~~- ------------------------------------------------------------------------------------------------------------------------------------~~

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q - ------------------------------------------------------------------------------------------------------------------------------------ {X}

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, ~~2002 Commission File No. 0-19131~~ 2003

MedImmune, Inc. (Exact
(Exact name of registrant as specified in its charter) Delaware 52-1555759 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.)


Delaware	0-19131	52-1555759
(State or other jurisdiction of	(Commission File No.)	(I.R.S. Employer Identification No.)
incorporation or organization)

35 West Watkins Mill Road, Gaithersburg, MD 20878 ~~(Address~~
(Address of principal executive offices) (Zip Code) ~~Registrant's~~

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

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act). Yes [X] No [ ]

As of August ~~7, 2002, 250,823,654~~5, 2003, 249,836,270 shares of Common Stock, par value $0.01 per share, were outstanding.

MEDIMMUNE, INC.
Index to Form 10-Q

			Page
	Part I-- FINANCIAL INFORMATION
	Item 1. Consolidated Financial Statements
	Consolidated Balance Sheets		1
	Consolidated Statements of Operations		2
	Condensed Consolidated Statements of Cash Flows		3
	Notes to Consolidated Financial Statements		4-9
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		10-21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		21
	Item 4. Controls and Procedures		22
	Part II-- OTHER INFORMATION
	Item 1. Legal Proceedings		23
	Item 2. Changes in Securities and Use of Preceeds		23
	Item 3. Defaults Upon Senior Securities		23
	Item 4. Submission of Matters to a Vote of Security Holders		23
	Item 5. Other Information		24
	Item 6. Exhibits and Reports on Form 8-K		24

Trademark information: Synagis® (palivizumab), CytoGam® (cytomegalovirus immune globulin intravenous (human)), RespiGam® (respiratory syncytial virus immune globulin intravenous (human)), and Vitaxin® are registered trademarks of MedImmune, Inc. NumaxTM is a trademark of MedImmune, Inc. Ethyol® (amifostine) and NeuTrexin® (trimetrexate glucuronate for injection) are registered trademarks of MedImmune Oncology, Inc. FluMistTM (Influenza Virus Vaccine Live, Intranasal) is a trademark of MedImmune Vaccines, Inc.

_________________

Unless otherwise indicated, this quarterly report is as of June 30, 2003. This quarterly report will not be updated as a result of new information or future events.

PART I Financial Information Page ---- Item 1. Consolidated Financial Statements Consolidated Balance Sheets 1-2 Consolidated Statements of Operations 3 Condensed Consolidated Statements of Cash Flows 4-5 Notes to Consolidated Financial Statements 6-15 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 16-26 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Part II Other Information Item 1. Legal Proceedings 28 Item 2. Changes in Securities 29 Item 3. Defaults upon Senior Securities 30 Item 4. Submission of Matters to a Vote of Security Holders 30 Item 5. Other Information 30 Item 6. Exhibits and Reports on Form 8-K 30 Synagis, CytoGam, Ethyol, RespiGam, Vitaxin and NeuTrexin are registered trademarks of the Company. FluMist and Numax are trademarks of the Company. – FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

MEDIMMUNE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data) June 30, December 31, 2002 2001 ---------- ---------- ASSETS: (Unaudited) Cash and cash equivalents $89,677 $171,255 Marketable securities 553,991 227,067 Trade receivables, net -- 108,902 Inventory, net 53,447 50,836 Deferred tax assets 27,517 27,280 Other current assets 15,353 9,063 ---------- ---------- Total Current Assets 739,985 594,403 Marketable securities 710,384 389,368 Property and equipment, net 163,259 95,402 Deferred tax assets, net 261,201 136,361 Intangible assets, net 121,595 -- Goodwill 14,220 -- Other assets 7,958 3,852 ---------- ---------- Total Assets $2,018,602 $1,219,386 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY: Accounts payable $26,214 $5,873 Accrued expenses 92,027 94,965 Product royalties payable 36,767 47,720 Deferred revenue 10,790 13,839 Other current liabilities 8,122 2,149 ---------- ---------- Total Current Liabilities 173,920 164,546 Long-term debt 228,644 8,791 Other liabilities 21,177 1,776 ---------- ---------- Total Liabilities 423,741 175,113 ---------- ---------- Commitments and Contingencies SHAREHOLDERS' EQUITY: Preferred stock, $.01 par value; authorized 5,524,525 shares; none issued or outstanding -- -- Common stock, $.01 par value; authorized 320,000,000 shares; issued and outstanding 250,671,284 at June 30, 2002 and 214,484,084 at December 31, 2001 2,507 2,145 Paid-in capital 2,604,137 891,627 Deferred compensation (15,877) -- Accumulated (deficit) earnings (1,004,439) 141,875 Accumulated other comprehensive income 8,533 8,626 ---------- --------- Total Shareholders' Equity 1,594,861 1,044,273 ---------- ---------- Total Liabilities and Shareholders' Equity $2,018,602 $1,219,386 ========== ==========
(in thousands)

	June 30,			December 31,
	2003			2002
	(Unaudited)
ASSETS:
Cash and cash equivalents	$	105,523		$	130,056
Marketable securities		286,761			396,882
Trade receivables, net		6,039			113,774
Inventory, net		81,379			59,963
Deferred tax assets		18,555			25,735
Other current assets		37,543			17,023

Total Current Assets		535,800			743,433
Marketable securities		1,195,689			896,118
Property and equipment, net		215,520			183,992
Deferred tax assets, net		167,213			222,038
Intangible assets, net		104,955			113,275
Goodwill		15,970			15,970
Other assets		24,878			13,463

Total Assets	$	2,260,025		$	2,188,289

LIABILITIES AND SHAREHOLDERS' EQUITY:
Accounts payable	$	12,300		$	19,773
Accrued expenses		101,619			157,359
Product royalties payable		47,633			74,048
Deferred revenue		2,209			6,789
Other current liabilities		9,622			8,684

Total Current Liabilities		173,383			266,653
Long-term debt		216,203			217,554
Obligations to Evans		25,135			24,755
Other liabilities		1,985			2,093

Total Liabilities		416,706			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; issued and outstanding
252,391 at June 30, 2003 and
251,262 at December 31, 2002		2,524			2,513
Paid-in capital		2,638,189			2,613,075
Deferred compensation		(2,971	)		(6,823	)
Accumulated deficit		(833,165	)		(956,140	)
Accumulated other comprehensive income		38,742			24,609

Total Shareholders' Equity		1,843,319			1,677,234

Total Liabilities and Shareholders' Equity	$	2,260,025		$	2,188,289

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

MEDIMMUNE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) ~~(in~~
(in thousands, except share data) For the For the three months ended six months ended June 30, June 30, 2002 2001 2002 2001 -------- ------ ----------- -------- Revenues: Product sales $57,330 $28,315 $377,998 $263,517 Other revenue 6,392 5,055 15,357 15,049 -------- ------- ----------- -------- Total revenues 63,722 33,370 393,355 278,566 -------- ------- ----------- -------- Costs and expenses: Cost of sales 15,642 7,127 95,519 59,930 Research and development 34,545 21,693 78,614 40,392 Selling, general and administrative 47,354 24,202 142,994 83,942 Other operating expenses 22,152 3,487 43,993 5,595 Acquired in-process research and development -- -- 1,179,321 -- -------- ------- ----------- -------- Total expenses 119,693 56,509 1,540,441 189,859 -------- ------- ----------- -------- Operating (loss) income (55,971) (23,139) (1,147,086) 88,707 Interest income 11,863 8,989 23,797 19,232 Interest expense (1,876) (149) (4,638) (299) -------- ------- ----------- -------- (Loss) earnings before income taxes (45,984) (14,299) (1,127,927) 107,640 (Benefit) provision for income taxes (16,528) (5,076) 18,387 38,212 -------- ------- ----------- -------- Net (loss) earnings $(29,456) $(9,223) $(1,146,314) $69,428 ======== ======= =========== ======== Basic (loss) earnings per share $(0.12) $(0.04) $(4.62) $0.33 ======== ======= =========== ======== Shares used in calculation of basic (loss) earnings per share 250,161 213,131 248,110 212,656 ======== ======= =========== ======== Diluted (loss) earnings per share $(0.12) $(0.04) $(4.62) $0.32 ======== ======= =========== ======== Shares used in calculation of diluted (loss) earnings per share 250,161 213,131 248,110 219,878 ======== ======= =========== ========data)

			For the					For the
			three months ended					six months ended
			June 30,					June 30,
	2003			2002			2003			2002
Revenues:
Product sales	$	85,864		$	57,330		$	518,299		$	377,998
Other revenue		31,935			6,392			35,446			15,357

Total revenues		117,799			63,722			553,745			393,355

Costs and expenses:
Cost of sales		23,197			15,642			126,028			95,519
Research and development		28,904			34,545			59,568			78,614
Selling, general and administrative		55,495			47,354			173,581			142,994
Other operating expenses		1,415			22,152			22,871			43,993
Acquired in-process research and development		--			--			--			1,179,321

Total expenses		109,011			119,693			382,048			1,540,441

Operating income (loss)		8,788			(55,971	)		171,697			(1,147,086	)
Interest income		14,310			11,863			27,300			23,797
Interest expense		(1,604	)		(1,767	)		(3,403	)		(4,529	)
Loss on investment activities		(139	)		(109	)		(396	)		(109	)

Earnings (loss) before income taxes		21,355			(45,984	)		195,198			(1,127,927	)
Provision (benefit) for income taxes		7,901			(16,528	)		72,223			18,387

Net earnings (loss)	$	13,454		$	(29,456	)	$	122,975		$	(1,146,314	)

Basic earnings (loss) per share	$	0.05		$	(0.12	)	$	0.49		$	(4.62	)

Shares used in calculation of basic earnings (loss) per
share		252,106			250,161			251,836			248,110

Diluted earnings (loss) per share	$	0.05		$	(0.12	)	$	0.48		$	(4.62	)

Shares used in calculation of diluted earnings (loss) per
share		258,200			250,161			257,390			248,110

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

MEDIMMUNE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) (in thousands) For the Six months ended June 30, 2002 2001 ----------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net (loss) earnings $(1,146,314) $69,428 Noncash items: Acquired in-process research and development 1,179,321 -- Deferred taxes 22,383 34,349 Deferred revenue (4,502) (8,654) Capitalized interest (279) -- Depreciation and amortization 16,415 4,572 Amortization of premium (discount) on marketable securities 4,480 (3,361) Amortization of deferred compensation 11,823 -- Amortization of bond premium (886) -- Accretion of interest on long-term obligation 534 -- Change
(in reserve for inventory (121) 4,251 Change in allowances for trade accounts receivable (937) (8,052) Decrease in restructuring liability for non-cash employee termination costs 9,234 -- Other 862 29 Other changes in assets and liabilities, net of effects of Aviron acquisition 63,005 76,626 ----------- --------- Net cash provided by operating activities 155,018 169,188 ----------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Increase in marketable securities (379,863) (197,098) Net cash acquired in acquisition of Aviron 146,853 -- Capital expenditures (37,708) (3,546) Minority interest investments (3,734) (1,500) ----------- --------- Net cash used in investing activities (274,452) (202,144) ----------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of common stock and exercise of stock options 38,146 16,444 Decrease in long-term debt (389) (439) ----------- --------- Net cash provided by financing activities 37,757 16,005 ----------- --------- Effect of exchange rate changes on cash 99 (155) Net decrease in cash and cash equivalents (81,578) (17,106) Cash and cash equivalents at beginning of period 171,255 84,974 ----------- --------- Cash and cash equivalents at end of period $ 89,677 $ 67,868 =========== ========= thousands)

	For the
	six months ended
	June 30,
	2003			2002
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss)	$	122,975		$	(1,146,314	)
Noncash items:
Acquired in-process research and development		--			1,179,321
Deferred taxes		67,041			22,383
Deferred revenue		(4,580	)		(3,049	)
Depreciation and amortization		18,497			16,415
Amortization of premium on marketable securities		7,381			4,480
Amortization of deferred compensation		2,666			11,823
Amortization of premium on convertible subordinated notes		(933	)		(886	)
Losses on writedowns of inventory		20,519			6,453
Decrease in sales allowances		(27,461	)		(937	)
Decrease in restructuring liability for cash employee termination costs		(251	)		(4,802	)
Other		1,438			1,396
Other changes in assets and liabilities, net of effects of acquisition of Aviron		(12,709	)		69,014

Net cash provided by operating activities		194,583			155,297

CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in marketable securities		(183,567	)		(379,863	)
Net cash acquired in acquisition of Aviron		--			146,853
Capital expenditures		(43,573	)		(37,987	)
Investments in strategic alliances		(11,780	)		(3,734	)

Net cash used in investing activities		(238,920	)		(274,731	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock		20,272			38,146
Repayments on long-term obligations		(415	)		(389	)

Net cash provided by financing activities		19,857			37,757

Effect of exchange rate changes on cash		(53	)		99
Net decrease in cash and cash equivalents		(24,533	)		(81,578	)
Cash and cash equivalents at beginning of period		130,056			171,255

Cash and cash equivalents at end of period	$	105,523		$	89,677

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~~Aviron’s outstanding options and warrants, for which approximately 7.0 million additional shares of the ~~Company's~~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~~our 2002 results at the date of acquisition and $211.4 million of 5 ~~1/4%~~¼ % convertible subordinated notes (the “Notes”) due in 2008.

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

MEDIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

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 vaccines 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.

On June 17, 2003, the U.S. Food and Drug Administration (FDA) approved the biologics license application for the commercial sale of FluMist, the first influenza vaccine delivered as a nasal mist available in the United States. FluMist is indicated for active immunization for the prevention of disease caused by influenza A and B viruses in healthy people, 5-49 years of age. MedImmune manufactures FluMist and co-promotes FluMist with a division of Wyeth.

In addition to FluMist, the Company currently actively markets three other products, Synagis, Ethyol and CytoGam, and is developing a diverse pipeline of potential future products. The Company is focused on developing new products, particularly vaccines and antibodies that address significant medical needs in the areas of infectious diseases, immunology and oncology.

2. Summary of Significant Accounting Policies

General

The financial information presented inas of and for the ~~consolidated financial statements at~~three months and six months ended June 30, ~~2002~~2003 (“Q2 2003” and “YTD 2003,” respectively) and as of and for the three months and six months ended June 30, 2002 (“Q2 2002” and ~~2001~~“YTD 2002,” respectively) is unaudited. In the opinion of the ~~Company's~~Company’s management, the financial information presented herein contains all adjustments, ~~(which~~which consist only of normal recurring ~~adjustments)~~adjustments, necessary for a fair presentation of results for the interim periods presented. Interim results are not necessarily indicative of results for an entire year or for any subsequent interim period. These consolidated financial statements should be read in conjunction with the ~~Company's~~Company’s annual report on Form 10-K for the year ended December 31, ~~2001. Organization MedImmune, Inc., a Delaware corporation (together with its subsidiaries,~~2002.

Stock-based Compensation

Compensation costs attributable to stock option and similar plans are recognized based on any excess of the ~~"Company"), is a biotechnology company headquartered in Gaithersburg, Maryland. The Company currently has five products~~quoted market price of the stock on the ~~market and maintains a diverse product portfolio. The Company~~date of grant over the amount the employee is ~~focused on using advances~~required to pay to acquire the stock, in ~~immunology and other biological sciences~~accordance with the intrinsic-value method under Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to ~~develop important new products that address significant medical needs in areas such as infectious diseases, immune regulation and oncology. During January~~Employees” (“APB 25”). Such amount, if any, is accrued over the related vesting period.

In December 2002, the ~~Company completed its acquisition~~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 (“SFAS 123”),” to provide alternative methods of ~~Aviron, subsequently renamed MedImmune Vaccines, Inc.,~~transition for a ~~biopharmaceutical company headquartered~~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 ~~Mountain View, California, through an exchange offer~~both annual and ~~merger transaction. The acquisition was accounted~~interim financial statements about the method of accounting for ~~as a purchase,~~stock-based employee compensation and the ~~results of operations of MedImmune Vaccines are included in the results~~effect of the ~~Company~~method used on reported results. The alternative methods of transition and additional disclosure requirements of SFAS 148 are effective January ~~10, 2002. New Accounting Standard Effective January~~ 1, ~~2002,~~2003.

