Annual Reports

 
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Crucell NV 20-F 2008

 

As filed with the Securities and Exchange Commission on May 7, 2008

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 20F

 

Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2007

 

Commission File Number: 0-30962

 


 

Crucell N.V.

(Exact name of Registrant as Specified in its Charter)

 

Crucell N.V.

(Translation of Registrant’s Name into English)

 

The Netherlands

(Jurisdiction of Incorporation or Organization)

 

Archimedesweg 4-6, 2333 CN Leiden, The Netherlands

(Address of Principal Executive Offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares,

 

Nasdaq Global Market

each representing one ordinary share,

 

 

par value € 0.24

 

 

 

Securities for which there is a reporting obligation pursuant to Section 12(g) of the Act.

None

(Title of Class)

 

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

(Title of Class)

 


 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

65,348,796 Ordinary Shares

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  
o Yes  x No

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.  o Yes  x No

 

Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

 

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.  x Yes  o No

 

Indicate by checkmark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

o U.S. GAAP    x International Financial Reporting Standards as issued by the International Accounting Standards Board   o Other

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer x

 

Accelerated filer  o

 

Non-accelerated filer o

 

Indicate by check mark which financial statement item the registrant has elected to follow.  x Item 17  o Item 18

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes  x No

 


 

Crucell 2007
Combating infectious diseases

 

Annual Report and Form 20-F
www.crucell.com

 

 


 

Mission: Combating infectious diseases

 

Crucell’s mission is to develop, produce and market vaccines and antibodies that prevent or treat infectious diseases.

 

 

For further information visit

www.crucell.com

 

Shareholders Information

Crucell N.V. is a public limited liability company registered in the Netherlands. Crucell’s shares are listed on the NYSE Euronext (Amsterdam), and the SWX Swiss Exchange (Zurich) stock exchanges and Crucell’s American Depositary Shares (ADSs) are listed on Nasdaq (New York). The shares listed on NYSE Euronext, as well as the ADSs listed on Nasdaq, are traded under ticker symbol CRXL. The shares trade under ticker symbol CRX at the SWX Swiss Exchange. Our website can be found at www.crucell.com.

 

This publication comprises the full Annual Report that complies with all applicable Dutch regulations for statutory purposes and the Form 20-F for filing with the Securities and Exchange Commission (SEC) in the U.S. Cross-references to Form 20-F are set out on pages 189 to 190.

 

The Crucell 2007 Annual Report and Form 20-F (hereinafter referred to as the Annual Report) is prepared in English as approved by the General Meeting of Shareholders and expressed in Euro. All amounts set forth in this Annual Report, unless otherwise noted, are in thousands of Euro, except share and option data.

 

2007 key highlights

 

·  Strong product sales growth

·  Positive cash flow

·  Solid progress in pipeline

·  Key partnerships

·  Fast-track status granted by FDA for rabies monoclonal antibody cocktail

·  Record monoclonal antibody production yields of 15 grams per liter on PER.C6®

 

 

Total revenue and other operating income in 2007

An increase to €213.1m in 2007 compared to €140.9m in 2006.

 

 

Gross margin in 2007

Significant improvement from 31% in 2006 to 34% in 2007.

 

 

Operating net cash flow in 2007

Turnaround from negative €54.0m in 2006 to €22.2m in 2007.

 

Crucell Annual Report and Form 20-F 2007

 


 

Content

 

Overview

 

Crucell at a glance

 

02

 

Crucell: a global perspective

 

04

 

Performance highlights

 

06

 

Message from our CEO

 

10

 

Management Committee

 

12

 

Report of the Supervisory Board

 

14

 

 

Our Business

 

Our Products and Research & Development Pipeline

 

16

 

Products

 

18

 

Research and Development Pipeline

 

22

 

Technologies

 

28

 

 

Operational Excellence

 

Healthy Ambition

 

32

 

 

Management Report

 

Report of the Management Board

 

38

 

Information on the Company

 

41

 

Risk Factors

 

72

 

Operating and Financial Review and Prospects

 

85

 

Corporate Social Responsibility

 

103

 

Corporate Governance

 

106

 

Articles of Association and Share Capital

 

122

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

130

 

 

Financial Statements

 

Consolidated Income Statements

 

132

 

Consolidated Balance Sheets

 

133

 

Consolidated Statements of Changes in Equity

 

134

 

Consolidated Cash flow Statements

 

135

 

Notes to the Consolidated Financial Statements

 

136

 

Company Financial Statements

 

174

 

Notes to the Company Financial Statements

 

175

 

 

Other Information

 

Other Information

 

177

 

 

 

 

 

Information for Shareholders and Investors

 

179

 

 

 

 

 

Cross-reference to Form 20-F

 

189

 

 

 

 

 

Exhibits

 

191

 

 

01


 

Overview

Crucell at a glance

 

Crucell at a glance

 

Who we are

 

Crucell is a fully-integrated biopharmaceutical company. We focus on developing, producing and marketing products that combat infectious diseases. We are the largest independent vaccine company in the world.

 

Strategy

 

We develop products that address currently unmet medical needs, particularly in the field of infectious diseases. We have a fully-integrated infrastructure for in-house development, production and marketing of vaccines, and we are now leveraging our knowledge in this area to enter the antibodies market. Our competitive edge comes from our proprietary technology platforms, such as PER.C6®, used to produce high-value biotech products in scalable and cost-efficient ways. This combination of markets, knowledge and tools positions us to be a major player in the multi-billion dollar biotech arena.

 

We are a fully-integrated biopharmaceutical company, focusing on developing, producing and marketing products that combat infectious diseases.

 

 

02


 

Overview

Crucell at a glance

 

Key partnerships

 

In addition to our own research and development activities, we have formed strategic partnerships with several leading companies. Through these agreements, our technologies are playing a vital role in the development of a number of vaccine and antibody products. Our strategic partners include:

 

·  DSM Biologics

·  Novartis

·  MedImmune

·  Merck

·  sanofi pasteur

·  Wyeth

 

Why infectious diseases?

 

Infectious diseases currently account for a significant number of human deaths worldwide. The number of infectious outbreaks is increasing for many reasons: higher population density raises potential for exposure to infectious agents; an ageing population is more susceptible to infection; and the volume of global travel boosts the potential for spreading diseases internationally.

 

 

 

Cash and cash equivalents at year-end 2007

Strong cash position to invest in growth.

 

 

Revenue growth in 2007

Over 50% growth in revenue and other operating income.

 

 

In addition to our own research and development activities, we have formed strategic partnerships with leading companies within the pharmaceutical and biotechnology industry.

 

 

Cash flow in 2007

Generated positive cash flow.

 

03


 

Overview

Crucell: a global perspective

 

Crucell: a global perspective

 

Global facilities

 

Technology

 

Research

 

Development

 

Manufacturing

 

Sales & Marketing

Netherlands HQ

 

Netherlands

 

Netherlands

 

Netherlands

 

Netherlands (Benelux)

Switzerland

 

Switzerland

 

Switzerland

 

Switzerland

 

Switzerland

U.S.*

 

U.S.*

 

Sweden

 

Korea

 

Korea

 

 

 

 

 

 

Sweden

 

Sweden (Nordic)

 

 

 

 

 

 

Spain

 

Spain

 

 

 

 

 

 

 

Argentina

 

 

 

 

 

 

 

 

China

 

 

 

 

 

 

 

Indonesia

 

 

 

 

 

 

 

 

Italy

 

 

 

 

 

 

 

 

Vietnam

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

U.S.

* PERCIVIA, a Joint Venture with DSM Biologics

 


We sell our vaccines in 60 countries, which makes us the largest independent vaccine player worldwide.

 

 

 

 

 

We license proprietary technologies to the biopharma market.

 

04


 

Overview

Crucell: a global perspective

 

Products

 

Our vaccine business provides stable and predictable sales and cash flow. We are the largest independent vaccine player, selling our vaccines in 60 countries. Within vaccines we operate in three main markets: paediatric, travel and endemic, and respiratory.

 

Pipeline

 

We have a number of programs in various stages of development. Most of these are based on Crucell’s innovative PER.C6® technology.

 

Technologies

 

We have five core technologies; of which PER.C6® technology is Crucell’s core proprietary technology. With over 60 commercial licenses issued on PER.C6® technology, Crucell has set new industry standards for the development and industrial-scale manufacturing of vaccines, recombinant proteins including monoclonal antibodies, and gene therapy products.

 

Products

 

 

 

 

 

 

 

 

 

 

 

Paediatric

 

QuinvaxemTM a vaccine against five important childhood diseases.

Epaxal® Junior an aluminum-free hepatitis A vaccine for children.

Hepavax-Gene® a vaccine against hepatitis B.

MoRu-Viraten® a vaccine against measles and rubella.

 

Travel and endemic

 

Epaxal® the only aluminum- free hepatitis A vaccine.

Vivotif® the only oral

typhoid vaccine.

Dukoral® the only oral

cholera vaccine.

 

Respiratory

 

Inflexal®V an

influenza vaccine.

Details on:

p18

 

 

 

 

 

 

Research & Development Pipeline

 

 

 

 

 

 

 

 

 

·  Influenza vaccines,

for both seasonal and pandemic flu.

·  Tuberculosis vaccine

·  Rabies monoclonal
antibody cocktail

·  Malaria vaccine

 

·  Ebola vaccine

·  HIV vaccine

·  Yellow fever vaccine

 

Details on:

p22

 

 

 

 

 

 

 

Technologies

 

 

 

 

 

 

 

 

 

 

 

PER.C6® human designer cell line for the development and large-scale manufacturing of biopharma products.

AdVac® used in combination with PER.C6®, to develop recombinant vaccines.

 

MAbstract® applied for discovery of novel drug targets and identification of human antibodies.

STAR® designed to enhance production yields of recombinant human antibodies and proteins on mammalian cell lines.

 

Virosome a vehicle enabling the use of virus antigens in the making of vaccines.

Details on:

p28

 

05


 

Overview

Performance highlights

 

Performance highlights

 

Financials

 

Total revenues and other operating income

(€ million)

 

 

Net cash flow from operating activities

(€ million)

 

 

Loss for the period

(€ million)

 

 

Cash and cash equivalents at 31 December

(€ million)

 

 

06


 

Overview

Performance highlights

 

 

 

 

 

2008 outlook for total revenue and other operating income is 20% growth.

 

Revenue and other operating income

 

Revenue and other operating income
(€ millon)

 

 

2007 Product sales
(€178 million)

 

 

Outlook for 2008

 

Total revenue and other operating income

 

20% growth

Margins

 

Higher

Cash flow from operating activities

 

Positive

 

In constant currencies = weighted average EUR/USD rate of 1.38 in 2007.

 

07


 

Overview

Performance highlights

 

Performance highlights continued

 

Selected financial data

 

Our consolidated financial statements and company financial statements (hereinafter referred to as the ‘financial statements’), and the notes thereto, as of and for the years ended December 31, 2007, 2006 and 2005 have been prepared in accordance with International Financial Reporting Standards (‘IFRS’) as endorsed by the European Union (‘EU’) and as issued by the International Accounting Standards Board (‘IASB’). No differences resulted in our financial statements as a result of the preparation in accordance with IFRS as endorsed by the EU and IFRS as issued by IASB as applied to Crucell.

 

For the years prior to 2006, we prepared our financial statements, as included in form 20-F, in accordance with accounting principles generally accepted in the U.S. (‘US GAAP’), which differs in certain significant respects from, and is not comparable with, IFRS. On December 21, 2007 the SEC approved rule amendments under which Form 20-F as prepared by Foreign Private Issuers (FPIs) will no longer require reconciliation to US GAAP if the financial statements are prepared in accordance with IFRS as issued by the IASB. This rule is applicable for the 2007 financial year. As a result, we do not provide reconciliation to US GAAP.

 

In May 2006, we published our 2005 Annual Report as required under Dutch law. In the Annual Report we presented our financial statements as of and for the years ended December 31, 2005 and 2004 prepared in accordance with IFRS. The 2004 consolidated financial statements are the first comparative figures that have been prepared in accordance with IFRS.

 

When we adopted IFRS for the first time, pursuant to IFRS 1, we elected to use one exemption. Business combinations that were recognized before January 1, 2004 were not restated to IAS 22/IFRS 3 ‘Business Combinations’.

 

The following table shows the selected financial data under IFRS for the years ended December 31, 2004 through 2007.

 

The selected financial data should be read in conjunction with ‘Operating and Financial Review and Prospects’ and our financial statements and accompanying notes thereto, included elsewhere in this Annual Report.

 

08


 

Overview

Performance highlights

 

 

The selected financial data should be read in conjunction with ‘Operating and Financial Review and Prospects’ and our financial statements and accompanying notes thereto, included elsewhere in this Annual Report.

 

IFRS selected financial data

 

Year ended December 31,
(In thousands of Euro, except share data)

 

2007

 

2006

 

2005

 

2004

 

Consolidated income statement data:
Revenues:

 

 

 

 

 

 

 

 

 

Product sales

 

177,569

 

103,918

 

 

 

License fees

 

12,211

 

16,955

 

20,848

 

12,429

 

Service fees

 

14,006

 

10,694

 

11,881

 

5,712

 

Total revenues

 

203,786

 

131,567

 

32,729

 

18,141

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

(134,884

)

(90,489

)

(7,156

)

(5,644

)

Other operating income

 

9,330

 

9,356

 

4,840

 

4,481

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

(63,995

)

(67,606

)

(34,048

)

(23,676

)

Selling, general and administrative

 

(65,621

)

(47,199

)

(13,689

)

(16,819

)

Restructuring

 

 

(3,120

)

 

 

Impairment

 

(171

)

(30,416

)

 

 

Total operating expenses

 

(129,787

)

(148,341

)

(47,737

)

(40,495

)

Operating loss

 

(51,555

)

(97,907

)

(17,324

)

(23,517

)

Financial income

 

13,190

 

13,453

 

2,332

 

1,789

 

Financial expenses

 

(11,812

)

(11,706

)

(131

)

(394

)

Result investments associates and joint ventures

 

(996

)

(1,956

)

(455

)

(704

)

Gain on disposal of non-consolidated companies

 

2,186

 

 

 

 

Loss before tax

 

(48,987

)

(98,116

)

(15,578

)

(22,826

)

Income tax

 

3,040

 

10,551

 

 

 

Loss for the year

 

(45,947

)

(87,565

)

(15,578

)

(22,826

)

 

 

 

 

 

 

 

 

 

 

Net loss per share – basic and diluted

 

(0.71

)

(1,53

)

(0.39

)

(0.63

)

Weighted average shares outstanding – basic and diluted (in thousands)

 

65,103

 

57,064

 

39,852

 

36,383

 

 

 

 

 

 

 

 

 

 

 

Consolidated balance sheet data:
Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

163,248

 

157,837

 

111,734

 

76,711

 

Total current assets

 

303,262

 

317,071

 

131,038

 

84,155

 

Total assets

 

624,920

 

653,215

 

169,737

 

101,015

 

Liabilities and shareholders’ equity:

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

437,242

 

497,300

 

137,609

 

80,659

 

Total non-current liabilities

 

72,936

 

65,663

 

9,380

 

5,583

 

Total current liabilities

 

114,742

 

90,252

 

22,748

 

14,773

 

Total liabilities and shareholders’ equity

 

624,920

 

653,215

 

169,737

 

101,015

 

Number of employees

 

1,126

 

1,073

 

282

 

210

 

 

1    Gross margin = total revenues less cost of goods sold

2    Gross margin % is not comparable prior to 2006, as the company focused on early stage vaccine research, whereas now the company is a fully-integrated biopharmaceutical company with significant produce sales

 

09


 

Overview

Message from our CEO

 

 

Message from our CEO

 

Dear fellow shareholder,

Crucell is a rapidly growing biopharmaceutical company with ambitious goals. We aim to create shareholder value by following a clear and convincing strategy for growth.

 

The progress we have made in 2007 is a clear indication that we are executing on this strategy. Growth is the major theme underlying all our accomplishments; our sales increased by more than 50% compared to 2006. We are selling our products on a global basis using our own distribution network. And we are active in many countries in product and technology development, clinical studies and vaccine production.

