner, Schering, were consistent with 2002 sales 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 of 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 transfer price 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.

Other Products—Sales of other products in 2003, which include sales of CytoGam, NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, increased $5.1 million, or 13% compared to last year. The increase was largely due to a 10% increase in our sales of CytoGam.

Revenues—Other Revenues

        Other revenues for 2003 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, related to milestone payments, supply goal payments, and funding for clinical development and marketing programs. We also received $7.5 million in 2003 from AI for achieving a milestone related to international sales levels of Synagis and we recorded $3.1 million in revenue under other collaborative agreements. Other revenues in 2002 are comprised largely of $32.7 million in payments from Wyeth for compensation of 2002 FluMist manufacturing costs and funding for clinical development and marketing programs In 2002, we also

33



received $17.2 million from the sale of excess production capacity to a third party and $8.7 million in revenue recorded under other collaborative agreements.

        We have accounted for major collaborative agreements entered into before January 1, 2002 using the contingency-adjusted performance model and have deferred a portion of the up front and milestone payments received. Based on current estimates, we expect to record the remaining revenues from our collaboration with Schering-Plough Corporation of $0.8 million ratably over 2004 and 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 2003 increased 44% to $289.8 million from $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 2002, mainly due to increases in product sales 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 valuation adjustments for FluMist inventory. Partially offsetting this decrease were lower costs for CytoGam, and a favorable impact of a value-added tax refund for transfers of Synagis manufactured in 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 $156.3 million in 2003 increased 6% from $147.9 million in 2002. 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 $10.0 million payment to Critical Therapeutics, Inc. as part of a new collaboration to co-develop biologic products to treat severe inflammatory diseases. Additionally in 2003, the Company initiated four Phase 2 studies for Vitaxin and agreed to pay $10.0 million for data from the completed international Phase 3 studies for a liquid formulation of the 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 the Phase 3 Synagis clinical trial in congenital heart disease patients that led to approval of an expanded indication by the FDA in September 2003.

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        During 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:

Product Candidates

Description
Stage of Development
VitaxinMelanoma, Prostate Cancer, Rheumatoid Arthritis, PsoriasisPhase 2
CAIV-T (liquid FluMist)A liquid, refrigerator-stable version of FluMistPhase 3
FluMist-FrozenIntranasally delivered virus vaccine to prevent influenza infectionPhase 4 and label expansion
EthyolSubcutaneous administration in NSCLC patients-reduction of esophogitis and pneumocytisPhase 2
NumaxThird-generation anti-RSV antibodyPhase 1

        Additionally, we have multiple programs in preclinical development.

Selling, General, and Administrative 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") expenses increased 14% to $340.9 million in 2003 compared to $299.6 million for the 2002 period. Excluding Acquisition-related amounts relating to retention payments, stock option acceleration and stock 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 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 $786.0$790.9 million, as compared to $579.5$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.

        SynagisSynagis—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 $637.4$641.3 million in 2002, up from $479.7$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 arewere 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 iswas 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 lastthe 2001 year. We recordrecorded Synagis international product sales based on AI's sales price to customers, as defined in the agreement. We have been working with AI to expand the number of countries where we are licensed to sell

33



Synagis. As of February 28, 2003, Synagis had been approved for marketing in 50 countries, (including the United States), the most recent of which was Canada in May 2002. There can be no assurance that approvals by the appropriate regulatory authorities will continue to be granted or that we will receive pricing and reimbursement approvals in countries where we have received regulatory approval.

        EthyolEthyol—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 $74.7$75.5 million in 2002, as compared to $14.3$14.4 million in 2001. The increase iswas 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 $5.7$5.6 million for 2002, down 5%7% from the prior year sales of $6.0 million. We record Ethyol international product sales based on a percentage of Schering's end user sales, as defined in our agreement.

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        Other ProductsProducts—Sales of other products in 2002, which includeincluded sales of CytoGam, NeuTrexin, RespiGam, and by-products that resultresulted from the CytoGam manufacturing process, decreased $5.0 million, or 12% compared to last year.2001. The decrease was due to marginal declines in all of our other product lines.

Forward-looking commentary—We believe that the growth rate of our product sales, while still at double-digit levels, will decelerate in 2003. However, the level of future product sales will depend on several factors, including, but not limited to, the timing and extent of future regulatory approvals of our products and product candidates, receiving reimbursement pricing, availability of finished product inventory, approval and commercialization of competitive products and the degree of acceptance of our products in the marketplace.

        We continue to make progress in the FDA review process for FluMist. On January 29, 2003, we received a CRL from the FDA containing five questions, to which we responded in early February 2003. We anticipate that we will receive FDA approval for FluMist during the second quarter of 2003, if not sooner.

Revenues—Other Revenues

        Other revenues increased 58% to $61.8 million for 2002 compared to $39.2 million in 2001. The increase iswas largely attributable to $25 million received from Wyeth, our marketing partner for FluMist, for compensation of 2002 FluMist manufacturing costs under recent amendments to the collaborative agreements. An increase of $9.7 million in 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 iswas 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 arewere nearing completion of Phase 1 and 2 clinical trials and our preparation of clinical material.

Forward-looking commentary—We anticipate the level of other revenues to increase in 2003 largely due to milestone and royalty payments associated with the approval and commercialization of FluMist.

34



The level of contract revenues in future periods will depend primarily upon the extent to which we enter into other collaborative contractual arrangements, if any, and the extent to which we achieve certain milestones provided for in existing agreements. Future revenues from the sale of excess production capacity will vary depending upon the extent to which we enter into these types of arrangements, and are not expected to be significant for 2003 or thereafter.

        The expected timing of annual revenues to be recognized through 2005 under major collaborative agreements entered into before January 1, 2002, which we have accounted for using the contingency adjusted performance model and deferred a portion of the up-front and milestone payments received, based on current estimates of costs to complete, is as follows (in millions):

 
 2003
 2004
 2005
Abbott Laboratories $2.7 $0.0 $0.0
Schering-Plough Corporation  0.4  0.4  0.4
  
 
 
 Total $3.1 $0.4 $0.4
  
 
 

Cost of Sales

        Cost of sales for 2002 increased 45%46% to $200.9$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 enhancesenhanced 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.

Forward-looking commentary—We expect that gross margins may vary significantly from quarter to quarter, based on the product mix. We expect that on an annual basis, our gross margin percentage for 2003 should be lower than 2002, as a result of the anticipated launch of FluMist.

Research and Development Expenses

        Research and development expenses of $144.2$147.9 million in 2002 increased 74%78% from $83.0 million in 2001. Excluding Acquisition relatedAcquisition-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 $134.8$138.6 million, up 62%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. TheseThe 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.

35



        During 2002, 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:

Development-Stage Products
Description
Stage of Development
SynagisPotential prevention of RSV in infants with congenital heart diseasePhase 3 completed

Siplizumab


Potential treatment for psoriasis


Phase 2

Urinary tract infection vaccine


Potential vaccine to prevent urinary tract infections caused by E. coli


Terminated

Human papillomavirus vaccine


Potential vaccine to prevent cervical cancer


Phase 2 completed

Vitaxin


Potential product to slow tumor growth and to prevent the progress of rheumatoid arthritis


Phase 1

FluMist


Influenza vaccine delivered as a nasal mist


FDA review

        As indicated in the table above, we completed the preliminary analysis of three Phase 2 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. In 2003, we plan to conduct retreatment Phase 2 studies to further assess the potential clinical impact of the immunogenicity. We also completed two Phase 2 trials of ourE. coli urinary tract infection vaccine, and have determined that there iswas not a sufficient level of efficacy in prevention of urinary tract infections to proceed with additional trials. Our ongoing clinical program also includesincluded 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 havehad multiple programs in preclinical development.

Forward-looking commentary—We expect research and development expenses to be up slightly in 2003 compared to 2002. This is largely due to the impact of the conclusion of trials and studies as described above offset by the anticipation of post-marketing commitments, additional trials associated with FluMist and the continued progress of our pipeline candidates.

        During 2002, we entered into the several research collaborations and licensing agreements, which commit us to future payments of $186.7 million, should certain events or milestones occur.

        The development-stage efforts listed above and other research and development projects may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. Further, we rely on numerous third parties to assist us in various stages of the development process. Should they be unable to meet our needs, we may incur substantial additional costs. Any of such uncertainties, if they should occur, could have a material adverse effect on our financial condition and results of operations.

Selling, General, and Administrative Expenses

        Selling, general and administrative ("SG&A") expenses increased 54%52% to $299.3$299.6 million in 2002 compared to $194.8$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,

36



up 48%46% over 2001. As a percentage of product sales, adjusted SG&A expense increased to 37%36% of product sales in the 2002 period from 34% in the 2001 period. The increase in this ratio iswas largely reflective of the impact of the Acquisition and the inclusion of MedImmune Vaccines' ongoing expenses. Additionally, we incurred increased co-promotion expense directly related to the growth in domestic sales of Synagis, higher salaries and sales commissions, as well as increased Synagis marketing expense. SG&A expenses for 2002 also included a $5.0 million charge associated with the settlement of a contractual dispute in August 2002 regarding an agreement with the Massachusetts Biologic Laboratories of the University of Massachusetts ("MBL") to transfer certain technology relating to the Company's monoclonal antibody manufacturing operations. The comparison to last year is2001 was favorably impacted as $13.4 million of expenses related to our accelerated acquisition of Ethyol marketing rights from ALZA was included in SG&A for 2001.

Forward-looking commentary—We expect SG&A expenses as a percentage of product sales to decrease in 2003, largely due to a shift in product sales mix.

Other Operating Expenses

        Other operating expenses, which reflectreflected manufacturing start-up costs and other manufacturing related costs, increased to $100.0 million in 2002 from $9.6 million in 2001. Excluding Acquisition-related amounts of $20.8 million in expense in 2002 relating to stock compensation for unvested stock options assumed and amortization of intangibles, adjusted other operating expenses were $79.2 million. The increase over 2001 iswas primarily related to $56.9 million of pre-production costs and inventory reserves for FluMist. The majority of the cost incurred for FluMist was associated with preparing for the aborted 2002 commercial launch. Additionally, we incurred a $12.9 million charge for the write-off of CytoGam manufacturing equipment as the Company hashad outsourced CytoGam production activities as of November 2002. Also included in other operating expense for both periods arewas excess capacity costs associated with the plasma production section of the FMC.

Forward-looking commentary—We expect the level of other operating expenses will decline significantly in 2003 as we anticipate that approval of FluMist will occur in the second quarter of 2003, if not sooner.

In-Process Research and Development

        We incurred charges of $1,179.3 million for the year ended December 31, 2002 for the write-off of purchased in-process research and development in conjunction with the Acquisition. The write-off representsrepresented the fair value of purchased in-process technologies at the acquisition date, calculated utilizing the sum of the probability-adjusted scenarios under the income approach using a discount rate of 18.7%, and certain in-process research and development projects, primarily FluMist. We do not anticipatebelieve that there willwould be any alternative future use for the in-process technologies that were written off.

        FluMist is a live, attenuated vaccine delivered via a nasal mist for the prevention of influenza. It is a frozen vaccine requiring freezer storage. A liquid influenza vaccine better suited to international markets where freezers are not as readily available to pharmacists and physicians, is currently being developed by our partner Wyeth. While there are other flu vaccines currently marketed by other companies, FluMist would beis, to our knowledge, the only live virus vaccine administered as a nasal mist.

        In October 2000, we submitted a BLA for FluMist to the FDA seeking approval for licensure. We received a CRL from the FDA and filed our response to this letter in January 2002. A second CRL was received from the FDA in July 2002 requesting clarification and additional information relating to clinical data and chemistry, manufacturing and controls data previously submitted. We submitted the requested information in August 2002. We met with the FDA's VRBPAC committee in December 2002 who voted favorably on the questions of safety and efficacy for FluMist in preventing influenza in

37



healthy children, adolescents and adults ages five through 49 and safety for healthy individuals aged 50-64 years. On January 29, 2003, we received a third CRL from the FDA containing five questions, to which we responded in early February 2003.

The valuation of the acquired in-process research and development iswas based upon certain estimates and assumptions by management. The valuation iswas based upon management's estimates of the probability of FDA approval and commercial success for FluMist. As with all biotechnology products, the probability of FDA approval and commercial success for any particular research and development project is highly uncertain. Management's projections were based on assumptions, which may or may not remain valid for the relevant period, including the estimated impact of four "key" factors: price per dose; dose volume; launch date; and the potential failure of the frozen or liquid formulations of the influenza vaccine. Based on current information, management believes that the estimates and assumptions underlying the fair value analysis are substantially accurate. In addition, as of February 28, 2003, none of the existing manufacturing facilities involved in the production of FluMist had been licensed by any regulatory agency and FluMist had not yet been manufactured at a sustained commercial scale. There can be no assurance that these facilities can achieve licensure by the FDA or any other regulatory agency, or can there be any assurances that if licensed, commercial scale production could be achieved or sustained. If we fail to obtain FDA approval for the marketing and manufacture of FluMist, we will absorb all of the related ongoing expenses while recording no corresponding revenue.

Interest Income and Expense

        We earned interest income of $49.4 million for 2002, compared to $36.5 million in 2001, reflecting higher cash balances available for investment, largely due to the Acquisition, partially offset by a

39



decrease in interest rates, which lowered the overall portfolio yield. Interest expense for 2002, net of amounts capitalized, was $9.1 million, up $8.5 million over 2001. Excluding the Acquisition-related amount of $1.8 million for the amortization of premium on the 51/4% Convertible Subordinated Notes, ("the Notes"), adjusted interest expense was $10.9 million. The increase over 2001 iswas due to the related interest expense on the Notes assumed in the Acquisition.

Loss on Investment Activities

        We incurred $14.1 million in losses on investment activities for 2002. The losses consisted primarily of impairment charges of $4.5 million on our publicly traded equity investments and $9.6$9.5 million on our minority interest investments related to declines in fair value that were judged to be other than temporary.

Income Taxes

        We recorded income tax expense of $48.2 million for the year ended December 31, 2002. Excluding items not deductible for tax purposes, principally the write-off of purchased in-process research and development, the resulting effective tax rate iswas 37.2%. This compareswas compared to tax expense of $79.5 million recorded for the year ended December 31, 2001, based on an effective tax rate of 34.8%. The higher effective tax rate for 2002 versus 2001 is due to lower credits estimated to be available for research and development activities, including credits earned for orphan drug status of certain research and development activities. These credits will vary from year to year depending on the activities of the Company.

Forward-looking commentary—We expect that our 2003 effective tax rate will continue to be at approximately the same rate as 2002.

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Net loss

        Net loss for the year ended December 31, 2002 was $1.1 billion, or $4.40 per share compared to net earnings for the year ended December 31, 2001 of $149.0 million or $0.70 basic and $0.68 diluted earnings per share. Excluding the after-tax impact of the Acquisition-related amounts totaling $1.2 billion, adjusted net earnings for 2002 were $106.6 million, or $0.42 adjusted earnings per diluted share.

        Shares used in computing net loss per share in 2002 were 249.6 million. Shares used in computing basic and diluted earnings per share for 2001 were 213.4 million and 220.1 million, respectively. The increase in share count primarily reflects the 34.0 million additional shares issued in conjunction with the Acquisition.

        We do not believe inflation had a material effect on our financial statements.

Forward-looking commentary—In 2003, we expect to generate net earnings per diluted share. The level of net earnings will depend on many factors, including, but not limited to, the timing and extent of regulatory approvals of our products and product candidates, the degree of acceptance of our products in the marketplace and adequate product supply to meet demand.

RESULTS OF OPERATIONS
2001 Compared to 2000

Revenues—Product Sales

 
 2001
 2000
 Growth
 
 
 (In Millions)

 
Synagis $516.4 $427.0 21%
CytoGam  32.3  36.5 (12%)
Ethyol  20.3  21.4 (5%)
Other Products  10.5  10.9 (4%)
  
 
   
  $579.5 $495.8 17%
  
 
   

        Product sales grew 17% to $579.5 million in 2001 from $495.8 million in 2000, primarily due to increased sales of Synagis.

Synagis—Sales of Synagis increased 21% over 2000 from $427.0 million to $516.4 million in 2001. Contributing to the growth was a 20% increase in domestic Synagis sales from $399.5 million in 2000 to $479.7 million in 2001. This growth was attributable to higher demand in the United States, resulting in a 19% increase in domestic sales unit volume, and a 3.6% increase in the domestic selling price of Synagis effective in the second quarter of 2001. Partially offsetting the increase was higher estimated government reimbursements, which were accounted for as a reduction of product sales, as Synagis usage by patients eligible for Medicaid grew over the prior year. Contributing to the strong growth in international sales during 2001 was the timing of a contractual shift in May 2001 to a higher proportion of the per unit sales price recognized upon delivery of product to Abbott under the terms of our international distribution agreement. Units shipped to Abbott during 2001 decreased approximately 16% from 2000, which we believe reflects reductions in Abbott's inventory stocking levels rather than reduced product demand by end users. We believe, based on information provided by AI, that end user demand increased from 2000 to 2001.

CytoGam—CytoGam sales decreased 12% from $36.5 million in 2000 to $32.3 million in 2001. Domestic sales units decreased 21%, which was partially offset by a domestic price increase of 8% effective in the second quarter of 2001 and a decrease in government reimbursements for the product.

39



We believe that a portion of the CytoGam sales that occurred in 2000 was the result of product substitution occurring because of the then worldwide shortage of standard IVIG products. In late 2000, the supply of standard IVIG products increased, and certain Medicaid agencies began to limit or discontinue reimbursement of CytoGam as a substitute for IVIG. Thus, CytoGam sales relating to product substitution decreased significantly in 2001.

Ethyol—Ethyol revenues decreased 5% from $21.4 million in 2000 to $20.3 million in 2001. Sales of Ethyol in 2001 were impacted by our early assumption of domestic marketing responsibility for Ethyol from ALZA. The transfer of marketing responsibility from ALZA was originally scheduled to occur in April 2002. However, in September 2001, we reached an agreement with ALZA to accelerate to October 1, 2001 the transfer to us of Ethyol marketing rights. In anticipation of that transfer, we ceased supply sales of Ethyol to ALZA during the third quarter of 2001, and we purchased ALZA's remaining Ethyol inventory at historical cost as of September 30, 2001, which we recorded as a reduction to product sales in the amount of $2.3 million. Beginning October 1, 2001, we recorded all revenues from domestic sales of Ethyol and, beginning April 1, 2002, we pay ALZA a declining royalty for nine years thereafter based on sales of Ethyol in the U.S. We recorded net domestic product sales of Ethyol of $12.7 million during the fourth quarter of 2001. Prior to October 1, 2001, we recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price. Our international sales of Ethyol to our distribution partner, Schering, declined slightly to $6.0 million during 2001 as compared to $6.5 million in 2000, as unit sales decreased 3%. In accordance with our product supply agreement, we recorded Ethyol international product sales based on a percentage of Schering's end user sales. We believe the decrease in international sales was primarily due to reductions in inventory stocking levels at our international distribution partner.