The following table illustrates the Company adopted SFAS No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supersedes APB Opinion No. 17, "Intangible Assets." Under SFAS 142, goodwill and intangible assets with indefinite lives are no longer amortized but are reviewed at least annually for impairment. The amortization provisions of SFAS 142 apply to goodwill and intangible assets acquired after June 30, 2001. Inasmuch as the Company had no recorded goodwill or intangible assets prior to the January 2002 acquisition of Aviron, the adoption of SFAS 142 did not have an impact on the Company's financial position, results of operations, or cash flows. Change in Accounting Method For new contracts executed 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 contractual obligations the Company enters into with collaborative partners. Specifically, milestone payments are often directly related to the completed portion (an achieved milestone) of the arrangement and therefore revenues are earned and recognized as the milestones are is achieved. Also, the new method is prevalent in the industry in which the Company operates. The effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (in millions, except per share data):


Net earnings (loss), as reported	$ 13.5		($ 29.5)	$123.0	($1,146.3)
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	0.6		2.1	1.7	7.6
Deduct: stock-based employee compensation expense determined under
the fair value based method for all awards, net of related tax
effect	(24.8	)	(24.7)	(49.1)	(47.8)

Pro forma net earnings (loss)	($ 10.7	)	($ 52.1)	$ 75.6	($1,186.5)


Basic earnings (loss) per share, as reported	$ 0.05		($ 0.12)	$ 0.49	($4.62)
Basic earnings (loss) per share, pro forma	($ 0.04	)	($ 0.21)	$ 0.30	($4.78)
Diluted earnings (loss) per share, as reported	$ 0.05		($ 0.12)	$ 0.48	($4.62)
Diluted earnings (loss) per share, pro forma	($ 0.04	)	($ 0.21)	$ 0.30	($4.78)

3. Intangible Assets

Intangible assets are stated at amortized cost. The Company reviews its intangible assets for impairment whenever events or changes in circumstances indicate that the ~~three months and six months ended~~carrying amount of an asset may not be recoverable. Intangible assets at June 30, 2002 is not material. In circumstances where it is not appropriate to use the milestone payment method, the Company will continue to use the contingency-adjusted performance model. Significant Accounting Policies Contract Revenues - For contracts executed prior to January 1, 2002, contract revenues2003 are ~~recognized over the fixed term~~comprised of the contract as the related expenses are incurred. Upfront fees and milestone payments under collaborative agreements are recognized when they are earned in accordance with the applicable performance requirements and contractual terms, using the contingency-adjusted performance model for revenue recognition. Under this method, payments received that are related to future performance are deferred and recorded as revenues as they are earned over specified future performance periods. The amountfollowing (in millions):


Worldwide collaborative agreement with Wyeth	$	90.0
Contract manufacturing agreement with Evans		39.0
Other intangible assets		0.4

		129.4
Less accumulated amortization		(24.4	)

	$	105.0

Amortization of ~~revenue recognized during each period~~intangible assets is based on a percentage-of-completion model based on actual costs incurred relative to the total projected costs. Recognized revenues are subject to revisions as the collaboration efforts progress and estimated costs to complete are revised. For new contracts executed after January 1, 2002, the Company uses the milestone payment method when all milestones to be received under contractual arrangements are determined to be substantive, at risk and the culmination of an earnings process. Substantive milestones are payments that are conditioned upon an event requiring substantive effort, when the amount of the milestone is reasonable relative to the time, effort and risk involved in achieving the milestone and when the milestones are reasonable relative to each other and the amount of any up-front payment. If all of these criteria are not met, then the Company will use the contingency adjusted performance (percentage of completion) model. Acquisition On January 10, 2002, the Company completed its acquisition of Aviron through an exchange offer and merger transaction pursuant to the definitive merger agreement between the two parties dated December 2, 2001. Aviron, subsequently renamed MedImmune Vaccines, Inc., is a biopharmaceutical company headquartered in Mountain View, California, focused on prevention of disease through innovative vaccine technologies. Its lead product candidate is FluMist, a live, attenuated virus vaccine delivered as a nasal mist for the prevention of influenza. FluMist has not been approved by the FDA. Under the terms of the agreement, the Company exchanged approximately 34.0 million of its common shares for 100% of the outstanding common stock of Aviron. Additionally, approximately 7.0 million shares are issuable upon the exercise of Aviron's outstanding options and warrants. Holders of Aviron's $200 million of 5 1/4% convertible subordinated notes due in 2008 may convert the notes into a total of approximately 3.4 million shares of the Company's common stock, based on a conversion price of $58.14 per share. The acquisition was accounted for as a purchase and, accordingly, the results of Aviron's operations have been included with the Company's since the acquisition date. In the period ended June 30, 2002, the Company recorded a purchase price adjustment resulting from a final reconciliation of Aviron registered shares of common stock as of the acquisition date and a refinement to the calculation of unearned compensation for terminated employees, which resulted in a net decrease of $1.4 million to the purchase price and a corresponding decrease to goodwill. This adjustment had no material impactcomputed on the Company's results of operations for the three months and six months ended June 30, 2002. The revised aggregate purchase consideration was approximately $1.6 billion, as follows (in thousands): Common stock $1,497,271 Assumption of Aviron's options and warrants, less intrinsic value of unvested portion 128,027 Transaction costs 9,758 ---------- $1,635,056 ========== The value of common shares issued was $44.10 per share,straight-line method based on the ~~closing market price~~estimated useful lives of the ~~Company's common stock on November~~assets. Amortization expense for Q2 2003 and YTD 2003 was $1.9 million and $6.1 million, respectively. As of June 30, ~~2001, the last business day prior~~2003, capitalized inventory related to the signing of the merger agreement. The fair value of Aviron's options and warrants assumed in the transaction was estimated using the Black-Scholes option pricing model. The following table summarizes the estimated fair values (in thousands) of the assets acquired and liabilities assumed at the date of acquisition, as revised. The Company is in the process of determining the fair value of certain tangible assets and liabilities; thus, the allocation of the purchase price is subject to refinement: Assets: Cash and marketable securities $417,507 Other current assets 24,911 Other long-term assets 42,494 Deferred tax assets 133,970 Intangible assets 129,000 In-process research and development 1,179,321 Goodwill 14,220 ---------- Total assets: 1,941,423 ---------- Liabilities: Current liabilities 49,847 Restructuring liability 15,894 Long-term debt 211,380 Long-term obligations 28,745 Other liabilities 501 ---------- Total liabilities 306,367 ---------- Net assets acquired: $1,635,056 ========== Of the $129.0FluMist includes approximately $2.2 million of ~~acquired intangible assets, $90.0 million was assigned to Aviron's worldwide collaborative agreement~~amortization costs associated with ~~Wyeth for~~ the development, manufacturing, 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 Aviron's contract manufacturing agreement with ~~Evans Vaccines Limited, which is subject to~~Evans. The estimated aggregate amortization ~~over its estimated useful life of approximately four years. The Company estimated the fair value~~for each of the ~~Evans agreement using~~next five years is as follows: 2003, $16.6 million; 2004, $16.4 million; 2005, $16.4 million; 2006, $12.0 million; and 2007, $7.7 million.

4. Restructuring Liability

As of June 30, 2003, 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. Approximately $1,179.3 millionremaining balance 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 in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method." The amount represents the fair value of purchased in-process technology for projects that, as of the date of the acquisition, had not yet reached technological feasibility and had no alternative future use, primarily Aviron's lead product candidate, FluMist, which has not been approved by the FDA. Approximately $14.2 million in goodwill was recognized in the revised allocation of the purchase price, none of which is expected to be deductible for tax purposes. Through June 30, 2002, the Company recorded a purchase price adjustment of $1.4 million and a reversal to the restructuring liability of $0.1 million (discussed below), which resulted in a net reduction to goodwill of $1.5 million. In accordance with SFAS 142, the goodwill recognized in the transaction is not amortized, but will be reviewed for impairment on an annual basis. Included in the revised allocation of acquisition cost is a restructuring liability of $15.9 million for estimated costs associated with the ~~Company's~~Company’s restructuring ~~plan.~~plan was $0.7 million. 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 Aviron~~certain executives and 52 other ~~Aviron~~ employees of MedImmune Vaccines from various functions and levels. Through June 30, 2002, the Company decided to retain two of those 52 positions and recorded a charge reversal of $0.1 million for the related severance and accelerated vesting of stock options, which resulted in a reduction to goodwill. As revised, the restructuring liability consists of $5.3 million for contractual severance payments, $9.5 million for accelerated vesting of stock options to employees and executives, as dictated by their employment agreements and the provisions of the various stock options plans, and approximately $1.1 million for estimated costs for vacant lease space which is not expected to be used by the Company during the remaining term of the lease as a result of the Company's plan to consolidate certain functions. Subsequent adjustments to the allocation of the acquisition cost related to the true-up of severance and other restructuring costs are not expected to be significant. During the three months ended June 30, 2002, actual severance payments of $0.4 million, compensation expense of $0.3 million for the accelerated vesting of stock options for terminated executives and employees, and rent expense of $0.2 million for vacant lease space were charged against the restructuring liability. During the six months ended June 30, 2002, actual severance payments of $5.1 million, compensation expense of $9.2 million for the accelerated vesting of stock options for terminated executives and employees, and rent expense of $0.2 million for vacant lease space were charged against the restructuring liability. As of June 30, 2002, the balance of the restructuring liability was $1.4 million.

The restructuring liability activity through June 30, ~~2002~~2003 is summarized as follows (in ~~thousands)~~millions): Original Accrual at Restructuring Restructuring Balance at January 10, 2002 Charges Incurred Charge Reversals June 30, 2002 ---------------- ---------------- ---------------- ------------- Employee severance costs $ 5,365 $ (5,056) $(43) $ 266 Acceleration of employee stock options 9,520 (9,234) (52) 234 Other facility-related costs 1,105 (239) -- 866 ------- -------- ---- ------ Total $15,990 $(14,529) $(95) $1,366 ======= ======== ==== ====== Included in the allocation of acquisition cost 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 June 30, 2002, there were no significant adjustments to accrued transaction costs. As of June 30, 2002, the balance of accrued transaction costs was immaterial. 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 business combination had been completed as of January 1, 2002 and 2001, respectively. The unaudited pro forma condensed combined supplemental data gives effect to actual operating results prior to the acquisition, adjusted to include the pro forma effect of amortization of intangibles, deferred stock compensation costs, the elimination of the non-recurring charge for acquired in-process research and development, the tax effects to the pro forma adjustments and the recognition of the tax benefits arising from Aviron's net loss for the 2001 period. The unaudited pro forma condensed combined supplemental data are not necessarily an indication of the results that would have been achieved had the transaction been consummated as of the dates indicated or that may be achieved in the future. Three months ended Three months ended Six months ended Six months ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------- ------------- ------------- ------------- Revenues $63,722 $38,698 $393,355 $287,721 Net earnings (29,456) (31,981) 33,007(1) 27,531 Basic earnings per share (0.12) (0.13) 0.13(1) 0.11 Diluted earnings per share (0.12) (0.13) 0.13(1) 0.11 (1) Excludes a non-recurring charge of $1,179.3 million for acquired in-process research and development. Long-term Debt Following the Company's acquisition of Aviron, Aviron (subsequently renamed MedImmune Vaccines) remains obligated for its outstanding indebtedness, which included $200.0 million aggregate principal amount of 5 1/4% Convertible Subordinated Notes (the "Notes") due 2008. Approximately $211.4 million of the acquisition cost was allocated to the Notes, which represents the fair value as of the acquisition date, based on quoted market prices. The Notes are convertible into an aggregate of 3.4 million shares of the Company's common stock, based on a conversion price of $58.14, at any time on or before January 15, 2008. MedImmune Vaccines may redeem the Notes beginning in February 2004, at redemption prices declining from 103% of their principal amount in 2004 to 100% in 2008, plus accrued interest. Interest is payable semi-annually in arrears in cash on February 1 and August 1 each year. Derivative Instruments and Hedging Activities The Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", on January 1, 2001. The Company purchases inventory from a foreign vendor and pays the vendor in a foreign currency. This exposes the Company to foreign currency exchange rate risk, which is monitored by the Company as part of its overall risk-management program. The Company uses foreign-currency forward-exchange contracts to hedge these risks. SFAS 133 requires that all derivatives be recorded on the balance sheet at fair value. Changes in the value of foreign-currency forward-exchange contracts are recorded in other comprehensive income and recognized in earnings when the hedged forecasted transaction occurs. The Company accounts for its derivatives as foreign-currency cash-flow hedges and is required to recognize any ineffectiveness on hedging transactions as interest income or expense in the statement of operations. For the three months and six months ended June 30, 2002, gains or losses for ineffective hedges were insignificant. As of June 30, 2002, net deferred gains on derivative instruments of $0.4 million, net of tax, in accumulated other comprehensive income are expected to be reclassified to earnings in the next 12 months in conjunction with the sale of the related inventory. The maximum term over which the Company is hedging its exposures to the variability of cash flows is 12 months. Accounts Receivable Due to the seasonal nature of the Company's primary product, Synagis, a significant decrease in product sales and trade accounts receivable occurred in the second quarter of 2002. In addition, reserve balances which exist at June 30, 2002 for government rebate allowances relating to Synagis sales that occurred during the 2001/2002 season are higher than the offsetting trade receivables balances, due to the later processing cycle by certain states for these rebates. As a result of these factors, trade accounts receivable at June 30, 2002 carries a net credit balance. This net credit balance has been reclassified to accounts payable for financial statement presentation.

			Restructuring
	Balance as of		Charges		Balance at
	12/31/02		Incurred		6/30/03
Employee severance costs	$	--	$	--	$	--
Acceleration of employee stock options		--		--		--
Other facility-related costs		1.0		(0.3)		0.7

Total	$	1.0	$	(0.3)	$	0.7

5. Inventory

Inventory, net of reserves, is comprised of the following (in ~~thousands)~~millions): June 30, December 31, 2002 2001 ------- -------- Raw Materials $21,076 $16,805 Work in Process 21,561 13,731 Finished Goods 10,969 22,155 ------- ------- 53,606 52,691 Less noncurrent (159) (1,855) ------- ------- $53,447 $50,836 ======= ======= Noncurrent inventory at June 30, 2002 and December 31, 2001 is comprised of some of the Company's raw plasma and certain CytoGam production lots that are being tested for long-term stability which are not expected to be available for sale within the next 12 months. Inventory balances are net of reserves for RespiGam inventory, for which minimal product sales are expected to result for the foreseeable future. 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 were $1.7 million and $0.6 million, respectively, at June 30, 2002, versus $4.9 million and $4.2 million, respectively, at December 31, 2001.

	June 30,		December 31,
	2003		2002
Raw Materials	$	19.4	$	30.4
Work in Process		40.8		19.4
Finished Goods		21.2		10.2

	$	81.4	$	60.0

The Company has ~~commenced production~~capitalized inventory costs associated with FluMist manufacturing prior to product launch, based on management’s judgment of inventory in connection with its proposed launch of FluMist. FluMist has not yet been approved by the FDA. Accordingly, the Company recorded a full reserve for such inventory produced through June 30, 2002, which resulted in a charge to other operating expense of approximately $18.0 million, inprobable future commercial use. In recognition of ~~management's~~management’s assessment that ~~it currently appears probable that such~~certain inventory materials will reach their expiration dates ~~if FDA approval~~prior to commercial use, the Company recorded reserves for such unmarketable inventory. During the first quarter of 2003, the Company recorded reserves in other operating expenses totaling approximately $19.6 million for inventoriable costs related to FluMist production that would likely not be recovered. During Q2 2003, the Company disposed of $10.8 million of fully-reserved finished goods inventory related to the 2002/2003 flu season. As of June 30, 2003, the Company has a FluMist related inventory balance of $81.2 million against which there is ~~not received~~a reserve of $45.2 million, resulting in ~~2002.~~a net inventory balance of $36.0 million.

6. Earnings per Share ~~The Company computes earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share."~~

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 ~~Notes~~Company’s convertible subordinated notes is measured using the if-converted method. ~~Common stock equivalents~~Potential common shares are not included in ~~periods where there is a loss as~~the computation of diluted earnings per share if they are ~~anti-dilutive.~~antidilutive. The following is a reconciliation of the denominator of the diluted EPS computation for the periods reported. There are no reconciling items to the numerator for the EPS computation for the periods reported. Three months ended Three months ended Six months ended Six months ended June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001 ------------- ------------- ------------- ------------- Denominator: Weighted averagereported (in millions).