 

Our strong autonomous growth in 2007 was driven by the successful roll-out of QuinvaxemTM in the fourth quarter of 2006, the only fully-liquid pentavalent vaccine that protects against five potentially deadly childhood diseases in one shot. The product makes a significant contribution to children’s vaccination programs in the developing world and is Crucell’s best selling product. QuinvaxemTM has enabled the company to become a major supplier to paediatric vaccination programs worldwide. The significant growth QuinvaxemTM showed in 2007 is expected to continue in 2008.

 

The rapid pace of our growth is also reflected in the progress of clinical trials, including our rabies monoclonal antibodies, the FluCell development by sanofi pasteur and our progress in tuberculosis trials.

 

The scalability of our PER.C6® technology had already demonstrated levels of upto 20,000 liters per bio fermentation unit.

 

Another important milestone was achieved with the PER.C6® technology for the production of monoclonal antibodies and recombinant proteins. Scientists reached a record level titer of 15 g/L at harvest for an antibody product. It demonstrates the power and robustness of the PER.C6® technology and shows the impact it will have to the overall economics of manufacturing biopharmaceuticals.

 

As Crucell’s Management, we must now rise to the challenge of maintaining the forward momentum and further stimulating the Company’s powers of innovation while at the same time managing available production facilities at optimal capacity and focusing on efficient operations.

 

We intend to use the expansion into new markets and the sales and marketing potential of the Company as an important driver for future growth. We will strive to have ‘best in class’ marketing and sales capabilities. This approach will allow us to operate quickly and effectively on the international commercial markets.

 

10

 


 

Overview

Message from our CEO

 

 

“As Crucell’s Management, we must now rise to the challenge of maintaining the forward momentum and further stimulating the Company’s powers of innovation while at the same time managing available production facilities at optimal capacity and focusing on efficient operations.”

 

We are the largest independent player in the vaccine business based on revenue, with sales and other income in 60 countries totalling €213.1 million in 2007.

 

We generated positive cash flow driven by a positive operating cash from of €22.2m in 2007 compared to a negative €54.0m in 2006.

 

As we grow further, capturing synergies and rationalization becomes ever more important. Therefore we have nominated Dr. Cees de Jong to join our Management Board. This nomination will be proposed to Crucell’s shareholders at the company’s AGM on May 30, 2008. Cees joined Crucell as Chief Operating Officer in September 2007 and with his focus on operational excellence, he is an integral part of Crucell’s strategy to accelerate growth. A rigorous review of Crucell’s business processes worldwide is currently being conducted and savings of approximately 15% by the end of 2009 are being targeted.

 

Our Company’s future looks promising, supported by our solid financial position. What we have achieved so far has been feasible due to the efforts and motivation of our employees, which are the Company’s major asset, and to your willingness as shareholders to invest in Crucell, which makes it possible to realize our ambitious goals. We thank you for your continuous support.

 

 

Ronald H.P. Brus

President and Chief Executive Officer

Leiden, the Netherlands, May 1, 2008

 

11


 

Overview

Management Committee

 

 

 

 

 

 

1 Ronald Brus

President and Chief
Executive Officer

 

2 Leonard Kruimer

Chief Financial Officer

 

3 Cees de Jong

Chief Operating Officer

 

4 Jaap Goudsmit

Chief Scientific Officer

 

Management Committee

 

Crucell has a two-tiered board structure in which executive and supervisory responsibilities are clearly separated.

 

The Supervisory Board is comprised of independent, non-executive individuals who are charged with supervising and advising Crucell’s Management Board.

 

The Management Board, which is a subset of the Management Committee, is responsible for the general affairs and business of the Company and, as such, is responsible for achieving Crucell’s goals, strategy and policy, as well as results.

 

Dr Ronald Brus (44)*
President and Chief Executive Officer

 

Dr. Ronald Brus is Crucell’s President and Chief Executive Officer. He has been a member of Crucell’s Management Committee since the Company’s incorporation and was formerly Chief Operating Officer (March 2003 to January 2004) and Chief Business Officer (October 2000 to February 2003). Prior to that, he was Executive Vice President Business Development after joining the Company in 1997. From 1994 to 1996 he was product planning physician at Forest Laboratories in New York and from 1990 to 1994 he was Medical Director for Zambon B.V. He holds a medical degree from the University of Groningen, the Netherlands.

 

Dr Brus is Chairman of the Management Board.

 

Leonard Kruimer (49)*
Chief Financial Officer

 

Mr. Kruimer has been Chief Financial Officer, since he joined Crucell in 1998. He became a member of Crucell’s Management Board in January 2005. Prior to that, he was a consultant at Pepsico and Royal Boskalis Westminster. From 1993 to 1995, he was Managing Director Continental Europe at GE Capital/TIP Europe. He also held senior executive positions at Kwik-Fit Europe and Continental Can Europe; and was a consultant with McKinsey & Co. He started his career at PriceWaterhouse in New York. He holds an MBA from the Harvard Graduate School of Business and an undergraduate degree from the University of Massachusetts. He is a CPA in New York State.

 

Dr Cees de Jong (46)**
Chief Operating Officer

 

Dr. Cees de Jong joined Crucell as Chief Operating Officer in September 2007, after working at Quest International in Naarden, the Netherlands, as a member of the Board responsible for the Flavours Division. Prior to Quest, he worked as Managing Director of DSM Anti-infectives. In 1989 he started his career at Gist Brocades, holding a variety of roles in Business Development, Strategy and General Management before the company’s acquisition by DSM in 1998. He holds a medical degree and earned an MBA at the Erasmus University, Rotterdam, the Netherlands.

 

12


 

Overview

Management Committee

 

 

 

 

 

5 René Beukema

General Counsel and
Corporate Secretary

 

6 Arthur Lahr

Chief Strategy Officer and
EVP Business Development

 

7 Björn Sjöstrand

Chief Business Officer

 

Dr Jaap Goudsmit (56)*
Chief Scientific Officer

 

Dr. Jaap Goudsmit is Crucell’s Chief Scientific Officer and is responsible for all R&D activities. He became a member of Crucell’s Management Board in January 2004. He joined Crucell in 2001 as Senior Vice President Vaccine Research and became a member of Crucell’s Management Committee in July 2002. Prior to that, he held various positions at the Academic Medical Center at the University of Amsterdam and was Chairman of the Research Institute for Infectious Diseases and the Institute for Science Education. Since 1989 he has been a professor at the University of Amsterdam and the Academic Medical Center. He holds a medical degree and a PhD from the University of Amsterdam, the Netherlands.

 

René Beukema (44)

General Counsel and Corporate Secretary

 

Mr. Beukema is Crucell’s General Counsel and Corporate Secretary since the Company’s incorporation. He held the same position at IntroGene after joining the company in 1999. From 1994 to 1999, he was Senior Legal Counsel for GE Capital/TIP Europe. From 1991 to 1994, he was Legal Counsel for TNT Express Worldwide N.V. He has a Masters in Law from the University of Amsterdam, the Netherlands.

 

Arthur Lahr (39)

Chief Strategy Officer and Executive Vice President Business Development

 

Mr. Arthur Lahr is Crucell’s Chief Strategy Officer and Executive Vice President Business Development. He joined Crucell in April 2001 as Executive Director Business Development and became a member of the Management Committee in January 2004, Executive Vice President in January 2006 and assumed responsibility for European marketing & sales and company strategy in 2006. From 1994 to 2001 he was a consultant with McKinsey & Co. in the Netherlands and New York. Prior to that, he worked at Unilever. He holds a Masters in Business Administration from INSEAD and a Masters in Science in, Applied Physics from the University of Delft, the Netherlands.

 

Björn Sjöstrand (40)
Chief Business Officer

 

Mr. Björn Sjöstrand is Chief Business Officer and a member of Crucell’s Management Committee. He was Chief Executive Officer at SBL Vaccines before it was acquired by Crucell in November 2006. He headed the Crucell-SBL integration committee and directed the travel franchise and the Nordic sales force for the Crucell Group. Prior to that, he worked as Vice President Operations & IT at Active Biotech and was a member of the Senior Management Team. He completed a Bachelor of Science degree in Economics and Business Administration at the University of Örebro, Sweden.

He also studied Financial Investment theory and Commercial law at the same university.

 

   Full details of the Management Committee can be found on page 114.

 

*       Member of the Management Board.

**      Proposal at 2008 AGM to join the Management Board.

 

13


 

Overview

Report of the Supervisory Board

 

 

 

1 Jan Pieter Oosterveld

   Chairman

 

2 Arnold Hoevenaars

 

3 Dominic Koechlin

 

 

 

Report of the Supervisory Board

 

Dear shareholder,

The Supervisory Board is pleased to submit to you the combined Annual Report and Form 20-F, including the financial statements of Crucell N.V. for the year ended December 31, 2007, as prepared by the Management Board. Attached to the financial statements is the auditor’s report by Deloitte Accountants B.V., free from any qualification. We adopted the financial statements for the year 2007 and advise the General Meeting of Shareholders to approve these statements and to grant discharge to the Management Board, with respect to its management; and to the Supervisory Board, with respect to its supervision.

 

The Supervisory Board held seven meetings with the Management Board in 2007, three in the form of conference calls. The meetings were arranged in such a way that on several occasions, the Supervisory Board could meet immediately after the departure of the Management Board. There have also been a number of more informal contacts between Supervisory Directors and the Management Board.

 

The Supervisory Board was closely involved in all developments affecting the Company in terms of strategy, tactics and operations in financial year 2007. The Board’s meeting schedule not only reflects its commitment to the Company’s affairs, but also to the dynamic way in which the Company is rapidly consolidating its position in the biotech industry. Thanks to the well-documented information provided by and to the frequent discussions with the Management Board, the Supervisory Board was able to acquire a comprehensive perspective on all aspects of the Company’s strategy. Where Supervisory Board approval of proposals was required, it was able to arrive at decisions based on solid facts and coherent arguments.

 

All Supervisory Board meetings and conference calls were well attended. Regular items on the agenda included the Company’s financial performance, based on quarterly reports, its budget and its business, including the research and development portfolio, intellectual property matters and operational updates. Importantly the Board also discussed the Company’s strategy and its near-; mid- and long-term risks, the current and future strategic objectives, planned acquisitions, our DSM collaboration and the reports from the Audit Committee and the Remuneration Committee. Other significant issues addressed were compliance with Section 404 of the American Sarbanes-Oxley Act of 2002 and related regulations (SOX 404), the ongoing corporate rationalization processes and the progress made in integrating acquired businesses.

 

The Supervisory Board also discussed its own performance, reviewing its function and its individual members; and the performance of the Management Board and its individual members.

 

Supervisory Board Committees

 

In order to make decisions, the Supervisory Board has established an Audit Committee, a Remuneration Committee, a Nomination Committee and a Scientific Committee. For detailed information on the composition and activities of these committees please see ‘Corporate Governance – Supervisory Board’.

 

In 2007 the Audit Committee met 12 times, five of which were held by conference calls. The Company’s external auditor,

 

14


 

Overview

Report of the Supervisory Board

 

 

 

4 Seán Lance

 

5 Phillip Satow

 

6 Claes Wilhelmsson

 

 

 

Deloitte, routinely attended these meetings, in particular where the annual accounts, the auditor’s report and the quarterly results were discussed.

 

The Nomination Committee consists of the full Supervisory Board and, as such, has met four times during the 2007 fiscal year to discuss the Supervisory Board’s composition and functioning. The Scientific Advisory Committee held two meetings with R&D management to discuss issues around protein production and various infectious diseases. They also covered R&D budgets and organizational matters.

 

The chairman of the Supervisory Board and the chairman of the Audit Committee met with the Dutch Workers Council once. During that meeting, the Company reorganization and strategy were discussed.

 

The Remuneration Committee met four times to set collective milestones and objectives for 2007; to approve and ratify option grants and to discuss the remuneration policy for second and third tiers of management. The Remuneration Committee and the Supervisory Board operate within the framework of the remuneration policy for the Management Board, which was adopted by the Annual General Meeting of Shareholders in June 2006 and remains unchanged. The remuneration of the Management Board members is determined by the Supervisory Board, based on a proposal by the Remuneration Committee. It conforms to market practice and is aimed at attracting qualified and expert management with the skills required to run a publicly listed company active in the biotechnology industry.

 

The remuneration of members of the Supervisory Board complies with almost all aspects of the provisions of the Dutch Corporate Governance Code. The exceptions are where it conforms more closely with customary practice in the biotechnology industry worldwide. These exemptions are disclosed in the section ‘Corporate Governance – Exceptions to Compliance with the Code’.

 

The compensation of all Supervisory Board members consists of a fixed fee in cash and an annual share grant. Instead of the share grant, a Supervisory Board member may instead choose to receive a cash amount equalling the value of the share grant minus a discount.

 

The remuneration of the Supervisory Board is further detailed in note 5.23 in our financial statements. The remuneration policy can be found on Crucell’s website (www.crucell.com), which is not incorporated by reference herein.

 

Due to the resignations of Claude Thomann and Juerg Witmer in 2007, two vacancies have arisen in the Supervisory Board. The Nomination Committee initiated a global search to fill these vacancies. As a result, and after careful consideration, the Supervisory Board is pleased to nominate Steve Davis to the Supervisory Board and proposes to have him appointed during the Company’s Annual General Meeting of Shareholders on May 30, 2008.

 

External auditors

 

Deloitte Accountants B.V. have been Crucell’s external auditors since 2006. The performance of Deloitte will be evaluated by the Audit Committee, which will present its findings to the full Board.

 

The members of the Supervisory Board would like to thank the Management Board, the Management Committee, senior management and all employees for their devotion, their motivation and their loyalty in a year in which we continued to show significant growth and took further strides toward realizing Crucell’s ambitious aspirations.

 

Finally we would like to thank our shareholders for their continued support.

 

 

 

Jan P. Oosterveld

Chairman of the Supervisory Board
Leiden, the Netherlands, May 1, 2008

 

15


 

Our Business

Our Products and Research & Development Pipeline

 

Our Products and Research & Development Pipeline

 

 

16


 

Our Business

Our Products and Research & Development Pipeline

 

 

Products and R&D Pipeline

 

Development stage

 

 

Pre-clinic

 

Phase 1

 

Phase 2

 

Phase 3

 

Marketed

Quinvaxem

 

 

 

 

 

Hepavax-Gene®

 

 

 

 

 

MoRu-Viraten®

 

 

 

 

 

Epaxal® Junior

 

 

 

 

 

Epaxal®

 

 

 

 

 

Vivotif®

 

 

 

 

 

Dukoral®

 

 

 

 

 

Inflexal®V

 

 

 

 

 

Flavimum®

 

 

 

 

 

 

Influenza seasonal

 

 

 

 

 

 

 

H9N2*

 

 

 

 

 

 

 

Rabies antibody cocktail

 

 

 

 

 

 

 

Malaria

 

 

 

 

 

 

 

 

Tuberculosis

 

 

 

 

 

 

 

 

Ebola

 

 

 

 

 

 

 

 

H7N1/Flupan*

 

 

 

 

 

 

 

 

Factor VL/C

 

 

 

 

 

 

 

 

 

HIV

 

 

 

 

 

 

 

 

 

H5N1 Avian antibodies*

 

 

 

 

 

 

 

 

 

 

* pandemic influenza

 

17


 

Our Business

Products

 

Products

 

We focus on developing and marketing vaccines and antibodies against a range of infectious diseases. Vaccines play a vital role in protecting against these diseases and have contributed significantly to the improvement of global public health in the twentieth century. In this section you will find information about our key marketed products.