Other Products—Sales of other products in 2001, which included sales of NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, were comparable to 2000 sales. Results for the year ended December 31, 2000 also included net sales of Hexalen. We sold this product to MGI Pharma in November 2000 and, therefore no longer recorded product sales of Hexalen; rather, we recognized royalty income and other revenue pursuant to our agreement with MGI Pharma. These amounts were included in other revenues for 2001.

Revenues—Other Revenues

        Other revenues decreased 12% from $44.7 million in 2000 to $39.2 million in 2001. Other revenues during both years consisted primarily of revenues under collaborative agreements. We recognized revenue of $21.4 million in 2001 compared to $21.1 million in 2000 related to upfront and milestone payments under these agreements. We recognized non-refundable fees and milestone payments in connection with research and development and commercialization agreements as the contractual obligations and performance requirements were fulfilled, using the contingency adjusted performance model for revenue recognition. Under this method, the amount of revenue recognized during each period was based the ratio of actual costs incurred relative to the total projected costs.

        Other revenues also included research funding from GSK for the development of an HPV vaccine. Funding decreased $5 million to $2.8 million in 2001, as our responsibilities under the collaboration agreement, primarily Phase 1 and 2 clinical trials and preparation of clinical material, were nearing completion. Other revenues also included approximately $5.3 million in 2001 and $1.2 million in 2000 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 million in other revenues under the arrangement. Other revenues in both years also included royalty income from ALZA in accordance with the terms of the Ethyol distribution agreement. Other revenues during 2000 also included $10.0 million related to the license agreement signed with GSK for ourStreptococcus pneumoniae vaccine technology.

40



Cost of Sales

        Cost of sales for 2001 increased 9% to $138.7 million from $127.3 million in 2000 due to increased sales volumes. Gross margins for the year ended December 31, 2001 improved to 76% from 74% for the year ended December 31, 2000. Gross margins in 2001 were principally improved as a result of a product mix shift to Synagis. Synagis has higher margins than MedImmune's other products, which is in part attributable to lower manufacturing costs following implementation of an improved manufacturing process at the FMC, which increased fermentation yields. Additionally, margins in 2000 were adversely affected by a $2.4 million charge associated with the write-off of certain Synagis inventory, as a result of a contamination in the manufacturing process at the FMC, as well as a $1.5 million charge associated with the write-off of by-product inventory associated with our plasma production activities.

Research and Development Expenses

        Research and development expenses increased 25% to $83.0 million in 2001 from $66.3 million in 2000, primarily due to a larger number of active clinical trials. During 2001, we initiated nine new clinical trials and completed patient enrollment in twelve trials. Our clinical trials included a Synagis Phase 3 study in infants with congenital heart disease, a trial with adults using a liquid formulation of Synagis, three Phase 2 and one Phase 1 human papillomavirus vaccine trials, one Phase 1 trial and three Phase 2 trials for use of siplizumab in psoriasis patients, two Phase 2 trials for our UTI vaccine, and two Phase 1 and one Phase 2 Vitaxin trials. In addition, to accommodate more research and development activity, we expanded our workforce and facilities, resulting in increased wages and occupancy expense.

        During 2001, we incurred significant costs related to the development of various products and product candidates. A summary of our more significant research and development efforts as of December 31, 2001 would include Synagis (Phase 3), siplizumab (Phase 2), UTI (Phase 2), HPV vaccine (Phase 2) and Vitaxin (Phase 1).

        The development-stage efforts listed above and other research and development projects may never reach clinical trials, achieve success in the clinic, be submitted to the appropriate regulatory authorities for approval, or be approved for marketing or manufacturing by the appropriate regulatory authorities. Further, we rely on numerous third parties to assist us in various stages of the development process. Should they be unable to meet our needs, we may incur substantial additional costs. Any of such uncertainties, if they should occur, could have a material adverse effect on our financial condition and results of operations.

Selling, General and Administrative Expense

        SG&A expense increased 24% to $194.8 million in 2001 from $157.3 million in 2000. As a percentage of product sales, SG&A expense increased to 34% in 2001 from 32% in 2000. A portion of this increase is reflective of $13.4 million in termination fees relating to our agreement with ALZA for the accelerated acquisition of Ethyol marketing rights in the United States. In addition, we incurred increased salary and related expenses for 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. Offsetting these increases was a decrease in legal expenses from 2000, as several legal matters outstanding in 2000 were resolved.

41



Other Operating Expenses

        Other operating expenses, which reflect manufacturing start-up costs, the cost of idle manufacturing capacity and other manufacturing related costs, increased 4% to $9.6 million in 2001 from $9.2 million in 2000. This increase was mainly attributable to a $1.3 million charge in 2001 to record certain plasma inventories at their net realizable value. The plasma was intended for the start-up operations of our manufacturing plant and was not approved for use in the current production process.

Interest Income and Expense

        We earned interest income of $36.5 million during 2001 compared to $29.6 million in 2000, reflecting higher cash balances available for investment and a shift in our investment strategy to include investments with longer maturities, partially offset by a decline in interest rates which lowered our portfolio yield. Interest expense was comparable in 2001 to 2000.

Taxes

        We recorded income tax expense of $79.5 million for the year ended December 31, 2001, resulting in an effective tax rate of 34.8%. This compared to tax expense of $64.4 million recorded for the year ended December 31, 2000, based on an effective tax rate of 30.8%. The variation in the effective tax rate for 2001 compared to 2000 is due to the amount of credits available for research and development activities. In addition, due to state tax law changes for the year ended December 31, 2001, the value of our state deferred tax assets decreased. The change in the statutory tax rate required us to reduce our deferred tax assets and accompanying valuation allowance to value them at the new rate, resulting in a $2.4 million additional charge to tax expense during 2001.

Cumulative Effect of a Change in Accounting Principle

        We recorded a non-cash charge to 2000 earnings of $33.8 million, net of tax, or $0.16 on a diluted per share basis, as the cumulative effect of a change in accounting principle for the implementation of SAB 101. The adjustment was applied to the first quarter of 2000 as required by the SAB and includes amounts recognized as revenue prior to 2000. These amounts related to up-front payments or milestone payments that 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.

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. Net earnings per share for the year ended December 31, 2001 were $0.70 for basic earnings per share and $0.68 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 213.4 million and 220.1 million, respectively. Net earnings for the year ended December 31, 2000, which include the cumulative effect of a change in accounting principle, were $111.2 million, or $0.53 basic and $0.50 diluted earnings per share. Shares used in computing basic and diluted earnings per share were 209.1 million and 220.4 million, respectively.

        We do not believe inflation had a material effect on our financial statements.

LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

        The Company's capital requirements have generally been funded from operations, cash and investments on hand, and issuance of common stock.stock and convertible debt. Cash and marketable securities (short and

42



long-term) increased 83%34% to $1.9 billion at December 31, 2003 from $1.4 billion at December 31, 2002 from $777.7 million at December 31, 2001.2002. This increase is largely due to cash received from the impactissuance of the Acquisition,$500 million in 1% Notes due in July 2023 as well as cash generated from operations. Working capital increased 31%49% to $712.0 million at December 31, 2003 from $476.8 million at December 31, 2002, primarily due to cash received from $365.2 million at December 31, 2001. Also, as a resultthe issuance of the Acquisition, we have added $200 million in Notes with the entire balance due in 2008.1% Notes.

        Operating ActivitiesActivities—Net cash provided by operating activities increased to $263.5$357.7 million in the year ended December 31, 20022003 as compared to $250.9$263.5 million in the comparable 20012002 period, primarily as the result of the net earnings for the period (excludingand the write-offutilization of in-process researchdeferred tax assets to offset our current tax liability. Also affecting cash generated from operating activities were increases in accounts receivable and development and other non-cash items) and volume-related increasesinventories, partially offset by an increase in accrued co-promotion expensesexpense for Synagis and royalties payable. The Company has made $5.1 million in cash restructuring payments relating to the Acquisition. The remaining restructuring liability of $1.0 million is expected to be settled by 2004 with cash generated from operations.Synagis.

40



        Investing ActivitiesActivities—Cash used for investing activities during 20022003 was $347.0$238.3 million, as compared to $188.2$347.0 million in 2001.2002. Cash used for investing activities in 20022003 included net additions to our investment portfolio of $404.3$95.0 million offset by $146.9 millionand $112.9 in cash acquired as a result of the Acquisition. We also invested $8.7 million in preferred equity securities of strategic partners, including Panacea, A&G and Iomai. We expended $80.9 million for capital expenditures, primarily for the land purchase forpurchases 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, (England)the United Kingdom. We also invested $30.4 million in preferred equity securities and Maryland.convertible bonds through our venture capital subsidiary.

        Financing ActivitiesActivities—Financing activities generated $42.0$266.2 million in cash for 2002,2003, as compared to $23.6$42.0 million in 2001.2002. Approximately $46.7$44.4 million was received upon the issuance of common stock relating primarily to the exercise of employee stock options in 2002,2003, as compared to $24.3$46.7 million received in 2001, largely2002, reflecting the inclusion ofincreased option exercises by employees subsequent to the Acquisition.Acquisition in 2002.

        In 2002, repaymentsJuly 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 long-term obligations were $4.6 million, compared to $0.7 millionthese notes in 2001, primarily reflecting paydowns of long-term obligations assumedaccordance with the Acquisition.

        Forward-looking commentaryIn 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 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, but intend to resume repurchasing during 2004. 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.

We expect to have approximately $115 million inmake capital expenditures in the range of $100-125 million during 2003. Construction2004 for projects such as continued construction of the first phase of the newour corporate headquarters facility, at a total estimated cost of $85 million as well as major construction projects at ourin Gaithersburg, Maryland and FluMist manufacturing facilities in PennsylvaniaSpeke, the United Kingdom, construction of a new pilot plant in Gaithersburg, Maryland, and in England,land purchases relating to future expansion phases of our headquarters facility. The Company anticipates these projects will be funded from cash generated from operations and investments on hand. Additionally, we have options to purchase an additional 14 acres of land adjacent to the new headquarters facility. Construction began during March 2002, and weWe expect to take occupancy of the first phase of our headquarters facility, a complex of approximately 220,000 square feet, in the fall of 2003.March 2004. The majority of our existing space in Gaithersburg is leased through 2006, a portion of which is expected towill be subleased.offered for sublease. There can be no guarantee that we will be successful in subleasing the space.

        In conjunction with our licensing agreement with Genentech and research and development collaborations reached with Panacea, A&G and ViroNovative during 2002, we        The Company's 51/4% Notes are obligatedredeemable beginning in February 2004. The Company intends to pay up to $186.7 million in various milestone payments subject toredeem the achievement of specified clinical, regulatory, and sales milestones. We are also obligated to pay up to $108.2 million in potential milestones under various research and development agreements we have entered into since inception. Additionally, we are required to pay research and development funding and maintenance fees under certainentire remaining amount of the contracts. Payments areissue at approximately 103% of its principal amount in the first quarter of 2004. The redemption is expected to be fundedfinanced from cash generated from operations and investments on hand.

        Through MedImmune Ventures, Inc., we plan to invest up to $100 million over the next three years in minority interest investments in strategic partners that are either public or early-to-late stage private biotechnology companies focused on discovering and developing human therapeutics.

4341



        Contractual Obligations and CommitmentsCommitments—The following table summarizes our contractual obligations and commitments that will require significant cash outlays in the future:



 Total
 2003
 2004
 2005
 2006
 2007
 beyond

 Total
 2004
 2005
 2006
 2007
 2008
 Beyond
 
Contractual ObligationsContractual Obligations                     Contractual Obligations               
Long-term debt* $208.8 $0.8 $0.9 $0.9 $1.0 $1.1 $204.1

Long-term debt(1)

Long-term debt(1)

 

$

675.7

 

$

0.9

 

$

1.0

 

$

1.0

 

$

1.3

 

$

168.1

 

$

503.4

(2)
Facilities leasesFacilities leases  62.9  8.6  8.6  6.5  4.4  2.6  32.2Facilities leases 54.3 8.8 6.5 4.5 2.8 2.5 29.2 
Unconditional purchase obligations  69.8  46.6  23.2        
Purchase obligationsPurchase obligations 136.1 59.2 20.4 11.5 7.5 7.5 30.0 
Evans liabilityEvans liability  30.7  3.9  22.9  3.9      Evans liability 26.8 3.9 22.9         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total contractual obligations $381.8 $59.9 $55.6 $11.3 $5.4 $3.7 $245.9Total contractual obligations $892.9 $72.8 $50.8 $17.0 $11.6 $178.1 $562.6 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Commercial CommitmentsOther Commercial Commitments                     Other Commercial Commitments               
Standby letters of creditStandby letters of credit $2.3 $2.1 $ $0.2 $ $ $Standby letters of credit $2.2 $2.2 $ $ $ $ $ 
Evans liability  2.0  0.5  1.5        
Obligations under Collaborative Agreements  294.9  7.1  7.5  9.2  3.7  14.4  253.0
Obligations under Collaborative Agreements(3)Obligations under Collaborative Agreements(3) 16.6 7.5 2.3 1.9 1.1 0.8 3.0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total other commercial commitments $299.2 $9.7 $9.0 $9.4 $3.7 $14.4 $253.0Total other commercial commitments $18.8 $9.7 $2.3 $1.9 $1.1 $0.8 $3.0 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

*(1)
A portion of thisThe 2008 amount representsincludes the aggregate principal amount of the 51/4% Notes. The NotesThey are recorded at a premium on the balance sheet, which represents their fair value at the time of the Acquisition. These notes are due in 2008; however, in February 2004 the Board of Directors approved their redemption, which is expected to be completed by March 31, 2004.

(2)
The 1% Notes can be put to MedImmune by the holders for cash in 2006.

(3)
We participate in a number of research and development collaborations to develop and market certain technologies and products. The amounts indicated as obligations under collaborative agreements represent committed funding obligations to our collaborative partners under our various development programs. The amounts do not include any milestone payments or royalty payments related to these collaborations since the amount, timing, and likelihood of the payments is unknown as they are dependent on the occurrence of future events that may or may not occur.

4442



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, 20022003 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, 20012002 due to the increase in the size of our investment portfolio.

        As of December 31, 2002,2003, 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, and U.S. government and agency notes and bonds. The maturities range from three monthsone month to seven 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 (in millions):


 2003
 2004
 2005
 2006
 2007
 2008
 2009
 Total
 Fair
Value

 2004
 2005
 2006
 2007
 2008
 2009
 2010
 Total
 Fair
Value

U.S. Gov't and Agencies $163.7 $44.3 $ $11.0 $15.0 $6.9 $5.0 $245.9 $254.2 $30.0 $ $11.0 $15.0 $31.9 $15.0 $ $102.9 $109.1
Interest Rate  2.3%  3.2%    5.5%  4.8%  5.9%  6.6%       3.8%  5.5% 4.8% 4.4% 6.5%     

Corp. Debt Securities

 

$

183.7

 

$

198.4

 

$

160.7

 

$

181.5

 

$

83.5

 

$

36.4

 

$

56.2

 

$

900.4

 

$

967.9

 

$

196.9

 

$

153.4

 

$

183.2

 

$

208.3

 

$

264.3

 

$

112.9

 

$

15.4

 

$

1,134.4

 

$

1,214.5
Interest Rate  5.6%  5.9%  6.4%  5.7%  5.8%  5.1%  5.8%       5.8% 6.6% 5.6% 5.5% 4.1% 6.1% 7.5%    

Foreign Bank Debt Securities

 

$

27.6

 

$

6.0

 

$

8.0

 

$

23.0

 

$


 

$


 

$


 

$

64.6

 

$

69.0

 

$

7.5

 

$

8.0

 

$

23.0

 

$


 

$

2.8

 

$


 

$


 

$

41.3

 

$

45.3
Interest Rate  1.2%  5.0%  4.1%  7.4%             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, 2002,2003, and is expected to increase in the future as it continues to invest in accordance with its investment strategy.

        MedImmune Venture's minority interest investments are subject to adjustment for other-than-temporary impairments. We recognize impairment charges in the consolidated statements of operations when a decline in the fair value of an investment falls below its cost value and is judged to be other than temporary. We consider various factors in determining whether we owned approximately 907,000 sharesshould recognize an impairment charge, including: the length of common stock in a publicly traded company withtime and extent to which we previously formed a strategic alliance. Since that company's initial public offering in July 2000, the market pricefair value has been less than our cost basis; the financial condition and near-term prospects of the shares has fluctuated significantly.issuer; fundamental changes to the business prospects of the investee; share prices of subsequent offerings; and our intent and ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in market value. During 2003 and 2002, the Company determined that the decline in fair value below the cost basisrecorded impairment losses of the investment was other than temporary,$1.7 million and $14.0 million, respectively, based primarily on the duration and magnitude of the declinedeclines in fair value, largely due to the downward movement in the capital markets, as well as

43



the financial condition and near-term prospects of the investee company. Forcompanies. We did not incur any impairment losses during the year ended December 31, 2002, the Company recorded a realized loss of $4.5 million to write-down the cost basis of the investment to fair value.2001. We expect the stock price 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 $1.9 million at December 31, 2002. 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 less than $0.12003, we recognized net gains on sales of a portion of the holdings of $4.4 million. As

        The remainder of MedImmune Venture's portfolio as of December 31, 2001, the fair value2003 consists of the investment was $11.2 million.

        In connection with its research and development collaborations, the Company holds minority interestsinterest investments in companies having operations or technology in areas within its strategic focus.privately held biotechnology companies. The investments are maintained on the cost or equity method of accounting, according to the facts and

45



circumstances of the individual investment. Under either method, the investments are subject to adjustment for other-than-temporary impairments. Additionally, forFor investments carried on the equity method, the Company's proportionate share of the investee's gains or losses is recorded on a quarterly basis. During 2002,As of December 31, 2003, the Company determined that the declines in fair value below theinvestments had a cost basis of certain of its minority interest investments were other than temporary, based primarily on the duration and magnitude of the declines in fair value, largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee companies. For the year ended December 31, 2002, the Company recorded realized losses of $9.5 million to write-down the cost basis of certain of its minority interest investments in non-marketable securities to fair value.$36.7 million.

        In July 2002, the Company formed MedImmune Ventures, Inc., a wholly-owned venture capital subsidiary that will assume the responsibility of the current portfolio of minority interest investments in strategic partners and will invest in public or early-to-late-stage private biotechnology companies focused on discovering and developing human therapeutics. The fund will invest primarily in areas of strategic interest to the Company, including infectious disease, immunology and oncology. The fund initially plans to invest up to $100.0 million over the next three years.

        Following the Acquisition, the Company's subsidiary, MedImmune Vaccines, continues to be obligatedassumed the obligation for $200.0 million in 51/4% Notes due 2008. The NotesThese notes were recorded at their fair value of $211.4 million, based on quoted market prices as of January 10, 2002, the acquisition date. Interest is payable semi-annually in arrears in cash on February 1 and August 1 each year. Changes in interest rates do not affect interest expense incurred on the Notes, because they bear interest at fixed rates. TheDuring 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 3.42.9 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 the Notesthese notes at December 31, 2002,2003, based on quoted market prices, was $198.2$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 1% Notes at December 31, 2003, based on quoted market prices, was $475.0 million.