	Q2		Q2		YTD		YTD
	2003		2002		2003		2002
Denominator:
Weighted average shares
outstanding		252.1		250.2		251.8		248.1
Effect of dilutive securities:
Stock options, warrants, and Notes		6.1		--		5.6		--

Denominator for diluted EPS		258.2		250.2		257.4		248.1

The following table shows the number of shares ~~outstanding 250,161 213,131 248,110 212,656 Effect~~and related price ranges of dilutive securities: Stock options, warrants, and Notes -- -- -- 7,222 -------- -------- -------- -------- Denominator for dilutedthose shares that were excluded from the EPS 250,161 213,131 248,110 219,878 ======== ======== ======== ======== The Company incurred net lossescomputation for the ~~three months ended June 30, 2002 and 2001 and for the six months ended June 30, 2002, and, accordingly, did not assume exercise or conversion~~first two quarters of ~~total common share equivalents of 5,641,435, 6,757,968, and 6,671,355 for those periods, respectively, because~~2003. These options to ~~do so would be anti-dilutive. Options to~~ purchase ~~6,775,861~~ shares of common stock ~~with prices ranging from $40.25 to $83.25 per share that~~ were outstanding during the ~~six months ended June 30, 2001~~period, but were not included in the computation of diluted earnings per share as the exercise prices for these options were greater than the average market price of the common stock during the period, and therefore would be antidilutive (in millions).

	Q1		Q2
	2003		2003
Price range of stock options:
$30.16-$83.25		15.0
$35.41 - $83.25				14.3

The Company incurred a net loss for Q2 2002 and YTD 2002 and, accordingly, did not assume exercise or conversion of any of the Company’s outstanding stock options, warrants, or Notes because ~~they were~~to do so would be anti-dilutive.

7. Income Taxes

The reported effective tax rate for the first six months of 2003 is 37% of pretax income, based on the current estimate of the annual effective tax rate. The effective tax rate may be affected in future periods by changes in estimates with respect to the deferred tax assets and other items affecting the overall tax rate. Income tax ~~(benefit)~~ expense for the ~~three months and~~first six months ~~ended June 30,~~of 2002 was ~~($16.5) million and $18.4 million, respectively. Excluding~~based on an estimated annual effective tax rate on pretax income of 36%.

8. Comprehensive Income

	Q2		Q2			YTD			YTD
	2003		2002			2003			2002
Net earnings (loss)		$13.5		($29.5	)		$123.0			($1,146.3	)
Changes in:
Foreign currency translation adjustment		0.2		0.5			1.0			0.4
Unrealized gain (loss) on investments, net of tax		9.6		8.3			13.3			(0.9	)
Unrealized gain (loss) on hedged inventory purchases, net
of tax		--		0.4			(0.2	)		0.4

Comprehensive income (loss)		$23.3		($20.3	)		$137.1			($1,146.4	)

9. Recent Accounting Pronouncements

In January 2003, the ~~Company's write-off~~FASB issued FIN No. 46, “Consolidation of ~~purchased in-process research and development and other insignificant items, which are~~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 ~~tax deductible, income tax expense as~~have the characteristics of a ~~percentage of pre-tax income~~controlling financial interest or do not have sufficient equity at risk for the ~~six months ended June 30, 2002 was 35.7%. During~~entity to finance its activities without additional subordinated financial support from other parties. In accordance with the ~~six months ended June 30, 2002,~~adoption provisions of FIN No. 46, during Q2 2003 the Company ~~recognized credits for research and development expenditures and credits earned for Orphan Drug status of certain research and development expenses, resulting in a reduction from~~adopted the statutory rate of 37.0%. Comprehensive (Loss) Income Comprehensive (loss) income is comprised of net (loss) earnings and other comprehensive (loss) income. Other comprehensive (loss) income includes certain changes in equity that are excluded from net (loss) earnings, suchprovisions as translation adjustments, unrealized holding gains and losses on available-for-sale marketable securities, and gains and losses on hedging instruments. Comprehensive loss for the three months ended June 30, 2002 was $20.3 million versus $9.2 million for the comparable period in 2001. Comprehensive (loss) income for the six months ended June 30, 2002 was $(1,146.4) million versus $65.6 million for the comparable period in 2001. A significant component of other comprehensive income for the three months ended June 30, 2002 relates to net unrealized holding gains on available-for-sale marketable securities of approximately $7.2 million, net of tax, versus net unrealized holding gains of $0.3 million, net of tax, for the three months ended June 30, 2001. The Company maintains an investment, which is subject to other-than-temporary impairment, in a company with which it previously formed a strategic alliance, which is carried at its fair value, with unrealized holding gains and losses included in other comprehensive income (loss). Due to market volatility associated with this investment, the value of the Company's investment has fluctuated significantly since the company's initial public offering, and may continue to do so in the future. Property and Equipment During March 2002, the Company paid approximately $13.4 million to acquire 11 acres of land in Gaithersburg, Maryland, which will serve as the site of the Company's new corporate headquarters. Additionally, the Company has options to purchase an additional 14 acres of land. The Company has contracted with a designer and general contractor for the construction of the first phase of the new facility, at a total estimated cost of $85 million. Construction began during March 2002. As of June 30, 2002, approximately $4.5 million of engineering and construction costs related to Phase I of the new headquarters are included in construction in progress. The Company expects to take occupancy of the first phase of construction, which will feature a complex totaling 218,000 square feet, in the fall of 2003. Minority Interest Investments In connection with its research and development collaborations, the Company holds minority interests in companies having operations or technology in areas within its strategic focus. The investments are maintained on the cost or equity method of accounting, accordingthey relate to the ~~facts and circumstances of the individual investment. Under either method, the investments are subject~~Company’s contractual relationships with variable interest entities established subsequent 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 are recorded on a quarterly basis. For minority interests maintained in publicly traded companies, the Company's investment is maintained as available-for-sale securities. DueJanuary 31, 2003, with an immaterial impact to the ~~highly volatile share prices~~Company’s consolidated financial position, results of these investments, the investments are subject to unrealized holding gains or losses. Collaborative Arrangements Wyeth In January 1999, Aviron signed a worldwide collaborative agreement with Wyeth Lederle Vaccines, a subsidiary of Wyeth, for the development, manufacturing, distribution, marketing, promotion,operations and sale of FluMist. Under this agreement, Wyeth has exclusive worldwide rights to market FluMist, excluding Korea, Australia, New Zealand and some South Pacific countries. The two companies have agreed to co-promote FluMist in the U.S. Wyeth holds the marketing rights in the U.S. for an initial term of seven years from the first commercial sale of FluMist in the U.S. and outside the U.S. (with the exclusions noted above) for an initial term of eight years from the first commercial sale of FluMist outside the U.S. Wyeth has the option to extend its rights both in the U.S. and internationally for an additional four years, the aggregate of which could result in payments to the Company in ranging from $145 million to $400 million. 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. As a part of the collaboration, the Company is to receive certain payments related to the achievement of key milestones and events for FluMist. In January 2001, Aviron received $15.5 million from Wyeth related to the acceptance by the FDA for the filing of the BLA for FluMist on December 28, 2000. Potential milestone payments to the Company from Wyeth include: $20 million for approval in the U.S.; $20 million for advisory body recommendations and expanded label claims; up to $25 million in supply goal payments, up to $17.5 million for FDA approval of use in second and third target populations; $10 million for the submission of a license application in Europe; a $27.5 million payment for the approval of a liquid formulation of FluMist, and up to $50 million upon licensure in international regions. Additionally, Wyeth has committed to provide the Company with up to 420.0 million in financing, contingent upon regulatory approval of FluMist. The total potential value for the license fees, milestones, financing support and term extension options that the Company could receive from Wyeth could range from $300 million to $600 million. Under the terms of the agreement, Wyeth will distribute FluMist and record all product sales.cash flows. The Company will ~~receive approximately 50%~~apply the consolidation provisions of ~~FluMist revenues, paid~~FIN No. 46 relative to its investments in variable interest entities established prior to February 1, 2003 during the third quarter of 2003, and is currently evaluating the effect on its consolidated financial position, results of operations and cash flows.

10. Subsequent Events

During July 2003, the Company’s Board of Directors authorized a repurchase, over a two-year period, of up to $500 million of the Company’s common stock in the ~~form of product transfer payments and royalties. These payments are higher~~open market or in ~~the U.S. than internationally.~~privately negotiated transactions, pursuant to terms management deems appropriate. The Company ~~incurs expenses~~will hold repurchased shares as treasury shares and intends to ~~manufacture, supply~~use them for general corporate purposes, including but not limited to acquisition-related transactions and ~~co-promote FluMist. Wyeth reimburses~~for issuance upon exercise of outstanding stock options. Through August 5, 2003, the Company ~~for~~had repurchased approximately 2.9 million shares at a cost of $112.3 million.

During July 2003, the Company issued $500 million aggregate principal amount of convertible senior notes due 2023. The notes bear interest at one percent 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 the notes during a six-month interest period if the average trading price of the notes is above a specified level. Under certain circumstances, the 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 the ~~product's clinical development expenses and has agreed~~notes for cash at a redemption price equal to spend up to $100 million for sales and marketing of FluMist over the first three years of commercialization in the United States. Evans Vaccines Limited In July 1999, Aviron 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 ("Evans"), for the manufacture of key components of FluMist, specifically the bulk manufacture of monovalents and diluent, as well as use100% of the manufacturing facilities. During October 2000, Aviron restructured its agreement with Evans in order to gain direct control over FluMist manufacturing operations. Aviron obtained responsibility for bulk manufacture of FluMist in Evans' Speke, U.K. 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. In connection with the restructuringprincipal amount of the ~~manufacturing agreement, Aviron made an initial payment~~notes to be redeemed, plus any accrued and unpaid interest; contingent interest, if any; and liquidated damages, if any. In addition, on each of ~~$15.0 million~~July 15, 2006, July 15, 2009, July 15, 2013, and July 15, 2019, holders may require the Company to purchase all or a ~~payment~~portion of ~~$3.9 million in September 2001.~~ their notes for cash at 100% of the principal amount of the notes to be purchased, plus any accrued and unpaid interest; contingent interest, if any; and liquidated damages, if any.

The Company ~~is obligated~~intends to ~~make four additional annual payments of $3.9 million in September 2002 through September 2005, which is included in long-term debt in~~use the accompanying consolidated balance sheet as of June 30, 2002. The Company is also obligated to make other additional payments totaling $19.0 million (included in other liabilities in the accompanying consolidated balance sheets as of June 30, 2002), which will be paid over the termproceeds of the ~~agreement based on net sales of FluMist, if and when approved for marketing, with the unpaid balance, if any, due January 2006. Evans also received warrants for which 67,899~~offering to repurchase shares of ~~the Company's~~its common stock ~~are issuable at an exercise price of $44.19 per share. In addition,~~under the ~~Company is obligated to make payments during the term~~stock repurchase program, and for general corporate purposes, which may include pre-funding of the ~~agreement~~retirement of ~~$225,000 per year for~~existing debt obligations, and possible acquisitions or other external growth opportunities. The notes were issued in a private placement and were expected to be resold by the ~~use~~initial purchasers to qualified institutional buyers under Rule 144A of the ~~Aviron unit in the Evans manufacturing plant, payments up to an aggregate~~Securities Act of $3.0 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.1933.

11. Legal Proceedings In 1998, MediGene AG ("MediGene") initiated a legal action against Loyola University of Chicago ("Loyola") and the Company in the U.S. District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference by the Company with an alleged prospective business relationship between MediGene and Loyola. The claims relate to human papillomavirus vaccine technology allegedly covered by contracts between MediGene and the Company and by a license agreement from Loyola to the Company, under which the Company granted a sublicense to GlaxoSmithKline. MediGene seeks damages from the Company ranging from $31.3 million to $86.9 million based on the tortious interference claim, and/or damages ranging from $10.2 million to $31.3 million based on the breach of contract claim. MediGene also seeks ownership of the patents in question, as well as recission of the Company's license agreement from Loyola or rights as a third-party beneficiary thereof. On December 22, 2000 and March 15, 2001, the District Court granted summary judgment motions in favor of the Company on all claims. The District Court ordered entry of final judgment in favor of the Company on March 19, 2002. On March 27, 2002 MediGene filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. On or about June 27, 2002, the Federal Circuit Court transferred the appeal to the United States Court of Appeals for the Seventh Circuit. MediGene's brief will be due August 12, 2002 and Loyola and the Company's brief will be due September 11, 2002.

In October 2000, Celltech Chiroscience Limited, ~~("Celltech"~~now known as Celltech R&D Limited (“Celltech”), commenced a legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court. Celltech alleges that the Company failed to pay royalties with respect to its sales of Synagis as required by a license agreement dated January 19, 1998. Under the agreement, the Company obtained from Celltech a worldwide license to make, use and/or sell product under a patent (and related applications) pertaining to humanized antibodies. In the proceeding, Celltech ~~seeks~~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~~attorney’s fees. The Company has filed answering papers denying that any royalties are due on the basis that Celltech's U.S. patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. On ~~July 20, 2001,~~October 28, 2002, the High Court of Justice ~~ordered a hearing, which is scheduled to begin on October 1, 2002, on whether it will dismiss Celltech's case on this basis. On November 29, 2001,~~ruled in favor of the Company ~~received~~and dismissed Celltech’s case. This dismissal was upheld on appeal on July 17, 2003.

On September 16, 2002, Celltech commenced a letter from counsel for Celltech enclosing a copy of a patent granted by the European Patent Office on November 14, 2001. That letter requested various information concerning the manufacture and sale of Synagis in Europe and sought confirmation thatsecond legal proceeding against the Company ~~would pay royalties~~in the U.K. High Court of Justice, Chancery Division, Patents Court, based on ~~such sales pursuant to~~ the license agreement dated January 19, 1998. AsCelltech seeks payment of ~~August 9, 2002,~~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~~has not made the royalty payments that ~~were~~are the subject of ~~Celltech's letter, and Celltech had not initiated any legal proceeding against~~this second lawsuit. This matter is scheduled for trial before the Company based on its European patent. On December 18, 2001, Genentech, Inc. ("Genentech") announced that it had been granted a patent relating to certain methods and compositions used to produce antibodies by recombinant DNA technology. In June 1997, in anticipation of any potential impact the issuance of Genentech's patent could have on the production of Synagis, the Company obtained a license to this patent. The Company has received from Genentech a letter, dated January 7, 2002, stating that Genentech expects to receive from the Company royalty payments pursuant to such license. The Company is in the process of evaluating whether any valid claim of Genentech's patent, as recently issued, covers production of Synagis. If so, the Company would pay royalties to Genentech on U.S. net sales of Synagis commencing December 18, 2001. Pending resolution of this issue, the Company has made certain royalty payments to Genentech under protest and with reservation of all of its rights. The Company is also evaluating whether any of its other antibody-based product candidates, if and when approved for marketing by the U.S. Food and Drug Administration, could require a license under the Genentech patent. On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni&Co. ("Ichthyol Gesellschaft") filed a complaint for refrain, information and damages with the Regional Court of Hamburg against MedImmune Oncology on the grounds of trademark infringement in respect of the use of the trademark "Ethyol" in Germany. No monetary amount is currently being sought in the litigation by Ichthyol. Ichthyol is seeking injunctive relief against the use of the trademark Ethyol in Germany. The suit was dismissed on January 29, 1997 by the Regional Court of Hamburg. Ichthyol Gesellschaft filed an appeal and a judgment was rendered in favor of MedImmune Oncology in the appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on points of law with the FederalHigh Court of Justice ~~and~~ in June 1999, Ichthyol Gesellschaft filed the grounds for the appeal on points of law. By judgment of May 3, 2001, the Federal Court of Justice reversed the judgment of the Higher Regional Court and remitted the case to that court for another hearing. By order of December l9, 2001, the Higher Regional Court ordered Ichthyol to make further submissions concerning the relevant facts and legal questions. Ichthyol recently filed its submissions. Another hearing will probably be held this fall. The Company is currently involved in a dispute over the RSV License Agreement ("License Agreement") between the Company and University of Massachusetts Biologic Laboratories ("MBL"), executed in 1989. Under the License Agreement, the Company granted MBL an exclusive, royalty free license to "make, have made, use and sell" the Company's monoclonal antibody for RSV for use only in the Commonwealth of Massachusetts and the State of Maine. The Company further agreed to transfer to MBL sufficient information and to provide sufficient technical assistance to enable MBL to apply the Company's monoclonal antibody to MBL's manufacturing operations. MBL now alleges that the Company has not provided sufficient information or sufficient technical assistance to enable MBL to manufacture the Company's monoclonal antibody for RSV. In addition, MBL has claimed that the Company's Distribution Agreement with Abbott International, Ltd. ("Abbott"), under which Abbott is the exclusive distributor of Synagis overseas, constitutes a "sub-license" under the terms of the License Agreement and thus MBL claims a right to a larger share of the proceeds derived by the Company from the Distribution Agreement. The Company disputes the allegations made by MBL and believes MBL's claims to be without merit. The Company and MBL are currently in the process of mediating their dispute to determine whether a mutually agreeable solution can be achieved. There can be no assurance that this dispute can be resolved without litigation. March 2004.