 

 

18


 

Our Business

Products

 

 

19


 

Our Business

Products

 

 

Market area

 

Product

 

Comment

Paediatric

 

Quinvaxem

 

Fully liquid vaccine for protection against five childhood diseases

 

 

Epaxal® Junior

 

Low dosage unique aluminum-free hepatitis A vaccine (0.25ml)

 

 

Hepavax-Gene®

 

Recombinant hepatitis B vaccine

 

 

MoRu-Viraten®

 

Vaccine for protection against measles and rubella (all age groups)

Travel and endemic

 

Epaxal®

 

Unique aluminum-free hepatitis A vaccine

 

 

Vivotif®

 

Unique oral typhoid vaccine

 

 

Dukoral®

 

Internationally licensed oral vaccine against cholera (and ETEC)

Respiratory

 

Inflexal® V

 

Virosomal adjuvanted influenza (all age groups)

 

Products

 

Our three market areas:

 

Prior to 2006, our main focus was the development of technology to support the research, development and manufacture of biotech products. The acquisitions of Berna Biotech, Berna Product Corporation and SBL Vaccines in 2006 expanded our capabilities, creating a fully-integrated biopharma company. Berna Biotech, Berna Product Corporation and SBL Vaccines were selling approximately 30 products worldwide. We divested and rationalized the portfolio focusing on those with higher margins and growth potential. As a result, we now have a product portfolio with three distinct focus areas:

 

·  Paediatric

·  Travel and endemic

·  Respiratory

 

Our products represent an untapped source of growth. We are focusing on four activities in order to unlock this growth potential:

 

Life cycle management

 

Prolong sales through life-cycle management. For example, we are seeking to add another antigen to our pentavalent vaccine, Quinvaxem™, to create a novel vaccine and combine our travel vaccines.

 

Untapped markets

 

While we sell in about 60 countries, most of our prime sellers are, for example, not sold in the U.S. For selected products we will go after untapped markets.

 

Segmentation

 

Segment the products, focusing on those with higher margins. As noted above, we are already segmenting our products on a geographical basis. However, we also segment our products by creating variations of a vaccine that target a particular market, as we did with Epaxal® by introducing Epaxal® Junior aimed at the paediatric market.

 

Sales and Marketing

 

In order to increase penetration, we are also focusing on sales and marketing. Our efforts relating to increasing the penetration of Dukoral® are an example of this type of activity.

 

20


 

Our Business

Products

 

Growth of Quinvaxem

Tremendous endemic reach

 

Quinvaxem
vaccines sold

(Doses in million units)

 

 

Quinvaxem™

 

One of the World Health Organization’s (WHO) prime goals is the reduction of child mortality. The contribution of immunization towards meeting this goal is indisputable, and Crucell’s Quinvaxem™ is the only fully liquid pentavalent vaccine that has been approved by the WHO (as shown above).

 

Quinvaxem™, first launched in 2006, combines antigens for protection against five important childhood diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B and Haemophilus influenzae type b – one of the leading causes of bacterial meningitis in children.

 

Initial indications are that the majority of markets prefer a fully liquid vaccine due to the ease of use. Quinvaxem™ gives them that option. Sales for 2008 are expected to far exceed 2007 levels (the chart, left, shows the number of doses sold in 2006 and 2007).

 

Quinvaxem™ was co-developed with Novartis (Chiron Corporation) which provides four of the five components as bulk. We produce the vaccine at our Korean facilities.

 

Epaxal®

 

Epaxal® is the only aluminum-free hepatitis A vaccine on the market. The absence of aluminum reduces the pain caused on administration, offering significant advantages in terms of tolerability. This makes it particularly well suited to the paediatric market. Early 2008 we launched Epaxal® Junior to exploit that opportunity – a good example of our segmentation strategy. Epaxal® induces protective antibody levels within 10 days of primary vaccination and provides seroprotection for at least 20 years following the second (booster) dose. It can be fitted into the regular immunization schedule for babies.

 

Dukoral®

 

Dukoral® is a drinkable vaccine with a documented protective effect against diarrhoea caused by cholera, as well as traveler’s diarrhea. The vaccine stimulates a protective immune response in the gut and has a demonstrated protective efficacy against cholera of approximately 85%.


 

Dukoral® is very well known in Scandinavia. In Sweden, for example, there are estimated to be around 1.2 million travelers a year; 37% of them seek advice relating to traveler’s diarrhea. Of these, 90% use Dukoral®. However, the number of travelers seeking advice, as well as the percentage using Dukoral®, in other countries is much lower. As a result, we are relaunching Dukoral® in continental Europe in order to develop this untapped market.

 

21


 

Our Business

Research & Development Pipeline

 

Research & Development Pipeline

 

Our research efforts today are focusing on developing vaccines and antibodies that address unmet medical needs and infectious diseases. Our research efforts are bolstered by our range of technologies, which play a critical role in our development programs. The following pages discuss key developments relating to our discovery programs, as well as providing key areas of focus.

 

 

22


 

Our Business

Research & Development Pipeline

 

 

23


 

Our Business

Research & Development Pipeline

 

 

Product pipeline          Development stage

Product

 

Pre-clinic

 

Phase 1

 

Phase 2

 

Phase 3

 

Comment

Flavimum®

 

 

 

 

 

Yellow Fever vaccine

Influenza seasonal

 

 

 

 

 

 

Developed by sanofi pasteur using PER.C6®; planned submission in 2010

H9N2*

 

 

 

 

 

 

Trial completed; findings expected first half 2008

Rabies antibody cocktail

 

 

 

 

 

 

Partnered with sanofi pasteur; Phase II U.S. trial to started 1H 2008

Malaria

 

 

 

 

 

 

 

Phase I trial in U.S. on two sites; initial findings expected in 2008

Tuberculosis

 

 

 

 

 

 

 

Partnered with Aeras; well tolerated, high response to TB antigens

Ebola

 

 

 

 

 

 

 

Partnered with VRC; initial indication suggests safety & immunogenicity

H7N1/Flupan*

 

 

 

 

 

 

 

Developed by sanofi pasteur using PER.C6®

Factor VL/C

 

 

 

 

 

 

 

 

Blood coagulation Factor V

HIV

 

 

 

 

 

 

 

 

Partnered with Harvard; Phase I trial started in Q1 2008

H5N1 Avian antibodies*

 

 

 

 

 

 

 

 

Results demonstrating potential pandemic preparedness

 

* pandemic influenza

 

Multiple products in a focused pipeline

 

As part of our product development program, we investigate many different product candidates.

 

Our discovery programs include a number of potential products that are in an early stage of development. The decision to pursue development of these products and add them to our product pipeline is dependent on stringent evaluation and selection.

 

Key developments relating to our pipeline over the year:

 

·  The seasonal flu vaccine being developed with sanofi pasteur using our PER.C6® technology entered into Phase II clinical trials.

·  Rabies monoclonal antibody cocktail was granted Fast Track status by the U.S. Food and Drug Administration (FDA).

·  Preliminary data from Phase I AdVac/PER.C6® technology based tuberculosis trial in South Africa indicates highest immune responses ever.

·  We discovered human monoclonal antibodies for the treatment of the H5N1 pandemic flu virus.

·  We signed an exclusive license and research collaboration agreement with MedImmune in the field of hospital acquired bacterial infections.

 

24


 

Our Business

Research & Development Pipeline

 

 

Influenza (seasonal)

 

Yearly epidemic outbreaks of influenza virus cause high morbidity and mortality rates. During each influenza season, it is estimated that about 10 to 20% of humans worldwide contract flu, and an average of 3 to 5 million people suffer severe illness. About 250,000 to 500,000 people die each year from complications associated with flu.

 

Sanofi pasteur is developing an epidemic (or seasonal) influenza vaccine (FluCell), based on our proprietary PER.C6® technology. PER.C6® offers advantages in terms of safety and industrial-scale production. Sanofi pasteur has the worldwide rights to develop, manufacture and commercialize PER.C6® technology-based influenza vaccine, with the exception of Japan. In return we are entitled to a royalty based on their sales.

 

H5N1 Avian antibodies (pandemic influenza)

 

There is a growing fear within the medical community concerning the potential re-occurrence of a pandemic influenza outbreak, similar to the 1918 ‘Spanish flu’ pandemic. A pandemic can start when a new influenza virus subtype emerges that meets three conditions: it infects humans causing serious illness; it spreads easily; and there is sustained human-to-human transmission of the virus.

 

We have discovered the first human monoclonal antibodies for the prevention and treatment of avian flu. The antibodies provide immediate protection and neutralize a broad range of H5N1 strains in pre-clinical models and may, therefore, provide a powerful tool in pandemic preparedness.

 

The H5N1 virus meets the first two conditions, and the risk that the virus acquires the third capability will persist as long as opportunities for human infections occur.

 

25


 

Our Business

Research & Development Pipeline

 

 

Tuberculosis

 

Tuberculosis is the world’s second deadliest infectious disease, with over 9 million new cases diagnosed in 2006. According to the World Health Organization (WHO), an estimated 1.7 million people died from tuberculosis in 2006. The current tuberculosis vaccine, developed over 85 years ago, reduces the risk of sever forms of tuberculosis in early childhood, but is not very effective in preventing pulmonary tuberculosis in adolescents and adults – the population with the highest rates of tuberculosis disease. In addition, extensively drug- resistant tuberculosis (XDR-TB) is hampering treatment and control efforts (see map above).

 

In collaboration with the Aeras Global Tuberculosis Vaccine Foundation, we are developing a recombinant tuberculosis vaccine based on our AdVac® vaccine technology and our PER.C6® manufacturing technology. Currently a series of three Phase I trials are taking place, with the first two studies indicating very promising results.

 

“Preliminary data show highest CD8 immune responses ever in a tuberculosis vaccine study.”

 

26


 

Our Business

Research & Development Pipeline

 

 

Rabies Monoclonal Antibody Cocktail

 

Rabies is prevalent in all the continental regions of Europe, Asia, America and Africa. Globally, approximately 10 million people a year are treated after exposure to rabies. Some 40,000 to 70,000 people are thought to die of the disease each year, mainly in Africa, China and India.

 

Using MAbstract® and PER.C6® technology, we discovered a human monoclonal antibody cocktail for the post-exposure treatment of rabies in collaboration with the Thomas Jefferson University (TJU) in Philadelphia and the U.S. Centers for Disease Control and Prevention (CDC) in Atlanta, U.S.

 

During the year we signed an exclusive collaboration commercialization agreement with sanofi pasteur for the development of the rabies monoclonal antibody cocktail. Due to promising Phase I results, the FDA Department of Health and Human Services has granted a Fast Track designation, which paves the way for faster development and regulatory review of the candidate product.

 

“We signed an exclusive collaboration with sanofi pasteur for our rabies monoclonal antibody cocktail where we received €10 million upfront and are eligible for milestones up to €66.5 million”

 

27


 

Our Business

Technologies

 

Technologies

 

Our strong product portfolio is supported through a range of patented technologies. Our cutting-edge technology platforms enable the discovery, development and production of vaccines, therapeutic proteins and gene therapy products.

 

 

28


 

Our Business

Technologies

 

 

29


 

Our Business

Technologies

 

What is PER.C6®?

 

PER.C6® is a human designer cell line for the development and large-scale manufacturing of biopharma products. In areas where we do not aim to develop our own products, we license the technology to the biopharmaceutical industry. Currently over 60 companies and organizations have selected our PER.C6® technology to develop their own products across a wide range of therapeutic areas.

 

PER.C6®: adaptable

 

Any manufacture of biopharmaceuticals has to take account of rapidly changing factors, such as rising volume demands and more stringent safety requirements. These shifts are a major challenge to conventional manufacturing platforms that have not adapted or become sufficiently flexible to cope with such changes. Our PER.C6® production cell line, however, is designed to meet these demands.

 

Our other core technologies:

AdVac®

 

Technology, used in combination with PER.C6®, to develop recombinant vaccines

MAbstract®

 

Applied for discovery of novel drug targets and identification of human antibodies

STAR®

 

Designed to enhance production yields of recombinant human antibodies and proteins on mammalian cell lines

Virosome

 

A vehicle enabling the use of virus antigens in the making of vaccinations

 

 

30


 

Our Business

Technologies

 

PER.C6®: well protected

 

Our PER.C6® technology is protected by numerous patents. In addition, in order to benefit from our proprietary technology, potential customers not only need our know-how, but also our PER.C6® cells, which are only available from us under agreement. These agreements put certain restrictions on further dissemination and use of the PER.C6® cells. This combination of protections – patented know-how and the need to have access to the actual PER.C6® cells results in the PER.C6® technology being the best protected human cell technology in the world.

 

PER.C6® for protein and antibody production

 

We have a collaboration with DSM Biologics for the application of PER.C6® for proteins and antibodies. Together with DSM we license PER.C6® for proteins and antibodies as well as invest in further innovation of PER.C6®.

 

Working alongside DSM Biologics on the PER.C6® manufacturing platform, we believe that there is further potential to reduce the production costs of monoclonal antibodies, whilst increasing yield resulting in more affordable treatments for patients.

 

In March 2008, we jointly announced that we had achieved a record level titer of 15 grams per liter at harvest for an antibody product using PER.C6® at our PERCIVIA joint venture development center in Massachusetts, U.S.

 

 

 

31


 

Operational Excellence

Healthy Ambition

 

Healthy Ambition

 

We have transformed our company from one focused on research and licensing to being a fully integrated vaccine business. That is already delivering results: gross margins improved from 31% to 34% in 2007. Our next challenge is to improve operational excellence. Starting in 2008, our Healthy Ambition program will do exactly that by setting a target of 15% cost savings (excluding research and development costs), further improving gross margins.

 

 

32


 

Operational Excellence

Healthy Ambition

 

 

33


 

Operational Excellence

Healthy Ambition

 

 

Healthy Ambition

 

As a result of the acquisitions of Berna Biotech, Berna Products Corporation and SBL Vaccines in 2006, our operations expanded considerably. Our workforce grew from just under 300 to well over 1,000 employees and the number of worldwide locations where we operate increased five-fold – an increase in the scale, scope and complexity of the company.

 

Having integrated these new businesses, it is now appropriate to look at opportunities to improve our operational excellence – an integral part of our strategy for accelerating growth. Our Healthy Ambition program, which includes a rigorous review of our business processes around the world, includes a target to find savings of approximately 15% on the 2007 cost base, excluding research and development.

 

Three triggers for operational excellence

 

The growth in workforce, locations and complexity triggers three potential drivers for operational excellence,

 

·   Capturing synergies relating to both costs and resources.

·   Reducing costs to create a competitive cost position.

·   Funding growth, by creating cash to fund our biotech pipeline.

 

Phases of the program

 

Healthy Ambition started in January 2008, and consists of three initial phases prior to being rolled out in the second half of our 2008 financial year. Accordingly, while there will be some savings coming through during the second half of 2008, the bulk of the savings will not be realized until 2009.

 

34


 

Operational Excellence

Healthy Ambition

 

 

Healthy Ambition: preliminary findings

 

·         A detailed analysis of our procurement processes and spending found that our spendbase is fragmented and therefore under-leveraged. As a result, there is significant potential for cost reduction.

·         Additionally, we have assessed our true ‘cost-to-serve’. We have found that complexity in our product portfolio is a major cost driver. Again, this suggests there is considerable potential to reduce costs.

·         Finally, we have started looking into our business processes. We believe there are opportunities to improve the alignment of, and to centralize, some functions.

 

“Targeting annual savings of 15% (excluding R&D) by the end of 2009.”

 

35


 

 

Forward-Looking Statements/Trademarks

 

Forward-looking statements

 

This Annual Report contains forward-looking statements. All statements regarding our future financial condition, results of operations and business strategy, plans and objectives are forward looking. Statements containing the words ‘believes’, ‘intends’, ‘expects’, and words of similar meaning are also forward looking. In particular, the following are forward looking in nature: statements with regard to strategy and management objectives; technology and product development efforts; our ability to realize commercially valuable discoveries; our intellectual property portfolio; our ability to develop potential products and technologies suitable for commercialization; the effects of changes or prospective changes in regulation; and trends in results, operations and overall market trends.

 

These forward-looking statements involve risks, uncertainties and other factors, some of which are beyond our control, that may cause our results, performance or achievements or conditions in the markets in which we operate to differ from those expressed or implied in these forward-looking statements. We describe certain of these risks and uncertainties in the section ‘Risk factors’. We caution not to place undue reliance on these forward-looking statements, which reflect our Management’s view only as of the date of this document.