        Changes in interest rates do not affect interest expense incurred on our remaining outstanding indebtedness of $8.8$8.0 million and $9.5$8.8 million at December 31, 20022003 and 2001,2002, respectively, because the borrowings are in the form of notes that bear interest primarily at fixed rates. Maturities for the next five years are as follows: 2003, $0.8 million; 2004, $0.9 million; 2005, $0.9 million; 2006, $1.0 million; and 2007, $1.1 million. The estimated fair value of the remaining long-term debt at December 31, 20022003 and 2001,2002, based on quoted market prices or discounted cash flows at currently available borrowing rates, was $8.4 million and $9.3 million, respectively. Maturities for all long term debt 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 $10.0 million, respectively.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 expenditures 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's contract with BI forCompany has entered into a supplemental manufacturing of Synagis iscontract 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 2005and fill/finish for approximately 42.678 million Euros, payment for which is subject to manufacturing and delivery schedules. In an effort to reduce the impactEuros. As 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,December 31, 2003, the Company periodically enters intodid not have any open 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. The Company does not enter into foreign exchange forward contracts for speculative or trading purposes. Changes in the fair value of the derivative instruments are reported in other comprehensive income, and reclassified as earnings in the periods in which the related inventory is sold. The ineffective portion, if any, of hedges are recognized in current-period earnings. As of December 31, 2002, the Company had outstanding forward contracts to purchase 1.1 million Euros, all expiring within one year. Fair value of the outstanding contracts at December 31, 2002 was $0.3 million. As of December 31, 2001, the Company did not have any open foreign exchange forward contracts. During the third quarter of 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 GBPs. The contracts were originally designated as cash flow hedges. The hedges, but were later determined to be ineffective and were subsequently cancelled, resulting in a net gain of $0.2 million recorded to the income statement.

4645



ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


MedImmune, Inc.

Consolidated Balance Sheets

(in thousands)

 
 2002
 2001
Assets:      
 Cash and cash equivalents $130,056 $171,255
 Marketable securities  396,882  162,375
 Trade receivables, net  113,774  126,371
 Inventory, net  59,963  50,836
 Deferred tax assets  25,735  27,280
 Other current assets  17,023  9,063
  
 
  Total Current Assets  743,433  547,180
 
Marketable securities

 

 

896,118

 

 

444,060
 Property and equipment, net  183,992  95,402
 Deferred tax assets, net  222,038  136,361
 Intangible assets, net  113,275  
 Goodwill  15,970  
 Other assets  13,463  13,852
  
 
  Total Assets $2,188,289 $1,236,855
  
 

Liabilities and Shareholders' Equity:

 

 

 

 

 

 
 Accounts payable, trade $19,773 $5,873
 Accrued expenses  157,359  112,434
 Product royalties payable  74,048  47,720
 Deferred revenue  6,789  13,839
 Other current liabilities  8,684  2,149
  
 
  Total Current Liabilities  266,653  182,015
 
Long-term debt

 

 

217,554

 

 

8,791
 Obligations to Evans  24,755  
 Other liabilities  2,093  1,776
  
 
  Total Liabilities  511,055  192,582
  
 
Commitments and Contingencies      

Shareholders' Equity:

 

 

 

 

 

 
 Preferred stock, $.01 par value; authorized 5,525 shares; none issued or outstanding    
 Common stock, $.01 par value; authorized 320,000 shares; issued and outstanding 251,262 at December 31, 2002 and 214,484 at December 31, 2001  2,513  2,145
 Paid-in capital  2,613,075  891,627
 Deferred compensation  (6,823) 
 Accumulated (deficit) earnings  (956,140) 141,875
 Accumulated other comprehensive income  24,609  8,626
  
 
  Total Shareholders' Equity  1,677,234  1,044,273
  
 
  Total Liabilities and Shareholders' Equity $2,188,289 $1,236,855
  
 
 
 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 thousands, except per share data)

 
 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 Operations
(in thousands, except per share data)

 
 For the year ended December 31,
 
 
 2002
 2001
 2000
 
Revenues          
 Product sales $785,961 $579,529 $495,803 
 Other revenue  61,778  39,150  44,692 
  
 
 
 
  Total revenues  847,739  618,679  540,495 
  
 
 
 
Costs and Expenses          
 Cost of sales  200,927  138,707  127,320 
 Research and development  144,150  82,985  66,296 
 Selling, general, and administrative  299,323  194,841  157,330 
 Other operating expenses  100,029  9,606  9,231 
 Acquired in-process research and development  1,179,321     
  
 
 
 
  Total expenses  1,923,750  426,139  360,177 
  
 
 
 
Operating (loss) income  (1,076,011) 192,540  180,318 
Interest income  49,355  36,516  29,569 
Interest expense  (9,110) (590) (474)
Loss on investment activities  (14,074)    
  
 
 
 
(Loss) earnings before income taxes and cumulative effect of a change in accounting principle  (1,049,840) 228,466  209,413 
Provision for income taxes  48,175  79,506  64,436 
  
 
 
 
(Loss) earnings before cumulative effect of a change in accounting principle  (1,098,015) 148,960  144,977 
Cumulative effect of a change in accounting principle, net of tax      (33,821)
  
 
 
 
Net (loss) earnings $(1,098,015)$148,960 $111,156 
  
 
 
 
Basic (loss) earnings per share:          
(Loss) earnings before cumulative effect of a change in accounting principle $(4.40)$0.70 $0.69 
Cumulative effect of a change in accounting principle, net of tax      (0.16)
  
 
 
 
Net (loss) earnings $(4.40)$0.70 $0.53 
  
 
 
 
Shares used in calculation of basic (loss) earnings per share  249,625  213,378  209,101 
  
 
 
 
Diluted (loss) earnings per share:          
(Loss) earnings before cumulative effect of a change in accounting principle $(4.40)$0.68 $0.66 
Cumulative effect of a change in accounting principle, net of tax      (0.16)
  
 
 
 
Net (loss) earnings $(4.40)$0.68 $0.50 
  
 
 
 
Shares used in calculation of diluted (loss) earnings per share  249,625  220,101  220,428 
  
 
 
 
Pro forma amounts assuming the change in accounting principle was applied retroactively:          
  Net earnings       $144,977 
        
 
  Basic earnings per share       $0.69 
        
 
  Diluted earnings per share       $0.66 
        
 

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

48



MedImmune, Inc.
Consolidated Statements of Cash Flows

(in thousands)



 For the year ended December 31,
 
 For the year ended December 31,
 


 2002
 2001
 2000
 
 2003
 2002
 2001
 
CASH FLOWS FROM OPERATING ACTIVITIESCASH FLOWS FROM OPERATING ACTIVITIES       CASH FLOWS FROM OPERATING ACTIVITIES       
Net (loss) earnings $(1,098,015)$148,960 $111,156 Net earnings(loss) $183,204 $(1,098,015)$148,960 
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities:       Adjustments to reconcile net earnings (loss) to net cash provided by operating activities:       
 Cumulative effect of a change in accounting principle, net of tax   33,821 Acquired in-process research and development  1,179,321  
 Acquired in-process research and development 1,179,321   Deferred taxes 86,978 50,806 76,398 
 Deferred taxes 50,806 76,398 68,024 Deferred revenue (5,976) (7,050) (21,430)
 Deferred revenue (8,663) (21,430) (21,117)Depreciation and amortization 37,662 36,820 9,124 
 Depreciation and amortization 36,820 9,124 7,322 Advances from Wyeth 51,910   
 Amortization of premium (discount) on marketable securities 9,752 (2,024) (2,798)Amortization of premium (discount) on marketable securities 14,821 9,752 (2,024)
 Amortization of deferred compensation 19,228   Amortization of deferred compensation 4,046 19,228  
 Amortization of bond premium (1,819)   Amortization of bond premium (3,130) (1,819)  
 Loss on investment activities 14,074   (Gain) loss on investment activities (3,438) 14,074  
 Impairment of long-lived assets 14,058   Impairment of long-lived assets  14,058  
 Increase (decrease) in sales allowances 17,427 9,599 (125)Increase in sales allowances 10,877 17,427 9,599 
 Increase (decrease) in provision for inventory reserve 23,988 2,910 (1,018)Losses on writedowns of inventory 58,965 44,671 2,910 
 Change in restructuring liability for cash employee termination costs (5,142)   Change in restructuring liability for cash employee termination costs (661) (5,142)  
 Other 2,409 (138) 2,161 Other 3,693 796 (138)
 Increase (decrease) in cash due to changes in assets and liabilities:       Increase (decrease) in cash due to changes in assets and liabilities:       
 Trade receivables 3,944 (2,866) (28,616) Trade receivables (36,743) 3,944 (2,866)
 Inventory (23,276) (6,559) (11,999) Inventory (86,590) (43,959) (6,559)
 Other assets (2,220) 2,697 (2,833) Other assets (14,507) (2,220) 2,697 
 Accounts payable and accrued expenses 4,627 25,451 6,849  Accounts payable and accrued expenses 45,321 4,627 25,451 
 Product royalties payable 26,328 7,166 12,026  Product royalties payable 7,760 26,328 7,166 
 Other liabilities (105) 1,627 410  Other liabilities 3,469 (105) 1,627 
 
 
 
   
 
 
 
 Net cash provided by operating activities 263,542 250,915 173,263  Net cash provided by operating activities 357,661 263,542 250,915 
 
 
 
   
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIESCASH FLOWS FROM INVESTING ACTIVITIES       CASH FLOWS FROM INVESTING ACTIVITIES       
Investments in securities available for sale (1,008,936) (842,589) (685,207)Investments in securities available for sale (659,914) (1,008,936) (842,589)
Maturities of securities available for sale 467,254 312,954 430,845 Maturities of securities available for sale 345,611 467,254 312,954 
Proceeds from sales of securities available for sale 137,393 371,230 63,375 Proceeds from sales of securities available for sale 219,305 137,393 371,230 
Net cash acquired in acquisition of Aviron 146,853   Net cash acquired in acquisition of Aviron  146,853  
Capital expenditures, net of capitalized interest (80,871) (18,258) (8,588)Capital expenditures, net of capitalized interest (112,940) (80,871) (18,258)
Investments in strategic alliances (8,735) (11,499)  Investments in strategic alliances (30,405) (8,735) (11,499)
 
 
 
   
 
 
 
 Net cash used in investing activities (347,042) (188,162) (199,575) Net cash used in investing activities (238,343) (347,042) (188,162)
 
 
 
   
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIESCASH FLOWS FROM FINANCING ACTIVITIES       CASH FLOWS FROM FINANCING ACTIVITIES       
Proceeds from issuance of common stock 46,664 24,339 76,286 Proceeds from issuance of common stock 44,409 46,664 24,339 
Repayments on long-term obligations (4,639) (742) (1,505)Share repurchases (229,802)   
 
 
 
 Proceeds of 1% Notes, net of issuance costs 489,361   
 Net cash provided by financing activities 42,025 23,597 74,781 Debt prepayments (33,124)   
 
 
 
 Repayments on long-term obligations (4,694) (4,639) (742)
Effect of exchange rate changes on cash 276 (69) (65)  
 
 
 
Net (decrease) increase in cash and cash equivalents (41,199) 86,281 48,404  Net cash provided by financing activities 266,150 42,025 23,597 
Cash and cash equivalents at beginning of year 171,255 84,974 36,570   
 
 
 
 
 
 
 Effect of exchange rate changes on cash (22) 276 (69)
Cash and cash equivalents at end of year $130,056 $171,255 $84,974 
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:Supplemental cash flow data:       Supplemental cash flow data:       
Cash paid during the year for interest $11,013 $559 $607 Cash paid during the year for interest $13,701 $11,013 $559 
Cash (received) paid during the year for income tax (refunds) payments (2,320) 505 1,016 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 Company acquired 100% of the outstanding capital stock of Aviron through an exchange offer and merger transaction. The Company exchanged approximately 34.0 million of its common shares for all of the outstanding shares of Aviron common stock and assumed Aviron's outstanding options and warrants, for which approximately 7.0 million additional shares of the Company's common stock are issuable. The estimated fair value of the net assets acquired was $1,635.1 million, and included $1,179.3 million of acquired research and development assets that were charged to current period results at the date of acquisition and $211.4 million of 51/4% convertible subordinated notes due in 2008.

The accompanying notes are an integral part of these financial statements

48



MedImmune, Inc.

Consolidated Statements of Shareholders' Equity

(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

49



MedImmune, Inc.MEDIMMUNE, INC.
Consolidated Statements of Shareholders' Equity
(in thousands)

 
 Common Stock, $.01 par
  
  
  
  
  
 
 
  
  
  
 Accumulated
Other
Comprehensive
Income (Loss)

  
 
 
 Paid-in
Capital

 Deferred
Compensation

 Accumulated
Earnings
(Deficit)

  
 
 
 Shares
 Amount
 Total
 
Balance, December 31, 1999 203,840 $2,038 $654,885 $ $(118,241)$(1,603)$537,079 
 Net earnings         111,156    111,156 
 Foreign currency translation adjustment           (8) (8)
 Unrealized gain on investments, net of tax           7,350  7,350 
                   
 
Comprehensive income                   118,498 
                   
 
Common stock options exercised 7,508  75  76,210        76,285 
Tax benefit associated with the exercise of stock options     111,720        111,720 
  
 
 
 
 
 
 
 
Balance, December 31, 2000 211,348  2,113  842,815    (7,085) 5,739  843,582 
 Net earnings         148,960    148,960 
 Foreign currency translation adjustment           (216) (216)
 Unrealized gain on investments, net of tax           3,071  3,071 
 Unrealized gain on hedged inventory purchases, net of tax           32  32 
                   
 
Comprehensive income                   151,847 
                   
 
Common stock options exercised 3,092  31  22,818        22,849 
Issuance of common stock under the employee stock purchase plan 44  1  1,489        1,490 
Tax benefit associated with the exercise of stock options     24,505        24,505 
  
 
 
 
 
 
 
 
Balance, December 31, 2001 214,484  2,145  891,627    141,875  8,626  1,044,273 
 Net loss         (1,098,015)   (1,098,015)
 Foreign currency translation adjustment           778  778 
 Unrealized gain on investments, net of tax           15,079  15,079 
 Unrealized gain on hedged inventory purchases, net of tax           126  126 
                   
 
Comprehensive loss                   (1,082,032)
                   
 
Common stock options exercised 2,663  27  42,673        42,700 
Issuance of common stock under the employee stock purchase plan 163  2  3,962        3,964 
Tax benefit associated with the exercise of stock options     14,804        14,804 
Shares issued related to the acquisition of Aviron 33,952  339  1,664,412  (39,454)     1,625,297 
Amortization of deferred compensation for the vesting of stock options       19,228      19,228 
Reversal of deferred compensation for cancellation of stock options     (4,403) 4,403       
Decrease in restructuring liability for amortization of deferred compensation for the vesting of stock options       9,000      9,000 
  
 
 
 
 
 
 
 
Balance, December 31, 2002 251,262 $2,513 $2,613,075 $(6,823)$(956,140)$24,609 $1,677,234 
  
 
 
 
 
 
 
 

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

50



MedImmune, Inc.
Notes to Consolidated Financial StatementsNOTES 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. During January 2002, the Company completed its acquisition of Aviron, subsequently renamed MedImmune Vaccines, Inc., a biopharmaceutical company headquartered in Mountain View, California, through an exchange offer and merger transaction (the "Acquisition"). The Acquisition was accounted for as a purchase, and the results of operations of MedImmune Vaccines are included in the results of the Company effective January 10, 2002 (see Note 3).

        The Company currently actively markets threefour products, Synagis, Ethyol, CytoGam, and CytoGam,FluMist, and maintains a diverse research and development pipeline. The Company's leading product candidate, FluMist, is under review by the FDA. The Company is focused on developing important new productsvaccines 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 PresentationPresentation—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.

        SeasonalitySeasonality—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.northern hemisphere. Because of the seasonal nature of RSV, limited sales, if any, of Synagis are expected during the second and third quarters of any calendar year, causing results to vary significantly from quarter to quarter. Sales of Synagis comprised approximately 85%86%, 89%,85% and 86%89% of total product sales for the years ended December 31, 2003, 2002, 2001, and 2000,2001, respectively.

        FluMist which has not yet been approved by the FDA, is a nasally delivered live attenuated vaccine used to prevent influenza, which is most prevalent in the fall and winter months. IfThe majority of FluMist is approved, limited sales if any, are expected in the firstto occur between October and second quarters of any calendar yearJanuary because of the seasonal nature of influenza, causing results to vary significantly from quarter to quarter.

        Cash, Cash Equivalents and Marketable SecuritiesSecurities—The Company considers all highly liquid instruments purchased with a maturity of three months or less at date of purchase to be cash equivalents. Investments in marketable securities consist principally of debt securities of United StatesU.S. corporations, including commercial paper and notes, debt securities of international banks, and United StatesU.S. Government and Agency notes and bonds. Investments with maturities of three to 12 months from the balance sheet date are considered current assets, while those with maturities in excess of one 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. 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.

        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

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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 seven 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 InvestmentsInvestments——In connection with its researchThe Company's wholly-owned venture capital subsidiary, MedImmune Ventures, Inc., manages the Company's current portfolio of minority interest investments and development collaborations, the Company holds minority interestsendeavors to make additional investments in public or private biotechnology companies, having operations or technologyprimarily in areas within itsof strategic focus.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. For minority interests maintainedMinority interest investments in publicly traded companies the Company's investment is maintainedare 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 determined 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 yearyears ended December 31, 2003 and December 31, 2002, the Company recorded realizedimpairment losses of $9.5$1.7 million and $14.0 million, respectively, to write-down the cost basis of certain of its minority interest investments to estimated fair value.

        Fair Value of Financial InstrumentsInstruments—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, 20022003 and 20012002 due to the short maturities of these instruments.

        Concentration of Credit RiskRisk—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 also minimizes its credit risk from these customers by purchasing insurance coverage for certain customers. As of December 31, 2003, trade accounts receivable included four customers that each accounted for 27%, 16%, 15% and 12%, of net trade accounts receivable, respectively. As of December 31, 2002, trade accounts receivable included three customers that each accounted for 22%, 21%, and 19%, of net trade accounts receivable, respectively. As of December 31, 2001, trade accounts receivable included two customers that each accounted for 29% and 26% of net trade accounts receivable, respectively.

        InventoryInventory——Inventory isInventories 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.

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        Product SalesSales—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 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 compensation received by the Company from its partner is variable based, in part, on the end-user sales price. When all of the other revenue criteria

52



have been met, the Company recognizes revenue to the extent that the customer has an obligation to pay, if the customer has limited or no control over the end-user sales price and, accordingly, any subsequent adjustments to the recorded revenue are not expected to be significant. Subsequent adjustments to recorded revenue that result from variances between amounts previously invoiced and the total sales price received are recorded as an adjustment to product sales in the quarter in which they become known.