On April 5, 2002, the Company filed a suit against Centocor, Inc. ~~("Centocor"~~(“Centocor”) in the United States District Court for the District of Maryland. The Company currently pays Centocor a royalty for sales of Synagis made or sold in the United States pursuant to a patent Sublicense ~~Agreement between the parties dated as of September 15, 2000 (the "Sublicense Agreement").~~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~~In January 2003, the Company amended its complaint to ~~dismiss this action on the basis that it did not include~~add the Trustees of Columbia University in the City of New York ~~("Columbia")~~ and the Board of Trustees of ~~the~~ Leland Stanford Jr. University ~~("Stanford"),~~ as defendants. After various motions were filed and decided, a Second Amended Complaint was filed by MedImmune in July 2003. Discovery is ongoing.

On January 14, 2003, a lawsuit was filed by the ~~owners~~County of Suffolk New York (“Suffolk”) in the United States District Court, Eastern District of New York, naming the Company along with approximately 25 other pharmaceutical and biotechnology companies as defendants. The complaint asserts claims under the federal RICO statute, as well as various state, statutory and common laws to recover monetary damages, civil penalties, declaratory and injunctive relief, disgorgement of profits, treble and punitive damages suffered as a result of defendants’ alleged unlawful practices related to prescription medications paid for by Medicaid. Suffolk alleges that the defendants (including the Company) manipulated the “average wholesale price” (“AWP”) causing Suffolk to pay artificially inflated prices for covered drugs including, in the case of the ~~patent.~~ Company, Synagis. In addition, Suffolk argues that the defendants (including the Company) did not accurately report the “best price” under the Medicaid Program. In March 2003, the Suffolk Case was, for pretrial purposes, consolidated with and transferred to the United States District Court for the District of Massachusetts, In re Pharmaceutical Industry Average Wholesale Price Litigation (AWP MultiDistrict Litigation). An Amended Complaint was filed in the Suffolk Case on August 1, 2003.

On ~~July 9, 2002, Centocor, Columbia and Stanford initiated an action against~~April 11, 2003, the Company filed a suit against Genentech, Inc., Celltech R&D Ltd. and City of Hope National Medical Center in the United States District Court for the ~~Northern~~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 dated as of June 1997 and covering United States Patent No. 6,331, 415B1 (the “Cabilly Patent”). In the ~~California litigation, Centocor, Columbia and Stanford seek a declaratory judgment~~complaint, the Company alleges that the ~~patent at issue in the Sublicense Agreement is valid~~Cabilly Patent was obtained as a result of a collusive agreement between Genentech and ~~enforceable~~Celltech that violates federal and ~~that the Company would be liable for patent infringement but for the Sublicense Agreement,~~California antitrust laws as well as ~~a declaratory judgment~~California’s unfair business practices act. Additionally, the Company alleges that the ~~Sublicense Agreement~~Cabilly Patent is ~~enforceable. There can be~~invalid and unenforceable under federal patent law. The Company thus seeks a declaration that it owes no ~~assurance that~~royalty payments under existing licensing agreements with Genentech.

_________________

The Company is also involved in other legal proceedings arising in the ~~Company will be successful in this litigation.~~ordinary course of its business. After consultation with its legal counsel, the Company believes that it has meritorious defenses to the claims against itthe Company 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.

ITEM 2. ~~MEDIMMUNE, INC. MANAGEMENT'S~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ~~GENERAL During~~

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 or estimates and are subject to risks, uncertainties, and assumptions that are difficult to predict. Readers are referred to the “Forward Looking Statements” and “Risk Factors” sections in Part I, Item 1 of our Form 10-K for the year ended December 31, 2002.

OVERVIEW

Since 1988, MedImmune has been focused on using biotechnology to produce innovative products to prevent or treat infectious disease, autoimmune disease and cancer. In January 2002, we acquired Aviron ~~a biopharmaceutical company focused on prevention of disease through innovative vaccine technologies. Aviron was subsequently~~(subsequently renamed MedImmune Vaccines, Inc. ~~We accounted for the acquisition under the purchase method~~), a California-based vaccines company. The operating results of ~~accounting and~~MedImmune Vaccines, Inc. have been included ~~MedImmune Vaccines' operating results~~ in our consolidated operating results beginning on January 10, 2002.

Having made significant advances in the last several years, we are now a fully integrated company with the ability and infrastructure to take products from discovery through development, manufacturing, and into the market. On June 17, 2003, the biologics license application for the commercial sale of FluMist was approved by the FDA. FluMist is the first influenza vaccine delivered as a nasal mist available in the United States. FluMist is indicated for active immunization for the prevention of disease caused by influenza A and B viruses in healthy people, 5-49 years of age. MedImmune manufactures FluMist and co-promotes FluMist with a division of Wyeth.

In addition to FluMist, we currently actively market three other products, Synagis, Ethyol and CytoGam, and are developing a broad and diverse pipeline of potential future products. We are focused on developing important new products, particularly vaccines and antibodies that address significant unmet medical needs in the areas of infectious diseases, immunology and oncology.

CRITICAL ACCOUNTING ~~POLICIES AND~~ ESTIMATES ~~For a more detailed discussion~~

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 we believe are 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 ~~critical accounting policies~~consolidated financial statements.

Inventory Capitalization – We capitalize inventory costs associated with products prior to regulatory approval and ~~estimates, please refer~~product launch, based on management’s judgment of probable future commercial use. We could be required to ~~Part II, Item 7 "Management's Discussion~~expense previously capitalized costs related to pre-approval or pre-launch inventory upon a change in such judgment, due to a denial or delay of approval by necessary regulatory bodies, a delay in commercialization, or other potential factors.

Most of the inventory components for FluMist have expiration dates that range from nine to 24 months. During the last quarter of 2002 and ~~Analysis~~first half of ~~Financial Condition Results~~2003, we incurred inventoriable costs associated with FluMist manufacturing in anticipation of ~~Operations"~~commercial launch for the 2003/2004 flu season. With respect to all FluMist inventory on hand as of June 30, 2003, we reviewed the following assumptions to determine the amount of reserves, if any, required to write down the inventory to net realizable value: the expected sales volume; the concentration of viral material in our ~~2001 Annual Report on Form 10-K. Contract Revenues - For contracts executed prior to January 1, 2002, we recognize revenue from upfront~~vaccine; anticipated changes in the manufacturing process; anticipated delays in obtaining FDA lot release for finished vaccine; and ~~milestone payments under collaborative agreements using~~other variables associated with product launch efforts. During the ~~contingency-adjusted performance model~~first quarter of 2003, the Company recorded reserves in other operating expenses totaling approximately $19.6 million for ~~revenue recognition. Under this method, payments received that are~~inventoriable costs related to ~~future performance~~FluMist production that would likely not be recovered. During Q2 2003, the Company disposed of $10.8 million of fully-reserved finished goods inventory related to the 2002/2003 flu season. As of June 30, 2003, we have $81.2 million of inventory against which we have a reserve of $45.2 million, resulting in a net inventory balance of $36.0 million. If FluMist sales levels are ~~deferred~~higher than expected, we may be able to utilize more inventory than anticipated and, with licensure now in place, our gross margins would be favorably impacted in the last half of 2003 when most of the inventory is sold. If FluMist sales levels are lower than expected, we may have further reserves or writedowns for obsolete inventory.

For our other products, we periodically assess our inventory balances to determine whether net realizable value is below recorded cost. Factors we consider include expected sales volume, production capacity and expiration dates.

Sales Allowances and Other Sales Related Estimates – We estimate the amount of sales discounts and sales returns, recorded as ~~revenues~~a reduction of gross product sales, by applying rates determined by our past experience to actual sales for the period. We estimate our co-promotion expense and sales commissions, recorded as ~~they are earned over specified future performance periods. The~~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 estimate the level of bad debts as a percentage of gross trade accounts receivable balances, based upon our assessment of the concentration of credit risk, the financial condition and environment of our customers and the level of credit insurance we obtain on our customers’ balances. We record provisions for bad debts as a reduction of gross product sales. For the first six months of 2003, we decreased our reserves for bad debts by approximately $6.6 million, based on our current application of this methodology, in large part as a consequence of the overall reduction in accounts receivable balances. We estimate the aggregate amount of ~~revenue recognized during each period is~~rebates due to government purchasers, recorded as a reduction to gross product sales, based ~~on a percentage-of-completion model~~upon historical experience and our best estimate of the proportion of the sales that will be subject to this reimbursement, largely comprised of Medicaid payments to state governments. If our historical trends are not indicative of the future, or our actual ~~costs incurred relative to the total~~sales are materially different from projected ~~costs~~amounts, or if our assessments prove to be ~~incurred under~~materially different than actual occurrence, our results could be affected. During the ~~collaborative agreement. When the performance criteria for~~first three months of 2003, we adjusted our estimate of rebates due to government purchasers to reflect favorable historical experience. Absent our favorable historical experience and a ~~non-refundable milestone payment are met, the cost~~change in our estimate of the ~~effort that has been incurred to date is divided by the total projected costs under the development arrangement (i.e., ratio of performance), and revenue is recognized for that milestone to the extent~~proportion of the ratio of performance to date. We followed this method since reasonably dependable estimates of the revenue and costs applicable to various stages of a collaboration agreement could be made. Recognized revenuessales that are subject to ~~revisions as~~reimbursement, our reserves for rebates due to government purchasers would have been approximately $15.2 million higher for the ~~collaboration efforts progress~~first six months of 2003.

Investments — We regularly enter into collaborative research and ~~estimated costs~~development agreements with strategic partners. As part of the agreements, we may obtain common stock, preferred stock, convertible debt or other debt or 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 including: percentage ownership of the company; representation on board of directors; participation in policy-making processes; technological dependency; veto rights of partners; our role on key technical or product development committees; revenue dependence; other extraordinary voting rights; and a determination regarding the investee company’s primary beneficiary. Investments accounted for under the equity method are adjusted quarterly for the Company’s proportionate share of the investee’s gains or losses, which may fluctuate significantly from quarter to ~~complete are revised. Revisions in revenue estimates are recorded to income~~quarter. Each quarter, we evaluate all of our investments, and recognize an impairment charge in the ~~period~~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 should recognize an impairment charge, including: the length of time and extent to which the ~~facts that give rise~~fair value has been less than our cost basis; the financial condition and near-term prospects of the issuer; fundamental changes to the ~~revision become known. For new contracts executed after January 1, 2002,~~business prospects of the ~~Company uses~~investee; share prices of subsequent offerings; and our intent and ability to hold the ~~milestone payment method when all milestones~~investment for a period of time sufficient to ~~be received under contractual arrangements are determined~~allow for any anticipated recovery in market value. Especially with regards to ~~be substantive, at risk~~investments in earlier stage, privately held companies, considerable judgment is required in making assessments of fair value.

RESULTS OF OPERATIONS

To present our results in the same manner as we view the performance of the business and the ~~culmination of an earnings process. Substantive milestones are payments that are conditioned upon an event requiring substantive effort, when~~resulting underlying trends, we have presented certain expense categories with and without certain Acquisition-related adjustments, including: the amount of the milestone is reasonable relative to the time, effort and risk involved in achieving the milestone and when the milestones are reasonable relative to each other and the amount of any up-front payment. If all of these criteria are not met, then the Company will use the contingency adjusted performance (percentage of completion) model. This constitutes a change in accounting principle and was made to more closely reflect the essence of the contractual obligations the Company enters into with collaborative partners. Specifically, milestone payments are often times directly related to the completed portion (an achieved milestone) of the arrangement and therefore revenues are earned and recognized as the milestones are achieved. Additionally, the new method is prevalent in our industry and is used by most other companies in our peer group. The effect on earnings and earnings per share for the three months and six months ended June 30, 2002 is not material. The milestone payment method may not be applicable to all new contracts, in which case, the Company would revert to the contingency-adjusted performance model for revenue recognition. Acquired In-Process Research and Development - We recorded a charge of $1,179.3 million during the six-month period ended June 30, 2002 for the write-off of purchasedacquired in-process research and development ~~in conjunction~~charge; amortization of intangible assets, compensation expense associated with ~~our acquisition~~the assumption and vesting of ~~Aviron. The write-off represents~~unvested stock options, retention and severance payments; and the ~~fair value of purchased in-process technologies at the acquisition date, calculated utilizing the sum~~amortization of the ~~probability-adjusted scenarios under~~premium on convertible subordinated notes. Inclusion of such Acquisition-related adjustments is consistent with generally accepted accounting principles (“GAAP”). Where we exclude such adjustments, we use the ~~income approach. This method is based upon management's estimates of~~term “adjusted” to describe 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 volumes; launch date; and the potential failure of the frozen or liquid formulations of FluMist. Based on current information, management believes that the estimates and assumptions underlying the fair value analysis are substantially accurate. Inventory Reserves - The Company has commenced production of inventory in connection with its proposed launch of FluMist. FluMist has not yet been approved by the FDA. Accordingly, the Company recorded a full reserve for such inventory produced through June 30,results.

Q2 2003 compared to Q2 2002 which resulted in a charge to other operating expense of approximately $18.0 million, in recognition of management's assessment that it currently appears probable that such inventory materials will reach their expiration dates if FDA approval is not received in 2002. Should FluMist be approved for the 2002/2003 flu season, any inventory sold would have no carrying value and as such, margins would appear more favorable than the Company would anticipate in future periods. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2002 AND 2001

Revenues – Product Sales - Product Sales (In Millions) 2002 2001 ----- ----- Synagis $32.5 $15.0 Ethyol $16.6 $3.1 Other Products $8.2 $10.2 ----- ----- TOTAL $57.3 $28.3 ===== ===== We recorded
(in millions)

	Q2		Q2
	2003		2002		Growth
Synagis	$	54.9	$	32.5		69%
Ethyol		24.8		16.6		49%
Other Products		6.2		8.2		(24%	)

	$	85.9	$	57.3		50%

For Q2 2003, product sales ofgrew 50% to $85.9 million as compared to $57.3 million in ~~the second quarter of~~Q2 2002, ~~a 103% increase over 2001 levels of $28.3 million,~~primarily due to increased sales of Synagis.

Synagis ~~and Ethyol.~~— Synagis ~~our largest product,~~ accounted for approximately 64% and 57% of our product sales in Q2 2003 and Q2 2002, and 53% of our 2001 second quarter product sales. Sales of Synagis for the quarter ended June 30, 2002 increased 116% over the comparable 2001 period. Contributing to the growth in 2002 sales was a 253%respectively. We achieved an 83% increase in domestic Synagis sales to $49.7 million for 2003, up from $27.1 million in ~~2002 from $7.7 million in 2001. The~~2002. This strong growth was ~~attributable~~driven primarily by an increase in unit sales that contributed 52 of the 83 percentage points, an increase in price that contributed three points and a decrease in sales allowances that contributed 28 points, reflecting a reduction in our estimate of rebates due to ~~increased demand~~government purchasers and reserves for bad debts. We record Synagis international product sales based on Abbott International’s (“AI’s”) sales price to customers, as defined in our agreement. AI is our exclusive distributor of Synagis outside of the United ~~States, resulting in a 245% increase in domestic sales unit volumes, as well as a 3% domestic price increase which took effect in June 2002. International~~States. Our reported international sales of Synagis ~~decreased 27% to~~were $5.2 million and $5.4 million in the 2003 and 2002 quarter versus $7.4 million in the 2001 quarter, reflecting reduced shipments to our international distributor. The Company's international sales volume decreased 60% during the 2002 quarter as compared to the 2001 quarter. The Company believes that the decrease is due to reductions in the inventory stocking levels of our international distributor, Abbott International ("Abbott"), rather than reduced product demand by end users. The decrease in unit volume was offset by an increase in the per unit sales price recognized upon delivery of product to Abbott under the terms of our international distribution agreement. Effective May 1, 2001, the terms of the distribution agreement (a) mandated an increase in the transfer price and (b) requires the entire purchase price to be payable upon delivery of product to Abbott. Under the revised terms, the price earned by the Company is essentially fixed or determinable at the time of delivery. Under the previous contract terms, the Company invoiced Abbott and recognized revenue on sales to Abbott when Synagis was delivered based on a contractually stipulated transfer price, which approximated 60 percent of the ultimate revenue value to us. Following the end of each quarter, Abbott remitted a report to us detailing end-user sales for the quarter along with an additional amount due in excess of the transfer price. We recognized revenue for the additional amount due in excess of the transfer price at that time. We have been working with Abbott to expand the number of countries where we are licensed to sell Synagis. As of June 30, 2002, international registrations have been filed in 58 countries for the approval of Synagis, for which approval in the United States and 47 foreign countries had been obtained, the most recent of which was Canada in May 2002. There can be no assurance that approvals by the appropriate regulatory authorities will continue to be granted. Additionally, we may not receive pricing and reimbursement approvals in countries where we have received regulatory approval. We have also achieved increases in periods, respectively.