 

Trademarks

 

New trademarks for our products are registered on a worldwide basis. Distribution and agency agreements normally include a clause specifying that, at the termination of the agreement, trademark and product registration rights return to us. We are the owner of over 150 registered trademarks. The most important of these are: CRUCELL®, BERNA®, SBL®, the Berna, SBL and Crucell logos, ChromaGenics®, EPAXAL®, INFLEXAL®, VIVOTIF®, FLAVIMUN®, DUKORAL®, H EPAVAX-GENE®, MoRu-Viraten®, PER.C6®, PER.C6® logo, AdVac®, MAbstract® and STAR®. In addition we hold rights to use certain trademarks that are owned by our partners, such as Quinvaxem from Novartis (formerly Chiron). All other trademarks, service marks, trade names and registered marks used in this report are trademarks, trade names or registered marks of their respective owners. Crucell N.V. and its subsidiaries own a number of additional trademarks, including registered trademarks that are not referenced in this report.

 

36


 

Contents

 

Management Report

 

 

 

 

 

Report of the Management Board

 

38

 

 

 

Information on the Company

 

41

Business Drivers

 

41

Products

 

42

Research and Development Pipeline

 

45

Technologies

 

50

Partners, Agreements, Investments and Other Collaborations

 

55

Intellectual Property

 

60

Industry and Scientific Overview

 

64

Competition in Product and Technology Development

 

65

Additional Information on the Company

 

69

 

 

 

Risks Factors

 

72

 

 

 

Operating and Financial Review and Prospects

 

85

Critical Accounting Policies and Estimates

 

87

Results of Operations

 

93

 

 

 

Corporate Social Responsibility

 

103

 

 

 

Corporate Governance

 

106

Corporate Governance at Crucell

 

106

Directors, Senior Management and Board Practices

 

109

Remuneration Policy for Management Board and Supervisory Board

 

116

Controls and Procedures

 

118

Attestation Report of the Independent Registered Public Accounting Firm

 

121

 

 

 

Articles of Association and Share Capital

 

122

 

37


 

Management Report

Report of the Management Board

 

Report of the Management Board

 

Summary of the full year financial results

 

Total revenue and other operating income for the year ended December 31, 2007 were € 213.1 million, which represents a more than 50% increase over the € 140.9 million in revenues and other operating income reported in 2006. The increase in total revenues is mainly attributable to sales of paediatric and travel vaccines. Total operating expenses amounted to € 129.8 million.  R&D expenses of € 64.0 million reflect continued focus on (pre-) clinical development. Reported loss over 2007 amounted to € 45.9 million.

 

Cash and cash equivalents at December 31, 2007 amounted € 163.2 million (2006: € 157.8 million).

 

Geared up for rapid expansion

 

The 2007 financial year was a pivotal year for our company in which we were cash flow positive for the first time in the history of Crucell. We completed the transformation of a start-up company, geared exclusively towards developing technologies and biotech products, into a fully integrated biopharmaceutical company. Our global organization now covers the entire range from laboratory to sales, from product and process development to production and distribution, and from vaccines to antibodies.

 

Crucell’s strategic focus remains firmly on fighting infectious diseases through the development, manufacturing and sales of innovative vaccines and antibodies. Infectious diseases represent a major health burden and their impact will increase due to trends such as climate change, globalization, and ageing.

 

An integral part of Crucell’s strategy to accelerate growth, is a clear focus on achieving operational excellence. A rigorous review of Crucell’s business processes worldwide is being conducted and, excluding R&D, savings of approximately 15% on the 2007 cost base are being targeted.

 

Rationalization is one other aspect of Crucell’s ‘Healthy Ambition’ program, which is implemented throughout the global organization in order to further strengthen the overall competitiveness of the company. Cash generated by streamlining business processes and making full use of synergies within the integrated organization will fuel further R&D in targeted areas, thereby enhancing Crucell’s ability to significantly improve human health.

 

In 2007 strong revenue and margin growth was achieved in the company’s existing vaccines business. Due to the successful roll-out of Quinvaxem in the fourth quarter of 2006, the Company’s pentavalent paediatric vaccine, the sales of this product grew from 6.3 million units in 2006 to 21.3 million units in 2007. For 2008 the Quinvaxem sales are expected to be significantly higher than in 2007.

 

Significant growth in sales of Crucell’s marketed products comes from substantial opportunities for launching its portfolio of current vaccines in new markets and growing sales in existing markets.

 

At the same time Crucell enjoys a pipeline of multiple products tailored to address major threats to health and well-being worldwide as well as strong partnerships in vaccine and antibody research. Crucell’s portfolio of unique technologies generates licensing income and is used in Crucell’s in-house R&D and manufacturing.

 

Crucell’s growth strategy also includes continued investments in R&D to ensure solid progress in clinical development. Both vaccine and antibody research is being focused on combating infectious diseases, with an emphasis on the existing categories of paediatric, travel and respiratory illnesses. High-priority programs showing promising results in clinical trials include vaccines against malaria and tuberculosis, and a monoclonal antibody cocktail against rabies. Furthermore Crucell’s scientists discovered a set of human monoclonal antibodies that provides immediate protection and neutralizes the broadest range of H5N1 strains of avian flu in pre-clinical models.

 

38


 

Management Report

Report of the Management Board

 

Paediatric vaccines

 

Crucell is uniquely positioned with its fully liquid 5 in 1 pentavalent vaccine Quinvaxem, which is the only pentavalent, fully liquid vaccine that is approved by the WHO. The advantages are ease of use in handling and administration.

 

Besides Quinvaxem, Crucell’s sales growth will be driven by the further roll-out of Epaxal Junior. Epaxal Junior is the only aluminium-free Hepatitis A paediatric vaccine available in the market at this moment, showing superior immunogenicity and better local tolerability. Launch in South America will commence in 2008.

 

Hepavax-Gene is Crucell’s recombinant Hepatitis B vaccine, which is one of the WHO’s pre-qualified vaccines for active immunization against hepatitis B virus.

 

In the first half of 2007, Crucell’s MoRu-Viraten vaccine for measles/rubella was successfully licensed and its registration was renewed.

 

Travellers’ vaccines and other programs

 

Crucell began Phase II studies on our PER.C6 technology based rabies antibody cocktail in March 2008. The U.S. Food and Drug Administration (FDA) has granted this monoclonal antibody cocktail Fast Track status following successful completion of the Phase I clinical trials, which demonstrated that the antibody product is well tolerated, provides the expected immediate passive neutralizing activity and that it can be safely administered in combination with a rabies vaccine without interfering with the vaccine’s ability to induce an active immunity.

 

The Crucell-Aeras TB vaccine program is focusing on improvement of the only currently available vaccine, Bacillus Calmette-Guérin (BCG), using our PER.C6 and AdVac technologies. We began Phase 1 clinical trials of the AdVac-based tuberculosis vaccine in the fourth quarter of 2006. The Phase I clinical trial, funded and managed by Aeras and conducted in the U.S., indicated that the vaccine candidate is safe in healthy adults. In December 2007 Aeras and Crucell announced the start of a tuberculosis vaccine clinical trial in the U.S. Another trial to examine the immunogenicity and safety will start in 2008.

 

The research program into the recombinant antibody Factor VL/C has proven to be more challenging than previously anticipated and pre-clinical research provided mixed results and insufficient evidence of the protective benefit of the product as a standalone therapy. Consequently, the research and development expenditure previously earmarked for this program will now be largely re-allocated.

 

The commercial and market opportunities for the West Nile Virus have proven to be less than originally anticipated. The Phase I trial for a vaccine was completed, demonstrating safety and tolerability. However, the commercial and market opportunities for the West Nile Virus have proven to be less then originally anticipated. Consequently, we have decided to discontinue the program.

 

Respiratory

 

Crucell scientists, using MAbstract phage display, discovered human monoclonal antibodies able to neutralize a broad range of H5N1 viruses of avian influenza. When the monoclonal antibody was given in a pre-clinical model, one day prior to infection with the H5N1 virus, it resulted in full protection against infection. Treatment with the antibody up to three days after infection resulted in 100% survival and cure of the disease. These antibodies may therefore provide a powerful tool in pandemic preparedness.

 

Collaborative research and production of novel vaccines continues to enhance our portfolio, demonstrated by our joint development of a cell culture-based seasonal influenza vaccine (Flucell) with sanofi pasteur, the vaccines division of sanofi-aventis. Our strategic cooperation in this area began in 2003, with sanofi pasteur subsequently receiving a $ 97 million U.S. government contract for clinical development of a PER.C6 technology based vaccine in 2005. Phase II trials utilizing human subjects began in late 2007 concentrating on the safety and immunogenicity of this vaccine. The FLUPAN research project, funded by the European Commission and involving universities as well as sanofi pasteur, has begun a Phase I clinical trial. This will involve a split, inactivated pandemic H7N1 vaccine produced on our PER.C6 technology.

 

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Unique technologies for licensing business

 

In 2007, Crucell secured licensing agreements with Biotecnol SA, Abbott Park, Pfizer Animal Health, ADImmune Corporation, Taiwanese Development Center for Biotechnology, MedImmune, Sartorius Biotech GmbH, Masterclone, LFB Biotechnologies, Invitrogen Corporation, Patrys, Recepta Biopharma S.A., Daiichi Sankyo Ltd., Acambis, Transgene SA, ProFibrix, ISU ABXIS, and Medarex Inc. The company entered into a co-exclusive PER.C6 and AdVac technology license agreement with Wyeth Pharmaceuticals, a division of Wyeth, in July 2007.

 

In September 2007, Merck & Co., Inc. exercised an option for the exclusive use of Crucell’s PER.C6 technology and an option for access to Crucell’s AdVac vaccine technology in two infectious disease areas. This represents a continuation of the close working relationship between Merck and Crucell, which has involved a number of agreements, including the maintenance of the PER.C6 technology Cell Substrate Biologics master file.

 

MedImmune and Crucell entered into an exclusive license and research collaboration in October, to further develop and commercialize bacterial antibodies discovered by Crucell primarily for the treatment and prevention of hospital-acquired bacterial infection.

 

In December 2007, an exclusive collaboration and commercialization agreement was signed with sanofi pasteur, for Crucell’s rabies monoclonal antibodies to be used in association with rabies vaccine for post-exposure prophylaxis against this disease. Crucell received a payment of € 10 million following the execution of the agreement and will be eligible for milestone payments of up to € 66.5 million and additional royalties on products sold.

 

For further details on licenses and licensees please see ‘Information on the Company – Overview of Licensees and Partners’ in this Annual Report.

 

Outlook

 

With our current portfolio of existing products we are well positioned to benefit from the increasingly strong global demand for vaccines. As a consequence, we expect strong sales growth for our existing vaccine products.

 

We expect the deal flow from our PER.C6 licensing business to increase. We believe that the number of licenses and the revenue flow from the PERCIVIA joint venture will grow steadily in the future. The recent breakthrough that we achieved with our partner DSM Biologics, realizing fermentation yields of more than 15 grams per liter in a perfusion type bioreactor for monoclonal antibodies, gives a positive impulse to growth in our licensing activities.

 

Our development programs like malaria and tuberculosis will require continued investments in R&D. This investment will progress our development programs in the clinical trials. Furthermore we will continue to invest in discovery programs to progress these into the clinical trial phase.

 

We focus on overall effectiveness of our global sales network to increase our product sales and sell more third-party products through our sales channels to gain additional revenue.

 

In the course of 2008, we expect to make further decisions that may impact our income statement, such as setting priorities in our discovery and development programs, and seeking partnerships to accelerate the market introduction of pipeline products with solid market potential. We are not in a position to comment on expected 2008 results other than in global terms:

 

·        We expect an increase in total revenue and other operating income by 20% in constant currencies(1);

·        We also expect to achieve positive cash flow for the second year running;

·        As we roll out our operational excellence program in 2008 we expect to further improve margins.

 

We expect revenues and operating income to be phased throughout 2008 like in 2007. Cash flow and working capital are expected to deteriorate in the first half of 2008 due to the seasonality of our business. We build inventory in the first half of the year to sell our products in the second half of the year. We expect the negative cash flow in the first half year to reverse in the final quarter of 2008, to end the year with an overall positive cash flow for the year.

 

(1) Constant currencies = Weighted average EUR/USD rate of 1.38 in 2007.

 

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Information on the Company

 

We are a public limited liability company incorporated in Leiden, the Netherlands with the legal and commercial name Crucell N.V., registered under number 28087740. We were incorporated on October 9, 2000, as the holding company for Crucell Holland B.V., formerly called IntroGene B.V., following the combination of IntroGene B.V. and U-BiSys B.V. Our principal executive office is located at Archimedesweg 4-6, 2333 CN Leiden, the Netherlands. Our telephone number is +31 (0)71 519 9100. Our agent in the U.S. is CT Corporation, 111 Eighth Avenue, New York, New York 10011.

 

Business drivers

 

Our business strategy is based on the following business drivers:

 

Products

 

Leveraging presence of our marketed vaccines in public and private markets. We produce and sell established paediatric, respiratory and travel vaccines. We intend to enhance our position in these markets by highlighting the unique features of these products and by providing outstanding customer service in terms of delivery, reliability and quality and by leveraging our worldwide presence in both public and private markets.

 

Our core portfolio consists of the following products: Quinvaxem, the fully-liquid vaccine for protection against five important childhood diseases; Hepavax-Gene, the recombinant vaccine against hepatitis B; Epaxal, the only aluminium-free hepatitis A vaccine; Vivotif, the only oral anti-typhoid vaccine; Dukoral, the only internationally licensed oral vaccine with documented efficacy against diarrhoea caused by cholera; and Inflexal V, the virosomal adjuvanted influenza vaccine for all age groups. We have manufacturing facilities in the Netherlands, Switzerland, Korea, Spain and Sweden.

 

Research and Development (R&D) product pipeline with competitive advantage

 

We believe that each of our selected products either targets unmet medical needs, improves current medications, or is perceived as a marketable product due to predictive study models and/or perceived favourable regulatory conditions. These products are predominantly based on our PER.C6 technology.

 

In addition, we have various discovery programs to find new vaccine and antibody leads.

 

Besides our portfolio of well known vaccines, we have a pipeline of new potential vaccines and antibodies. Product pipeline programs include vaccines against yellow fever, influenza, ebola, HIV, malaria, tuberculosis, human monoclonal antibodies against rabies, H5N1 antibodies, pandemic influenza virus. Our R&D activities are concentrated in our headquarters in the Netherlands. Product development is concentrated in our Swiss operations in Bern. Our R&D facilities are located in the Netherlands, Switzerland, Korea and Sweden.

 

Technologies – ongoing technology licensing program

 

We have a broad base of excellent technologies with applicability to vaccines, antibodies, other recombinant proteins and gene therapy. Our licensing program provides a source of revenue as well as the potential for future, additional revenue in the form of royalties from products developed by our licensees. In areas where we are not developing our own products, we offer our technologies to the biopharmaceutical industry for the development and production of diverse biopharmaceutical products.

 

We have developed various proprietary technologies such as PER.C6, AdVac, MAbstract, STAR, our virosomal technology, rCTB as well as our Hansenula polymorpha expression system. We believe our proprietary PER.C6 technology is well suited for the development and large-scale manufacturing of a wide range of biopharmaceuticals including vaccines, monoclonal antibodies, therapeutic proteins and gene therapy products. AdVac is used to develop novel adenoviral-based products. MAbstract can be used to develop human antibodies. Our STAR technology is useful for increasing production output of recombinant antibodies and therapeutic proteins on mammalian cell lines and we have indications that the technology is complementary to our PER.C6 technology.

 

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Products

 

Overview

 

Our products are marketed by our own sales force as well as by our distribution partners. Our sales are exposed to seasonal variations, and the majority of our sales are made in the second half of the financial year. This is specifically the case for our influenza vaccines as vaccination programs mainly take place in the second half of the year, but also our travel vaccines are subject to seasonal travel patterns.