        Product sales are recorded net of allowances for estimated chargebacks, returns, discounts, and government rebates. Both in the United States and elsewhere, sales of pharmaceutical products depend on the availability of reimbursement to the consumer from third-party payors,payers, such as government and private insurance plans. The Company estimates the portion of its sales that will be covered by government insurance and records allowances at a level that management believes is sufficient to cover estimated requirements for reimbursements. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Allowances for discounts, returns, chargebacks, and bad debts, which are netted against accounts receivable, totaled $18.1$12.8 million and $9.4$18.1 million at December 31, 20022003 and 2001,2002, respectively. Allowances for government reimbursements were $26.2$42.4 million and $17.5$26.2 million as of December 31, 20022003 and 2001,2002, respectively, and are included in accrued expenses in the accompanying balance sheets.

                Contract RevenuesRevenues—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 based on a percentage-of-completion model based on actual costs incurred relative to the total projected costs. Upfront fees and milestone payments under collaborative agreements are recognized when they are earned in accordance with the applicablecontingency-adjusted performance requirements and contractual terms,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 (percentage-of-completion) model. Under this method,model, a portion of the up front and milestone payments received that are related to future performance areunder collaborative agreements with Abbott, ALZA, GSK, and Schering were deferred and recorded as revenues as they are earnedbeing recognized over specified future performance periods. Recognized revenues are subjectthe 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 revisions as the collaboration efforts progressamounts received under these agreements was $0.8 million and estimated costs to complete are revised.$3.9 million, respectively.

        For new contracts executed or acquired after January 1, 2002, the Company useschanged 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-frontup front payment. If all of these criteria are not met, then the Company will use the contingency-adjusted performance model (see Note 4).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 RevenuesRevenues—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 ExpenseExpense—Product royalty expense is recognized as a cost of sales concurrently with the recognition of product revenue, net of allowances for estimated chargebacks, returns, discounts, and government rebates, based on a contractually stipulated royalty percentage,percentage. Any adjustments to royalty expense that result from variances between estimated and is includedactual net sales are recorded as an adjustment to expense in cost of sales.the quarter they become known.

                Licensing FeesIn the normal course of business, the Company enters into collaborative research and development and in-licensing agreements to acquire access to technology. These collaborative agreements usually require the Company to pay up-frontup front fees and milestone payments, some of which are significant. When the Company pays an up-front or milestone payment, management evaluates the stage of the acquired technology to determine the appropriate accounting treatment. If the technology

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is considered to be in the early development stage (generally definedAll up front payments are expensed as pre-clinical through Phase 1 (initial human testing)), the up-front or milestone payment is expensed. If the technology has entered Phase 2 or Phase 3 clinical trials but has not yet been approved by regulatory authorities, the Company will evaluate the facts and circumstances of each case to determine if a portion or all of the payment have future benefit and should be capitalized at fair value. Payments made to third parties subsequent to regulatory approval will be capitalized with that cost generally amortized over the patented life of the product.incurred. The agreements may also require that the Company provide funding to its partners for research programs of our partners.programs. These costs are expensed as incurred.

                OtherOther—The Company accrues estimated costs for clinical and preclinical studies performed by contract research organizations or by internal staff based on the total of the costs incurred through the balance sheet date. The Company monitors the progress of the trials and their related activities to the extent possible, and adjusts the accruals accordingly.

Co-promotion ExpensesExpenses——InCo-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 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 fourth quarterlevel of 2002,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.

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Advertising Expense—The Company recorded an additional chargeexpenses production costs of $2.1 million to co-promotionadvertising as incurred. Advertising costs for television time and space in publications are deferred until the first advertisement occurs. Advertising expense resulting from the final reconciliation of net sales for the 2001/years ended December 31, 2003, 2002 contract year. Duringand 2001 was $8.1 million, $7.4 million, and 2000, the adjustments were not material.$7.0 million, respectively.

        Property and EquipmentEquipment—Property and equipment are stated at cost. Interest cost incurred during the period of construction of plant and equipment is capitalized until the asset is placed in service, after FDA licensure of the facility is 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 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 and 2000 was $24.0 million, $20.7 million, and $9.1 million, and $7.3 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 $6.8 million, $7.0 million, $3.3 million, and $4.1$3.3 million for the years ended December 31, 2003, 2002, 2001, and 2000,2001, respectively.

        The Company evaluates the recoverability of the carrying value of property and 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

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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.

        Intangible AssetsAssets—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 2002, are comprised of the following (in millions):


 2002
  2003
 2002
 
Worldwide collaborative agreement with Wyeth $90.0  $90.0 $90.0 
Contract manufacturing agreement with Evans 39.0  39.0 39.0 
Other intangible assets 0.4  0.4 0.4 
 
  
 
 
 129.4  129.4 129.4 
Less accumulated amortization (16.1) (32.7) (16.1)
 
  
 
 
 $113.3  $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 yearyears ended December 31, 2003 and 2002 was $13.7 million and $16.1 million.million, respectively. No amortization expense was incurred in 2001. The estimated aggregate amortization expense for each of the next five years is as follows: 2003, $16.6 million; 2004, $16.4 million; 2005, $16.4 million; 2006, $12.0 million; 2007, $7.7 million; and 2007,2008, $7.7 million.

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GoodwillGoodwill—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 at least annually.annually or whenever events or changes in circumstances suggest that the carrying amount may not be recoverable. During 2003, the Company reduced goodwill recorded in the acquisition by $2.4 million, reflecting additional deferred tax assets for adjustments relating to pre-acquisition items.

        Forward Exchange ContractsDerivative 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.

        All derivative instruments are 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 occurring 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.

        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, the Company had no outstanding forward contracts. During the yearsyear ended December 31, 2002, and 2001, net unrealized gains on forward exchange contracts, net of tax, of $0.6 million, and $0.1 million, respectively, were reclassified as earnings during the year as the related inventory was sold.

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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.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 risk of 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 TaxesTaxes—Deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized and are reversed at such time that realization is believed to be more likely than not. Future reversals of valuation allowance of $15.6 million on MedImmune Vaccine's acquired deferred tax assets of the Company's subsidiary, MedImmune Vaccines, will first be applied against goodwill and other intangibles before recognition of a benefit in the consolidated statement of operations. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and

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liabilities, exclusive of amounts related to the exercise of stock options which benefit is recognized directly as an increase in shareholders' equity.

        Earnings Per ShareShare—Basic earnings per share is computed based on the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed based on the weighted average shares outstanding adjusted for all dilutive potential common shares. The dilutive impact, if any, of common stock equivalents outstanding during the period, including outstanding stock options and warrants, is measured by the treasury stock method. The dilutive impact, if any, of the Company's convertible subordinated notes51/4% 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 IncomeIncome—Comprehensive income is comprised of net earnings and other comprehensive income, which includes certain changes in equity that are excluded from net earnings. Other comprehensive income includes 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, and unrealized gains and losses on hedging instruments.

        Stock-based CompensationCompensation—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 annual pro forma disclosures of net earnings as if the fair-value-fair value based method of accounting for 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 method used on reported results. The alternative methods of transition and additional disclosure requirements of SFAS 148 were effective January 1, 2003.

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        The following table illustrates the effect on net earnings and earnings per share if the Company had been applied.applied the fair value recognition provisions of SFAS 123 to stock-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 Black-Scholes option pricing model with the following 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 fair 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 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 Company also makes employer contributions, which primarily vest pro ratably over three years of service. During 2003, 2002, and 2001, the Company contributed approximately $2.4 million, $1.9 million, and $1.1 million, respectively, in cash to the plan. The Company also sponsors various defined contribution savings plans covering its full-time non-U.S. employees.

        Foreign Currency TranslationReclassification——All balance sheet accounts of the Company's foreign subsidiaries have been translated from their respective functional currencies to U.S. dollars using the exchange rate in effect at the balance sheet date. Income statement amounts have been translated using monthly average exchange rates for the year. The gains and losses resulting from the changes in exchange rates from year to year have been reported separately as a component of other comprehensive income.

ReclassificationCertain prior year amounts have been reclassified to conform to the current presentation.

        Use of EstimatesEstimates—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.

5657



        New Accounting StandardsStandards——TheIn 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 of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS 142"), effective January 1, 2002. Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. Inasmuch as the Company had no recorded goodwill or intangible assets priorthey relate to the Company's contractual relationships with variable interest entities established subsequent to January 2002 acquisition of Aviron, the adoption of SFAS 142 did not have31, 2003, with an immaterial impact onto the Company's consolidated financial position, results of operations orand cash flows.

        Effective January 1, 2002, the Company adopted The effective date for applying the provisions of SFASFIN No. 144, "Accounting46 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 Impairment or Disposalimpact of Long-Lived Assets ("SFAS 144"), requiring recognition and measurement of impairment if indicators are present.

        In July 2002,applying the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS 146"). SFAS 146 addresses issues regarding the recognition, measurement and reporting of costs that are associated with exit and disposal activities, including restructuring activities. The scope of SFAS 146 includes costs to terminate contracts that are not capital leases, costs to consolidate facilities or relocate employees and termination benefits provided to employees who are involuntarily terminated under terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual compensation contract. Theconsolidation provisions of the Statement are effective for exit or disposal activities initiated after December 31, 2002. The Company anticipates that the adoption of SFAS 146FIN No. 46 relative to its investments in variable interest entities established prior to February 1, 2003 will not have a material impact on the Company'sbe immaterial to its consolidated financial position, results of operations orand cash flows.

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure" ("SFAS 148"). SFAS 148 amends SFAS 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The alternative methods of transition and additional disclosure requirements of SFAS 148 are effective January 1, 2003.

        Also during 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 elaborates on the existing disclosure requirements for most guarantees, and clarifies that at the time a company issues a guarantee, the Company must recognize an initial liability for the fair value of the obligation it assumes under that guarantee and must disclose that information in its interim and annual financial statements. The initial recognition and measurement provisions apply on a prospective basis to guarantees issued or modified after December 31, 2002. In accordance with FIN 45, the Company has disclosed the nature and potential future payments under existing guarantees as of December 31, 2002 (see Note 17). The Company's adoption of FIN 45 did not have a material impact on the Company's financial position, results of operations or cash flows.

3. ACQUISITION

        On January 10, 2002, the Company completed the Acquisition through an exchange offer and merger transaction. Through the Acquisition, the Company obtained its leada new product, candidate, FluMist, which is a nasally delivered, live, attenuated virus vaccine not yet approved by the FDA.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

57



common stock are issuable. HoldersOriginally, the holders of Aviron's Notes may convertcould 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 year endedCompany retired approximately $32.4 million of the 51/4% Notes. As of December 31, 2002,2003 the Company recorded adjustments to the purchase price resulting from a final reconciliation of Aviron registered51/4% 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 the acquisition date, a refinement to the calculation of unearned compensation for terminated employees, and a reconciliation of transaction costs.March 31, 2004.

        The purchase price adjustments resulted in a net decrease of $1.3 million to the purchase price and a corresponding decrease to goodwill. The revisedCompany'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 atin accordance with the date of acquisition.

Assets:    
Cash and marketable securities $417.5 $417.5
Other current assets 24.9 24.9
Other assets 45.8 45.8
Deferred tax assets 127.6 130.0
Intangible assets 129.4 129.4
In-process research and development 1,179.3 1,179.3
Goodwill 16.0 13.6
 
 
Total assets $1,940.5 $1,940.5
 
 
Liabilities:    
Current liabilities $49.2 $49.2
Restructuring liability 15.8 15.8
Long-term debt 211.4 211.4
Long-term obligations 28.5 28.5
Other liabilities 0.5 0.5
 
 
Total liabilities 305.4 305.4
 
 
Net assets acquired $1,635.1 $1,635.1
 
 

        Intangible AssetsAssets—Of the $129.4 million of acquired intangible assets, $90.0 million was assigned to MedImmune Vaccines' worldwide collaborative agreement with Wyeth for the development, manufacture, distribution, marketing, promotion, and sale of FluMist, which is subject to amortization over its estimated useful life of approximately 11 years. The Company estimated the fair value of the Wyeth agreement using the sum of the probability-adjusted scenarios under the income approach. In applying this method, the Company relied on revenue assumptions, profitability assumptions and anticipated approval dates. The remaining $39.0 million was assigned to MedImmune Vaccines' contract

58



manufacturing agreement with Evans Vaccines Limited, which is subject to amortization over its estimated useful life of approximately four years. The Company estimated the fair value of the Evans agreement using the cost approach, which is based on the theory that a prudent investor would pay no more for an asset than the amount for which the asset could be replaced. In its analysis, the Company reduced replacement cost for such factors as physical deterioration and functional or economic obsolescence.

        In-Process Research and DevelopmentDevelopment—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.

        GoodwillGoodwill—Approximately $16.0 million in goodwill was recognized in the final allocation of the purchase price, none of which is expected to be deductible for tax purposes. ThroughIn December 31,2003, the Company further reduced goodwill and increased 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 $0.3

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$0.3 million. The Company performed its annual impairment analysis during the fourth quarter of 2002,2003, and determined that the goodwill was not impaired.

        Restructuring LiabilityLiability—Included in the final allocation of acquisition cost iswas a restructuring liability of $15.8 million for estimated costs associated with the Company's restructuring plan. The restructuring plan was originally formulated and announced to employees in December 2001, to consolidate and restructure certain functions, including the involuntary termination of eight executives and 52 other employees of MedImmune Vaccines from various functions and levels. Through

        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 Company recorded purchase accounting adjustments resulting from a refinement to the calculationremaining restructuring reserve, which consisted of involuntary termination benefits, the removal from the original accrual of four positions that were retained, and to reflect revisedother facility-related costs, estimated for outplacement fees and vacant leased office space. As a result of these adjustments, the Company recorded net restructuring charge reversals of $0.2 million through December 31, 2002, which resulted in a corresponding reduction to goodwill.was $1.0 million.

        The restructuring liability activity through December 31, 2002 is summarized as follows (in millions):

 
 Original Accrual
at 1/10/02

 Adjustments
 Adjusted
Accrual

 Restructuring
Charges Incurred

 Balance at
12/31/02

Employee severance costs $5.4 $(0.3)$5.1 $(5.1)$
Acceleration of employee stock options  9.5  (0.3) 9.2 $(9.2) 
Other facility-related costs  1.1  0.4  1.5 $(0.5) 1.0
  
 
 
 
 
Total $16.0 $(0.2)$15.8 $(14.8)$1.0
  
 
 
 
 

        Transaction CostsCosts—Included in the final allocation of acquisition costs were accrued transaction costs of $9.8 million, which primarily consist of investment banking, accounting and legal fees incurred by the Company. For the period ended December 31, 2002, there were no significant adjustments to accrued transaction costs and all costs have been paid.

        Pro Forma DataData—The following unaudited pro forma condensed combined supplemental data present the revenues, net earnings and earnings per share of the combined entity as though the

59



business combination had been completed as of January 1, 2002 and 2001, respectively. The unaudited pro forma condensed combined supplementalThis data gives effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of amortization of intangibles, deferred stock compensation costs, the elimination of the non-recurring charge for acquired in-process research and development, the tax effects to the pro forma adjustments and the recognition of the tax benefits arising from Aviron's net loss for the 2001 period. The unaudited pro forma condensed combined supplementalThis data areis not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future (in millions, except per share data).


 Year Ended December 31,
 Year Ended December 31,

 2002
 2001
 2002
 2001
Revenues $847.7 $635.7 $852.7 $637.7
Net earnings $81.3(1)$56.5 $81.3(1)$56.5
Diluted earnings per share $0.32(1)$0.22 $0.32(1)$0.22

(1)
Excludes a non-recurring charge of $1,179.3 million for acquired in-process research and development.

4. ACCOUNTING CHANGES

        For new contracts executed or acquired after January 1, 2002, the Company has changed its accounting method for contract revenues such that the Company may recognize contract revenues associated with substantive at-risk performance milestones when the milestone is achieved, when no future service obligation is attendant to that milestone and when the related revenue is due and payable under the milestone payment method. The change in accounting principle was made to more closely reflect the essence of the Company's contractual obligations with collaborative partners. Also, the new method is prevalent in the industry in which the Company operates. The effect on net loss and net loss per share for the year ended December 31, 2002 is not material.

        In December 1999, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB 101"). SAB 101 summarizes certain of the SEC's views in applying accounting principles generally accepted in the United States of America to certain revenue transactions in financial statements. The implementation of SAB 101 as of January 1, 2000 affected amounts previously recognized as revenue relating to up-front payments or milestone payments received by the Company in years prior to 2000 under arrangements for which performance obligations related to the up-front or milestone payments had been met, but for which the Company is contractually obligated to perform additional research and development activities or other activities in future periods.

        The Company implemented SAB 101 effective January 1, 2000. The effect of adopting SAB 101 on 2000 earnings before the cumulative effect of the change in accounting principle was additional income, net of tax, of $13.0 million, or $0.06 per diluted share. The effect on 2000 net earnings (including a non-cash, cumulative effect after tax charge of $33.8 million or $0.16 per diluted share) was a charge of $20.8 million, or $0.10 per share. In connection with the adoption, a portion of the upfront and milestone payments received under collaborative agreements with Abbott, Alza, GSK, and Schering were deferred and are being recognized over the period of fulfillment of the contractual obligations. As of December 31, 2002 and 2001, the remaining balance of deferred revenue with respect to amounts received under these agreements was $3.9 million and $12.5 million, respectively.

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5.    SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION

        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:

 
 2002
 2001
 2000
Company A 27% 26% 27%
Company B 17% 18% 19%
Company C 13% 13% 16%
Company D 11% 12% 11%
  
 
 
Total % of product sales 68% 69% 73%
  
 
 
 
 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 has contractual agreements with Abbott International,AI, for distribution of Synagis outside of the United States and with affiliates of Schering-Plough CorporationSchering for international distribution of Ethyol. The Company also relies on a limited number of distributor agents/affiliates to sell CytoGam and NeuTrexin internationally. The breakdown of product sales by geographic region is as follows (in millions):


 2002
 2001
 2000
 2003
 2002
 2001
United States $748.0 $531.5 $456.3 $911.3 $752.9 $533.5
All other 38.0 48.0 39.5 81.3 38.0 48.0
 
 
 
 
 
 
Total product sales $786.0 $579.5 $495.8 992.6 790.9 581.5
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 millions):


 2002
 2001
 2003
 2002
 2001
United States $161.0 $92.5 $222.5 $161.0 $92.5
All other 23.0 2.9 51.1 23.0 2.9
 
 
 
 
 
Total long-lived assets $184.0 $95.4 $273.6 $184.0 $95.4
 
 
 
 
 

        Other revenue of $61.7 million, $61.8 million, and $39.2 million in 2003, 2002, and $44.7 million in 2002, 2001, and 2000, respectively, consists mainly of United States distribution, licensing, milestone revenues, corporate funding, and contract manufacturing revenues.