Ethyol ~~sales since we reacquired domestic marketing rights to Ethyol from ALZA Corporation ("ALZA") in October 2001.~~— Ethyol accounted for approximately 29% ~~and 11%~~ of our ~~second quarter~~ product sales in ~~2002~~both Q2 2003 and ~~2001, respectively.~~Q2 2002. Worldwide Ethyol ~~revenues increased from $3.1~~sales grew 49% to $24.8 million in ~~second quarter of 2001~~Q2 2003, as compared to $16.6 million in ~~the second quarter~~Q2 2002. This growth was driven by a number of ~~2002. Domestic Ethyol sales were $15.8 million in the 2002 quarter, as compared to $2.0 million in the 2001 quarter, due to an~~contributing factors, including: a strong increase in domestic unit sales ~~unit volume~~that contributed 29 of ~~138%~~the 49 percentage points; a domestic price increase that contributed 12 points; a decrease in reserves for bad debts that contributed four points; and an increase in ~~the~~ sales price recorded in accordance with our assumption of domestic marketing rights of the product from ALZA. As of October 1, 2001, we record all revenues from domestic sales of Ethyol and, as of April 1, 2002, we began paying ALZA a declining royalty for nine years thereafter based on net sales of Ethyol in the U.S. Prior to October 1, 2001, we had recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price. Our international sales of Ethyol to our ~~distribution~~international partner, Schering-Plough Corporation ~~("Schering"~~(“Schering”), ~~of $0.8 million for the second quarter of 2002 were down slightly from the prior year quarter sales of $1.1 million.~~that contributed four points. We record Ethyol international product sales based on a percentage of ~~Schering's end user sales.~~Schering’s end-user sales, as defined in our agreement.

Other Products — Sales of other products in ~~second quarter 2002,~~Q2 2003, which include sales of CytoGam, NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, ~~were down. Second~~decreased $2.0 million, or 24% from Q2 2002. The decrease is driven by a 40% decrease in CytoGam sales. We believe this decrease is the result of a reduction in wholesaler inventory levels during the second quarter ~~CytoGam~~of 2003, rather than due to changes in demand for the product.

Forward-looking commentary — We believe that the growth rate of our product sales, ~~decreased~~while remaining at double-digit levels, will decelerate during the second half of 2003 relative to ~~$7.0 million in 2002 from $7.6 million in 2001. Unit sales decreased 18%,~~the second half of 2002. Additionally due to the significant contribution of Synagis, we believe our revenues and operating results will reflect the seasonality of that product’s use to prevent RSV disease, which occurs primarily during the winter months, for the foreseeable future. In addition, this seasonality will be compounded by FluMist, which was ~~partially offset~~recently approved by ~~a domestic price increase of 10% which took effect~~the FDA, and is expected to be sold primarily during the ~~first quarter~~third and fourth quarters of ~~2002. We expect that CytoGam sales for~~ the year, ~~2002 will be flat versus~~ the ~~prior year.~~most common time for yearly influenza vaccination. The high concentration of product sales in a portion of the year exaggerates the adverse consequences on our sales of any manufacturing or supply delays, any sudden loss of inventory, any inability to satisfy product demand, or of any unsuccessful sales or marketing strategies during the Synagis and FluMist selling seasons. The level of future product sales will ~~be dependent~~depend on several factors, including, but not limited ~~to, the timing~~to: potential limitations on pricing and ~~extent of future regulatory approvals of our products and product candidates,~~profitability by government or third-party payors; availability of finished product ~~inventory, approval and~~inventory; commercialization of competitive ~~products~~products; and the degree of acceptance of our products in the marketplace.

Revenues – Other Revenues -

Other revenues increased $25.5 million to $31.9 million for ~~the quarter ended June 30, 2002 increased 26%~~Q2 2003 compared to $6.4 million ~~from $5.1 million~~ in ~~the 2001 period, principally~~Q2 2002, primarily due to funding received in 2002 by MedImmune Vaccines for FluMist clinical and marketing activities of $3.8 million, net of decreases in revenue recorded under collaborative agreements in accordance with SAB 101. Other revenues during both years includeincreased revenues under collaborative agreements. During Q2 2003, we recorded $20.0 million of milestone revenue under our worldwide collaborative agreement with Wyeth, associated with the approval of FluMist. Also during Q2 2003, we recognized $7.5 million of revenue under our international distribution agreement with Abbott International for achieving in excess of $100 million in end-user sales of Synagis outside the U.S. during a single RSV season.

Forward-looking commentary —We ~~recognized revenue~~anticipate the level of ~~$1.9 million and $3.3 million~~other revenues for the ~~second quarter~~remainder of ~~2002 and 2001, respectively, related~~2003 will increase over the prior year period, but at a lower rate as compared to upfront and milestone payments under these agreements. For up-front and milestone payments received prior to 2002, we recognized non-refundable fees and milestone payments in connection with research and development and commercialization agreements asour growth for the contractual obligations and performance requirements are fulfilled, using the contingency-adjusted performance model for revenue recognition. Under this method, the amount of revenue recognized during each period is based on a percentage of completion model of actual costs incurred relative to the total projected costs. The expected timing of annual revenues to be recognized through 2005 under the major collaborative agreements for which we have deferred a portionfirst half of the ~~upfront~~year. Year-over-year, we expect significant growth in other revenues, largely due to milestone and ~~milestone~~royalty payments received, based on current estimates of costs to complete, is as follows (in thousands): 2002 2003 2004 2005 ------ ------ ---- ---- Abbott Laboratories $7,500 $2,700 $-- $-- GlaxoSmithKline 700 -- -- -- Schering-Plough Corporation 400 400 400 400 ------ ------ ---- ---- Total $8,600 $3,100 $400 $400 ====== ====== ==== ==== Future changes in estimated total costs or differences between actual costs and projected costs in any one period could cause the actual recorded amounts to differ from the projected amounts. As discussed in "Critical Accounting Policies and Estimates - Contract Revenues" above, we have adopted the milestone payment method for new contracts entered into after January 1, 2002. Since adopting the new method, we have not entered into any new contracts in which we have received upfront or milestone payments. Because we have adopted this method prospectively, the table above assumes the revenues deferred will be recognized in accordanceassociated with the contingency adjusted performance model. The milestone payment method may not be applicable to all new contracts, in which case the Company would revert to the contingency adjusted performance model for revenue recognition. Other revenues in the 2002 period also includes $1.5 million under an agreement entered into during 2001 to sell excess production capacity to a third party. Other revenues in the 2001 period also include $1.2 million from MGI Pharma related to the agreement for the salecommercialization of ~~our Hexalen business.~~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 on the extent to which we enter into these types of arrangements, and are not expected to be significant for 2003 or thereafter.

Based on current estimates of costs to complete, the expected timing of revenues to be recognized in the future as we fulfill certain obligations under our collaborative agreement with Schering-Plough Corporation, for which we have deferred a portion of the up-front and milestone payments received under the contingency adjusted performance model, is as follows: $0.2 million in the second half of 2003; $0.4 million in 2004; and $0.4 million in 2005.

Cost of Sales -

Cost of sales for ~~the second quarter of 2002~~Q2 2003 increased ~~120%~~48% to $23.2 million from $15.6 million ~~from $7.1 million~~ in ~~2001, principally~~Q2 2002, due largely to ~~increases~~an increase in product sales volumes. Gross margins ~~for the June 2002 quarter decreased to~~on products sales were 73% ~~from 75%~~ in ~~the June 2001 quarter principally as a result of additional royalties payable relating to Synagis~~both Q2 2003 and ~~the reverse royalty payable to ALZA on Ethyol, effective April~~Q2 2002. The increase in royalties was offset slightly by improved margins due to the implementation of an improved manufacturing process at the Frederick Manufacturing Center ("FMC") which increases Synagis yields (the "enhanced yield process").

Forward-looking commentary — We expect that gross margins may vary significantly from quarter to quarter, based on changes in the product ~~mix.~~mix due to seasonality. For the remainder of 2003, we anticipate that gross margins on product sales will decline significantly over the prior year period, primarily due to the commencement of FluMist sales, which are expected to have lower margins, during the second half of 2003. We expect that, on an annual basis, our gross margin percentage for ~~2002~~2003 should be slightly lower than ~~2001, as a result~~2002, due to the launch of ~~the additional royalties owed for Synagis and Ethyol.~~ FluMist.

Research and Development Expenses -
(in millions)

Q2 2003				Q2 2002
Acquisition-Related				Acquisition-Related
Historical	Adjustments		Adjusted	Historical	Adjustments		Adjusted
$28.9	($	1.1)	$27.8	$34.5	($	1.2)	$33.3

Research and development ~~and clinical~~ expenses ~~increased $12.9~~of $28.9 million ~~or 59% to~~in Q2 2003 decreased 16% from $34.5 million in Q2 2002. Excluding Acquisition-related adjustments in both periods, research and development expenses for Q2 2003 were $27.8 million, down 17% over Q2 2002. The decline is largely due to the ~~2002 second quarter, from $21.7 million in the 2001 quarter. The increase reflects a larger number~~completion of ~~active~~several late-stage clinical trials by the end of 2002, including certain Phase 2 studies with siplizumab in psoriasis, and the inclusion of on-going MedImmune Vaccines research, development and clinical expenses in our results. To accommodate the additional activity, we expanded our workforce and facilities, resulting in increased wages and occupancy expense. Currently, ourPhase 3 Synagis clinical trial ~~program includes eleven programs~~ in ~~various phases of clinical evaluation, including a Phase 3 study of Synagis in infants with~~ congenital heart disease patients, the results of which were submitted to the FDA in November 2002. Our ongoing clinical programs also include several products and product candidates in various stages of development, including trials for Vitaxin, and a pediatric trial ~~in adults using~~of a liquid formulation of Synagis; Phase 1 and Phase 2 trials with our human papillomavirus (HPV) cervical cancer vaccine; Phase 2 trials with MEDI-507 in psoriasis patients; Phase 2 trials for our urinary tract infection (UTI) vaccine; Phase 1 trials with Vitaxin in cancer and rheumatoid arthritis; and various trials for FLUMIST.Synagis. Additionally, we have ~~eight~~multiple programs in the ~~pre-clinical~~preclinical development stage. ~~We expect clinical spending to increase significantly over 2001 levels~~

Forward-looking commentary — For the remainder of 2003, we anticipate that the growth in ~~the coming quarters as more of~~ our product candidates move into the clinic and we expand trials on products already in the clinic. In April 2002, we entered into a research collaboration with A&G Pharmaceuticals, Inc. to license technology relating to PC-Cell Derived Growth Factor (PCDGF), a monoclonal antibody, the initial indications of which would apply to breast cancer. In conjunction with the agreement, the Company is obligated to pay up to $5.9 million in various milestone payments subject to the achievement of specified clinical, regulatory and sales milestones. The development-stage efforts listed above and other research and development ~~projects~~expenditures will accelerate significantly, in part due to the recently announced collaboration with Critical Therapeutics, a private biotechnology company. In connection with the alliance, we incurred a licensing fee of $12.5 million during July 2003 to acquire an exclusive, worldwide license for technology associated with High Mobility Group Box Chromosomal Protein 1 (“HMGB-1”), and we may ~~never reach clinical trials, achieve success~~be obligated for research funding and milestone payments in the ~~clinic,~~future. On an annualized basis, we expect research and development expenses to be ~~submitted~~up slightly in 2003 compared to 2002. This is largely due to the ~~appropriate regulatory authorities for approval, or be approved for marketing or manufacturing~~anticipation of post-marketing commitments related to FluMist, additional trials associated with Vitaxin, and the continued progress of other pipeline candidates, partially offset by the ~~appropriate regulatory authorities. Further, we rely on numerous third parties to assist us in various stages~~impact of the ~~development process. Should they be unable to meet our needs, we may incur substantial additional costs. Any~~conclusion of ~~such uncertainties, if they should occur, could have a material adverse effect on our financial condition~~trials and ~~results of operations.~~ studies during 2002.

Selling, General, and Administrative ~~Expense -~~ Expenses
(in millions)

Q2 2003			Q2 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments		Adjusted
$55.5	($2.1)	$53.4	$47.4	($	2.7)	$44.7

Selling, general and administrative ("(“SG~~&A"~~&A”) ~~expense~~expenses increased ~~$23.2~~17% to $55.5 million ~~or 96%~~ in ~~the second quarter of 2002~~Q2 2003 compared to $47.4 million asin Q2 2002. Excluding Acquisition- related adjustments, adjusted SG&A expenses for Q2 2003 were $53.4 million, up 19% over $44.7 million in Q2 2002, due primarily to increased co-promotion expenses for Synagis associated with the product’s domestic sales growth and a modest increase in the size of the sales force associated with the marketing launch of FluMist.

Other Operating Expenses
(in millions)

Q2 2003			Q2 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments		Adjusted
$1.4	($--)	$1.4	$22.2	($	3.5)	$18.7

Other operating expenses, which reflect manufacturing start-up costs and other manufacturing related costs, were $1.4 million in Q2 2003 compared to ~~$24.2~~$22.2 million in ~~the second quarter of 2001.~~Q2 2002. Adjusted other operating expenses were $1.4 million for Q2 2003, compared to $18.7 million in Q2 2002. The ~~increase~~decrease is ~~primarily attributable~~ due to the inclusion of ongoing MedImmune Vaccines expenses as well as $1.9 million for amortization of intangibles and $0.7 million for stock compensation expense for unvested stock options assumed in conjunction with the MedImmune Vaccines merger. Additionally, we experienced increased costs for expanded Synagis marketing programs, sales commissions and increased co-promotion expense to the Ross Products Division of Abbott Laboratories for the promotion of Synagisshift in the ~~United States. Both sales commissions and co-promotion expense~~costs of FluMist manufacturing that are ~~based on a percentage~~capitalized in inventory this year, but were expensed as other operating costs in last year’s quarter.

Forward-looking commentary- For the remainder of ~~net domestic sales~~2003, we expect the level of Synagis and thus increase as net domestic Synagis sales increase. We also incurred increased salary and related expenses for the expansion of our Ethyol sales force by adding approximately 40 additional sales representatives during the second half of 2001, and we increased our marketing efforts for the relaunch of Ethyol. Additionally, we experienced increases in legal costs, as we are currently involved in several litigation matters (see further discussion in the Legal Proceedings section of this report). Other Operating Expenses - Otherother operating expenses ~~increased in~~to decline dramatically versus the ~~2002 quarter to $22.2 million from $3.5 million in~~prior year period, as the 2001 quarter. The increase is principally attributable to charges associated with MedImmune Vaccine's manufacturing operations for FluMist, so as to be able to launch FluMist this fall, should FDA approval be granted. It is anticipated that these charges will continue to be recorded to other operating expense so long as FluMist is under review by the FDA. In addition, we incurred $1.3 million in expense in the 2002 quarter relating to stock compensation for unvested stock options assumed and $2.2 million for amortization of intangibles relating to our merger with MedImmune Vaccines. If and when FDA approvalcosts of FluMist ~~is granted, a significant portion of MedImmune Vaccines'~~ manufacturing ~~costs will be~~are inventoried and subsequently expensed to cost of sales. Also included in other operating expense for both periods are costs associated with our Frederick manufacturing facility. The plasma production section of our Frederick manufacturing facility has excess capacity, which results in chargessales as product is sold to ~~other operating expenses. These charges are expected to continue for the foreseeable future until the plasma production section of the facility is fully utilized.~~ Wyeth.

Interest Income and Expense -

We earned interest income of $14.3 million for Q2 2003, compared to $11.9 million ~~during the~~in Q2 2002, ~~quarter versus $9.0 million in the 2001 quarter,~~ reflecting higher cash balances available for investment, ~~due to the inclusion of MedImmune Vaccines' cash and investments in our portfolio and cash generated from operations,~~ partially offset by a ~~decline~~decrease in short-term interest rates ~~which~~that lowered ~~our~~the overall portfolio yield. Interest expense for ~~the second quarter of 2002,~~Q2 2003, net of amounts capitalized, ~~increased $1.7~~was $1.6 million, ~~over second quarter 2001. The increase relates~~down from $1.8 million in Q2 2002. This decrease is largely due to interest expense capitalized in connection with several large construction projects currently undertaken by the Company, including construction of the new corporate headquarters in Maryland, and manufacturing facilities in Pennsylvania and the U.K. that began during 2002.