 

Vaccine markets

Our core product portfolio currently consists of six marketed vaccines in three leading segments of the vaccine market: paediatric vaccines, travel vaccines and respiratory vaccines.

 

Paediatric vaccines

Our core paediatric vaccines are Quinvaxem and Hepavax-Gene.

 

Quinvaxem

On March 27, 2006 the Korea Food and Drug Administration (KFDA) awarded a licence to Quinvaxem, a fully liquid pentavalent (five-component) vaccine we produce in Korea. Following WHO prequalification in September 2006, Quinvaxem was made available to supranational purchasing organizations. Supranational organizations are major customers for combination vaccines, which are used in large vaccination programs. Quinvaxem combines antigens for protection against five deadly childhood diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B and Haemophilus influenzae type b, one of the leading causes of bacterial meningitis in children. It is the first internationally available fully liquid vaccine containing all five of the above antigens to reach the market, offering a clear advantage in terms of convenience of use. Quinvaxem was co-developed with Novartis (formerly Chiron), which provides four of the five components as bulk.

 

In December 2006 we were awarded contracts totalling over $ 230 million for our Quinvaxem and Hepavax-Gene paediatric vaccines by supranational organizations. The contracts provide for the supply of these vaccines through 2009, with the awarded amount growing over those three years. In addition, a Latin American supranational organization ordered 7 million doses of Quinvaxem, which we will deliver in 2008.

 

Hepavax-Gene

Hepavax-Gene is a Hansenula polymorpha-based recombinant hepatitis B vaccine. Since its launch in 1996, more than 590 million doses of Hepavax-Gene have been commercially distributed in more than 90 countries, making it the third most used hepatitis B vaccine in the world. A key competitive advantage for Hepavax-Gene is our stable and efficient production system. The vaccine is produced in Korea.

 

Hepatitis B (‘HBV’) is a viral infection of the liver that causes various complications if left untreated and may even ultimately cause death. Transmission of HBV occurs as a result of the exchange of blood, the exchange of fluids during sexual intercourse, and the exchange of body fluids between an infected mother and a new-born baby during birth.

 

Market researcher Datamonitor assesses the HBV drugs market at $ 431 million in 2006 across seven major markets and expects the market to nearly triple in size by 2016. Data monitor predicts rapid growth until 2011 that will slow down in the following years as a result of the introduction of generics and the impact of routine HBV vaccination.

 

The key participants in the HBV market for the developed world are GSK and Merck & Co. Main competitors for sales to supranational organizations are LG, Shanta and SII.

 

Travel and endemic vaccines

 

Our core travel vaccines are Epaxal, Vivotif and Dukoral.

 

Travel vaccines include all vaccine products that protect against diseases which are not native to the region travellers are from but are present in the regions they travel to. Generally, the target population groups for these vaccine products are individuals travelling to endemic and epidemic regions. Our vaccines for hepatitis A, typhoid and cholera are classified as travel vaccines.

 

Our travel vaccines are also increasingly used in expanded immunization programs. Vaccines used in countries with medium to high endimicity could also be characterized as routine or paediatric vaccination. Furthermore, even in some European countries where endemicity is low, childhood vaccination against Hepatitis A is recommended. Use of vaccines in this manner represents a large potential upside for vaccine manufacturers as these vaccines are not restricted to travel vaccination,

 

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but are also applied in other vaccine markets. Our HAV vaccine Epaxal may be used this way.

 

Epaxal

Epaxal is the only virosome-adjuvanted vaccine for hepatitis A (HAV). The vaccine has a superior tolerability thanks to the virosomal technology replacing aluminium. The virosome has a unique mechanism of action and mimics the natural process. No aluminium or thiomersal has to be added, resulting in the only bio-degradable HAV vaccine in the world. The vaccine is highly effective, offering protective immunity within a few days following the first dose and, following the second (booster) dose, providing immunity for up to 20 years. The product is currently licensed in more than 40 countries world-wide under the brand names Epaxal and HAVpur and in most of these countries is licensed for adults and children over the age of one year. We currently market Epaxal for HAV in Europe, Latin America and Asia.

 

The paediatric dose of Epaxal (Epaxal Junior) showed in a Phase III study to be effective in combination with other children’s vaccines, providing immediate and long lasting protection. The product’s registration dossier has been filed with the Swiss Health Authorities and has been approved. The product is currently under registration in selected countries.

 

HAV is a highly contagious infection that causes acute inflammation of the liver. HAV is generally contracted orally through and is considered the least dangerous form of hepatitis because it does not lead to chronic inflammation of the liver. HAV commonly spreads through improper handling of food, contact with household members, sharing toys at day-care centres, and eating raw shellfish taken from polluted waters.

 

The key participants in the HAV market are GSK, Merck and sanofi pasteur. In addition, GSK markets Twinrix, a combination vaccine for HAV and HBV, while sanofi pasteur and GSK have introduced combination vaccines for HAV and typhoid fever.

 

Vivotif

Vivotif is a live attenuated typhoid fever vaccine administered orally. It is the only oral vaccine indicated for use against salmonella typhi, the most prevalent of the typhoid fever-causing bacteria. Vivotif consists of a live strain of salmonella typhi that has been altered so that it stimulates an immune response, but not the disease. The bacteria are enclosed in coated capsules that dissolve in the intestines, releasing the live organism. Vivotif exhibits high tolerability and efficacy. Vivotif has an stablished track-record for safety, having been on the market for over 20 years. The vaccine is indicated for adults and children over the age of five. Vivotif is currently licensed in 44 countries, including the U.S. Recent results suggest that Vivotif may be unique in also protecting against salmonella paratyphi, a similar but milder variant of typhoid.

 

Typhoid fever is a debilitating and life-threatening illness caused by the bacteria salmonella typhi. Symptoms of typhoid fever include fever, stomach pains, weight loss, loss of appetite, delirium, severe diarrhoea (in children) and constipation (in adults). A similar but generally milder disease is paratyphoid fever, which is caused by any of three serotypes of salmonella paratyphi, A, B and C.

 

Typhoid fever is transmitted by faecal contamination of food or water, or by person to person contact. Approximately 17 million people worldwide develop typhoid fever each year and approximately 4% of patients with typhoid fever die. The disease is endemic to Africa, Asia (except Japan) and Latin America.

 

The key participants in the typhoid market are sanofi pasteur and GSK, with their injected vaccine products TyphimVi and Typherix respectively.

 

Dukoral

Dukoral is an oral vaccine that protects against cholera and the enterotoxigenic Escherichia coli (ETEC) and is registered in more than 50 countries excluding the U.S.. Dukoral is also registered in many of those countries (excluding the European Union and Australia) to protect against ETEC, which is the main cause of travellers’ diarrhoea. The vaccine is indicated for immunisation against disease caused by vibrio cholerae in adults and children from two years of age who will be visiting endemic/epidemic areas. Dukoral acts by inducing antibodies against both the bacterial components and cholera toxin (CTB).

 

Cholera is an acute, diarrhoeal illness caused by infection of the intestine with the bacterium vibrio cholerae. The infection is often mild or without symptoms, but sometimes it can be severe. Approximately 10% of infected persons have a severe case, characterized by profuse watery diarrhoea, leg cramps and vomiting, resulting in rapid loss of body fluids leading to shock and dehydration. Without treatment, death can occur within hours.

 

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According to the Centers for Disease Control and Prevention cholera has been very rare in industrialized nations for the last 100 years; however, the disease is still common today in other parts of the world, including the Indian subcontinent and sub-Saharan Africa.

 

There is no other cholera and ETEC combination vaccine in the world except for Dukoral. Regarding the cholera indication there is no competition in the developed world. There are some cholera vaccines produced locally in the developing world.

 

Respiratory vaccines

 

Our core respiratory vaccine is Inflexal V.

 

Inflexal V

Inflexal V is a virosome-adjuvanted influenza vaccine administered by injection. Due to our virosome technology, the vaccine has a high tolerability. In addition, it has a good immunogenicity profile, making it particularly effective with high-risk patients, such as the elderly, in whom the immune response is generally weaker. Inflexal V was originally introduced in 1997 and was successfully registered through the Mutual Recognition procedure in most European markets in October 2001. The vaccine is currently registered in 43 countries.

 

Influenza, commonly known as ‘flu’, affects large sections of the world’s population each year. The disease is characterized by annual winter outbreaks, which often reach epidemic proportions due to the fact that the virus can mutate quickly, often producing new strains against which human beings do not have immunity. Typical symptoms of flu are usually relatively mild but can become life threatening in vulnerable patient groups, such as the elderly and immunodeficient individuals. In a growing number of countries small children have been added to the list of preferred protection groups. Transmission of the flu virus occurs through airborne particles and, following infection, the incubation period ranges from one to three days.

 

The influenza vaccine market is one of the fastest growing vaccine markets. Global sales of influenza vaccine are, according to market research (BCC Research) expected to grow from an estimated $ 2.9 billion in 2005 to $ 7.1 billion in 2010, with average annual growth estimated at 20%.

 

Several factors contribute to the rapid growth of the influenza vaccine market. We expect that the threat of a pandemic of avian flu, the ageing of the population in numerous developed countries, national government-sponsored vaccination programs in many countries, higher awareness of the value of a flu vaccination among the public at large, as well as specific production contracts for vaccines that combat strains of pandemic flu and ongoing activities to increase the preparedness for a flu pandemic will lead to further growth in the seasonal flu vaccine markets.

 

The key participants in the market are sanofi pasteur, GlaxoSmithKline (GSK), Novartis and Solvay. Fluad, Novartis’ adjuvant flu vaccine, is the main direct competitor of Inflexal V, our influenza product.

 

Complementary vaccines

 

Our core vaccines business also includes a range of vaccines for special indications that we offer in our key markets. The company has distribution rights for various vaccines, including Avaxim, Pneumo 23, Stamaril, Gardasil, MMR II, Pentavac and Vaxigrip by sanofi pasteur MSD, Influvac by Solvay Pharma, and Encepur by Novartis’ Vaccines. See also ‘Marketing and sales partners’ in this section.

 

Protein products

 

In the field of proteins, the Company entered into two distribution agreements in 2007.

 

Prolastin

Since April 2007, we act as the exclusive distributor of Talecris’ Prolastin in nine Western European countries. Prolastin is a therapeutic protein, indicated for chronic augmentation therapy of individuals having hereditary deficiency of alpha-1 proteinase inhibitor. Proteinase inhibitor treatments are currently sold across Europe and North America.

 

Cofact

In November 2007 the Company announced the start of a marketing and distribution agreement with Sanquin, the Dutch Blood Supply Foundation. The Company has the exclusive distribution rights of Cofact-Sanquin’s prothrombin complex of blood factors II, VII, IX and X which is currently in a mutual recognition procedure (MRP) registration, which we expect to be completed in 2009, in a number of Crucell’s key markets including Norway, Sweden, Denmark, Spain and Italy. Crucell will also have a

 

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right of first refusal for China, Korea and a number of Eastern European countries. Cofact is a market leading product in the Netherlands and Belgium with approximately € 10 million in sales annually in these countries alone. Cofact is aimed at promoting blood-clotting for patients treated with anti-coagulants that have bleeding as a result of trauma or urgent surgery, or for prophylacticly treating patients with Factor II, VII and X deficiencies.

 

Research and Development pipeline

 

Overview

 

Our product development programs comprise vaccines against yellow fever, influenza, ebola, HIV, malaria, tuberculosis, human monoclonal antibodies against rabies, H5N1 antibodies, pandemic influenza virus as well as blood coagulation factors.

 

Overview of our late-stage pipeline

 

Yellow fever vaccine

Yellow fever is an infectious disease transmitted by mosquitoes, prevalent in tropical regions of Africa and South and Central America. Approximately 200,000 cases and 30,000 fatalities occur each year. Endemic areas have increased over the past 20 years. Also there is a worldwide shortage in the supply of yellow fever vaccines. Since 1963, one of the most reliable vaccines against yellow fever has been produced by the Robert Koch Institute in Berlin. Over 2.5 million doses of the vaccine have been distributed. The vaccine is safe, highly immunogenic and well tolerated. Protection starts from ten days after a single dose and persists for ten years. In 1999 we acquired the rights and know-how for this vaccine from the Robert Koch Institute. Given the successful sales of the MoRu-Viraten vaccine for measles/rubella, to avoid capacity constraints in the production of MoRu-Viraten, we decided to postpone the registration submission of the yellow fever vaccine in Switzerland.

 

Overview of our early-stage pipeline based on proprietary technologies

 

Our PER.C6 technology, complemented by our AdVac and MAbstract technologies, drives the development of our product pipeline. We continue to develop our technologies while selecting product leads for further development based on careful product selection criteria that support our long term business objectives. We have in the past and may in the future enter into collaborative and/or strategic alliance arrangements with third parties to co-develop and market products that we may develop.

 

Our primary focus is the development of a range of novel vaccine and antibody products in the area of infectious diseases. We currently have a number of core potential products we are developing using our core technologies:

 

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·              PER.C6 – An influenza vaccine, in collaboration with sanofi pasteur is being developed using our PER.C6 technology.

·              PER.C6 and AdVac – Our ebola, malaria and TB vaccines candidates are recombinant vaccines based on PER.C6 technology that also use AdVac technologies.

·              PER.C6 and MAbstract – Our candidate rabies and H5N1 antibodies are generated and produced using our PER.C6 and MAbstract technologies.

 

Of the potential products we have under development, only our yellow fever vaccine does not use our core technologies.

 

A short description of our main potential products in the early-stage pipeline, and the diseases those products target, follows:

 

Influenza

Each year approximately 10%-20% of the world’s population contracts influenza and an estimated 250,000 to 500,000 people die annually from influenza-associated complications according to the World Health Organization. As well as these annual epidemics, a major genetic shift in the influenza virus can occasionally lead to a deadly new virus strain to which the human population does not have immunity, resulting in a global pandemic. Concerns currently exist that a new avian influenza strain (H5N1) endemic among birds in Asia, and showing high pathogenicity for humans, could present a genuine pandemic threat.

 

Influenza vaccines are classically produced on embryonated chicken eggs. Currently, cell culture systems are being developed for more efficient influenza vaccine production based on Madin Darby Canine Kidney (MDCK) cells and VERO cells. In contrast to MDCK and VERO cells, PER.C6 cells grow well in suspension and are easily scalable, permitting the production of cost-efficient vaccines in large quantities. PER.C6 cells possessing the different receptors required for the production of both human strains and the avian strains that may present a pandemic threat can produce all influenza strains.

 

Sanofi pasteur

In December 2003, we entered into a strategic agreement with sanofi pasteur to further develop and commercialize novel influenza vaccines using our PER.C6 technology. Since the inception of the collaboration, production processes have been under development, with the production of a GMP master cell bank already completed. Currently, we are working to develop a pandemic flu vaccine as well as an interpandemic, or seasonal, flu vaccine under this contract. A Phase II testing of the cell culture-based seasonal influenza vaccine was initiated in the U.S. and started in the fourth quarter of 2007. The Phase II trials, which involve healthy adult volunteers, will focus further on the safety profile and immunogenicity of the cell-based vaccine. Submission is planned for 2010.

 

H7N1/FLUPAN

A collaborative research project by research institutions, universities and our partner sanofi pasteur, funded by the European Commission, began a Phase I clinical trial for a pandemic flu vaccine with 60 healthy adults in Norway. The trial is the first to assess safety and ability to generate an immune response of a split, inactivated pandemic H7N1 vaccine produced on our PER.C6 cells.

 

H9N2

We have proprietary virosomal subunit technology which we also license to third parties. In May 2006 we commenced a large clinical trial aimed at assessing the safety, tolerability and immunogenicity of different dosages of H9N2 vaccines formulated as whole virus vaccine, alum-adjuvated whole virus vaccine, and virosomal adjuvanted subunit vaccine in healthy volunteers. In this H9N2 pandemic vaccination study, that has been completed in Q4 2007, all formulations were well tolerated in high dosages. For all vaccine formulations and ages a dose response relation was seen after the first and second dose.