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6.5. MARKETABLE SECURITIES

        Investments in marketable securities are comprised of the following (in millions):


 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)

 Principal
Amount

 Cost/
Amortized
Cost

 Fair Value at
Balance
Sheet Date

 Gross
Unrealized
Gains

 Gross
Unrealized
Losses

  
 
 
 
 
 
December 31, 2002:                      
Equity Securities $ $1.9 $1.9 $ $  $ $1.9 $1.9 $ $ 
U.S. Government and Agencies 245.9 251.0 254.2 3.2   245.9 251.0 254.2 3.2  
Corporate Debt Securities 900.4 935.4 967.9 32.9 (0.3) 900.4 935.4 967.9 32.9 (0.3)
Foreign Bank Debt Securities 64.6 66.3 69.0 2.6   64.6 66.3 69.0 2.6  
 
 
 
 
 
  
 
 
 
 
 
Total $1,210.9 $1,254.6 $1,293.0 $38.7 $(0.3) $1,210.9 $1,254.6 $1,293.0 $38.7 $(0.3)
 
 
 
 
 
  
 
 
 
 
 
December 31, 2001:           
Equity Securities $ $6.4 $11.2 $4.8 $ 
U.S. Government and Agencies 8.0 8.1 8.3 0.2  
Corporate Debt Securities 530.4 546.9 556.5 9.9 (0.3)
Foreign Bank Debt Securities 28.0 29.8 30.4 0.6  
 
 
 
 
 
 
Total $566.4 $591.2 $606.4 $15.5 $(0.3)
 
 
 
 
 
 

        The amortized cost and fair market value of investments at December 31, 20022003 and 2001,2002, by contractual maturities are (in millions):


 2002
 2001
 2003
 2002

 Cost/
Amortized
Cost

 Fair
Value

 Cost/
Amortized
Cost

 Fair
Value

 Cost/
Amortized Cost

 Fair Value
 Cost/
Amortized Cost

 Fair Value
Equity Securities $1.9 $1.9 $6.4 $11.2 $2.5 $15.7 $1.9 $1.9
Due in one year or less 393.4 395.0 149.5 151.2 253.7 257.0 393.4 395.0
Due after one year through two years 252.6 259.6 71.8 73.4 164.6 171.7 252.6 259.6
Due after two years through five years 496.3 521.9 363.5 370.6 761.2 780.2 496.3 521.9
Due after five years through seven years 110.4 114.6   157.7 160.0 110.4 114.6
 
 
 
 
 
 
 
 
Total $1,254.6 $1,293.0 $591.2 $606.4 $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 $5.9 million, $0.9 million $2.1 million and $1.6$2.1 million, respectively, as determined by specific identification. Gross losses recognized on sales of securities were immaterial during 2003, 2002 2001 and 2000,2001, as determined by specific identification.

        During 2002, the Company determined that the declinedeclines in fair value below the cost basis of its investment in the marketable equity securities of a public company wascertain investments were other than temporary, based primarily on the duration and magnitude of the declines in fair value in turn largely due to the downward movement in the capital markets, as well as the financial condition and near-term prospects of the investee company.companies. For the year ended December 31, 2002, the Company recorded a realized losslosses of $4.5 million to write-down the cost basis of the investmentinvestments to fair value. The Company recorded no such losses in 2003.

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7.6. INVENTORY

        Inventory, net of valuation reserves, at December 31, is comprised of the following (in millions):


 2002
 2001
  2003
 2002
Raw materials $30.4 $16.8  $11.6 $30.4
Work in process 19.4 13.7  39.3 19.4
Finished goods 10.2 22.2  40.8 10.2
 
 
  
 
 60.0 52.7  $91.7 $60.0
Less noncurrent  (1.9)
 
 
  
 
 $60.0 $50.8 
 
 
 

        The Company has commenced production of inventory, including Normal Allantoic Fluid (NAF), Virus Harvest (VH), sprayers, and finished goods, in connection with its proposed launch of FluMist, which has not yet been approved by the FDA. In recognition of management's assessment that the entire inventory of finished goods and certain other inventory materials will reach their expiration dates prior to FDA approval,During 2003, the Company recorded $37.5 million of valuation reserves for such inventory. Asin cost of December 31, 2002, the Company has agoods sold to reflect total FluMist related inventory balance of $62.5 million, against which there is a reserve of $47.5 million, resulting in ainventories at net inventory balance of $15.0 million.

        Inventory balances are net of reserves for RespiGam inventory, for which minimal product sales are expected to result for the foreseeable future. In April 2002, the Company reduced the inventory and reserve balances by $3.4 million upon the disposal of expired product. RespiGam inventory and reserve balances, respectively, were $0.6 million and $0.2 million as of December 31, 2002, and $4.9 million and $4.2 million, as of December 31, 2001.

        Noncurrent inventory at December 31, 2001 is comprised of some of the Company's raw plasma as well as certain CytoGam production lots that are being tested for long-term stability. Noncurrent inventory at December 31, 2002 is fully reserved.realizable value.

8.7. PROPERTY AND EQUIPMENT

        Property and equipment, stated at cost at December 31, is comprised of the following (in millions):


 2002
 2001
  2003
 2002
 
Land and land improvements $15.7 $2.3  $27.9 $15.7 
Buildings and building improvements 52.6 54.3  55.2 52.6 
Leasehold improvements 33.9 15.2  36.2 33.9 
Laboratory, manufacturing and facilities equipment 50.1 33.1  57.0 50.1 
Office furniture, computers, and equipment 28.5 15.0  40.4 28.5 
Construction in progress 56.7 10.0  135.6 56.7 
 
 
  
 
 
 237.5 129.9  352.3 237.5 
Less accumulated depreciation and amortization (53.5) (34.5) (78.7) (53.5)
 
 
  
 
 
 $184.0 $95.4  $273.6 $184.0 
 
 
  
 
 

        During March 2002, the Company paid approximately $13.4As of December 31, 2003, construction in progress includes $62.7 million to acquire 11 acres of land in Gaithersburg, Maryland, which will serve as the site of the Company's new corporate headquartersengineering and research facilities. Additionally, the Company has optionsconstruction costs and other professional fees related to purchase an additional 14 acres of land. The Company has begun construction of the first phase of the newheadquarters and research and development facility, at a total estimated cost of $85 million. The Company expects to take occupancy of the first phase of construction, which will feature a complex totaling approximately 220,000 square feet,feet. In addition, construction in progress includes $70.0 million of engineering, construction and equipment costs related to the Company's manufacturing facilities in Pennsylvania and Speke, the United Kingdom. As of December 31, 2002, construction in progress primarily included costs associated with the headquarters and research 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 fallFMC, which was placed in service during 2002. The Company expects to take occupancy of 2003.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.

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        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.

        As of December 31, 2002, construction in progress includes $17.6 million of engineering and construction costs and other professional fees related to Phase I of the new headquarters. In addition, construction in progress includes $33.4 million of engineering, construction and equipment costs related to construction activities at the Company's manufacturing facilities in Pennsylvania and Speke, England. As of December 31, 2001, construction in progress primarily includes engineering, construction, and equipment costs associated with the expansion of the cell culture production area in the FMC, which was placed in service during 2002.

        Effective November 2002, the Company outsourced the process of converting human plasma to the critical intermediate used in CytoGam production to a third party manufacturer. Prior to that date, the process was performed at the Company's Frederick Manufacturing Facility. Accordingly, the Company recorded a $12.9 million impairment charge, recorded in other operating expenses, during the fourth quarter of 2002 for the write-off of certain plasma manufacturing assets.

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        Interest costs capitalized in connection with the Company's construction activities totaled $2.9 million and $0.9 million in 2002.2003 and 2002, respectively. Interest costs capitalized during 2001 and 2000 were immaterial.not material.

9.8. ACCRUED EXPENSES

        Accrued expenses at December 31, isare comprised of the following (in millions):


 2002
 2001
 2003
 2002
Co-promotion expenses $60.1 $41.2 $73.0 $60.1
Government reimbursements 26.2 17.5
Rebates due to government purchasers 42.4 26.2
Research and development expense 27.5 16.1
Sales and marketing costs 17.2 14.0 19.2 17.2
Research and development expense 16.1 12.6
Construction costs 13.1 3.5
Bonuses 11.0  9.8 11.0
Contract termination fees  13.4
Other 26.8 13.7 33.0 23.3
 
 
 
 
 $157.4 $112.4 $218.0 $157.4
 
 
 
 

10.9. 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 and 2000 was $9.3 million, $9.0 million, and $2.2 million, and $3.4 million, respectively.

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        The Company's future minimum lease payments under operating leases are as follows (in millions):

Year Ending December 31,

  
  
2003 $8.6
2004 8.6 $8.8
2005 6.5 6.5
2006 4.4 4.5
2007 2.6 2.8
2008 2.5
Thereafter 32.2 29.2
 
 
 $62.9 $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, a portion of which will be offered for sublease. There can be no guarantee that the Company will be successful in subleasing the space.

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11.10. LONG-TERM DEBT

        Long-term debt at December 31, is comprised of the following (in millions):


 2002
 2001
  2003
 2002
 
51/4% Convertible Subordinated Notes $209.6 $ 
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 5.4 5.7  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") 3.1 3.6  2.6 3.1 
Note due to Cooperative Rabobank, B.A., due 2009, variable interest rate 0.3 0.2  0.3 0.3 
 
 
  
 
 
 218.4 9.5  682.1 218.4 
Less current portion included in other current liabilities (0.8) (0.7) (0.9) (0.8)
 
 
  
 
 
 $217.6 $8.8  $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 NotesNotes—Following the Acquisition, MedImmune Vaccines remainsremained obligated for its outstanding indebtedness, which includesincluded $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 representsrepresented 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 3.42.9 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. Interest paid during 2002 was $10.5 million.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.

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        Collateralized LoansLoans—The Maryland Notes are collateralized by the land, buildings and building fixtures of the FMC. The agreements include a provision for early retirement of the notes by the Company. Principal and interest payments on the Maryland Notes began in 1998. Pursuant to the terms of the agreements, the Company is required to meet certain financial and non-financial covenants including maintaining minimum cash balances and net worth ratios. The Company maintains a $0.4 million compensating balance related to the Maryland Notes, which is included in other assets.

        In May 1994, theThe mortgage loan with Cooperative Rabobank B.A. is held by Company's subsidiary, USB Pharma B.V., entered into a mortgage loan with Cooperative Rabobank B.A. in the amount of 1.2 million Dutch guildersand 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

65



facility. The mortgage loan, for which principal payments began in March 1995, has a 15-year term and bears interest at a quarterly variable rate. The interest rate as of December 31, 2003 and December 31, 2002 was 5.85%.

        Maturities of the collateralized loans for the next five years are as follows: 2003, $0.8 million; 2004, $0.9 million; 2005, $0.9 million; 2006, $1.0 million;5.05% and 2007, $1.1 million.

5.85%, respectively. The estimated fair values of the Company's collateralized loans at December 31, 20022003 and 2001,2002, respectively, based on quoted market prices or discounted cash flows using currently available borrowing rates, were $9.3$8.4 million and $10.0$9.3 million compared to the carrying values of $8.8$8.0 million and $9.5$8.8 million.

12.  Shareholders' Equity11. SHAREHOLDERS' EQUITY

        Pursuant to the terms of the Stockholder Rights Plan adopted by the Company's Board of Directors, common stock purchase rights ("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% or more of the Company's stock. The Rights will expire on July 9, 2007.

        In May 2003, the Company's shareholders approved an amendment to the Company's Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 320 million to 420 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.

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13.12. EARNINGS PER SHARE

        The following is a reconciliation of the denominators of the diluted EPS computation for the years ended December 31, 2003, 2002, 2001, and 2000.2001. There are no reconciling items to the numerator for the EPS computation for the periods reported.

 
 2002
 2001
 2000
Denominator (in millions):      
 Weighted average shares outstanding 249.6 213.4 209.1
 Effect of dilutive securities:      
  Stock options and warrants  6.7 11.3
  
 
 
Denominator for diluted EPS 249.6 220.1 220.4
  
 
 
 
 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 loss for the year ended December 31, 2002 and, accordingly, did not assume exercise or conversion of potential common shares for the year, as follows, because to do so would behave 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
  

        The following table shows the number of shares and related price ranges of those shares that were excluded from the EPS computations for the years ended December 31, 2001 and 2000. These options to purchase shares of common stock were outstanding in the periods reported, but were not included in the computation of diluted earnings per share as theIf option exercise prices for these options wereare greater than the average market price of the Company's common stock duringfor the period reported,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 therefore would be antidilutive (in millions).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.


2001
2000
Price range of stock options:
$40.50–$83.256.6
$61.50–$83.250.9

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14.13. COMMON STOCK EQUIVALENTS

        The Company currently grants stock options under certain of the following stock option plans originated byplans. At the Company.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 May 2002,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 19,250,00025,250,000 to 25,250,00031,250,000 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

 

25.331.3
2003 Non-Employee Directors PlanProvides option incentives to non-employee directors0.8

        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 following 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 five year period and have a maximum term of 10 years. The Company has reserved a total of 34.611.5 million shares of common stock for issuance under these plans as of December 31, 2002.2003.

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        Related stock option activity, is as follows (shares in millions):


 Plans Prior to
Establishment
of the 1991 Plan

 1991 and
1999 Plans

 Non-Employee
Directors Plan

 MedImmune
Oncology Plans

 MedImmune
Vaccines Plans

 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)

 Shares
 Price per
share(1)

Balance Dec. 31, 1999 0.1 $0.13 19.9 $10.94 0.6 $7.72 1.5 $22.12  $
Granted    7.2  59.75 0.2  72.75      
Exercised (0.1) 0.13 (6.0) 7.76 (0.2) 5.33 (1.3) 21.77   
Canceled    (0.7) 38.75         
 
 
 
 
 
 
 
 
 
 
 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    20.4 $28.15 0.6 $24.23 0.2 $25.52  $
Granted    4.7  38.14 0.2  47.20       4.7  38.14 0.2  47.20      
Exercised    (3.0) 7.15 (0.1) 12.51 (0.2) 20.70    (3.0) 7.15 (0.1) 12.51 (0.2) 20.70   
Canceled    (1.9) 43.87          (1.9) 43.87         
 
 
 
 
 
 
 
 
 
 
 
    
    
    
   
Balance Dec. 31, 2001    20.2  32.17 0.7  29.22 0.0      20.2  32.17 0.7  29.22 0.0     
Acquisition             6.5  27.25          6.5  27.25
Granted    5.9  36.74 0.2  28.90       5.9  36.74 0.2  28.90      
Exercised    (0.8) 6.75       (1.8) 20.28 (0.8) 6.75       (1.8) 20.28
Canceled    (1.2) 44.97       (1.1) 36.06 (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 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
 
    
    
    
   

(1)
Price per share is the weighted average exercise price.

        Additional information related to the plans as of December 31, 20022003 is as follows (shares in millions):

 
 Options Outstanding
 Options Exercisable
Range of
exercise prices

 Options
outstanding

 Wtd Avg
remaining
contractual
life (yrs)

 Wtd Avg
Ex. Price

 Options
Exercisable

 Wtd Avg
Ex. Price

  $0.01-$10.00 4.1 4.2 $5.40 3.8 $5.17
$10.01-$20.00 4.5 6.0 $16.71 3.2 $15.97
$20.01-$30.00 4.7 7.4 $25.47 1.9 $24.82
$30.01-$40.00 5.3 7.5 $37.00 2.4 $37.19
$40.01-$50.00 5.0 8.7 $42.41 1.2 $43.03
$50.01-$60.00 0.7 6.8 $56.58 0.4 $56.59
$60.01-$70.00 3.9 7.0 $60.96 1.9 $60.91
$70.01-$80.00 0.4 7.7 $72.23 0.2 $72.30
  
      
   
  28.6 6.9 $32.64 15.0 $27.39
  
      
   
 
 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 3.0 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 the plan.

        The Company has adopted the disclosure only provisions of SFAS 123 as they pertain to financial statement recognition of compensation expense attributable to option grants and shares issued pursuant to the ESPP. As such, no compensation cost has been recognized for grants under the Company's stock compensation plans. If the Company had elected to recognize compensation cost for grants under its

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stock compensation plans consistent with SFAS 123, the Company's results on a pro forma basis would be (in millions, except per share data):

 
 2002(1)
 2001
 2000
Net (loss) earnings — as reported $(1,098.0)$149.0 $111.2
Net (loss) earnings — pro forma $(1,192.6)$67.0 $49.3
Basic (loss) earnings per share—as reported $(4.40)$0.70 $0.53
                                                       —pro forma $(4.78)$0.31 $0.24
Diluted (loss) earnings per share—as reported $(4.40)$0.68 $0.50
                                                           —pro forma $(4.78)$0.30 $0.22

Note:

(1)
During 2002, the Company recognized stock compensation expense of $19.2 million in its historical and proforma 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."

        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:

 
 2002
 2001
 2000
 
Risk-free interest rate 4.16%4.72%6.20%
Expected life of options — years 6 6 7 
Expected stock price volatility 53%69%69%
Expected dividend yield N/A N/A N/A 

        To better estimate the future expected stock price volatility, during 2002 the Company changed its method of calculating historical volatility from using daily stock price observations to using monthly observations.

        The weighted average fair value of options granted during 2002, 2001, and 2000 was $20.56, $25.23, and $42.80, respectively.

        In connection with the Acquisition, the Company assumed outstanding warrants to purchase common stock, which are as follows as of December 31, 2002:2003:

Shares (in 000's)
 Exercise Price
 Expiration
 Exercise Price
 Expiration
365.5 $9.30 February 2007 $9.30 February 2007
53.8 $9.30 March 2008 $9.30 March 2008

          
419.3          

          

        Additional warrantsUnder an agreement assumed in the Acquisition, the Company is also obligated to issue a warrant to purchase 5,147 shares of the Company's common stock at an exercise price of $55.13 are issuable on the date of the first commercial sale of FluMist.$55.13.