Forward-looking commentary- We expect interest expense to increase during the second half of 2003 and beyond, as a result of the issuance during July 2003 of $500 million of Convertible Notes due 2023. The notes bear interest at one percent per annum payable semi-annually in arrears, and beginning in 2006, we will pay contingent interest on ~~MedImmune Vaccines'~~the notes during a six-month interest period if the average trading price of the notes is above a specified level. The notes are convertible ~~debt included~~into our common stock at $68.18 per share.

Loss on Investment Activities

We incurred $0.1 million in losses on investment activities during both Q2 2003 and Q2 2002 related to recording our portion of our minority investees’ operating ~~results.~~ results as required by the equity method of accounting.

Taxes -

We recorded a provision for income taxes of $7.9 million for Q2 2003, resulting in an effective tax rate of 37%. Comparatively, we recorded an income tax benefit of $16.5 million for ~~the quarter ended June 30,~~Q2 2002, resulting in an effective tax rate of ~~35.9%~~36%. ~~This compares to a tax benefit of $5.1 million recorded for~~

The increase in the ~~quarter ended June 30, 2001, based on an~~estimated effective tax rate ~~of 35.5%. The variation~~between 2002 and 2003 is primarily due to a decrease in ~~the effective tax rate for 2002 versus 2001 results from differences in the amount of~~estimated credits ~~taken~~available for research and development ~~programs and~~activities, including credits earned for ~~orphan drug~~Orphan Drug status of certain research and development ~~activities.~~activities, relative to the growth in earnings. These credits will vary from year to year depending on the activities of the Company. ~~In addition, due to state tax law changes that occurred during 2001, our statutory tax rate decreased to 37.0%. We believe that our year-to-date effective tax rate~~

Net Earnings / (Loss)
(in millions)

Q2 2003			Q2 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments	Adjusted
$13.5	$1.7	$15.2	($29.5)	4.2	($25.3)

Net earnings for ~~2002 will be slightly below our statutory rate of 37.0%. Net Loss - Net loss for the second quarter of 2002 was $29.5~~Q2 2003 were $13.5 million, or ~~$0.12~~$0.05 per basic and diluted share, compared to a net loss for ~~the 2001 quarter~~Q2 2002 of ~~$9.2~~$29.5 million or ~~$0.04~~$0.12 per share. Excluding the after-tax impact of the Acquisition-related adjustments totaling $1.7 million for Q2 2003, and $4.2 million for Q2 2002, adjusted net earnings for Q2 2003 were $15.2 million, or $0.06 per basic and diluted share, compared to an adjusted net loss for Q2 2002 of $25.3 million or $0.10 per share.

Shares used in computing basic earnings per share and basic adjusted earnings per share for Q2 2003 were 252.1 million, while shares used for computing diluted earnings per share and adjusted diluted earnings per share were 258.2 million. Shares used in computing net loss per share and adjusted net loss per share for ~~the quarter ended June 30,~~Q2 2002 ~~and June 30, 2001~~ were 250.2 ~~million~~million.

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

Forward-looking commentary — For the remainder of the year and ~~213.1 million, respectively.~~on an annualized basis, we expect to generate net earnings per diluted share in 2003. The ~~increase in share count primarily reflects the additional shares issued in conjunction with the acquisition~~level of MedImmune Vaccines. Our quarterly financial results vary significantly due to seasonality of Synagis product sales, fluctuations in sales of other products, milestone payments, research funding and expenditures for research, development, clinical and marketing programs. Synagis sales are expected to occur primarily during, and in proximitynet earnings will depend on many factors, including, but not limited to, the ~~RSV season, which typically occurs between late September and early May~~degree of acceptance of our products in the ~~Northern Hemisphere. No assurances can be given that~~marketplace and adequate product supply ~~will be available~~ to meet demand. ~~SIX MONTHS ENDED JUNE 30,~~As a result of our recently announced share repurchase program, we expect that shares used for computing basic and diluted shares for the remainder of the year will decrease slightly, reflecting repurchases of approximately 2.9 million shares already completed through August 5, 2003, and additional repurchases during the second half of 2003.

YTD 2003 compared to YTD 2002 ~~AND 2001~~

Revenues – Product Sales - Product Sales (In Millions) 2002 2001 ------ ------ Synagis $325.5 $236.5 Ethyol $34.8 $6.4 Other Products $17.7 $20.6 ------ ------ TOTAL $378.0 $263.5 ====== ====== Product
(in millions)

	YTD		YTD
	2003		2002		Growth
Synagis	$	447.2	$	325.5		37%
Ethyol		51.8		34.8		49%
Other Products		19.3		17.7		9%

	$	518.3	$	378.0		37%

For YTD 2003, product sales grew ~~43%~~37% to $518.3 million as compared to $378.0 million in ~~the six months ended June 30,~~YTD 2002, ~~from $263.5 million~~primarily due to a 37% increase in ~~the comparable 2001 period, primarily driven by higher~~ sales of Synagis ~~which~~to $447.2 million and by a 49% increase in sales of Ethyol to $51.8 million.

Synagis — Synagis accounted for approximately 86% of our product sales for ~~the six month period.~~both YTD 2003 and YTD 2002. We achieved a 34% increase in domestic Synagis sales ~~increased 38%~~to $420.6 million for YTD 2003, up from ~~$236.5~~$314.1 million in YTD 2002. This strong growth was driven primarily by an increase in unit sales that contributed 24 of the ~~six months ended June 30, 2001~~34 percentage points, an increase in price that contributed 6 points and a decrease in sales allowances that contributed 4 points, reflecting a reduction in our estimate of reserves for bad debts and rebates due to ~~$325.5~~government purchasers. Our reported international sales of Synagis more than doubled to $26.6 million in YTD 2003 compared to $11.4 million in YTD 2002, largely due to an almost five-fold increase in units sold to AI. We believe the ~~six months ended June 30,~~growth is due to increased product demand by end users, particularly in Japan, where the product was approved for use in 2002. Also contributing to international Synagis sales growth is the additional amount due from AI in YTD 2003 compared to YTD 2002, ~~reflecting 40%~~calculated as the difference between the contractually stipulated transfer price and our share of AI’s sales price to end-users. Sales growth was also aided by the impact of a weaker U.S. dollar.

Ethyol — Ethyol accounted for approximately 10% and 9% of our product sales in YTD 2003 and YTD 2002, respectively. Worldwide Ethyol sales grew 49% to $51.8 million in YTD 2003, as compared to $34.8 million in YTD 2002. This growth was driven by a number of contributing factors, including: an increase in domestic unit sales ~~due to increased demand for~~that contributed 24 of the ~~product. Our international sales of Synagis decreased 32% primarily due to~~49 percentage points; an increase in price that contributed 15 points; a decrease in ~~units sold to Abbott International, ("Abbott") our exclusive distributor of Synagis outside of the United States,~~sales allowances that contributed seven points; and totaled $11.4 million in the 2002 six months versus $16.7 million in the 2001 six months. The Company believes that the decrease is due to reductions in the inventory stocking levels of Abbott, rather than reduced product demand by end users. The decrease in unit volume was offset by an increase in ~~the per unit~~ sales ~~price recognized upon delivery of product~~ to ~~Abbott under the terms of~~ our international ~~distribution agreement as is discussed in the product sales section of our analysis of results for the~~partner, Schering, that contributed three ~~months ended June 30, 2002 and 2001. Ethyol sales accounted for approximately 9% and 2% of year~~points.

Revenues – Other Revenues

Other revenues increased $20.0 million to ~~date product sales in 2002 and 2001, respectively. Sales of Ethyol increased from $6.4~~$35.4 million for ~~the six months ended June 30, 2001~~YTD 2003 compared to ~~$34.8~~$15.4 million ~~for the six months ended June 30, 2002. The increase is principally~~in YTD 2002, largely due to an increase in ~~domestic sales unit volume of 124% and an increase in the sales price~~revenue recorded in accordance with our assumption of domestic marketing rights of the product. Domestic Ethyol sales were $32.6 million in the six month 2002 period, as compared to $4.0 million in the 2001 comparable period. We reacquired domestic marketing rights to Ethyol from ALZA in October 2001. Accordingly, as of October 1, 2001, we record all revenues from domestic sales of Ethyol and, as of April 1, 2002, we began paying ALZA a declining royalty for nine years thereafter based on net sales of Ethyol in the U.S. Prior to October 1, 2001, we had recorded Ethyol domestic product sales based on a price of 25% to 35% of ALZA's net unit selling price. Year to date international sales of Ethyol to our distribution partner, Schering-Plough Corporation ("Schering"), of $2.2 million were down slightly from the prior year sales of $2.5 million for the comparable period. We record Ethyol international product sales based on a percentage of Schering's end user sales. Sales of other products, which include sales of CytoGam, NeuTrexin, RespiGam, and by-products that result from the CytoGam manufacturing process, decreased $2.9 million or 14% for the six months ended June 30, 2002 from the 2001 comparable period. CytoGam sales for the six months ended June 30, 2002 fell 8% from the comparable 2001 period, principally due to a decrease in unit sales of 22%. The decrease in domestic unit sales wasunder collaborative agreements, partially offset by a ~~10% domestic price increase which took effect in the first quarter~~decrease of 2002. We expect that CytoGam sales for 2002 will be comparable with 2001 sales. Other revenues - Other revenues in the six months ended June 30, 2002 of $15.4 million were comparable with other revenues for the comparable 2001 period and consisted of $4.5 million of revenues recognized in accordance with SAB 101, $4.4 million ~~relating to an agreement entered into during 2001 to sell~~in revenues from the sale of excess production capacity to a third ~~party, $1.2~~party. Other revenues for YTD 2003 include approximately $27.5 million ~~from MGI Pharma related to the agreement~~in milestone payments for the ~~sale~~approval of ~~our Hexalen business,~~FluMist and ~~$4.3~~for achieving in excess of $100 million in ~~grant income and reimbursement from Wyeth relating to our collaborative agreement for FluMist. Other revenue for~~end-user sales of Synagis outside the 2001 six months includes $8.8 million of revenues recognized in accordance with SAB 101, $2.4 million relating to the sale of our Hexalen business, $1.7 million for research funding from GlaxoSmithKline for development of an HPV vaccine, and royalty income due from ALZA in accordance with the terms of the Ethyol distribution agreement. U.S. during a single respiratory syncytial virus (RSV) season.

Cost of ~~sales -~~ Sales

Cost of sales for ~~the 2002 six months~~YTD 2003 increased ~~59%~~32% to $126.0 million from $95.5 million ~~from $59.9 million in the 2001 six months, principally~~for YTD 2002. Gross margins on product sales were 76% for YTD 2003, compared to 75% for YTD 2002, due to ~~increases in sales volumes. Gross~~higher margins, particularly for ~~the six month period ended June 30, 2002 were 75% versus 77% for the six month period ended June 30, 2001. Gross margins decreased principally as~~Synagis, which are largely a result of ~~additional~~lower sales allowances that increased net product sales. This favorable impact was partially offset by higher royalties payable ~~relating~~ to Synagis. The increase in royalties was offset slightly by improved margins due to the implementation of the enhanced yield process for the manufacture of Synagis. We expect that gross margins may vary significantly from quarter to quarter, basedALZA Corporation on ~~the product mix. We expect that on an annual basis, our gross margin percentage for 2002 should be lower than 2001, as a result of the additional royalties owed for Synagis and~~ Ethyol.

Research and Development Expenses -
(in millions)

YTD 2003			YTD 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments		Adjusted
$59.6	($2.1)	$57.5	$78.6	($	4.5)	$74.1

Research and development expenses of $59.6 million in YTD 2003 decreased 24% from $78.6 million in ~~the 2002 six months increased 95%~~YTD 2002. Excluding Acquisition-related adjustments in both periods, research and development expenses for YTD 2003 were $57.5 million, down 22% from ~~$40.4 million in the 2001 six months, primarily~~YTD 2002. The decline is largely due to ~~higher expenditures on~~ the ~~Company's~~completion of several late-stage clinical trials by the end of 2002, including certain Phase 2 studies with siplizumab in psoriasis, and the ~~inclusion~~Phase 3 Synagis clinical trial in congenital heart disease patients, the results of ~~on-going MedImmune Vaccines research, development and clinical expenses~~which were submitted to the FDA in our results, as well as $4.6 million in expense relating to retention payments, stock option acceleration and stock compensation for unvested stock options assumed relating to our merger with MedImmune Vaccines. To accommodate the additional activity, we expanded our workforce and facilities, resulting in increased wages and occupancy expense. As discussed in the analysis of results for the three months ended June 30, 2002 above, we are currently administering trials for eleven programs in various phases for our products and we have eight programs in the pre-clinical stage. We expect clinical spending to increase in the coming quarters as we continue to move more of our product candidates into the clinic and expand trials on products already in the clinic. November 2002.

Selling, General, and Administrative ~~Expense-~~ Expenses
(in millions)

YTD 2003			YTD 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments		Adjusted
$173.6	($4.2)	$169.4	$143.0	($	5.9)	$137.1

Selling, general and administrative (“SG&A”) expenses ~~were~~increased 21% to $173.6 million in YTD 2003 compared to $143.0 million ~~and $83.9 million for the 2002 and 2001 periods, respectively, an increase of 70%. As a percentage of product sales,~~in YTD 2002. Excluding Acquisition- related adjustments, adjusted SG&A ~~expense increased to 38% of product sales in the 2002 period from 32% in the 2001 period. The increase in this ratio is largely reflective of ongoing~~ expenses ~~relating to MedImmune Vaccines, which, to date, has no product sales. SG&A expense also includes $2.3~~for YTD 2003 were $169.4 million, up 24% over $137.1 million in ~~expense~~YTD 2002, due primarily to increases in ~~the 2002 six month period relating to retention payments, stock option acceleration~~co-promotion expenses for Synagis. This increase was partially offset by lower administrative spending and ~~stock compensation for unvested stock options assumed and $3.6 million for amortization of intangibles in conjunction~~synergies associated with the MedImmune Vaccines merger. Additionally, we incurred increased costs for expanded Synagis marketing programs, sales commissions and increased co-promotion expense to the Ross Products Division of Abbott Laboratories for the promotion of Synagis in the United States. Co-promotion expense is based on a percentage of net domestic sales of Synagis and thus increases as net domestic Synagis sales increase. In 2002, we also incurred increased salary and related expenses for the expansion of our Ethyol sales force by adding approximately 40 additional sales representatives during the second half of 2001 and increased marketing expenses for the relaunch of Ethyol. Additionally, we experienced increases in legal costs, as we are currently involved in several litigation matters (see further discussion in the Legal Proceedings section of this report). Acquisition.

Other Operating ~~Expense-~~ Expenses
(in millions)

YTD 2003			YTD 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical	Adjustments		Adjusted
$22.9	($3.2)	$19.7	$44.0	($	11.0)	$33.0

Other operating expenses, ~~increased~~which reflect manufacturing start-up costs and other manufacturing related costs, decreased to $22.9 million in YTD 2003 from $44.0 million in ~~the six months ended June 30, 2002 from $5.6~~YTD 2002. Adjusted other operating expenses were $19.7 million for YTD 2003, compared to $33.0 million in YTD 2002. The decrease is due to the ~~2001 period. The increase is principally attributable to charges associated with MedImmune Vaccines'~~shift in the costs of FluMist manufacturing ~~operations for FluMist, so~~that are in inventory this year, but were expensed as ~~to be able to launch FluMist this fall, should FDA approval be granted. It is anticipated that these charges will continue to be recorded to~~ other operating ~~expense so long as FluMist is under review by the FDA. In addition, we incurred $6.9 million in expense~~costs in the 2002 six month period relating to retention payments, stock option acceleration and stock compensation for unvested stock options assumed and $4.2 million for amortization of intangibles relating to our merger with MedImmune Vaccines. If and when FDA approval of FluMist is granted, a significant portion of MedImmune Vaccines' manufacturing costs will be expensed to cost of sales. Also included in other operating expense for both periods are costs associated with our Frederick manufacturing facility. The plasma production section of our Frederick manufacturing facility has excess capacity, which results in charges to other operating expenses. These charges are expected to continue for the foreseeable future until the plasma production section of the facility is fully utilized. prior year.