 

Tuberculosis

Mycobacterium tuberculosis (TB) represents one of the most prevalent infectious diseases throughout the world. It is estimated that 2 billion people are infected with TB, representing a third of the world’s population. Each year sees 8 million new cases and 2 million deaths as a result of the disease according to the World Health Organization.

 

TB is spread when people who have the active form of the disease cough or sneeze and people nearby breathe in these bacteria and become infected. Only 5-10% of infected but otherwise healthy people develop an active TB disease. Most people who carry the bacteria suffer no obvious symptoms and cannot pass on the disease to others during this latent phase of the infection. But if the immune system is weakened, active TB disease can occur. This occurs most in people infected with HIV/AIDS, which severely weakens the immune system.

 

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The increased incidence of TB is a consequence of the spread of HIV/AIDS, the emergence of multi drug resistant strains of TB and variability in protective efficacy of the only currently available vaccine, Bacillus Calmette-Guérin (BCG). Although the BCG vaccine offers protection against the most serious forms of TB in childhood, its efficacy wanes over a period of 10-15 years after the vaccination. A need for an alternative vaccination approach has emerged in the last two decades.

 

In March 2004 we announced a new collaboration with the Aeras Global TB Vaccine Foundation on the pre-clinical and clinical development of candidate TB vaccines, called AERAS-402. The Crucell-Aeras TB vaccine program is focusing on improvement of BCG, using our PER.C6 and AdVac technologies. We began Phase 1 clinical trials of the AdVac-based tuberculosis vaccine in the fourth quarter of 2006. The trial is an open-label study that is testing the vaccine in a dose-escalation trial involving 32 healthy volunteers. The trial is funded and managed by Aeras. The main parameters under examination are safety, tolerability and immunogenicity. The Phase I clinical trial indicated that the vaccine candidate is safe in healthy adults. A second study in progress in healthy adults in South Africa appears to be showing safety, tolerability and immunogenicity of AERAS-402.

 

In December 2007 Aeras and Crucell announced the start of a tuberculosis vaccine clinical trial in the U.S. Crucell will receive up to $ 5 million from Aeras to support the advanced development of the candidate AdVac- and PER.C6 technology based tuberculosis vaccine. Crucell and Aeras also announced the launch of a new Phase I BCG-Ad35 prime boost clinical trial of the AdVac-based tuberculosis vaccine. This trial will be conducted in St. Louis, Missouri, U.S.. The main parameters under examination in the trial will be the immunogenicity and safety of BCG prime followed by two AERAS-402 boost doses administered at three to six month intervals after BCG in healthy adults. The trial will be conducted as double-blind, randomized, placebo- controlled study in 32 healthy adult volunteers.

 

Ebola

Ebola fever is one of the most lethal viral diseases, with a mortality ranging from 50% to 90% according to the World Health Organization. Ebola outbreaks occur regularly in tropical Africa, affecting both human and great ape populations. To date, approximately 2,000 cases have been reported since the virus was first discovered in 1976. The ebola virus belongs to the group of ‘hemorrhagic fever viruses’, which also includes the highly pathogenic Marburg and Lassa viruses. Ebola virus causes a disease characterized by high fever and massive internal bleeding. Because no vaccine or therapy is presently available, ebola virus is on the Centers for Disease Control (CDC), National Institutes of Allergy and Infectious Diseases (NIAID), and U.S. Department of Defense Category ‘A’ list of bioterror agents. In 2003 the U.S. government announced that once available, an ebola vaccine may be stockpiled as part of its preparedness for bio-terror attacks under Project BioShield, a comprehensive effort to develop and make available modern, effective drugs and vaccines to protect against attack by biological and chemical weapons.

 

In May 2002 we entered into a Collaborative Research and Development Agreement (CRADA) with the VRC to develop jointly, test and manufacture an adenovirus-based ebola vaccine. Under the terms of the agreement, we have an option for exclusive worldwide commercialization rights to the ebola vaccine resulting from this collaboration. In August 2002, the CRADA was extended to cover vaccines against Marburg and Lassa infections. The recombinant vaccine will encompass the glycoproteins and the nucleoprotein of ebola virus, but cannot replicate in humans. This method thus provides a very important safety advantage, while ensuring that a strong humoral and cellular immune response is elicited against the ebola virus.

 

In March 2005 we extended the CRADA with the U.S. National Institutes of Health (NIH) and continue to develop this vaccine and will use the ebola vaccine results in the development of Marburg and Lassa vaccines. In addition, we obtained an exclusive license to certain NIH patents to develop and commercialize recombinant vaccines against ebola.

 

In experiments conducted by the VRC together with the U.S. Army Medical Research Institute of Infectious Diseases (U.S.MRIID) during the first half of 2004, our vaccine candidate confirmed single- dose protection in pre-clinical testing against ebola. What set the results of this trial apart from the earlier successful trial, which established a proof-of-concept, was that the vaccine in this instance was produced on PER.C6 technology. All pre-clinical material was produced at our FDA-compliant production facilities in Leiden.

 

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Phase I clinical testing commenced in the third quarter of 2006. In the randomized, double-blind, placebo-controlled study in 48 healthy volunteers the single-shot vaccine is being tested in a dose-escalation trial. The start of the trial follows the successful completion of the Investigational New Drug (IND) application process required by the Food and Drug Administration (FDA). The Phase I study is being carried out by the VRC at the NIH Clinical Center in Bethesda, Maryland and was ongoing at year-end 2007.

 

Malaria

Malaria is a life-threatening infectious disease caused by the plasmodium parasite and transmitted from person-to-person through the bite of a female Anopheles mosquito. It is one of today’s top three killers among communicable diseases. The disease currently represents one of the most prevalent infections in tropical and subtropical areas causing severe illness in 300 to 500 million individuals worldwide according to the World Health Organization and causing one to three million deaths every year. Most of these deaths occur among children and pregnant women in the developing world, especially in sub-Saharan Africa. Unfortunately, mortality associated with severe or complicated malaria still exceeds 10-30%. The widespread occurrence and elevated incidence of malaria are a consequence of discontinued malaria control programs and increasing numbers of drug-resistant parasites and insecticide-resistant parasite vectors. Other factors include environmental and climatic changes, civil disturbances and increased mobility of populations. Although the overwhelming majority of morbidity and mortality associated with malaria occur in the developing world, this disease also affects travellers.

 

Currently there is no commercially available vaccine to protect against malaria. Our candidate malaria vaccine is based on our AdVac technology and produced using our PER.C6 technology. The efficacy of our malaria vaccine candidate was tested in pre-clinical models. The study showed that a single administration of a prototype AdVac vaccine, provided protection against the specific parasite. Since March 2004 we have a collaboration with the National Institute of Allergy and Infectious Diseases (NIAID), part of NIH for the support of the development of our candidate malaria vaccine. In September 2006, we extended the collaboration with the NIAID by signing a clinical trial agreement. The clinical trial started in January 2007 and is a randomized, double-blind, placebo-controlled study that will test the vaccine in a dose-escalation trial involving 96 healthy volunteers. The Phase I trial is funded by NIAID and conducted by researchers at Vanderbilt University, one of NIAID’s Vaccine and Treatment Evaluation Units.

 

HIV

In August 2005, Crucell along with Harvard Medical School, was awarded a $ 19.2 million grant by U.S. National Institutes of Health (NIH) to develop new adenovirus vector-based vaccines against HIV/AIDS. Having entered into an agreement in early 2004, Crucell and the International AIDS Vaccine Initiative (IAVI) jointly announced November 2004 that they had signed an agreement whereby Crucell would develop AdVac vectors for use in IAVI’s AIDS vaccine development program. The Investigational New Drug Application (IND) for Phase I of the trial with Harvard Medical School (supported by the NIH) has been approved by the FDA in January 2008. The trial started in the first quarter of 2008.

 

West Nile virus vaccine development terminated

In June 2003, we announced our decision to develop a vaccine against the West Nile virus based on our PER.C6 technology. We completed the Phase I safety study with our whole inactivated West Nile vaccine manufactured using PER.C6 technology in January 2007. The Phase I trial demonstrated safety and tolerability. However, in January 2008, we terminated the West Nile Virus Vaccine program as well as our development of human monoclonal antibodies for therapeutic use against West Nile. The commercial and market opportunities for the West Nile Virus have proven to be less then originally anticipated, making the commercial and market opportunities for potential West Nile products not as attractive as other products in our pipeline.

 

Proteins

 

Rabies monoclonal antibody cocktail

Rabies is a viral disease of mammals most often transmitted through the bite of a rabid animal. The virus infects the central nervous system, causing encephalopathy and ultimately death if medical treatment is not sought before symptoms appear. Rabies is prevalent in all the continental regions of Europe, Asia, America and Africa. Globally, approximately 10 million people a year are treated after exposure to rabies. Some 40,000 to 70,000 people are thought to die of the disease each year, mainly in China and India according to various medical publications.

 

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Post-exposure treatment for rabies, when given timely, is 100% effective and involves the use of a vaccine plus antibodies. Neither vaccine nor antibodies are effective independent of one another.

 

Current supply and quality of rabies vaccine is sufficient, but anti-rabies antibodies (Human Rabies Immune Globulin (HRIG) and Equine Rabies Immune Globulin (ERIG)) are widely recognized as being insufficient in quality and supply, and pose safety concerns because they originate from human or equine serum. Market opportunities for rabies treatments are projected to grow significantly as affected countries such as India and China grow in affluence.

 

We have developed a human monoclonal antibody in collaboration with the Thomas Jefferson University (TJU) based in Philadelphia and the U.S. CDC in Atlanta, using MAbstract and PER.C6 technology. The product is a combination of two monoclonal antibodies for the post-exposure prophylaxis of rabies, produced using our MAbstract and PER.C6 technology. Our candidate vaccine demonstrated protection at least equivalent to HRIG in pre-clinical trials. In the fourth quarter of 2006, we began a Phase I clinical study in the U.S., followed by a second Phase I study in India, selected because it is a rabies endemic country.

 

The Phase I clinical trials demonstrated that the antibody product is well tolerated, provides the expected immediate passive neutralizing activity and that it can be safely administered in combination with a rabies vaccine without interfering with the vaccine’s ability to induce an active immunity. The program has been granted a Fast Track designation by the U.S. FDA. Phase II clinical trials began in the U.S. in March 2008.

 

In December 2007 we signed an exclusive collaboration and commercialization agreement with sanofi pasteur for our rabies monoclonal antibodies to be used in association with rabies vaccine for post-exposure prophylaxis against this disease. We will continue to perform the development activities and will be responsible for the manufacturing of the final product and will retain exclusive distribution rights in Europe, co-exclusive distribution rights in China and the rights to sell to supranational organizations such as UNICEF. We received an up-front payment of € 10 million and will be eligible for milestone payments of up to € 66.5 million and additional royalties on products sold.

 

H5N1 avian influenza antibodies

The Company discovered a set of human monoclonal antibodies that protect against avian influenza (H5N1). These were found to be able to neutralize a broad range of H5N1 viruses of avian influenza that have emerged between 1997 and 2004, which currently presents a global threat. These antibodies may therefore provide a powerful tool in pandemic preparedness.

 

The set of monoclonal antibodies, which Crucell researchers discovered using MAbstract phage display, showed the potential to neutralize distinct H5N1 viruses. The most potent neutralizing antibody was tested in pre-clinical models for the ability to protect against infection from the highly pathogenic A/Hong Kong/97 H5N1 virus and was also tested for its ability to stop the development of the disease caused by this virus. When the monoclonal antibody was given in a pre-clinical model, one day prior to infection with the H5N1 virus, it resulted in full protection against infection. Treatment with the antibody up to three days after infection resulted in 100% survival and cure of the disease.

 

Recombinant antibody Factor VL/C

Our research program into the recombinant antibody Factor VL/C, as a potential therapy to stop or prevent serious bleeding, has proven to be more challenging than previously anticipated and pre-clinical research provided mixed results and insufficient evidence of the protective benefit of Factor VL/C as a stand-alone therapeutic product. We do no expect to bring the program into clinical trials in the foreseeable future and the research and development expenditure previously earmarked for this program has now largely been allocated to the research and development of monoclonal antibodies in other disease areas.

 

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Technologies

 

Proprietary technologies

Our product portfolio is supported through a range of proprietary technology platforms. Our core proprietary technologies are classified as follows:

 

PER.C6 technology: our core proprietary technology. With over 40 licenses issued, the PER.C6 technology is used widely for the development and manufacturing of vaccines, recombinant proteins including monoclonal antibodies, and gene therapy products.

 

Vaccine technology: we employ a number of proprietary technologies to develop vaccines against viruses, parasites and bacteria.

 

Protein technology: we employ a number of other proprietary technologies to develop or manufacture monoclonal antibody products, such as MAbstract and STAR.

 

Licensing our technologies to the market

We generate a portion of our revenues and other operating income from licensing our proprietary technologies to pharmaceutical and biotechnology companies, from grants and government subsidies obtained to support the development of our technologies and potential products, and from service fees earned under development contracts with our partners. We intend to increase our revenues in the future from initial license fees, license maintenance fees and milestone and royalty payments from products that our licensees develop using our technologies.

 

As at year-end 2007 we employ 11 (2006: 13) people in our business development operations in the Netherlands and an additional 3 (2006: 2) in the U.S. Our business development strategy has historically involved contacting prospective licensees and partners, assessing their interest in our technologies and products. If the prospective licensee or partner indicates interest we negotiate a license and/or collaboration agreement pursuant to which we deliver the applicable technology to, or collaborate with, the licensee or partner. For some of the contracts we provide services, for which we are paid at different rates.

 

PER.C6 technology

 

Overview

Our PER.C6 technology provides a manufacturing system that consists of a human cell line that can be used to produce a variety of biopharmaceutical products. We developed the PER.C6 technology from a single source of healthy human retina cells. To obtain the PER.C6 cell line, we inserted an exactly defined fragment of the E1 region of the genome of the adenovirus type 5 into the human retina cell so that the cell can propagate indefinitely. The technology has been successfully adapted to grow without the need for serum components or materials that allow cell attachment (microcarriers) and demonstrates excellent cell densities in bioreactors. These features are important because they allow us to produce safe biopharmaceutical products in sufficient quantities.

 

There are four areas in which our PER.C6 technology is currently being applied:

 

Vaccine production

PER.C6 technology can be used as a production system for developing and manufacturing both classical and recombinant vaccines.

 

·

For classical vaccine production, PER.C6 cells are infected with the virus against which the vaccine is meant to protect. The virus is subsequently multiplied on PER.C6 cells to high virus titer, yielding a potent starting material that can be processed and purified to produce a final formulation of a whole-killed, split or subunit vaccine.

·

For recombinant vaccine production, the PER.C6 technology produces delivery agents called adenoviral vectors. These vectors have been made replication incompetent and thus are only capable of delivering into the human body a portion of DNA encoding for a protein from the pathogen against which the vaccine is meant to protect. The DNA inserted into the vector can be derived from a virus, a parasite or even bacteria, providing a versatile vaccine vector platform.

 

Protein production

PER.C6 technology can be used as a production system for developing and manufacturing both antibodies and other proteins. DNA encoding for a particular protein of interest is inserted into PER.C6 cells. These modified PER.C6 cells will secrete the desired antibody or other protein.

 

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We are further developing the application of PER.C6 for protein production at PERCIVIA, which is the PER.C6 Development Center joint venture between us and DSM. PERCIVIA is located in Cambridge, Massachusetts, U.S..

 

Gene therapy

The primary function of PER.C6 technology in the field of gene therapy is the production of adenoviral vectors—a gene delivery mechanism based on a common human virus—that carries therapeutic genes and facilitates the delivery of the gene into the cells. Since the PER.C6 technology is the only available cell line that does not allow any formation of classical replication competent adenoviruses during the production of replication deficient vectors, the cell line may be applied across the entire adenovirus gene therapy field.

 

Functional genomics

Our PER.C6 technology can be used to produce libraries of adenoviruses into which individual human genes are inserted to study gene function. The adenovirus libraries carry many genes with unknown functions, which can be used to determine the role of individual genes in a disease process. We believe that our PER.C6 technology, therefore, represents a key analytical tool in the discovery of new genes and their role in biological pathways and human disease.