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15.14. INCOME TAXES

        The components of the provision (benefit) for income taxes are as follows (in millions):



 Year ended December 31,

 Year ended December 31,
  


 2002
 2001
 2000

 2003
 2002
 2001
Current:Current:      Current:      
Federal $(1.9)$3.3 $Federal $33.0 $(1.9)$3.3
State   State 7.4  
Foreign 0.1 0.3 0.1Foreign 0.2 0.1 0.3
 
 
 
 
 
 
 Total current expense (benefit) (1.8) 3.6 0.1 Total current expense (benefit) 40.6 (1.8) 3.6
 
 
 
 
 
 
Deferred:Deferred:      Deferred:      
Federal 48.7 71.1 60.5Federal 83.1 48.7 71.1
State 1.3 4.8 3.8State (15.7) 1.3 4.8
Foreign   Foreign   
 
 
 
 
 
 
 Total deferred expense (benefit) 50.0 75.9 64.3 Total deferred expense 67.4 50.0 75.9
 
 
 
 
 
 
Total tax expense (benefit) $48.2 $79.5 $64.4
Total tax expenseTotal 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

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purposes. Significant components of the Company's deferred tax assets and liabilities at December 31, are as follows (in millions):

 
 2002
 2001
 
Deferred tax assets:       
 Net operating loss carryforwards $194.7 $107.1 
 U.S. general business credit carryforwards  46.8  31.3 
 Accrued expenses not currently deductible  28.6  20.6 
 Property and equipment  13.3   
 Accounts receivable allowances and reserves  13.0  8.7 
 Deferred compensation  7.0   
 Deferred revenue  1.5  4.6 
 Prepaid and long term debt  5.4   
 California capitalized research expenses  4.1    
 Other  9.9  11.1 
  
 
 
  Total deferred tax assets  324.3  183.4 
  
 
 
Deferred Tax Liabilities:       
 Unrealized gains on investments  (13.5) (5.3)
 Acquired intangibles  (30.7)  
  
 
 
  Total deferred tax liabilities  (44.2) (5.3)
  
 
 
Valuation allowance  (32.3) (14.5)
  
 
 
  Net deferred tax assets $247.8 $163.6 
  
 
 

70


 
 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,
 
 Year ended December 31,
 


 2002
 2001
 2000
 
 2003
 2002
 2001
 
(Benefit) tax at U.S. federal statutory rate (35.0)%35.0%35.0%
Tax at U.S. federal statutory rateTax at U.S. federal statutory rate 35.0%(35.0)%35.0%
State taxes, net of federal benefitState taxes, net of federal benefit 0.3 0.7 1.2 State taxes, net of federal benefit (0.2)0.3 0.7 
Change in valuation allowanceChange in valuation allowance 0.2  0.1 Change in valuation allowance 3.7 0.2  
Nondeductible IPR&D 39.3   
Nondeductible in-process R&DNondeductible in-process R&D  39.3  
U.S. general business creditsU.S. general business credits (0.4)(2.1)(5.9)U.S. general business credits (0.8)(0.4)(2.1)
Effect of foreign operationsEffect of foreign operations 0.1   Effect of foreign operations  0.1  
Change in state statutory rateChange in state statutory rate  1.1  Change in state statutory rate   1.1 
OtherOther 0.1 0.1 0.4 Other (0.6)0.1 0.1 
 
 
 
   
 
 
 
Total 4.6%34.8%30.8%Total 37.1%4.6%34.8%
 
 
 
   
 
 
 

        At December 31, 20022003 the Company had consolidated net operating loss carryforwards for U.S. income tax purposes of approximately $490$300 million expiring between 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 $52$48 million at December 31, 20022003 expiring through 2022.2023. 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.subsidiaries and the Company intends to continue to reinvest its undistributed international earnings to expand its international operations. It is not practicable to estimate the amount of additional tax that might be payable on the foreign earnings should they become subject to U.S. tax. Additionally, at December 31, 2002,2003, the Company had foreign net operating loss carryforwards of $29$30.7 million for U.K. income tax purposes. The Company has provided a full valuation allowance against the deferred tax asset arising from the foreign net operating losses since realization of these tax benefits cannot be reasonably assured.

        The change in the valuation allowance was ana net increase of $10.7 million and $17.8 million in 2003 and a decrease2002, respectively. The changes in 2003 are primarily comprised of $5.5 million in 2002 and 2001, respectively.adjustments for the Company's state net operating losses. The changes in 2002 relate primarily to acquired losses and tax credits from the Company's subsidiary, MedImmune Vaccines. The portion of the valuation allowance for which subsequently recognized tax benefits will be first applied to reduce goodwill was $15.6 million at December 31, 2002.

        Due During 2003, certain adjustments were made to state tax law changes during the year ended December 31, 2001, the Company's net deferred tax asset decreased, resulting in a net tax expense of $2.4 million during 2001. This net adjustment is comprised of a reduction of $7.9 million in the deferred tax asset 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 uncertainties regarding the realization of the tax benefit associated with a portion of the deferred tax assets attributable to the state net operating losses, foreign net operating losses, and the general business credits which were generated by the Company's subsidiary, MedImmune Oncology (formerly USB),U.S. Bioscience, Inc.) prior to its acquisition by the Company, a full valuation allowance remains for these deferred tax assets at December 31, 20022003 and 2001.2002.

16.15. COLLABORATIVE ARRANGEMENTS

        Abbott LaboratoriesLaboratories——In December 1997,The Company has entered into a co-promotion agreement with the Company signed two agreements withRoss Product division of Abbott Laboratories. The first agreement callsLaboratories 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

71



outside of the United States. Under the terms of the United States co-promotion agreement, the Company is required to pay Abbott an increasing percentage of net United Statesdomestic sales based on Abbott achieving certain sales thresholds over the annual contract year. Expenses associated with the co-promotion agreement are included in selling, general and administrative expenses on the accompanying statements of operations. Each company is responsible for its own selling expenses. Under the terms of the distribution agreement, the Company manufactures and sells Synagis to Abbott International at a price based on end-user sales. Pursuant to the distribution agreement, the Company received a $15 million payment in each of the years 1999, 1998 and 1997. In accordance with SAB 101, a portion of these payments was deferred in 2000 and is being recorded as other revenue as the Company fulfills certain obligations under the agreement. During 2001, the Company revised its estimate of the total cost to fulfill its obligations under the agreement, based on significant progress at less effort than originally expected towards obtaining regulatory approval in Japan, which was officially granted during January 2002. The 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. During 2002, Synagis received regulatory approval in Japan and Canada, and therefore expects to fulfill its remaining obligations under the agreement during the second quarter of 2003.2001. The Company could receive up to an additional $15recognized $7.5 million based onin revenues during 2003 for the achievement of certain sales goals.goals, and could receive an additional $7.5 million in sales goal payments under the agreement.

        ALZA CorporationCorporation—In December 1995, the Company entered into an exclusive marketing and distribution agreement with ALZA Corporation 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 Company of Ethyol marketing rights. Under the terms of the agreement, the Company received $35 million in up-front and milestone payments prior to 2000. In accordance with SAB 101, a portion of these payments was deferred in 2000Corporation, and recorded as other revenue in 2001, as the Company fulfilled certain obligations under the agreement and completed the transfertermination fees of marketing rights. Under the terms of the agreement, the Company's oncology/immunology sales force co-promoted the product with ALZA in the United States. The Company sold Ethyol to ALZA at a price based on a percentage of the net sales price of Ethyol in the United States, and ALZA then sold Ethyol to the distributors and wholesalers that supply Ethyol for prescription sales.

        In anticipation of the October 2001 transfer, the Company ceased sales of Ethyol to ALZA during the third quarter of 2001, and purchased ALZA's remaining Ethyol inventory at historical cost as of September 30, 2001, which was recorded as a reduction to product sales in the amount of $2.3 million. During the third quarter of 2001, the Company recognized the remaining deferred revenues of $2.2$13.4 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 are 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 pays ALZA a declining royalty for nine years, based on sales of Ethyol in the United States.

CSL Limited—In June 1998, the Company entered into a collaboration agreement with CSL Limited, of Victoria, Australia for the development, sale and distribution of FluMist in Australia, New Zealand and some countries in the South Pacific. The Company and CSL are conducting clinical trials in Australia for FluMist. Under the agreement, CSL will sponsor the marketing application with the Therapeutic Goods Administration, Australia's equivalent to the FDA. CSL will have exclusive rights to sell and distribute FluMist in these countries, and the Company will share profits from these sales. The Company will also benefit from expansion of CSL's current flu vaccine in pediatric and healthy adult market segments following the approval to market FluMist in the territory. In addition, CSL has agreed

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under an option agreement to grant warrants to the Company to purchase CSL common stock upon CSL's attainment of certain milestones.

        Evans Vaccines LimitedLimited——In July 1999, theThe Company entered into an agreement with a division of Celltech Group Plc, which was later acquired by PowderJect Pharmaceuticals Plc and is now called Evans Vaccines Limited, for the manufacture ofmanufactures key components of FluMist, specifically the bulk manufacture of monovalents and diluent, as well as use ofat a facility in Speke, the manufacturing facilities. During October 2000, the Company restructured its agreementUnited Kingdom, pursuant to a sublease arrangement with Evans in order to gain direct control over FluMist manufacturing operations.Vaccines Limited, a division of Chiron. The Company obtained responsibility for bulk manufacture of FluMist in Evans' Speke, England facility, hired approximately 100 Evans employees who had been working on FluMist, and entered into subleases through June 2006 for the FluMist manufacturing areas on the existing site.site are subleased through June 2006. In connection with the restructuring of the manufacturing agreement,agreements, the Company made an initial payment of $15.0 million and additional payments of $3.9 million each in September 2001, 2002 and 2002.2003. The Company is obligated to make threetwo additional annual payments of $3.9 million in September 2003 through2004 and September 2005, which are included in other current liabilities and Obligations to Evans in the accompanying consolidated balance sheet as of December 31, 2002.2003. The Company is also obligated to make other additional payments of $19 million, less accrued interest, which will be paid over the

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term of the agreement based on net sales of FluMist, if and when approved for marketing, with the unpaid balance, if any, due January 2006.

GlaxoSmithKline (GSK)—The balance of $18.6 million as of December 31, 2002 is included in ObligationsCompany and GSK are developing a vaccine against human papillomavirus ("HPV") to Evans inprevent cervical cancer under a strategic alliance. Under the accompanying consolidated balance sheet. In addition, the Company is obligated to make payments during the termterms of the agreement, of $150,000 per yearthe companies will collaborate on research and development activities. The Company conducted Phase 1 and Phase 2 clinical trials and manufactures clinical material for the usestudies. GSK is responsible for the final development of the Company's unit in the Evansproduct, as well as regulatory, manufacturing, plant, payments up to an aggregate of $2.0 million for attaining specific milestones, and payments for other support services based on the costs of these services incurred. The Company expenses rent and other support services as the costs are incurred, and expenses milestones as they become due.

GlaxoSmithKline—In December 1997, the Company and GlaxoSmithKline entered into a strategic alliance to develop and commercialize HPV vaccines for the prevention of cervical cancer and genital warts.marketing activities. In exchange for exclusive worldwide rights to the Company's HPV technology, GSK agreed to provide the Company with an up-frontup front payment of $15 million, research funding of $22.7$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. Under the terms of the agreement, the companies will collaborate on research and development activities. The Company conducted Phase 1 and Phase 2 clinical trials and manufactures clinical material for those studies. GSK is responsible for the final development of the product, as well as regulatory, manufacturing, and marketing activities. In January 1998, the Company received a $15 million payment from GSK upon commencement of the agreement. In accordance with SAB 101, a portion of this payment was deferred in 2000 and is being recorded as other revenue as the Company fulfills certain obligations under the agreement. During 2001, the Company revised its estimate of the total cost to fulfill its obligations under the agreement, based on significant progress at lower cost than previously estimated. The Company recorded the cumulative effect of this change in estimate, which resulted in additional revenuesResearch funding of $0.5 million, for a total of $0.9 million for the year ended December 31, 2001, which are included in other revenues. Research funding of $0.2 million $2.8 million and $7.8$2.8 million associated with the agreement has been included in other revenues for the years ended December 31, 2003, 2002, 2001, and 2000,2001, respectively.

        In July 2000, the Company granted GlaxoSmithKline a worldwide, exclusive license to itsStreptococcus pneumoniae vaccine technology to GSK in exchange for an up-frontup 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 completedhas rights to a vaccine against certain subunits of Epstein-Barr virus ("EBV"), a herpesvirus that is the technology transfer toleading cause of infectious mononucleosis. The vaccine is being developed by GSK byunder a worldwide collaborative agreement, excluding North Korea and South Korea. Under the end of 2000. The up-front payment is included in other revenue in 2000.agreement, the Company could receive future milestone payments, and royalties from GSK based on any net product sales.

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        Schering-Plough CorporationCorporation——In May 1993, MedImmune OncologyThe Company has entered into an exclusive marketing and distribution agreementa collaboration arrangement with Scherico, Ltd., 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.

        WyethWyeth——In January 1999,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, signed a worldwide collaborative agreement withdistributed in the U.S. exclusively by Wyeth, Lederle Vaccines, a subsidiaryand co-promoted in the U.S. by the Company and Wyeth. Outside of Wyeth, for the development, manufacture, distribution, marketing, promotion, and sale of FluMist. Under this agreement,U.S., Wyeth has exclusive worldwide rights to market FluMist worldwide, excluding Korea, Australia, New Zealand, North Korea, South Korea, and some South Pacific countries. The two companies have agreedparties amended the agreements in September 2003, including modifications to co-promote FluMistthe formula used to calculate the product transfer payments from Wyeth to the Company, and adjustments to the optional term extension and related payment provisions in the United States, with the Company focusing on non-traditional channels.U.S. and international territories.

        Wyeth holds the marketing rights in the United States for an initial term of seveneleven years from the first commercial sale of FluMist in the United States.FluMist. Outside the United States (with the exclusions noted above), Wyeth holds the marketing rights for an initial term of eight years from the first international commercial sale of FluMist outside the United States. Wyeth has the option to extend its rights in the United States for an additional four years and internationally for an additional three years, the aggregate of which could result in payments to the Company ranging from $145 million to $400 million.

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FluMist. Under the terms of the agreement with Wyeth, the two companies are to collaborate on the regulatory, clinical and marketing programs for FluMist within the United States.

        Under the terms of the agreement, Wyeth distributes FluMist and records all product sales. The Company is paid 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 the 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 and sales and marketing expenses, and anticipates spending up to $100 million over the first three years for commercialization of FluMist in the United States. During 2003, the Company received $8.4 million in reimbursements from Wyeth for marketing expenses, which is included in other revenues.

        As a part of the collaboration, the Company is to receive certain payments related to the achievement of key milestones and events for FluMist. During 2003, the Company received $37.5 million for FDA approval in the United States, for achieving the supply goal in the 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 recently amended, potential future milestones and related payments to the Company from Wyeth include: $20 million for FDA approval in the United States; $20$15 million for advisory body recommendations and expanded label claims; up to $25an 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 could receive from Wyeth could range from approximately $300$153 million to $600$190 million.

        UnderIn general, the termsCompany and Wyeth share responsibility for clinical development of intranasally delivered live, attenuated influenza virus vaccine products. A liquid, refrigerator-stable version of the 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 will distribute FluMisthas been conducting late-stage clinical trials with CAIV-T and record all product sales. Thehas begun collecting and evaluating that data. In connection with the 2003 amendments, the Company will receive approximately 50% of FluMist revenues, paid in the form of product transfer payments and royalties. These payments are higher in the United States than internationally. The Company incurs expensesagreed to manufacture, supply and co-promote FluMist. There is potentialpay $10 million to Wyeth for the manufacturing cost incurred by the Company to exceed transfer payments receivedpurchase and use of clinical trial data from Wyeth. Wyeth reimburses the Company for a portion of the product's clinical development and sales and marketing

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expenses, and has agreed to spend up to $100 million over the first three years for commercialization of FluMist in the United States.Wyeth's international CAIV-T trials.

        Other AgreementsAgreements—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 $7.1 million and $7.5$7.2 million in 20032004, and 2004, respectively, and $294.9$16.3 million in the aggregate upon 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. 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.

17.16. COMMITMENTS AND CONTINGENCIES

        Manufacturing, Supply and Purchase Agreements—The Company has entered into manufacturing, supply and purchase agreements to provide production capability for CytoGam and RespiGam, and to

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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. Prior to November 2002, human plasma for CytoGam was converted to an intermediate (Fraction II+III paste) at the FMC. Effective November 2002, and through June 2004,the Company contracted Precision Pharma Services is providingto manufacture all manufacturing of the Company's 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, MBL. The Company paid MBL $8.1 million in 2003. Pursuant to the agreements with MBL, the Company paid $3.2 million in 2002, and $6.8 million in 2001 and $8.7 million in 2000 for production and process development. The Company has a commercial agreement with MBL for planned production of CytoGam and RespiGam through June 20042006 for $15.6$14.0 million, 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 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 agreements with Aventis Pasteur through April 2003 and MBL through June 2004 for the fill and finish of CytoGam product.

        In December 1997, the Company entered into an agreement with 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 and $26.4 million in 2000 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 20052012 for approximately 42.6 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.

        The Company has additional agreements with Chiron and BI for the filling, finishing and packaging of Synagis product, manufactured at the FMC.

        In August 1998, the Company signed a worldwide multi-year supply agreement with Becton Dickinson for the supply of its AccuSpray non-invasive nasal spray delivery system for administration of FluMist. The Company has firm commitments with Becton Dickinson for future purchases of sprayers of $7.7 million and $1.6$3.8 million in 2003both 2004 and 2004, respectively. Under the agreement, the Company advanced a total of $2.0 million to Becton Dickinson for facility expansion of plant capacity, which will be recovered against future payments for sprayers supplied under the agreement. As of December 31, 2002, $0.5 million of the advance has not been recovered and is included in other assets in the accompanying balance sheet.2005.

        In August 2000, the Company entered into a production agreement with PCI,Packaging Coordinators, Inc. ("PCI"), to perform secondary production (i.e., assembly, labeling and packaging) of FluMist. As part of this agreement, the

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Company is obligated to pay PCI annual non-refundable minimum payments of $1.1 million for each contract year, regardless ofif the level of actual production.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 of $1.1totaling $4.2 million each are required to be made in 2003 and 2004.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 to the construction project for the Company's new headquarters and research and development facility. The undiscounted maximum potential amount of future payments that the Company could be required to make under such guarantees, in the aggregate, is approximately $1.9$2.2 million.

18.  OTHER OPERATING EXPENSES

        Other operating expenses primarily reflect other manufacturing related costs that are not associated with commercially saleable products. Expenses in 2002 include $77.7 million in pre-production costs and inventory reserves for FluMist, primarily resulting from preparations for the proposed 2002 commercial launch; $12.9 million for the impairment of certain plasma manufacturing assets (see Note 8); and $9.6 million in excess capacity related to the plasma production portion of the FMC. Expenses in 2001 and 2000 also include amounts for the excess plasma capacity as well as manufacturing startup costs incurred prior to FDA approval for the FMC, and certain other plasma-related charges.

19.  PENSION PLAN

        The Company has defined contribution 401(k) pension plans and other defined contribution plans available to all full-time employees. Employee contributions are voluntary and are determined on an individual basis subject to the maximum allowable under federal tax regulations. Participants are always fully vested in their contributions. The Company also makes employer contributions, which primarily vest pro ratably over four years of service. During 2002, 2001, and 2000, the Company contributed approximately $2.0 million, $1.1 million, and $0.9 million, respectively, in cash to the plans.

20.17. LEGAL PROCEEDINGS

        In 1998, MediGene AG ("MediGene") initiated a legal action against Loyola University of Chicago ("Loyola") and the Company in the United States District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference by the Company with an alleged prospective business relationship between MediGene and Loyola. MediGene sought damages from the Company ranging from approximately $40 million to $115 million. The District Court granted summary judgment in favor of the Company on all claims and MediGene appealed. In January 2003 the parties reached a settlement resolving this matter at no cost to the Company.

        In October 2000, Celltech Chiroscience Limited ("Celltech") commenced a legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court. Celltech allegesin which it alleged that the Company failed to pay royalties with

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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 sought payment of a 2% royalty based on net sales of Synagis sold or manufactured in the United States, with interest, and certain costs, including attorney's fees. The Company filed answering papers denying that any royalties are due on the basis that Celltech's United States patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. OnIn October 28, 2002, the HighUK Court of Justice ruled in favor

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of the CompanyCompany's favor and dismissed Celltech's casecase. That dismissal was upheld on this basis.appeal in July 2003. Celltech has filed an appeal, which is scheduled for argument in June 2003.