In-Process Research and Development -

We incurred charges of $1,179.3 million ~~during~~in the ~~six month period ended June 30,~~first quarter of 2002 for the write-off of purchased in-process research and development in conjunction with ~~our acquisition of Aviron.~~the Acquisition. The write-off ~~represents~~represented the fair value of purchased in-process technologies at the acquisition date, calculated ~~utilizing~~as 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. The Company does not anticipate that there will be any alternative future use for the in-process technologies that were written off. FluMist is a live, attenuated vaccine delivered via a nasal mist for the prevention of influenza. We are currently seeking regulatory approval for the frozen formulation, which requires freezer storage. The liquid formulation of FluMist, which is better suited to international markets than the frozen formulation, is currently in Phase 3 clinical trials with our international partner, Wyeth. While there are other flu vaccines currently marketed by other companies, FluMist would be the only live virus vaccine administered as a nasal mist available in the United States. As of the date of the merger, Aviron had submitted a biologic license application ("BLA") for FluMist (frozen) to the FDA seeking approval for licensure. The BLAcommercial scenarios. This method was submitted to the FDA in October 2000. Aviron received a Complete Response Letter from the FDA on August 31, 2001, and filed its response to this letter on January 8, 2002. A second Complete Response Letter was received from the FDA on July 10, 2002 requesting clarification and additional information relating to clinical data and chemistry, manufacturing and controls data previously submitted. We intend to submit a response to the Complete Response Letter during August 2002. The Company hopes to achieve approval of the product for either the 2002 or the 2003 flu season; however, we cannot guarantee that approval will be obtained at all. If FluMist is not approved in 2002, projected revenues for the full year 2002 would be reduced by approximately $100 million to $110 million and earnings per share by about $0.25 to $0.27. The valuation of the acquired in-process research and development is based upon ~~certain estimates and assumptions by management. The valuation is based upon management's~~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 volumes; launch date; and the potential failure of the frozen or liquid formulations of FluMist. Based on current information, management believes that the estimates and assumptions underlying the fair value analysis are substantially accurate. In addition, as of June 30, 2002, none of the existing manufacturing facilities involved in the production of FluMist had been licensed by any regulatory agency and FluMist had not yet been manufactured at a sustained commercial scale. There can be no assurance that these facilities can achieve licensure by the FDA or any other regulatory agency. Nor can there be any assurances that if licensed, commercial scale production could be achieved or sustained. If we fail to obtain FDA approval for the marketing and manufacture of FluMist, we will absorb all of MedImmune Vaccines' ongoing expenses while recording no corresponding revenue.

Interest Income and Expense -

We earned interest income of $27.3 million for YTD 2003, compared to $23.8 million ~~for the first six months of~~in YTD 2002, ~~versus $19.2 million in the comparable 2001 period,~~ reflecting higher cash balances available for investment, ~~due to operating cash flows and the inclusion of MedImmune Vaccines' cash and investments,~~ partially offset by a decrease in short-term interest rates ~~which~~that lowered the overall portfolio yield. Interest expense for ~~the first half of 2002,~~YTD 2003, net of amounts capitalized, ~~increased $4.3~~was $3.4 million, ~~over the first half of 2001~~down from $4.5 million in YTD 2002. This decrease is largely due to interest expense capitalized in connection with several large construction projects currently undertaken by the Company, including construction of the new corporate headquarters in Maryland, and manufacturing facilities in Pennsylvania and the U.K. that intensified during the second half of 2002.

Loss on ~~MedImmune Vaccines' convertible debt included~~Investment Activities

We incurred $0.4 million in losses on investment activities for YTD 2003, compared to $0.1 million in YTD 2002, related to recording our portion of our minority investees’ operating ~~results. Taxes-~~ results as required by the equity method of accounting.

Taxes

We recorded income tax expense of $72.2 million for YTD 2003, resulting in an effective tax rate of 37%. Comparatively, we recorded income tax expense of $18.4 million for the six months ended June 30, 2002. Excluding the write-off of purchased in-process research and development and other insignificant items, which are not deductible for tax purposes, income tax expense resultedYTD 2002, resulting in an effective tax rate of ~~35.7%. This compares to~~36% that excluded a write-off of in-process research and development purchased during the first quarter of 2002, which was not deductible for tax ~~expense for~~purposes.

The increase in the ~~six months ended June 30, 2001 of $38.2 million, resulting in an~~estimated effective tax rate ~~of 35.5%. The variation from the statutory rate in both periods~~between 2002 and 2003 is ~~principally~~primarily due to a reduction in the ~~amount of~~estimated credits ~~taken~~available for research and development ~~expenditures and~~activities, including credits earned for Orphan Drug status of certain research and development ~~expenses. In addition, due~~activities in 2003, relative to ~~state tax law changes that occurred during 2001,~~ our ~~statutory tax rate decreased~~earnings growth. These credits will vary from year to ~~37.0%. We believe that our year-to-date effective tax rate~~year depending on the activities of the Company.

Net Earnings / (Loss)
(in millions)

YTD 2003			YTD 2002
Acquisition-Related			Acquisition-Related
Historical	Adjustments	Adjusted	Historical			Adjustments		Adjusted
$123.0	$5.3	$128.3	($	1,146.3	)	$1,	192.6	$46.3

Net earnings for ~~2002 will be slightly below our statutory rate of 37.0%. Net Loss - Net~~YTD 2003 were $123.0 million, or $0.49 basic and $0.48 diluted earnings per share compared to a net loss for YTD 2002 of $1.1 billion or $4.62 per share. Excluding the ~~first half of 2002, which includes the~~after-tax impact of the ~~write off~~Acquisition-related adjustments totaling $5.3 million for ~~in- process research~~YTD 2003, and ~~development, was $1,146.3~~$1.2 billion for YTD 2002, adjusted net earnings for YTD 2003 and YTD 2002 were $128.3 million and $46.3 million, respectively, or ~~$4.62~~$0.50 and $0.18 adjusted earnings per ~~share.~~diluted share, respectively.

Shares used in computing basic earnings per share and basic adjusted earnings per share for YTD 2003 were 251.8 million, while shares used for computing diluted earnings per share and adjusted diluted earnings per share were 257.4 million. Shares used in computing net loss per share for YTD 2002 were 248.1 million. ~~This compared to net earnings for the first half of 2001 of $69.4 million or $0.33 basic and $0.32 diluted earnings per share.~~ Shares used in computing ~~basic and diluted~~adjusted earnings per diluted share for YTD 2002 were ~~212.7 million and 219.9 million, respectively. The increase in share count primarily reflects the additional shares issued in conjunction with the acquisition of MedImmune Vaccines.~~ 254.8 million.

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.~~— Cash and marketable securities were ~~$1,354.1~~$1,588.0 million at June 30, ~~2002~~2003 versus ~~$787.7~~$1,423.1 million at December 31, ~~2001,~~2002, an increase of ~~72%~~12%. Increases in cash are primarily due to cash generated by ~~operations and cash acquired in conjunction with~~ the ~~MedImmune Vaccines merger.~~Company’s ongoing business operations. Working capital ~~increased~~decreased to ~~$566.1~~$362.4 million at June 30, ~~2002,~~2003 from ~~$429.9~~$476.8 million at December 31, ~~2001.~~ 2002, primarily due to the decrease in trade accounts receivable. As the Synagis selling season winds down during the second quarter of the calendar year, accounts are collected and excess cash is invested in longer term investments, in accordance with our investment guidelines.

Operating Activities

Net cash provided by operating activities ~~decreased~~increased to ~~$155.0~~$194.6 million in ~~the six months ended June 30, 2002~~YTD 2003 as compared to ~~$169.2~~$155.3 million in ~~the comparable 2001 period,~~YTD 2002, primarily as the result of ~~the~~ net ~~loss~~earnings for the period ~~(excluding~~and the ~~write-off~~use of ~~in-process research and development and other non-cash items),~~deferred tax assets to offset current tax liabilities, partially offset by increases in inventory balances as the Company prepares for the launch of FluMist in the third quarter of 2003, increases in non-trade accounts receivable for certain milestone payments due from our collaborative partners, and decreases in accrued expenses ~~primarily~~and product royalties payable as ~~a result of payments of~~ amounts ~~due to Abbott~~paid for co-promotion ~~of Synagis,~~expense and ~~decreases~~royalties increased year-over-year, reflecting the increase in royalties payable, offset by decreases in accounts receivable. The Company also expended cash for restructuring payments relating to the MedImmune Vaccines acquisition. The remaining restructuring liability of $1.4 million is expected to be settled by 2004. Payments are expected to be made from cash generated from operations. net sales.

Investing Activities

Cash used for investing activities during ~~the first half of 2002~~YTD 2003 amounted to ~~$274.5~~$238.9 million, as compared to ~~$202.1~~$274.7 million in ~~2001.~~YTD 2002. Cash used for investing activities in ~~2002~~YTD 2003 included net additions to our investment portfolio of $379.9 million, offset by $146.9 in cash acquired as a result of our merger with MedImmune Vaccines. We also invested $3.7 million in preferred equity securities of two strategic partners: Panacea, which is developing the HAAH technology; and A&G Pharmaceuticals Inc. (A&G), which is developing the PC-Cell Derived Growth Factor (PCDGF) technology. We expended $37.7$183.6 million; $43.6 million for capital expenditures, primarily for the construction of our new corporate headquarters, and ~~for~~ the ~~continued~~ expansion of our FluMist manufacturing and filling and packaging facilities in ~~Frederick~~Speke, England and Philadelphia, Pennsylvania; and minority interest investments in strategic partners totaling $11.8 million through our venture capital subsidiary, MedImmune Ventures, Inc. During July 2003, we made a minority interest investment in Tercica, a late stage biopharmaceutical company that focuses on endocrinology.

Financing Activities

Financing activities generated $19.9 million in cash for YTD 2003, as compared to $37.8 million in YTD 2002. Approximately $20.3 million was received upon the exercise of employee stock options in YTD 2003, as compared to $38.1 million received in YTD 2002, reflecting increased stock option exercises by employees of MedImmune Vaccines ~~facilities~~in 2002 subsequent to the Acquisition. In both YTD 2003 and YTD 2002, repayments on long-term debt were $0.4 million.

Forward-looking commentary – The Company currently generates cash from operations primarily from product sales, and expects to continue generating cash from these sources. The Company believes that its existing funds and cash generated from operations are adequate to satisfy its working capital and capital expenditure requirements in the ~~U.K.~~foreseeable future. During July 2003, the Company completed the issuance of $500 million of 1% Convertible Notes due 2023. The Company may raise additional capital in the future to take advantage of favorable conditions in the market or in connection with the Company’s development activities.

During 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 ~~Philadelphia, Pennsylvania. During March 2002, we paid~~at such times it may designate. 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. Through August 5, 2003, the Company had repurchased approximately ~~$13.4~~2.9 million shares at a cost of $112.3 million.

We intend to use a portion of the proceeds from the Convertible Notes due 2023 to fund a substantial portion of our stock repurchase program, enabling us to acquire ~~11 acres~~our stock opportunistically in the market at prices lower than the $68.18 at which the Notes are convertible. In addition, the proceeds may be used to fund the retirement of ~~land~~the 5¼ percent debt convertible at $58.14 per share that we assumed through the Aviron acquisition and which becomes callable in ~~Gaithersburg, Maryland, which will serve as the site of our new~~February 2004, or for other general corporate ~~headquarters. Additionally, the Company has options~~purposes.

We expect to ~~purchase an additional 14 acres of land. We~~ have ~~contracted with a designer and general contractor for the construction~~approximately $190 million in capital expenditures during 2003. Construction of the first phase of the new corporate headquarters facility and pilot plant, as well as major construction projects at ~~a total estimated cost of $85 million, to~~our facilities in Pennsylvania and in England, will be funded from ~~net~~ cash generated from operations and investments on hand. ~~Construction began during March 2002, and the Company expects~~We expect to take occupancy of the first phase of our new corporate headquarters, a complex of approximately ~~218,000~~220,000 square feet, in ~~the~~late fall of ~~2003.~~2003 to early 2004. At that time, ~~the Company expects~~we expect to sublease a ~~substantial~~ portion of ~~its~~our existing ~~space.~~space in Gaithersburg, which is leased through 2006. There can be no guarantee that we will be successful in subleasing the space.

During June 2003, we entered into a research and development collaboration with Micromet, a private German biotechnology company. Together with Micromet, we plan to develop MT103 for B cell tumors, such as non-Hodgkin’s Lymphoma. We also plan to develop novel drug candidates using Micromet’s proprietary Bi-Specific T cell Engager (BiTE) platform technology. During July 2003, we made an upfront payment of $12.5 million to Critical Therapeutics to acquire an exclusive, worldwide license for technology associated with the HMG-B1 technology. We will develop the commercial production process for any and all potential drug products resulting from the collaboration. In conjunction with ~~the research and development~~these collaborations, ~~with Panacea and A&G, the Company is~~we are obligated to pay up to ~~$40.0~~an aggregate of $178.5 million infor various milestone payments, subject to the achievement of specified clinical, regulatory, and sales milestones, and ~~is obligated to make quarterly~~fund certain research and development ~~funding payments. Payments due~~costs. Additionally, we are ~~expected~~obligated to ~~be funded~~pay royalties on any future sales, if any, of products resulting from ~~net cash from operations~~the collaborations. In connection with the collaborations, our venture capital subsidiary made a minority interest investment in Micromet and ~~investments on hand. Financing Activities Financing activities generated $37.8 million~~has committed to participating in ~~cash~~the next round of financing for Critical Therapeutics.

Effective for the ~~first half~~upcoming RSV season, we reduced the number of ~~2002, as compared~~U.S. specialty distributors in our Synagis network from over 100 in the 2002/2003 season to ~~$16.0 million~~about a dozen specialty distributors going forward. In addition, we reduced the number of Synagis wholesalers and home health care agencies that we will use. The changes were made in ~~2001. Approximately $38.1 million was received upon the issuance~~order to achieve a higher level of ~~common stock and exercise~~service to patients via contractual requirements for downstream service related to Synagis. The selection criteria used in this process should also mitigate any risks associated with a higher concentration of employee stock options in 2002, as compared to $16.4 million received in 2001, largely reflecting the inclusion of option exercises of MedImmune Vaccines subsequent to the acquisition. In 2002 and 2001, repayments on long-term debt were $0.4 million. credit among fewer creditors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Following the Company's acquisition of MedImmune Vaccines, MedImmune Vaccines remains obligated for its outstanding indebtedness, which included $200.0 million aggregate principal amount of 5 1/4% Convertible Subordinated Notes (the "Notes") due 2008. The Notes were recorded at fair value of $211.4 million, based on quoted

Our primary market ~~prices~~risks as of ~~January 10, 2002,~~June 30, 2003 are the ~~acquisition date. Interest is payable semi-annually in arrears in cash on February 1 and August 1 each year. Changes~~exposures to loss resulting from changes in interest rates, doforeign currency exchange rates, and equity prices. Market risk exposure exceeds that of December 31, 2002 due to the increase in the size of our investment portfolio.

Expenditures relating to our manufacturing operations in England and the Netherlands are paid in local currency. We have not affect interest expense incurred on the Notes, because they bear interest at fixed rates. The Notes are convertible into an aggregate of 3.4 million shares of the Company's common stock, based on a conversion price of $58.14, at any time onhedged our expenditures relating to these manufacturing operations and, therefore, foreign currency exchange rate fluctuations may result in increases or before February 1, 2008. MedImmune Vaccines may redeem the Notes beginning in February 2004, at the redemption prices declining from 103% of their principal amount in 2004 to 100% in 2008, plus accrued interest. The Company periodically enters into foreign exchange forward contracts which permit the Company to purchase Euros to fund a portion of its inventory purchase obligations at a fixed exchange rate. As of June 30, 2002, the Company had outstanding forward Euro contractsdecreases in the amount of ~~$5.4~~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.