 

Key features and advantages

We believe that our PER.C6 technology has the following key advantages over alternative manufacturing systems:

 

High yields

PER.C6 technology potentially offers a system for high yield, large-scale biopharmaceutical product production. PER.C6 technology can be cultured at high densities and engineered to produce large quantities of biopharmaceuticals and may reduce production expense.

 

Scalability in serum-free conditions

PER.C6 cells can be cultured in a serum-free medium, without micro-carriers, using a variety of scaling systems, including bioreactors. This simplifies the expansion from laboratory- to industrial-scale production, which may lead to the production of cost-efficient biopharmaceuticals in large quantities. The use of a serum-free medium also offers the potential to significantly improve the purification of biopharmaceuticals produced using the PER.C6 technology and may facilitate regulatory approval.

 

Biologics Master File at the FDA

We have filed a Cell Substrate Biologics Master File (BMF) with the U.S. Food and Drug Administration (FDA) describing the PER.C6 technology, including its establishment, development and potential use in production processes. The FDA will only evaluate the PER.C6 technology in the context of Investigational New Drug (IND) applications. We believe that the information in the BMF will facilitate the FDA’s approval of any biopharmaceutical product that our licensees or we produce using the PER.C6 technology.

 

Broad industry endorsement

The PER.C6 technology can now claim to have achieved a broad endorsement within the industry. For a total overview of all licensees reference is made to the ‘Overview Licensees and Partners’ in this section.

 

Human-based

We believe that antibody and other protein products based on the human based PER.C6 technology may demonstrate enhanced biological properties, rendering them potentially more efficacious. In addition, PER.C6 technology efficiently supports the growth of certain human viruses for vaccine development.

 

Vaccine technologies

 

As a leading vaccine company, Crucell focuses on developing, producing and marketing vaccines against a wide variety of infectious diseases applying a broad portfolio of technologies in order to meet the specific demands posed by the different pathogens including viruses, parasites and bacteria.

 

Crucell’s vaccine technologies include:

 

AdVac technology

 

Overview

Crucell has been a key player in the development of adenoviral-based vaccines for more than five years, resulting in the availability of proprietary AdVac vectors. Crucell has generated a wide variety of research and GMP clinical batches based on AdVac technology for diverse infectious diseases.

 

AdVac technology is based on adenovirus vectors that do not regularly occur in the human population, such as Ad35. The technology supports the practice of inserting DNA coding for pathogen-derived proteins into a vector. AdVac technology may also be used to develop gene therapy products. AdVac vectors are used in combination with our PER.C6 technology. Currently AdVac technology is used

 

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by Crucell and its licensees to develop vaccines against hemorrhagic fever (ebola, Lassa, Marburg), malaria (Plasmodium falciparum), tuberculosis (Mycobacterium tuberculosis), AIDS (HIV) and hepatitis C (HCV). While no adenovirus-based recombinant vaccines are currently licensed for human use, AdVac-based vaccines for malaria, AIDS, hepatitis C, hemorrhagic fevers, and tuberculosis have been successfully constructed and are currently in clinical trials.

 

Crucell has generated a series of adenoviruses including Ad35 and derivatives thereof as well as manufacturing platforms for these vectors. The AdVac vectors can be produced to carry genetic information derived from viruses, parasites and bacteria, and thereby have the potential to allow immunization against life-threatening diseases.

 

Crucell has laboratories to develop purification methods closely resembling an end-stage manufacturing process. With this facility we can manufacture Ad35 vaccine vectors for comprehensive pre-clinical programs. These products can be manufactured using PER.C6 technology under serum-free conditions.

 

Key features and advantages

We believe our AdVac technology has the following key advantages over other commonly used vector systems:

 

·   Vectors used with AdVac technology share the advantages of the commonly used adenoviral vectors such as: scalable production, high yields and the ability to mediate a strong T-cell immune response.

·   The AdVac technology can circumvent pre-existing immunity offering accurate dose control of the vaccines.

·   AdVac vectors can be engineered to contain small genetic fragments of different viruses, parasites and bacteria. This makes possible the development of a wide variety of novel vaccines against a broad range of dangerous human pathogens.

 

Virosomal technology

 

Overview

One of the challenges in vaccine development is the creation of products that contain defined antigens of high purity that efficiently induce a protective immune response. Many antigen preparations are therefore supplemented with adjuvants to enhance the body’s immune response to the specific antigens. The most commonly used and approved adjuvants for human use are aluminium salt derivatives, which are known to cause adverse reactions such as irritation and inflammation at the injection site. Virosomes are a broadly applicable adjuvant and carrier system with prospective applications in areas beyond conventional antigen-based vaccines. Our virosome technology offer a tool for developing novel, predominantly synthetic vaccines applicable for infectious and chronic diseases. These vaccines offer additional benefits because they are effective even in immune-suppressed patients and infants.

 

Key features and advantages

We believe our Virosome technology has the following key advantages over other antigen delivery technologies:

 

·   Virosome technology provides a broadly applicable delivery system for antigens or DNA/RNA encoding specific immune stimulatory proteins.

·   Virosome technology enables target-specific delivery of antigens and amplification of the immune response.

·   Virosomes stimulate both arms of the immune system – eliciting antibody and cellular immune responses – against inserted immune stimulatory proteins derived from human pathogens.

·   Virosomes are completely biodegradable and can exert an immune response via different routes of administration.

·   Virosome technology is used in the manufacture of several of Crucel l’s registered products and as such has an excellent safety record and manufacturing know-how.

 

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Hansenula polymorpha

 

Overview

The yeast expression technology Hansenula polymorpha provides us with a highly efficient production technology for protein, which can be used as a basis for developing and manufacturing new vaccines. The yeast Hansenula polymorpha production system provides superior characteristics for a wide range of industrial applications. In particular its lack of pyrogens, pathogens or viral inclusions, its ease of genetic manipulation and its robustness in industrial scale fermentations add to its attractiveness for the synthesis of pharmaceutical compounds. Our registered HBV vaccine Hepavax-Gene is based on recombinant production in this yeast.

 

Key features and advantages

We believe our Hansenula polymorpha technology has the following key advantages over other yeast expression technologies:

 

·   Hansenula polymorpha provides an expression system with superior characteristics for the synthesis of pharmaceutical compounds, including vaccines.

·   Hansenula polymorpha provides a safe production platform lacking pyrogens, pathogens or viral inclusions.

·   Hansenula polymorpha is easy with regard to genetic manipulation and robust in industrial scale fermentations.

 

Recombinant Cholera Toxin B subunit technology

CTB, Cholera Toxin B subunit is a powerful inducer of immunity both systemically and mucosally. Numerous applications have shown that coupling of antigen to CTB increases the immunogenicity of the antigen. In some applications simple co-administration of CTB with the antigen have been shown to be effective i.e. CTB has exerted an adjuvant effect. This has been shown both for parenteral as well as mucosal (intranasal) applications.

 

CTB is an efficient mucosal carrier for induction of peripheral immunological tolerance. Oral feeding of antigen coupled to CTB suppress peripheral T-cell reactivity to the coupled antigen. The Company has a state of the art GMP manufacturing facility for recombinant CTB. The production system is designed so that CTB is produced completely devoid of the toxic A-subunit.

 

Protein technologies

 

We have two main technologies for proteins production: MAbstract and STAR.

 

MAbstract technology

 

Overview

Our MAbstract technology can be applied for the discovery of novel drug targets and the identification of human antibodies against those drug targets. MAbstract technology employs a bacteria-infecting virus called a bacteriophage, or phage, which expresses part of a human antibody on its surface. The technology employs a library of phages that carry many different human antibodies. To identify and subsequently isolate relevant antibodies, the library is contacted with pathogens, or cells suspected of carrying the drug target, or if the target is already known in advance, the library may be contacted with the target directly. Subsequently, phage antibodies binding to the diseased cells or the known target are separated from phage-antibodies that do not bind at all, or bind to healthy cells added to subtract irrelevant phage-antibodies present in the library. Since irrelevant phage antibodies for the target in question are often present in great abundance, the subtraction step aids in enriching the phage-antibody population for potentially relevant, selectively binding phage antibodies.

 

Once such phage antibodies have been isolated, they can either be used to subsequently identify the target or a specific binding place on the target (referred to as epitope), or be used to subsequently isolate the DNA coding for the binding part of the antibody. This part may genetically be combined with other parts of the antibody that have no function in binding but have assessory functions in the human immune system. Thus, different formats of antibodies with different modes of action or functions can be made, but with the same specificity for the target.

 

We use our MAbstract technology to identify antibodies reactive with whole pathogens, or antibodies against protein elements from pathogens, or antibodies directed against targets already known to be associated with disease. In addition MAbstract can be used to identify targets or epitopes on disease-causing agents that were previously unknown and may make suitable candidates for antibody-based diagnosis, prevention or therapy of the associated disease.

 

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Key features and advantages

MAbstract employs a human-based antibody-display technology. We believe that MAbstract allows for the discovery of therapeutic antibodies with several potential advantages over current technologies. These advantages include the following:

 

Subtraction method of selection

MAbstract technology selects antibodies for possible therapeutic use and discovers novel drug targets using whole cells, tissues or infectious agents.

 

No inherent limitation on antibody specificity

MAbstract technology does not have the inherent limitation on antibody specificity.

 

Production using PER.C6 technology

MAbstract technology has been used to isolate antibodies for numerous disease applications. Selected antibody specificities can be directly reformatted into antibodies for production using PER.C6 technology.

 

STAR technology

 

Overview

STAR technology is an expression vector technology for the production of recombinant proteins in mammalian cells. It is a two component system consisting of (a) STAR elements that counteract gene silencing, resulting in increased levels of production and improved stability of recombinant proteins, and (b) STAR-select, a very stringent selection system that is directly coupled to the expression of the gene of interest, resulting in only a few cell lines that all produce the recombinant protein at high levels.

 

Multiple companies and licensees are investigating whether the STAR technology can increase production yields of biologicals. We acquired STAR technology in 2004 through the purchase of ChromaGenics B.V., a privately held biotechnology company based in Amsterdam. In connection with the purchase, we also entered into a contingent payment agreement with the former shareholders of ChromaGenics that could result in us making additional payments of up to € 7.0 million, based upon our receipt of revenues generated from the STAR technology and royalties. In 2007, we paid € 2.0 million to the former shareholders under this agreement.

 

Key features and advantages

We believe our STAR technology has the following key advantages over other gene expression technologies:

 

·   Established mammalian cell banks for antibody and protein production are the starting point for STAR technology, thus specially engineered mammalian cells are not needed.

·   The STAR technology allows for very rapid stable mammalian cell clone generation.

·   The STAR technology typically yields stable mammalian cell clones that produce five- to 10- fold more antibody or other therapeutic proteins as compared to cell clones generated without STAR.

 

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Partners, agreements, investments and other collaborations

 

Strategic partners

 

In addition to our own research and development activities, Crucell collaborates with several leading companies. Through these agreements, our technologies are playing a vital role in the development of a number of vaccine and antibody products.

 

Merck

Since 2000, Crucell and Merck have developed a close working partnership, entering into a number of agreements. In October 2000, Crucell granted Merck an exclusive license to use Crucell’s PER.C6 technology in developing a vaccine against HIV. Merck discontinued development of this vaccine in September 2007 but this was unrelated to the use of Crucell’s PER.C6 technology.

 

In June 2003, Merck and Crucell expanded a Cooperation Agreement and agreed to work closely on matters relevant to maintenance of the PER.C6 Cell Substrate Biologics Master File. We further expanded the relationship in December 2006, when we signed a cross-licensing agreement for vaccine production technology. The agreement allows Merck to use our technology on an exclusive basis in additional undisclosed vaccine fields. In return, we receive access to Merck’s large scale manufacturing technology for our AdVac-based vaccines under development. In September 2007, Merck exercised an option for the exclusive use of our PER.C6 technology and to access to our AdVac vaccine technology in two infectious disease areas.

 

DSM Biologics

In December 2002, we formed an alliance with DSM Biologics to license our PER.C6 technology as a production platform for monoclonal antibodies and recombinant proteins. The combination of the PER.C6 technology and DSM’s manufacturing services provides companies with a turn-key biologic manufacturing solution reducing cost, risk and time to market. Furthering this commitment to the PER.C6 technology, Crucell and DSM have established a joint PER.C6 R&D Center in Cambridge, Massachusetts, named PERCIVIA. The innovations resulting from this partnership will be available to PER.C6 licensees to further enhance their development capabilities.

 

Sanofi pasteur

We have a strategic agreement with sanofi pasteur since 2003 to further develop and commercialize novel influenza vaccine products based on our PER.C6 technology. The agreement covers both seasonal and pandemic influenza vaccines. sanofi pasteur has the worldwide rights to develop, manufacture and commercialize PER.C6-based influenza vaccines. Crucell has the commercial rights for Japan.

 

In December 2007 we signed an exclusive collaboration and commercialization agreement with sanofi pasteur, for our rabies monoclonal antibodies to be used in association with rabies vaccine for post-exposure prophylaxis against this disease.

 

Novartis

Our largest selling vaccine is Quinvaxem. The vaccine is produced by Crucell in Korea and was co-developed with Novartis (formerly Chiron), which provides four of the five vaccine components as bulk. We have a profit sharing agreement with Novartis for this product.

 

MedImmune

In October 2007, we entered into an exclusive license and research collaboration with MedImmune to further develop and commercialize bacterial antibodies primarily for the treatment and prevention of hospital-acquired bacterial infection. Crucell discovered these antibodies with use of the MAbstract-technology.

 

Other collaborations and agreements

 

Wyeth

In March 2008, we entered into an exclusive agreement with Wyeth. We will perform contract manufacturing at our Swiss facilities. We will develop and manufacture certain vaccine components that Wyeth will use in clinical studies. The development activities will take place in our facilities in Bern, Switzerland. Wyeth will be responsible for the clinical development of the vaccine.

 

Manufacturing service arrangements

We have signed manufacturing service agreements with a number of our licensees and partners. Under these agreements, we have produced and may produce in the future clinical batches of adenoviral materials, antibodies, or other materials using our PER.C6 technology for the applicable licensee.

 

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We have received and may receive in the future initial fees upon signing and subsequent payments upon delivery of the batches we produce in accordance with the specifications of the agreement.

 

University collaborations

We collaborate with a number of universities worldwide in the areas of vaccines, antibodies, cell lines, gene therapy, cancer and cardiovascular disease. Some of our collaborations provide for royalty payments to be made to the universities in the event of product sales arising out of the collaborations. Generally, these collaborations specify that Crucell provides the applicable university with a specific amount of funding, and in consideration, Crucell receives certain intellectual property rights and access to the results of the university research.

 

Overview licensees and partners

Per year-end 2007 we have the following licensees and partners:

 

Vaccines

 

Partner/licensee

 

Starting date

 

Technology

 

Disease
target

 

Development
stage

Acambis

 

Nov. 2007

 

PER.C6

 

HSV

 

Pre-clinical

ADImmune Corp.

 

Oct. 2006

 

PER.C6

 

Japanese
Encephalitis

 

Pre-clinical

Aeras Global TB Vaccine Foundation

 

Mar. 2004

 

PER.C6 and AdVac

 

Tuberculosis

 

Phase 1

Bestewil Holding BV

 

Jan. 2006

 

Co-micelles

 

Influenza

 

Pre-clinical

Harvard School of Medicine

 

Dec. 2003

 

AdVac + Ad5HVR48

 

HIV

 

Pre-clinical

International AIDS Vaccine Initiative (IAVI)

 

Sep. 2004

 

AdVac

 

HIV

 

Phase 1

Kimron Veterinary Institute

 

Jul. 2003

 

PER.C6

 

West Nile virus
 —Veterinary
vaccine (avian)

 

Marketed in Israel

Merck & Co. Inc.

 

Oct. 2005

 

PER.C6

 

Hepatitis C

 

Pre-clinical

Merck & Co Inc.