        On November 29, 2001, the Company received a letter from counsel for Celltech enclosing a copy of a patent grantedsought appellate review by the European Patent Office on November 14, 2001. That letter requested various information concerning the manufactureHouse of Lords, and sale of Synagisthat request was denied in Europe and sought confirmation that the Company would pay royalties on such sales pursuantJanuary 2004, bringing an end to the license agreement dated January 19, 1998. Onthis particular litigation.

        In September 16, 2002, Celltech (now known as Celltech R&D Limited) commenced a second legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court, based on the license agreement dated January 19, 1998. Celltech seeks payment of a 2% royalty based on net sales of Synagis sold or manufactured in Germany, with interest and certain costs, including attorney fees. To date, the Company had not made the royalty payments that were the subject of Celltech's November 29, 2001 letter or its September 16, 2002 lawsuit. The Company filed answering papers in December 2002 denying that it owes the royalties that Celltech seeks through its second proceeding. There can be no guarantee thatThis matter is schedule for trial before the UK High Court of Justice in March 2004. To date, the Company willhas not made the royalty payments that were the subject of its September 2002 lawsuit.

        The Company has become aware that a new United States patent was issued on October 14, 2003 in the name of Celltech Therapeutics Limited, which the Company understands 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 be successfulcovered by any valid claim of this new patent and/or any other Celltech patent that is the subject of the license agreement with Celltech, the Company's total royalty obligation would equal 2% of the net sales of the products that are so covered. To date, the Company has not made any royalty payments to Celltech under the license agreement with Celltech. In January 2004, the Company filed a declaratory judgment action in this dispute.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.

        OnIn April 5, 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 dated as of September 15, 2000 (the "Sublicense Agreement"). In the litigation, the Company seeks a declaratory judgment that it has no obligation to continue paying royalties to Centocor on the basis that the patent is invalid, unenforceable and does not cover Synagis. Additionally, the Company seeks an injunction preventing Centocor from enforcing this patent. On July 1, 2002, Centocor moved to dismiss this action on the basis that it did not include the Trustees of Columbia University in the City of New York ("Columbia")This matter is ongoing and the Board of Trustees of the Leland Stanford University ("Stanford") as the owners of the patent. On December 12, 2002, the Maryland Court denied Centocor's motion to dismiss the Company's action and directed the Company to amend its Complaint to add Columbia and Stanford as defendants, which it did in January 2003. Centocor, Columbia and Stanford have filed their answers to the amended complaint. There can be no assurance that the Company will be successful in this disputetrial date is scheduled.

        On July 9, 2002, Centocor, Columbia and Stanford initiated an action against the Company in the United States District Court for the Northern District of California. In the California litigation, Centocor, Columbia and Stanford sought a declaratory judgment that the patent at issue in the Sublicense Agreement is valid and enforceable and that the Company would be liable for patent infringement but for the Sublicense Agreement, as well as a declaratory judgment that the Sublicense Agreement is enforceable. The Company moved to dismiss the California action, among other arguments, on the basis that a prior action was filed in the U. S. District Court for the District of Maryland and the California action should not go forward. On October 21, 2002 the Court ruled in favor of the Company and dismissed the California litigation. Columbia and Stanford filed an appeal from the dismissal of the California action, but then agreed to dismiss their appeal with prejudice.

        On January 14, 2003, a lawsuit was filed by the County of Suffolk, New York ("Suffolk") in the United States District Court, Eastern District of New York, naming the Company along with approximately 25 other pharmaceutical and biotechnology companies as defendants. The complaint asserts claimsIn 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 federal RICO statute, as well as various state, statutory and common laws to recover monetary damages, civil penalties,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 to prescription medicationsmedication 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

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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 defendants manipulatedCabilly 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 "average wholesale price" ("AWP") causing SuffolkCompany alleges that the Cabilly Patent is invalid and unenforceable under federal patent law and is not infringed. The Company thus seeks a declaration that it owes no royalty payments under existing licensing agreements with Genentech. In December 2003, the court granted motions filed by Celltech and Genentech to pay artificially inflated prices for covered drugs.

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Asdismiss the federal and California antitrust claims and claims under California's unfair business practices act. Discovery is proceeding relative to the Company, Suffolk's actions relates to Synagis. In addition, Suffolk arguesallegations in the suit that the defendants (including the Company) didCabilly patent is invalid and unenforceable under federal patent law and is not report the "best price" under the Medicaid Program.infringed by Synagis.


        The Company is also involved in other legal proceedings arising in the ordinary course of its 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. There can be no assurance that the Company will be successful in any of the litigation it has initiated. In its ordinary course of business, the Company has provided indemnification to various parties for certain product liability claims and claims that the Company's products were not manufactured in accordance with applicable federal standards. While the Company is not aware of any current claims under these provisions, there can be no assurance that such claims will not arise in the future or that the effect of such claims will not be material to the Company.

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REPORT OF INDEPENDENT ACCOUNTANTSAUDITORS

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, 20022003 and December 31, 2001,2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002,2003, 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.

        As discussed in Note 42 to the financial statements, the Company changed its method of revenue recognition for contract revenues, effective January 1, 2002.

/s/PRICEWATERHOUSECOOPERS LLP

McLean, Virginia
February 13, 2004, except for Note 10
as to which the date is February 25, 2004

/s/ PricewaterhouseCoopers LLP
January 27, 2003
McLean, Virginia

7978



REPORT OF MANAGEMENT

        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

David M. Mott
Vice Chairman and
Chief Executive Officer, President and Vice Chairman
  

/s/  
MELVIN D. BOOTH      
Melvin D. Booth
President and Chief Operating Officer

 

 

/s/
GREGORY
LOTA S. PATRICK      
Gregory S. Patrick
Senior Vice President and Chief Financial Officer
ZOTH

 

 

/s/  
LOTA S. ZOTH      
Lota S. Zoth
Vice President and Controller, Acting Chief
Financial Officer

 

 

80



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.


PART III

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.


PART III

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, 2003)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."

80



PART IV


ITEM 14.    CONTROLS AND PROCEDURES

        Based on an evaluation of the Company's disclosure controls and procedures as of January 24, 2003, our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Chief Accounting Officer have concluded that the Company's disclosure controls and procedures are effective in connection with the Company's filing of this annual report on Form 10-K for the year ended December 31, 2002.

        There were no significant changes in the Company's internal controls or in any other factors that could significantly affect those controls, subsequent to the date of the most recent evaluation of the Company's internal controls by the Company, including any corrective actions with regard to any significant deficiencies or material weaknesses.

81



PART IV

ITEM 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.

a)
Documents filed as part of the Report

1.
Financial Statements and Supplemental Data

a.
Consolidated Balance Sheets at December 31, 20022003 and 20012002

b.
Consolidated Statements of Operations for the years ended December 31, 2003, 2002, 2001, and 20002001

c.
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2002, 2001, and 20002001

d.
Consolidated Statements of Shareholders' Equity for the years ended December 31, 2003, 2002, 2001, and 20002001

e.
Notes to Consolidated Financial Statements

f.
Report of Independent AccountantsAuditors

g.
Report of Management

2.
Supplemental Financial Statement Schedule
Report of Independent AccountantsAuditors on Financial Statement Schedule

Schedule I—Valuation and Qualifying Accounts Page S-1

b)
Reports on Form 8-K: none


Date Filed

Event Reported
October 23, 2003MedImmune reports record revenues for 2003 third quarter and nine-month period.
November 18, 2003MedImmune provides update to FluMist launch and revises guidance for fourth quarter and full year.
c)
ITEM 601 EXHIBITS

Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index beginning on page E1 and such listing is incorporated by reference.reference.

8281



SIGNATURES

        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.

Date: March 4, 2003

9, 2004

/s/  
DAVID M. MOTT      
David M. Mott
Vice Chairman and
Chief Executive Officer, President, and Vice Chairman
Principal Executive Officer

Date: March 4, 2003


/s/  9, 2004
GREGORY S. PATRICK      
Gregory S. Patrick
Senior Vice President and Chief Financial Officer
Principal Financial Officer

Date: March 4, 2003


/s/  
LOTA S. ZOTH      
Lota S. Zoth
Vice President, Controller and ControllerActing 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 4, 20039, 2004 /s/  WAYNE T. HOCKMEYER      
Wayne T. Hockmeyer, Chairman

Date: March 4, 20039, 2004

 

/s/  
M. JAMES BARRETT      
M. James Barrett, Director

Date: March 4, 20039, 2004

 

/s/  
MELVIN D. BOOTH      
Melvin D. Booth, Director

Date: March 4, 20039, 2004

 

/s/  
JAMES H. CAVANAUGH      
James H. Cavanaugh, Director

Date: March 4, 20039, 2004

 

/s/  
BARBARA HACKMAN FRANKLIN      
Barbara Hackman Franklin, Director

Date: March 4, 20039, 2004

 

/s/  
GORDON S. MACKLIN      
Gordon S. Macklin, Director

Date: March 4, 2003


/s/  
FRANKLIN H. TOP, JR.      
Franklin H. Top, Jr., Director

Date: March 4, 20039, 2004

 

/s/  
ELIZABETH WYATT      
Elizabeth Wyatt, Director

83


CERTIFICATION:

I, David M. Mott, certify that:



Date: March 4, 20039, 2004

 

/s/  
DAVID M. MOTTBALTIMORE      
David M. Mott
Vice Chairman and Chief Executive OfficerBaltimore, Director

84


CERTIFICATION:

I, Melvin D. Booth, certify that:


Date: March 4, 2003/s/  MELVIN D. BOOTH      
Melvin D. Booth
President and Chief Operating Officer

85


CERTIFICATION:

I, Gregory S. Patrick, certify that:


Date: March 4, 2003/s/  GREGORY S. PATRICK      
Gregory S. Patrick
Senior Vice President and Chief Financial Officer

86


CERTIFICATION:

I, Lota S. Zoth, certify that:


Date: March 4, 2003/s/  LOTA S. ZOTH      
Lota S. Zoth
Vice President and Controller

8783



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 27, 2003,February 13, 2004, except for Note 10, as to which the date is 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/ PricewaterhouseCoopersPRICEWATERHOUSECOOPERS LLP
McLean, Virginia
January 27, 2003February 13, 2004

8884



SCHEDULE I

MedImmune, Inc.
Valuation and Qualifying Accounts
(in thousands)

Description

 Balance at
beginning
of period

 Additions
 Deductions
 Balance
at end
of period

 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 $6,891 $10,086 $(6,381)$10,596
Trade Receivables Bad Debt Reserve 2,520 4,948  7,468 2,520 4,948   7,468
Inventory Reserve 9,140 59,921 (31,929) 37,132 9,140 73,921 (31,929) 51,132
Physical Asset Reserve 2,374 71  2,445 2,374 71 (2,140) 305
 
 
 
 
 
 
 
 
 $20,925 $75,026 $(38,310)$57,641 $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 $5,698 $3,773 $(2,580)$6,891
Trade Receivables Bad Debt Reserve 1,562 1,095 (137) 2,520 1,562 1,095 (137) 2,520
Inventory Reserve 6,230 12,703 (9,793) 9,140 6,230 12,703 (9,793) 9,140
Physical Asset Reserve 2,463  (89) 2,374 2,463  (89 2,374
 
 
 
 
 
 
 
 
 $15,953 $17,571 $(12,599)$20,925 $15,953 $17,571 $(12,599)$20,925
 
 
 
 
 
 
 
 
For the year ended December 31, 2000        
Sales Allowances $7,263 $535 $(2,100)$5,698
Trade Receivables Bad Debt Reserve 1,357 259 (54) 1,562
Inventory Reserve 8,004 3,550 (5,324) 6,230
Physical Asset Reserve 828 2,536 (901) 2,463
 
 
 
 
 $17,452 $6,880 $(8,379)$15,953
 
 
 
 

S-1



ITEM 601 EXHIBITS

2.1Agreement and Plan of Merger, dated as of December 2, 2001, among MedImmune, Inc., Apple Merger Corp. and Aviron, incorporated by reference to exhibit 2.1 filed with the Company's Registration Statement Form S-4 (333-74838) filed on December 10, 2001.
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.
   

3.1


Restated Certificate of Incorporation, dated May 14, 1991, incorporated by reference to exhibit 3.1 filed in connection with the Company's Registration Statement No. 33-43816.

3.1.1


Certificate of Amendment to the Restated Certificate of Incorporation, dated August 5, 1996, incorporated by reference to exhibit 3.4 filed with the Company's Annual Report on Form 10-K for December 31, 2001.

3.1.2


Certificate of Amendment to the Restated Certificate of Incorporation, dated June 15, 1998, incorporated by reference to exhibit 3.5 filed with the Company's Annual Report on Form 10-K for December 31, 2001.

3.1.3


Certificate of Amendment to the Restated Certificate of Incorporation, dated May 18, 2000, incorporated by reference to exhibit 3.6 filed with the Company's Annual Report on Form 10-K for December 31, 2001

3.7


By-Laws, as amended, incorporated by reference to exhibit 3.7 filed with the Company's Annual Report on Form 10-K for December 31, 2001.

4.1


Amended and Restated Rights Agreement, dated as of October 31, 1998, between MedImmune, Inc., and American Stock Transfer and Trust Company, as Rights Agent, incorporated by reference to Exhibit 99.2 filed with the Company's Registration Statement on Form 8A/A, filed with the Securities and Exchange Commission on December 1, 1998.

4.2


Certificate of Designations of Series B Junior Preferred Stock, incorporated by reference to exhibit 4.2 filed with the Company's Annual Report on Form 10-K for December 31, 2001.

4.3


Warrant for Common Stock, issued to University of Michigan, incorporated by reference to Exhibit 4.14 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999.

4.4


Indenture entered into between Aviron and HSBC Bank USA as Trustee, dated February 7, 2001, incorporated by reference to Exhibit 4.22 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

4.5


Officer's Certificate pursuant to Section 2.01 of the Subordinated Indenture, dated February 7, 2001, incorporated by reference to Exhibit 4.22 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

4.6


Warrant for Common Stock, issued to University of Michigan, incorporated by reference to Exhibit 4.25 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

10.1(1)


RSV Research Agreement dated August 1, 1989 between the Company, PPI and the Massachusetts Health Research Institute, Inc. ("MHRI"), incorporated by reference to exhibit 10.4 filed in connection with the Company's Registration Statement No. 33-39579.



E-1E1


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


10.18 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


10.27(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


10.39 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



10.210.49

 

RSV License Agreement dated August 1, 1989 between the Company, PPI and MHRI, incorporated by reference to exhibit 10.5 filed in connection with the Company's Registration Statement No. 33-39579.

10.3


RSV Supply Agreement dated August 1, 1989 between the Company, PPI, MHRI and the Massachusetts Public Health Biologic Laboratory ("MPHBL"), incorporated by reference to exhibit 10.6 filed in connection with the Company's Registration Statement No. 33-39579.

10.4


CMV License Agreement dated April 23, 1990 between the Company and MHRI, incorporated by reference to exhibit 10.7 filed in connection with the Company's Registration Statement No. 33-39579.

10.4.1


First Amendment to CMV License Agreement dated May 3, 1991 between the Company and MHRI, incorporated by reference to exhibit 10.8 filed in connection with the Company's Registration Statement No. 33-39579.

10.5


CMV Research Agreement dated April 23, 1990 between the Company, MHRI and MPHBL, incorporated by reference to exhibit 10.9 filed in connection with the Company's Registration Statement No. 33-39579.

10.6


License Agreement dated November 8, 1989 between the Company, PPI, and the Henry M. Jackson Foundation for the Advancement of Military Medicine ("HMJ"), incorporated by reference to exhibit 10.10 filed in connection with the Company's Registration Statement No. 33-39579.

10.7


License Agreement dated July 1, 1989 between the Company and the National Technical Information Service ("NTIS"), incorporated by reference to exhibit 10.17 filed in connection with the Company's Registration Statement No. 33-39579.

10.8


License Agreement dated September 1, 1989 between the Company and NTIS, incorporated by reference to exhibit 10.18 filed in connection with the Company's Registration Statement No. 33-39579.

10.9


Restated Stockholders' Agreement dated May 15, 1991, incorporated by reference to exhibit 10.21 filed in connection with the Company's Registration Statement No. 33-39579.

10.10


Lease Agreement between Clopper Road Associates and the Company dated February 14, 1991, incorporated by reference to exhibit 10.22 filed in connection with the Company's Registration Statement No. 33-39579.

10.10.1


First Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 8, 1993, incorporated by reference to exhibit 10.59 filed with the Company's Annual Report on Form 10-K for December 31, 1996.

10.10.2


Second Amendment of Lease Between Clopper Road Associates and MedImmune, Inc. dated June 30, 1993, incorporated by reference to exhibit 10.60 filed with the Company's Annual Report on Form 10-K for December 31, 1996.

10.10.3


Third Amendment of Lease between Clopper Road Associates and MedImmune, Inc. effective as of January 1, 1995, incorporated by reference to exhibit 10.61 filed with the Company's Annual Report on Form 10-K for December 31, 1996.

10.10.4


Fourth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996, incorporated by reference to exhibit 10.62 filed with the Company's Annual Report on Form 10-K for December 31, 1996.



E-2



10.10.5


Fifth Amendment of Lease between Clopper Road Associates and MedImmune, Inc. dated October 3, 1996, incorporated by reference to exhibit 10.63 filed with the Company's Annual Report on Form 10-K for December 31, 1996.

10.10.6


Sixth Amendment of Lease between ARE-QRS Corp. and MedImmune, Inc. dated September 10, 1997, incorporated by reference to exhibit 10.75 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.10.7


Seventh Amendment of Lease between ARE-QRS CORP. and MedImmune, Inc. effective August 1, 1998, incorporated by reference to exhibit 10.94 filed with the Company's Annual Report on Form 10-K for December 31, 1998.

10.11


1991 Stock Option Plan, incorporated by reference to exhibit 10.23 filed in connection with the Company's Registration Statement No. 33-46165.

10.12(1)


Termination, Purchase and Royalty Agreement between CLI and the Company, dated December 24, 1992, incorporated by reference to exhibit 10.30 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1992.

10.12.1(1)


Amendment to Termination, Purchase and Royalty Agreement between Connaught Technology Corporation and MedImmune, Inc. dated December 31, 1995, incorporated by reference to exhibit 10.30 filed with the Company's Annual Report on Form 10-K for December 31,1995.

10.12.2(2)


Termination of Purchase and Royalty Agreement Second Amendment between Connaught Technology Corporation and MedImmune, Inc. effective September 30, 1998, incorporated by reference to exhibit 10.92 filed with the Company's Annual Report on Form 10-K for December 31, 1998.

10.13


Form of 1993 Non-Employee Director Stock Option Plan, incorporated by reference to exhibit 10.32 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1992.

10.14(1)10.50

 

Sponsored ResearchEmployment agreement, dated as of October 1, 2003, by and License Agreement between Georgetown University and the Company dated February 25, 1993, incorporated by reference to exhibit 10.33 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1993.

10.15(1)


License Agreement between Roche Diagnostic Systems, Inc. and the Company dated March 8, 1993, incorporated by reference to exhibit 10.34 filed in connection with the Company's Annual Report on Form 10-K for the year ended December 31, 1993.