During July 2003, we issued $500 million ~~all expiring within~~of Convertible Notes due 2023. The notes bear interest at one ~~year. Fair~~percent per annum payable semi-annually in arrears. Beginning with the six-month interest period commencing July 15, 2006, if the average trading price of the 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 of the notes during such periods. As a result, if the market value of the outstanding contracts at June 30, 2002 was $0.7 million. As of June 30, 2002 we have invested approximately $20.1 million with strategic partners in various forms of investments, principally preferred equity securities and convertible preferred equity securities. In accordance with Accounting Principles Generally Acceptednotes appreciates significantly in the ~~United States~~future, we could be obligated to pay significant amounts of ~~America, we carry the majority of these investments at cost, adjusted for any other-than-temporary declines~~contingent interest beginning in value. We evaluate these investments on a quarterly basis, and adjust the carrying value for other-than-temporary impairments if necessary. During 2002, we reduced the cost basis of one of our investments by $0.3 million due to an other-than temporary impairment. Should this investment or any of our other investments experience an other-than-temporary impairment, further write downs could occur, up to the total amount of our investment. Additionally, the Company maintains one investment in accordance with the equity method. The equity method of accounting requires us to adjust the carrying value of our investment for our proportionate share of the gains or losses generated by the investee on a quarterly basis. As of June 30, 2002 we wrote down this investment by $0.1 million. Our total investment is now $2.1 million. Further writedown of our investment could occur, up to our total investment, should the investee continue to incur net losses in future periods. In July 2002, the Company formed MedImmune Ventures, Inc., a wholly-owned venture capital subsidiary that will invest in early-to-late-stage public or 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. In accordance with accounting principles generally accepted in the United States of America, the investments will likely be maintained either on the cost or equity method of accounting, according to the facts and circumstances of the individual investment. Under either method, the investments will be subject to adjustment for other-than-temporary impairments. In addition, investments accounted for under the equity method will be adjusted for the Company's proportionate share of the investee's gains or losses on a quarterly basis. 2006.

For other information regarding the ~~Company's~~Company’s market risk exposure, please refer to Part II, Item 7A., ~~"Quantitative~~“Quantitative and Qualitative Disclosures About Market ~~Risk"~~Risk” of the ~~Company's~~Company’s Annual Report on Form 10-K for the year ended December 31, ~~2001. -------------------- The statements~~2002.

ITEM 4. CONTROLS AND PROCEDURES

Based on an evaluation of the Company’s disclosure controls and procedures in connection with the Company’s filing of this quarterly 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~~on Form 10-Q for Q2 2003, our management, with 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 which may not develop as MedImmune expects. Consequently, actual results may differ materially from those projected in the forward - looking statements. Among the factors that could cause actual results to differ materially are: seasonal demand for and continued supply of the Company's principal product, Synagis; whether FluMist receives clearance by the Food and Drug Administration and, if it does, whether it will be successfully launched; availability of competitive products in the market; availability of third-party reimbursement for the costparticipation of our ~~products; effectiveness~~principal executive officers and ~~safety of~~principal financial officers, namely our products; exposure to product liability, intellectual property or other types of litigation; foreign currency exchange rate fluctuations; changes in generally accepted accounting principles; growth in costsVice Chairman and ~~expenses;~~Chief Executive Officer; President and Chief Operating Officer; Senior Vice President and Chief Financial Officer; and Vice President and Controller; has concluded that the ~~impact of acquisitions, divestitures~~Company’s disclosure controls and other unusual items; and the risks, uncertainties and other matters discussed in this quarterly report and in our periodic reports filed with the U.S. Securities and Exchange Commission. MedImmune cautions that RSV disease occurs primarily during the winter months; MedImmune believes its operating results will reflect that seasonality for the foreseeable future. MedImmune is also developing several products (including FluMist) for potential future marketing. There can be no assurance that such development efforts will succeed, that such products will receive required regulatory clearance or that, even if such regulatory clearanceprocedures were ~~received, such products would ultimately achieve commercial success. Unless otherwise indicated, the information in this quarterly report is~~effective as of June 30, ~~2002. This quarterly report will not be updated as a result~~2003.

Based on an evaluation of ~~new information~~changes in the Company’s internal control over financial reporting that occurred during Q2 2003, our management, with the participation of our principal executive officers and principal financial officers, namely our Vice Chairman and Chief Executive Officer; President and Chief Operating Officer; Senior Vice President and Chief Financial Officer; and Vice President and Controller; has concluded that there were no changes in the Company’s internal control over financial reporting during Q2 2003 that have materially affected, or ~~future events.~~ are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION ~~Item~~

ITEM 1. Legal Proceedings In 1998, MediGene AG ("MediGene") initiated a legal action against Loyola University of Chicago ("Loyola") and the Company in the U.S. District Court for the Northern District of Illinois alleging, among other things, breach of contract and tortious interference by the Company with an alleged prospective business relationship between MediGene and Loyola. The claims relate to human papillomavirus vaccine technology allegedly covered by contracts between MediGene and the Company and by a license agreement from Loyola to the Company, under which the Company granted a sublicense to GlaxoSmithKline. MediGene seeks damages from the Company ranging from $31.3 million to $86.9 million based on the tortious interference claim, and/or damages ranging from $10.2 million to $31.3 million based on the breach of contract claim. MediGene also seeks ownership of the patents in question, as well as rescission of the Company's license agreement from Loyola or rights as a third-party beneficiary thereof. On December 22, 2000 and March 15, 2001, the District Court granted summary judgment motions in favor of the Company on all claims. The District Court ordered entry of final judgment in favor of the Company on March 19, 2002. On March 27, 2002 MediGene filed a notice of appeal to the United States Court of Appeals for the Federal Circuit. On or about June 27, 2002, the Federal Circuit Court transferred the appeal to the United States Court of Appeals for the Seventh Circuit. MediGene's brief will be due August 12, 2002, and Loyola and the Company's brief will be due September 11, 2002. In October 2000, Celltech Chiroscience Limited ("Celltech") commenced a legal proceeding against the Company in the U.K. High Court of Justice, Chancery Division, Patents Court. Celltech alleges that the Company failed to pay royaltiesLEGAL PROCEEDINGS

Information with respect to ~~its sales~~legal proceedings is included in Note 11 of ~~Synagis as required~~Part I, Item 1 “Consolidated Financial Statements,” and is incorporated herein by ~~a license agreement dated January 19, 1998. Under~~reference and should be read in conjunction with the ~~agreement, the Company obtained from Celltech a worldwide license to make, use and/or sell product under a patent (and~~ related ~~applications) pertaining to humanized antibodies. In the proceeding, Celltech seeks payment of a 2% royalty based on net sales of Synagis sold or manufactured~~disclosure previously reported in the ~~United States, with interest, and certain costs, including attorney's fees. The Company has filed answering papers denying that any royalties are due~~Company’s Annual Report on the basis that Celltech's U.S. patent does not cover Synagis and has sought dismissal of the case on the grounds that the legal doctrine of prosecution history estoppel prevents Celltech from claiming that its patent covers Synagis. On July 20, 2001, the High Court of Justice ordered a hearing, which is scheduled to begin on October 1, 2002, on whether it will dismiss Celltech's case on this basis. On November 29, 2001, the Company received a letter from counsel for Celltech enclosing a copy of a patent granted by the European Patent Office on November 14, 2001. That letter requested various information concerning the manufacture and sale of Synagis in Europe and sought confirmation that the Company would pay royalties on such sales pursuant to the license agreement dated January 19, 1998. As of August 9, 2002, the Company had not made the royalty payments that were the subject of Celltech's letter, and Celltech had not initiated any legal proceeding against the Company based on its European patent. On December 18, 2001, Genentech, Inc. ("Genentech") announced that it had been granted a patent relating to certain methods and compositions used to produce antibodies by recombinant DNA technology. In June 1997, in anticipation of any potential impact the issuance of Genentech's patent could have on the production of Synagis, the Company obtained a license to this patent. The Company has received from Genentech a letter, dated January 7, 2002, stating that Genentech expects to receive from the Company royalty payments pursuant to such license. The Company is in the process of evaluating whether any valid claim of Genentech's patent, as recently issued, covers production of Synagis. If so, the Company would pay royalties to Genentech on U.S. net sales of Synagis commencing December 18, 2001. Pending resolution of this issue, the Company has made certain royalty payments to Genentech under protest and with reservation of all of its rights. The Company is also evaluating whether any of its other antibody-based product candidates, if and when approved for marketing by the U.S. Food and Drug Administration, could require a license under the Genentech patent. On February 28, 1996, Ichthyol Gesellschaft Cordes, Hermanni & Co. ("Ichthyol Gesellschaft") filed a complaint for refrain, information and damages with the Regional Court of Hamburg against MedImmune Oncology on the grounds of trademark infringement in respect of the use of the trademark "Ethyol" in Germany. No monetary amount is currently being sought in the litigation by Ichthyol. Ichthyol is seeking injunctive relief against the use of the trademark Ethyol in Germany. The suit was dismissed on January 29, 1997 by the Regional Court of Hamburg. Ichthyol Gesellschaft filed an appeal and a judgment was rendered in favor of MedImmune Oncology in the appellate proceedings. In January 1999, Ichthyol Gesellschaft filed an appeal on points of law with the Federal Court of Justice, and in June 1999, Ichthyol Gesellschaft filed the groundsForm 10-K for the appeal on points of law. By judgment of May 3, 2001, the Federal Court of Justice reversed the judgment of the Higher Regional Court and remitted the case to that court for another hearing. By order ofyear ended December l9, 2001, the Higher Regional Court ordered Ichthyol to make further submissions concerning the relevant facts and legal questions. Ichthyol recently filed its submissions. Another hearing will probably be held this fall. The Company is currently involved in a dispute over the RSV License Agreement ("License Agreement") between the Company and University of Massachusetts Biologic Laboratories ("MBL"), executed in 1989. Under the License Agreement, the Company granted MBL an exclusive, royalty free license to "make, have made, use and sell" the Company's monoclonal antibody for RSV for use only in the Commonwealth of Massachusetts and the State of Maine. The Company further agreed to transfer to MBL sufficient information and to provide sufficient technical assistance to enable MBL to apply the Company's monoclonal antibody to MBL's manufacturing operations. MBL now alleges that the Company has not provided sufficient information or sufficient technical assistance to enable MBL to manufacture the Company's monoclonal antibody for RSV. In addition, MBL has claimed that the Company's Distribution Agreement with Abbott International, Ltd. ("Abbott"), under which Abbott is the exclusive distributor of Synagis overseas, constitutes a "sub-license" under the terms of the License Agreement and thus MBL claims a right to a larger share of the proceeds derived by the Company from the Distribution Agreement. The Company disputes the allegations made by MBL and believes MBL's claims to be without merit. The Company and MBL are currently in the process of mediating their dispute to determine whether a mutually agreeable solution can be achieved. There can be no assurance that this dispute can be resolved without litigation. On April 5, 2002, the Company filed a suit against Centocor, Inc. ("Centocor") in the United States District Court for the District of Maryland. The Company currently pays Centocor a royalty for sales of Synagis made or sold in the United States pursuant to a patent Sublicense Agreement between the parties dated as of September 15, 2000 (the "Sublicense Agreement"). In the litigation, the Company seeks a declaratory judgment that it has no obligation to continue paying royalties to Centocor on the basis that the patent is invalid, unenforceable and 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") and the Board of Trustees of the Leland Stanford University ("Stanford"), as the owners of the patent. 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 seek 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. There can be no assurance that the Company will be successful in this litigation. After consultation with its 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. Item31, 2002.

ITEM 2. ~~Changes in Securities~~CHANGES IN SECURITIES AND USE OF PROCEEDS - ~~None Item~~NONE

ITEM 3. ~~Defaults upon Senior Securities~~DEFAULTS UPON SENIOR SECURITIES — NONE

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - ~~None Item 4. Submission of Matters to a Vote of Security Holders~~ NONE

On May ~~23, 2002~~22, 2003 the Company held its Annual Meeting of Stockholders. ~~By vote of the Company's stockholders at such meeting, all of the~~Nine director nominees were re-elected to one year ~~terms. A proposal to increase~~terms by vote of the ~~number~~Company’s stockholders at such meeting, and four proposals were also approved by vote of ~~shares authorized under~~ the Company's ~~1999 Stock Option Plan from 19,250,000 to 25,250,000 and the appointment~~stockholders, as follows:

							Abstain/
	For		Against		Withheld		Non-vote
Wayne T. Hockmeyer		206,971,546		--		3,815,171	--
David M. Mott		207,149,836		--		3,636,881	--
Melvin D. Booth		207,150,567		--		3,636,150	--
Franklin H. Top, Jr		207,150,582		--		3,636,135	--
M. James Barrett		201,989,182		--		8,797,535	--
James H. Cavanaugh		201,989,164		--		8,797,533	--
Barbara H. Franklin		201,988,641		--		8,798,076	--
Gordon S. Macklin		201,236,197		--		9,550,520	--
Elizabeth H. S. Wyatt		206,971,389		--		3,815,328	--

To amend the Restated Certificate of Incorporation to increase the authorized number of shares of common stock from 320,000,000 to 420,000,000		205,438,945		3,711,188		--	1,614,383

To amend the 1999 Stock Option Plan to increase the maximum number of shares of common stock authorized for issuance under the Plan from 25,250,000 to 31,250,000		178,025,540		30,997,714		--	1,741,262

To approve the 2003 Non-employee Directors Stock Option Plan and reserve 800,000 shares of common stock for issuance thereunder		181,157,859		27,855,112		--	1,751,545

Appointment of PricewaterhouseCoopers LLP as independent auditors		197,418,301		11,958,819		--	1,388,196

ITEM 5. OTHER INFORMATION - NONE

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Exhibit 3.1.4 -- Certificate of PricewaterhouseCoopers LLP as the Company's independent auditors were also approved. The results of the voting were as follows: Election of Directors Abstain/ For Against Withheld Non-vote Wayne T. Hockmeyer 207,244,641 -- 1,750,883 -- David M. Mott 207,244,632 -- 1,750,892 -- Melvin D. Booth 207,112,074 -- 1,883,450 -- Franklin H. Top, Jr. 207,244,671 -- 1,750,853 -- M. James Barrett 206,201,721 -- 2,793,803 -- James H. Cavanaugh 207,244,611 -- 1,750,913 -- Barbara H. Franklin 206,201,461 -- 2,794,063 -- Gordon S. Macklin 206,201,721 -- 2,793,803 -- Elizabeth Wyatt 205,363,437 3,632,087 To approve an amendmentAmendment to the ~~1999 Stock Option Plan 196,175,465 9,663,966~~Restated Certificate of Incorporation of MedImmune, Inc., dated May 23, 2003.

Exhibit 31.1 -- 3,156,096 Appointment of PricewaterhouseCoopers LLP as independent auditors 199,731,914 8,498,835 -- 757,745 Item 5. Other Information - None Item 6. Exhibits and reports on Form 8-K (a) Exhibits: 99.1 Certification pursuant to 18 ~~U.S.C.~~USC Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2 -- Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.3 -- Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.4 -- Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 32 -- Certification pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of ~~2002. 99.2 Certification pursuant to~~2002, furnished as permitted by Item 601(b)(32)(ii) of Regulation S-K. This Exhibit 32 is not “filed” for purposes of Section 18 ~~U.S.C. Section 1350, as adopted pursuant to Section 906~~ of the ~~Sarbanes-Oxley~~Securities Exchange Act of ~~2002.~~ 1934, and is not and should not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

(b) Reports on Form 8-K: ~~Report Date Event Reported ----------- -------------- July 10, 2002~~

April 24, 2003 -- MedImmune ~~issues 2001 financial statements~~reports 2003 first quarter results.

June 18, 2003 -- MedImmune, Inc. and Wyeth announce the approval of ~~Aviron~~FluMist™ by the U.S. Food and ~~proforma financial information in connection with its acquisition~~Drug Administration.

June 30, 2003 -- MedImmune announces a business review meeting to provide an overview of ~~Aviron.~~ opportunities for long-term growth.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned ~~thereunto~~hereunto duly authorized.

MEDIMMUNE, INC. (Registrant) /s/ Gregory S. Patrick Date:

BY: /s/ Gregory S. Patrick
——————————————
Gregory S. Patrick
Senior Vice President and Chief Financial Officer
Principal Financial Officer

Dated: August ~~13, 2002 Gregory S. Patrick Senior Vice President and Chief Financial Officer~~

8, 2003

BY: /s/ Lota S. Zoth
——————————————
Lota S. Zoth
Vice President and Controller
Principal Accounting Officer

Dated: August 8, 2003

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D. C. 20549

FORM 10-Q - ------------------------------------------------------------------------------------------------------------------------------------ {X}

MedImmune, Inc. (Exact(Exact name of registrant as specified in its charter) Delaware 52-1555759 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.)

SIGNATURES

MEDIMMUNE, INC. (Registrant) /s/ Gregory S. Patrick Date:

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

MedImmune, Inc. (Exact
(Exact name of registrant as specified in its charter) Delaware 52-1555759 (State or other jurisdiction of (I. R. S. Employer incorporation or organization) Identification No.)