10.16


Agreement dated October 26, 1995 between American Cyanamid Company and the Company, related to the RSV MAB Co-Development and Co-Promotion Agreement between American Cyanamid Company and the Company dated November 8, 1993, incorporated by reference to exhibit 10.37.1 filed in connection with the Company's Annual Report on Form 10-K for December 31, 1995.

10.17(1)


Stock Purchase Agreement between Baxter Healthcare CorporationWayne T. Hockmeyer, Ph.D. and MedImmune, Inc. dated June 22, 1995, incorporated by reference to exhibit 10.52 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.*10.50

10.18(2)10.51

 

Alliance Agreement between BioTransplant, Inc. and MedImmune, Inc. dated October 2, 1995, incorporated by reference to exhibit 10.53 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995.



E-3



10.19


Stock Purchase Agreement dated October 25, 1995 between MedImmune, Inc. and American Home Products, incorporated by reference to exhibit 10.54 filed with the Company's Annual Report on Form 10-K for December 31,1995.

10.20


Master Loan & Security Agreement, dated June 16, 1997 by and between Transamerica and MedImmune, Inc., incorporated by reference to exhibit 10.72 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997.

10.21(1)


Patent License Agreement, (MEDI-493) dated July 17, 1997 by and between Protein Design Labs and MedImmune, Inc., incorporated by reference to exhibit 10.73 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997.

10.22(1)


Patent License Agreement, (MEDI-507) dated July 17, 1997 by and between Protein Design Labs and MedImmune, Inc., incorporated by reference to exhibit 10.74 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 1997.

10.23(1)


Co-Promotion Agreement between Abbott Laboratories and MedImmune, Inc. dated November 26, 1997, incorporated by reference to exhibit 10.76 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.23.1(2)


Amendment to Co-Promotion Agreement, effective as of November 26, 1997, by and between Abbott Laboratories through its Ross Products Division and MedImmune, Inc.*

10.23.2(2)


Amendment No. 2 to Co-Promotion Agreement, effective as of November 26, 1997, by and between Abbott Laboratories through its Ross Products Division and MedImmune, Inc.*

10.24(1)


Contract Research and Development Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997, incorporated by reference to exhibit 10.77 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.25(1)


Manufacturing Agreement between MedImmune, Inc. and Dr. Karl Thomae GmbH dated November 27, 1997, incorporated by reference to exhibit 10.78 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.26(1)


Distribution Agreement between MedImmune, Inc. and Abbott International, Ltd. dated November 26, 1997, incorporated by reference to exhibit 10.79 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.26.1(2)


Amendment to the Distribution Agreement, effective as of April 28, 1999, by and between MedImmune, Inc. and Abbott International, Ltd.*

10.26.2(2)


Second Amendment to the Distribution Agreement, effective as of October 8, 1999, by and between MedImmune, Inc. and Abbott International, Ltd.*

10.27(1)


License Agreement between Loyola University of Chicago and MedImmune, Inc. dated December 3, 1997, incorporated by reference to exhibit 10.80 filed with the Company's Annual Report on Form 10-K for December 31, 1997.

10.28(1)


Research Collaboration and License Agreement between SmithKline Beecham and MedImmune, Inc. dated December 10, 1997, incorporated by reference to exhibit 10.79 filed with the Company's Annual Report on Form 10-K for December 31, 1997.



E-4



10.29


Termination of MEDI-SB Letter Agreement of October 10, 1996, incorporated by reference to exhibit 10.82 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998.

10.30


Second Amendment between MedImmune, Inc. and Lonza Biologics PLC of 228 Bath Road, Slough, Berkshire SL1 4DY England, incorporated by reference to exhibit 10.83 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 1998.

10.31


Purchase Contract Agreement between Aid Association and MedImmune, Inc. effective November 25, 1998, incorporated by reference to exhibit 10.93 filed with the Company's Annual Report on Form 10-K for December 31, 1998.

10.32


Amendment to Lease Agreement for MOR Bennington LLLP and MedImmune, Inc., incorporated by reference to exhibit 10.100 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999.

10.33


License Agreement Dated January 30, 1995 between Registrant and National Institutes of Health, incorporated by reference to Exhibit 10.6 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994.

10.34


Agreement for Assignment of Rights, dated January 8, 1988, between U.S. Bioscience, Inc. and Wyeth Laboratories, Inc., incorporated by reference to Exhibit 10.18 to the U.S. Bioscience, Inc. Registration Statement on Form 10-K filed with the Securities and Exchange Commission on September 21, 1989.

10.35


Amended and Restated License Agreement, effective as of May 1, 1993, between U.S. Bioscience, Inc. and Southern Research Institute, incorporated by reference to Exhibit 10.8 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993.

10.36


Agreement, dated as of November 25, 1988, between U.S. Bioscience, Inc. and Warner-Lambert Company, incorporated by reference to Exhibit 10.23 to the U.S. Bioscience, Inc. Registration Statement on Form 10 filed with the Securities and Exchange Commission on September 21, 1989.

10.36.1


Amendment No. 1, dated March 13, 1992 to Agreement dated as of November 25, 1988, between U.S. Bioscience, Inc. and Warner-Lambert Company, incorporated by reference to Exhibit 10(o)(ii) to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1991.

10.37


Agreement, dated as of January 1, 1995, between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994.

10.37.1


Amendment, dated April 12, 1995, to Agreement dated January 1995 between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996.

10.37.2


Second Amendment, dated May 6, 1996 to Agreement dated January 1, 1995 between U.S. Bioscience, Inc. and Applied Analytical Industries, Inc., incorporated by reference to Exhibit 10.11.2 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996.



E-5



10.38


Agreement, dated as of September 23, 1993, between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993.

10.38.1


Amendment, dated April 11, 1995, to Agreement dated September 23, 1993 between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996.

10.38.2


Amendment, dated December 12, 1995, to Agreement dated September 23, 1993 between U.S. Bioscience, Inc. and Ben Venue Laboratories, Inc., incorporated by reference to Exhibit 10.12.2 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1996.

10.39


License Agreement, dated February 14, 1992, between U.S. Bioscience, Inc. and Schering Overseas Limited, incorporated by reference to Exhibit 10.14 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1992.

10.39.1


Amendment dated October 15, 1993 to License Agreement between U.S. Bioscience, Inc. and Schering Overseas Limited, incorporated by reference to Exhibit 10.14.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993.

10.40


Amended and restated License Agreement dated May 10, 1994 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.15 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997.

10.41(1)


Distribution and Supply Agreement, dated as of May 10, 1993 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.16 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1994.

10.41.1(1)


Amendment to Distribution and Supply Agreement, dated as of August 31, 1996 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.16.1 to the U.S. Bioscience, Inc. Current Report on Form 8-K/A dated September 19, 1996.

10.42


Agreement, dated as of March 10, 1994 between U.S. Bioscience, Inc. and Sipsy S.A., incorporated by reference to Exhibit 10.17 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993.

10.43


License Agreement, effective November 28, 1990 between U.S. Bioscience, Inc. and National Technical Information Service, incorporated by reference to Exhibit 10.18 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1993.

10.44(1)


Ethyol (Amifostine) Distribution and Marketing Collaboration Agreement between U.S. Bioscience, Inc. and ALZA Corporation dated December 12, 1995, incorporated by reference to Exhibit 5 to the U.S. Bioscience, Inc. Current Report on Form 8-K dated December 22, 1995.

10.44.1


Amendment No. 2 to distribution and Marketing Collaboration Agreement between U.S. Bioscience, Inc. and ALZA Corporation dated as of February 3, 1997, incorporated by reference to Exhibit 10.25.2 to the U.S. Bioscience, Inc. Current Report on Form 8-K dated February 3, 1997.



E-6



10.44.2


Amendment No. 3 to Distribution and Marketing collaboration Agreement between MedImmune Oncology, Inc. and ALZA Corporation, incorporated by reference to exhibit 10.129 filed with the Company's Quarterly Report on Form 10-Q/A for the Quarter ended September 30, 2001.

10.45


License Agreement between U.S. Bioscience, Inc. and Scherico, Ltd. dated as of November 6, 1997, incorporated by reference to Exhibit 10.27 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997.

10.45.1


Amendment No. 1 to License Agreement dated as of November 6, 1997 between U.S. Bioscience, Inc. and Scherico, Ltd., incorporated by reference to Exhibit 10.27.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997.

10.46


Agreement between U.S. Bioscience, Inc. and Philip S. Schein, M.D. dated as of March 10, 1998, incorporated by reference to Exhibit 10.28.1 to the U.S. Bioscience, Inc. Annual Report on Form 10-K for December 31, 1997.

10.47


Agreement and Plan of Merger dated as of September 21, 1999 among MedImmune, Inc. and Marlin Merger Sub Inc. and U. S. BioScience, Inc., incorporated by reference to exhibit 10.119 filed on Form S-4 filed on October 12, 1999.

10.48(2)


Supply Transfer Agreement between Immunex Corporation and MedImmune, Inc., incorporated by reference to exhibit 10.128 filed with the Company's Quarterly Report on Form 10-Q/A for the Quarter ended June 30, 2001.

10.49


Employment agreement between Edward J. Arcuri, Ph.D. and MedImmune, Inc. dated February 25, 2002, incorporated by reference to exhibit 10.133 filed with the Company's Annual Report on Form 10-K for December 31, 2001.

10.50(1)10.52

 

Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995, incorporated by reference to Exhibit 10.3 to Aviron's Registration Statement on Form S-1 filed with the Securities and Exchange Commission June 5, 1996.

10.50.1(1)


Letter Amendment to the Materials Transfer and Intellectual Property Agreement between the Registrant and the Regents of the University of Michigan dated February 24, 1999, incorporated by reference to Exhibit 10.24 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999.

10.51


Stock Transfer Agreement between the Registrant and the Regents of the University of Michigan, dated February 24, 1995, incorporated by reference to Exhibit 10.4 to Aviron's Registration Statement on Form S-1 filed June 5, 1996.

10.51.1


Amendment No. 1 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated February 16, 2000, incorporated by reference to Exhibit 10.33 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999.

10.51.2


Amendment No. 2 to Stock Transfer Agreement by and between the Registrant and The Regents of the University of Michigan, dated March 29, 2001, incorporated by reference to Exhibit 10.52 to Aviron's Quarterly Report on Form 10-Q for the quarter ended March 31, 2001.

10.52(1)


Cooperative Research and Development Agreement between the Registrant and the National Institutes of Health, dated May 30, 1995, incorporated by reference to Exhibit 10.6 to Aviron's Registration Statement on Form S-1 filed June 5, 1996.



E-7



10.53


Facility Reservation Agreement between the Registrant and Packaging Coordinators, Inc., dated as of October 31, 1997, incorporated by reference to Exhibit 10.17 to Aviron's Registration Statement on Form S-3 filed December 5, 1997.

10.53.1


First Amendment to Facility Reservation Agreement, dated as of August 1, 2000, by and between Aviron and Packaging Coordinators, Inc., incorporated by reference to Exhibit 10.32 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000.

10.54


1996 Equity Incentive Plan, as amended as of June 1, 2000, incorporated by reference to Exhibit 99.1 to Aviron's Registration Statement on Form S-8 filed August 23, 2000.

10.55


Industrial Lease between the Registrant and the Vanni Business Park General Partnership, dated August 29, 1995, incorporated by reference to Exhibit 10.12 to Aviron's Registration Statement on Form S-1 filed June 5, 1996.

10.56(1)


Biological Materials License Agreement between the Registrant and the National Institutes of Health, dated May 31, 1996, incorporated by reference to Exhibit 10.14 to Aviron's Registration Statement on Form S-1/A filed June 20, 1996.

10.57(2)


Amended and Restated Production Agreement, dated as of August 1, 2000, by and between Aviron and Packaging Coordinators, Inc., incorporated by reference to Exhibit 10.31 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed November 14, 2000 and Appendix 5 of this exhibit is incorporated by reference to Exhibit 10.17 to Aviron's Registration Statement on Form S-3 filed December 5, 1997.

10.58(1)


Supply Agreement between the Registrant and Becton Dickinson and Company dated July 1, 1998, incorporated by reference to Exhibit 10.19 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998.

10.59(1)


United States License and Co-Promotion Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999, incorporated by reference to Exhibit 10.20 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998.

10.59.1(2)


First Amendment to United States License and Co-Promotion Agreement between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.177 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.

10.60(1)


International FluMist(TM) License Agreement between the Registrant and Wyeth dated January 11, 1999, incorporated by reference to Exhibit 10.21 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998.

10.61(1)


FluMist(TM) Supply Agreement between the Registrant and Wyeth Lederle Vaccines dated January 11, 1999, incorporated by reference to Exhibit 10.22 to Aviron's Annual Report on Form 10-K for the year ended on December 31, 1998.

10.61.1


FluMist(TM) Supply Agreement Amendment, dated January 1, 2001, incorporated by reference to Exhibit 10.49 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.61.2(2)


Second Amendment to FluMist Supply Agreement between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.178 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.



E-8



10.62


Real Property Lease by and between the Registrant and Spieker Properties, L.P. dated February 5, 1999, incorporated by reference to Exhibit 10.25 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

10.63(1)


First Amendment to the Influenza Vaccine Collaboration and License and Distribution Agreement by and between the Registrant and CSL Limited, A.C.N. dated June 7, 1999, incorporated by reference to Exhibit 10.26 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.

10.64


Real Property Lease by and between the Registrant and MELP VII L.P., dated October 20, 1999, incorporated by reference to Exhibit 10.30 to Aviron's Annual Report on Form 10-K for the year ended December 31, 1999.

10.65


1999 Non-Officer Equity Incentive Plan, as amended as of September 24, 2001, incorporated by reference to exhibit 4.1 to Aviron's Registration Statement on Form S-8 filed October 23, 2001.

10.66


Stock Option Agreement for C. Boyd Clarke, incorporated by reference to Exhibit 99.4 to Aviron's Registration Statement on Form S-8 filed August 23, 2000.

10.67(2)


Agreement for Lease of AVU Premises at Gaskill Road, Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.38 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.68(2)


Underlease of AVU Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.39 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.69(2)


Agreement for Lease of AVU Extension Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.40 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.70(2)


Underlease of AVU Extension Premises at Gaskill Road Speke, dated October 11, 2000, incorporated by reference to Exhibit 10.41 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.71(2)


Agreement for the Sale and Purchase of Leasehold Property known as Plot 6 Boulevard Industry Park, Halewood, Merseyside, dated October 10, 2000, incorporated by reference to Exhibit 10.42 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.72(2)


Underlease of Plot 6 Boulevard Industry Park Halewood Merseyside, dated February 17, 2000, incorporated by reference to Exhibit 10.43 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.73(2)


Master Agreement by and between Powderject Pharmaceuticals Limited, Evans Vaccines Limited, the Registrant and Aviron UK, dated October 11, 2000, incorporated by reference to Exhibit 10.44 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.74(2)


Agreement Relating to the Sharing and Provision of Certain Services, by and between Evans Vaccines Limited and Aviron UK Limited, incorporated by reference to Exhibit 10.45 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.



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10.75(2)


Transfer Agreement by and between Evans Vaccines Limited and Aviron UK Limited, dated October 11, 2000, incorporated by reference to Exhibit 10.46 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.76(2)


Amended and Restated Contract Manufacture Agreement by and between Evans Vaccines Limited and the Registrant, dated October 11, 2000, incorporated by reference to Exhibit 10.47 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.77(2)


Know How Licence Agreement by and between Evans Vaccines Limited and Aviron UK Limited, dated October 11, 2000, incorporated by reference to Exhibit 10.48 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.78(2)


Amendment Number One (1) to Cooperative Research and Development Agreement AI-000062, by and between NIAID and Aviron, dated as of August 3, 1999, incorporated by reference to Exhibit 10.50 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.79(2)


Amendment Number Two (2) to Cooperative Research and Development Agreement AI-000062, by and between NIAID and Aviron, dated as of June 12, 2000, incorporated by reference to Exhibit 10.51 to Aviron's Annual Report on Form 10-K405 for the year ended December 31, 2000.

10.80


Real Estate Lease entered into between Aviron and The Realty Associates Fund IV, L.P., dated May 8, 2001, incorporated by reference to Exhibit 10.53 to Aviron's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.

10.81(2)


Amendment Number Three (3) to Cooperative Research and Development Agreement AI-0062, by and between NIAID and Aviron, dated as of July 16, 2001, incorporated by reference to Exhibit 10.54 to Aviron's Quarterly Report on Form 10-Q for the quarter ended September 30, 2001.

10.82(2)


Sublicense Agreement between Centocor, Inc. and MedImmune, Inc., incorporated by reference to exhibit 10.174 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.

10.83(2)


Stipulated Sum Agreement between MedImmune, Inc. and HITT Contracting Inc., incorporated by reference to exhibit 10.175 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.

10.84(2)


Supplementary General Conditions to the General Conditions of the Contract for Construction Agreement between MedImmune, Inc. and HITT Contracting Inc., incorporated by reference to exhibit 10.176 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.

10.85(2)


Letter Agreement Regarding Supply of Frozen Product for 2002 - 2003 Flu Season between MedImmune Vaccines, Inc. and Wyeth, incorporated by reference to exhibit 10.179 filed with the Company's Quarterly Report on Form 10-Q for the Quarter ended September 30, 2002.

10.86


Amended employment agreement, dated as of May 31, 2000, by and between Wayne T. Hockmeyer and MedImmune, Inc., incorporated by reference to Exhibit 10.120 filed in connection with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000.

10.87-10.179


Reserved



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10.180(2)


License Agreement, dated June 4, 1997, between Genentech, Inc. and MedImmune, Inc.*

10.181(2)


License for Winter Patent, dated August 13, 1997, between Medical Research Council and MedImmune, Inc.*

10.182(2)


Biological Materials License Agreement, effective as of August 24, 1997, between Public Health Service through the Office of Technology Transfer, National Institutes of Health, and MedImmune, Inc.*

10.183(2)


License Agreement, dated effective December 1, 1997, between the University of Iowa Research Foundation and MedImmune, Inc.*

10.184(2)


License Agreement and Amendment to RSV License Agreement, dated December 16, 2002, between MedImmune, Inc. and the Massachusetts Biologic Laboratories of the University of Massachusetts.*

10.185-10.188


Reserved

10.189


Employment Agreement between David M. Mott and the Company dated August 15, 2002, incorporated by reference to exhibit 10.189 filed with the Company's Annual Report on Form 10-K for December 31, 2002.*

10.19010.53

 

Part-Time Employment Agreement between Melvin D. Booth and the Company dated August 15, 2002.December 31, 2003.*

10.19110.54

 

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.*

10.19210.55

 

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.*

10.19310.56

 

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.*

10.19410.57

 

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.
10.58Agreement 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*

99.131.1

 

Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
31.2Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.*
32.1Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

99.299.1

 

Certification pursuant to 18 United States C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

99.3


Patent Table*

Notes:

*
Filed herewith.

(1)
Confidential treatment has been granted by the SEC. The copy filed as an exhibit omits the information subject to the confidentiality grant.

(2)
Confidential treatment has been requested. The copy filed as an exhibit omits the information subject to the confidentiality request.

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