 

Dec 2006

 

Ad5HVR48

 

HIV

 

Pre-clinical

National Institutes of Health (NIH)

 

Mar. 2002

 

PER.C6 and AdVac

 

Ebola, Lassa
and Marburg

 

Phase 1

National Institutes of Health (NIH)

 

Mar. 2004

 

PER.C6 and AdVac

 

Malaria

 

Phase 1

Neotropix

 

Mar. 2004

 

PER.C6

 

Oncology

 

Phase 1

Novartis

 

Dec. 2004

 

PER.C6

 

Alphavirus

 

Pre-clinical

Pfizer animal health

 

Mar. 2007

 

PER.C6

 

Veterinary

 

Pre-clinical

Sanofi pasteur

 

Dec. 2003

 

PER.C6

 

Influenza

 

Phase 2

Singvax

 

Mar. 2005

 

PER.C6

 

Japanese Encephalitis

 

Pre-clinical

Tibotec Pharmaceuticals Limited

 

Nov. 2005

 

PER.C6

 

Undisclosed vaccine

 

Pre-clinical

Transgene SA

 

Dec. 2007

 

PER.C6

 

Undisclosed vaccine

 

Pre-clinical

Vaxin, Inc.

 

Sep. 2004

 

PER.C6

 

Respiratory viruses

 

Phase 1

Wyeth Pharmaceuticals

 

Jul. 2007

 

AdVac

 

Non-disclosed

 

Pre-clinical

 

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Overview licensees and partners (continued)

 

Proteins

 

Partner/licensee

 

Starting date

 

Technology

 

Disease
target

 

Development
stage

Abbott

 

Jan. 2007

 

STAR

 

Portfolio antibodies

 

Pre-clinical

Biotecnol SA

 

Jan. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Daiichi Sankyo Ltd.

 

Nov. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Ferring International Research Center SA

 

May 2005

 

PER.C6

 

Women’s healthcare

 

Pre-clinical

Ferring International Research Center SA

 

Dec. 2005

 

PER.C6

 

Women’s healthcare

 

Pre-clinical

Genentech

 

Feb. 2004

 

STAR

 

 

Genzyme Corporation

 

Dec. 2005

 

STAR

 

Portfolio proteins

 

Pre-clinical

Invitrogen Corp.

 

Sep. 2007

 

STAR

 

Monoclonal antibodies

 

Pre-clinical

ISU ABXIS

 

Jan. 2008

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

IQ Corporation

 

Oct. 2005

 

PER.C6

 

Anti-anthrax antibody

 

Pre-clinical

LFB Biotechnologies

 

Jul. 2007

 

PER.C6

 

Undisclosed antibodies

 

Pre-clinical

Masterclone

 

Jul 2007

 

PER.C6

 

Undisclosed antibodies

 

Pre-clinical

Medarex Inc.

 

May 2005

 

STAR

 

Portfolio antibodies

 

Pre-clinical

Medarex Inc.

 

Dec. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

MedImmune

 

Oct. 2007

 

PER.C6
and MAbstract

 

Anti-bacterial
antibodies

 

Pre-clinical

Merck & Co., Inc.

 

May 2003

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Merus B.V.

 

Jun. 2004

 

PER.C6

 

Portfolio oligoclonics

 

Pre-clinical

Micromet AG

 

Nov. 2004

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

MorphoSys AG

 

Sep. 2004

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Novartis

 

Sep. 2006

 

STAR

 

Portfolio antibodies, Proteins

 

Pre-clinical

Novartis

 

Aug. 2004

 

PER.C6

 

HCV protein

 

Pre-clinical

Patrys

 

Feb. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

ProFibrix

 

Dec. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

PR&D Biotech SA (Recepta Biopharma SA)

 

Nov. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Sartorius Biotech GmbH

 

Jun. 2007

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Synergenics/Synco Biopartners Investments B.V.

 

Aug. 2004

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

Taiwanese Development Center for Biotechnology

 

Mar. 2007

 

PER.C6

 

Undisclosed proteins

 

Pre-clinical

UCB S.A.

 

Mar. 2006

 

PER.C6

 

Portfolio antibodies

 

Pre-clinical

UCB Celltech

 

Sep. 2006

 

STAR

 

Portfolio antibodies

 

Pre-clinical

UMN Pharma

 

Mar. 2006

 

PER.C6

 

Undisclosed protein

 

Pre-clinical

XOMA Ltd

 

Jan. 2006

 

STAR

 

Portfolio antibodies, Proteins

 

Pre-clinical

 

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Overview licensees and partners (continued)

 

Gene therapy

 

Partner/licensee

 

Starting date

 

Technology

 

Disease
target

 

Development
stage

Ark Therapeutics

 

Jan. 2006

 

PER.C6

 

Portfolio

 

Phase II

GeneMax Corp. / TAP-Immune

 

Aug. 2003

 

PER.C6

 

Portfolio

 

Pre-clinical

GenVec Inc.

 

Jul. 2002

 

PER.C6

 

Cardiovascular

 

Phase II

Merck & Co., Inc.

 

Nov. 1998

 

PER.C6

 

Portfolio

 

Pre-clinical

Merial Ltd.

 

Dec. 2005

 

PER.C6

 

Veterinary

 

Pre-clinical

NeoTropix

 

Mar. 2004

 

PER.C6

 

Oncology

 

Pre-clinical

Transgene SA

 

Apr. 2001

 

PER.C6

 

Portfolio

 

Phase I/II

Vascular Biogenics Ltd

 

Mar. 2005

 

PER.C6

 

Portfolio

 

Pre-clinical

 

 

Alliances with contract managers for production

 

Partner/licensee

 

Starting date

 

Technology

 

Area

Cambrex

 

Aug. 2004

 

PER.C6

 

Medium development

DSM Biologics

 

Dec. 2002

 

PER.C6

 

Therapeutic proteins
(including antibodies)

Gene Medicine Japan, Inc.

 

Oct. 2003

 

PER.C6

 

Recombinant vaccines
& gene therapy products (Asia)

Hyclone, Inc.

 

Dec. 2003

 

PER.C6

 

Medium development

Invitrogen Corp.

 

Jun. 2003

 

PER.C6

 

Medium development

JRH Biosciences Inc.

 

May 2004

 

PER.C6

 

Medium development

Molecular Medicine BioServices, Inc.

 

Dec. 2001

 

PER.C6

 

Recombinant vaccines
& gene therapy products (U.S.)

Sigma-Aldrich Corp.

 

Dec. 2003

 

PER.C6

 

Medium development

 

Functional Genomics

 

Partner/licensee

 

Starting date

 

Technology

 

Area

Galapagos Genomics N.V.

 

Jun. 1999

 

PER.C6

 

Genomics

 

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Subsidiaries and other equity investments

 

Pevion Biotech AG

In 2002 Pevion Biotech was founded as joint venture by Berna Biotech and Bachem AG. The company was dedicated to creating novel virosomal formulated vaccines and bringing them from research into clinical development. On November 5, 2007, Crucell sold all of the 2.9 million shares it owned in Pevion Biotech for € 6.1 million to other Pevion Biotech shareholders. Prior to this sale, our ownership interest had already been diluted from 50% in 2006 to 36% in early 2007. We realized a gain of € 2.2 million on the sale.

 

Kenta Biotech AG

In 2006, Kenta Biotech AG was founded. Berna Biotech AG contributed investments in kind of € 3.3 million in exchange for shares equal to 36.74% of Kenta Biotech’s share capital. Kenta Biotech AG is focusing on the discovery and development of innovative, fully human monoclonal antibodies for the life-saving treatment of patients with serious infectious diseases.

 

ADImmune Corp.

In March 2007, we announced that we have completed an influenza alliance with Taiwan-based ADImmune Corporation. Under the terms of the deal, ADImmune will use our virosome technology to produce a virosomal adjuvanted influenza vaccine for specified markets: Taiwan, Japan and Macau. Additionally, ADImmune will produce influenza antigen, which we may purchase for the production of our vaccine product, Inflexal V.

 

In consideration of the rights and licenses granted in respect of the technology, ADImmune paid an amount of € 8.9 million (TWD 394,887,000). We obtained a 20% equity stake in ADImmune for which we also paid an amount of € 8.9 million.

 

Galapagos N.V.

Galapagos N.V. (‘Galapagos’) is a discovery company focused on the rapid identification of disease modifying drug targets through the functional screening of human disease models, and the subsequent progression of these targets into drug discovery. The company is listed on the NYSE Euronext Brussels and NYSE Euronext Amsterdam stock exchanges (ticker symbol: GLPG).

 

Galapagos holds a royalty free exclusive license to use our PER.C6 technology for conducting activities in the field of functional genomics research. Under the license, Galapagos uses PER.C6 technology in conjunction with Tibotec’s bioinformatics technology to generate adenoviral gene libraries. Tibotec and we have agreed not to compete with the activities of Galapagos, which holds the rights to the products and technology that it develops. The Company owns 5.8% as of December 31, 2007 (2006: 6.2%).

 

Marketing and sales partners

 

We have our own sales and marketing infrastructure in our markets in the Netherlands, Switzerland, U.S., Korea, the Nordic region, Italy, Canada, Spain, China, Argentina, Indonesia and Vietnam. This sales and marketing infrastructure includes a dedicated sales force for supranational organizations, to ensure broader market access for our products and we have established a strong network of partnerships to commercialize our products. We also distribute and market other companies’ products. Through these measures, we have established a global position in both public and private markets.

 

·         We act as a marketing, sales and distribution partner for numerous companies, including:

·         Sanofi pasteur – MSD. We act as marketing, sales and distribution partner for part of the SPMSD portfolio in Sweden.

·         Novartis Vaccines and Diagnostics. We act as marketing, sales and distribution partner for part of the Novartis vaccine portfolio in Sweden.

·         Statens Serum Institute Denmark. We act as marketing, sales and distribution partner for a number of SSI products in Spain and Sweden.

·         Green Cross Corporation Korea. We act as marketing, sales and distribution partner of GreenCross Corporation’s Japanese encephalitis vaccine in Europe.

·         Netherlands Vaccine Institute. We act as marketing, sales and distribution partner of part of NVI’s product portfolio in the Benelux (Belgium, Netherlands, Luxembourg).

·         Talecris Biotherapeutics. We act as marketing, sales and distribution partner of Talecris’s product Prolastin in nine Western European countries.

 

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We have developed a network of companies that market and sell our products. The most significant collaborations in terms of current sales value are:

 

·        Baxter International Inc. – A marketing, sales and distribution partner for a certain vaccines in Austria, Germany, Greece and Russia.

·        Infectopharm Germany – A marketing, sales and distribution partner for our flu vaccine in Germany.

·        Masta UK – A marketing, sales and distribution partner for our travel vaccines in the UK.

·        Novartis-Behring – A marketing, sales and distribution partner for our travel vaccines in Germany.

·        Sanofi pasteur – A marketing, sales and distribution partner for Dukoral in Canada, Australia and a number of other countries outside Europe and the U.S..

·        Sanofi pasteur – MSD – A marketing, sales and distribution partner for our flu vaccine in the UK.

·        Kedrion A marketing, sales and distribution partner for our flu vaccine in Italy.

 

Intellectual property

 

Our success and ability to compete depends in large part on our ability to protect our proprietary technology and information, and to operate without infringing the intellectual property rights of others. We rely on a combination of patent, trademark and trade secret laws, as well as confidentiality, assignment and licensing agreements, to establish and protect our proprietary and intellectual property rights. Our policy is to actively seek patent protection of our intellectual property in the U.S. and Europe, as well as in other jurisdictions as appropriate.

 

In addition to retaining outside patent counsel, we also employ European and Dutch patent attorneys that file, prosecute, defend and enforce patent rights as well as manage our patent portfolio. Our patent portfolio comprises 1,554 active cases (i.e. granted patents in force or pending patent applications) as of December 31, 2007 in total for the Company. We aggressively protect our inventions and employ a proactive filing strategy with respect to patent applications. Our portfolio management involves active commercialization and enforcement strategies combined with disposal of cases that we no longer consider commercially attractive.

 

The following table reflects the total number of active cases (pending or granted) through December 31, 2007, organized according to our different fields of operation. All figures include acquired and jointly owned patent cases, but exclude patent positions licensed-in from third parties.

 

2007 Patent filings

 

 

 

Pending

 

Granted

 

Total
Active

 

Vaccines(2)

 

300

 

502

 

802

 

Antibodies(3)

 

145

 

54

 

199

 

Technology(4)

 

210

 

226

 

436

 

Gene Therapy

 

46

 

71

 

117

 

Total

 

701

 

853

 

1,554

 

 

(2)

 

Vaccines patent filings relate to AdVac-based, live viral vector vaccines based on our proprietary measles technology, our virosomal technology and classical whole inactivated virus, split and sub-unit vaccines.

(3)

 

Antibodies patent filings relate to antibodies and/or drug targets, excluding the enabling technologies that are classified as technology.

(4)

 

Technology patent filings primarily relate to cell-based production technology, adenoviral vector technology, STAR-technology and related technology, functional genomics and target and antibody discovery technology.

 

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Patent filings

In 2007 we filed patent applications for six new inventions, in the fields of vaccines, antibodies and technology. Our new filings in the antibody and vaccine fields in 2007 reflect our efforts to further strengthen our patent portfolio in support of product development programs in that area. The new filings in the technology area relate to our continuing effort to protect and commercialize the PER.C6 technology and related uses of the PER.C6 cell lines, as well as the STAR technology. Since we are not actively involved in gene therapy research and development, no new filings were made in that area during 2007.

 

We maintain a geographically diversified filing strategy, depending on our technological and business needs, as well as our view of long-term economic trends and developments in legal systems in various parts of the world. As of December 31, 2007, we have 52 pending applications in the EU(1), 113 pending applications in the U.S.(2), 18 international patent applications (so-called ‘PCT applications’(3)) and 518 applications in the rest of the world(4).

 

A significant number of our pending patent applications are filed under the Patent Cooperation Treaty (PCT), which offers a cost-effective method to seek provisional worldwide protection in more than 100 countries and territories 30 or 31 months from the filing date. The decision to divide the PCT application into territories in which a granted patent is desired may be postponed until the obtainable scope of protection and the technical and commercial usefulness of the invention becomes clearer. During the pendency of a European patent application, a single application may designate 30 countries but is counted as one pending application. As soon as the European patent application is granted it may be validated for each of the designated countries by filing a translation into the official language of that designated state. Once such a translation has been filed, we count each such patent as a separate patent.

 

(1)

 

EU refers to filings made under the European patent convention. The EU figures do not include European patent applications designated in Patent Cooperation Treaty (PCT) applications while still in the international phase.

(2)

 

U.S. figures do not include U.S. patent applications designated in PCT applications while still in the international phase.

(3)

 

Figures reflect PCT applications still in the international phase. Our PCT applications routinely designate all territories and contracting states that are party to the Patent Cooperation Treaty per the international filing date.

(4)

 

Rest of world consists of Australia, Brazil, Canada, China, India, Israel, Japan, Hong Kong, Mexico, New Zealand, Norway, Russia, Singapore, South Africa and South Korea. Rest of world figures do not include PCT applications designating these countries while still in the international phase.

 

Patents

At December 31, 2007 we owned or co-owned 539 granted patents in the EU territory, 75 patents in the U.S. and 239 patents in the rest of the world.

 

The following is a summary of the intellectual property rights related to our major products and product developments.

 

Epaxal and Inflexal V.

Epaxal and Inflexal V are the two virosomal products which are protected by the patent family ‘Immunostimulating and immunopotentiating reconstituted influenza virosomes and vaccines containing them’, which will expire in 2012. In addition, the hepatitis A strain used to produce Epaxal is claimed in a patent family which will expire in 2012.

 

Hepavax-Gene

The active substance of this monovalent recombinant hepatitis B vaccine is HbsAg which is no longer protected by patent in Europe and most countries in the rest of the world. The Supplementary Protection Certificates with respect to Hepavax-Gene are still valid in Sweden, Italy, and France. However, we are not currently considering Western European countries for product registration and marketing. The production technology is based on our proprietary Hansenula polymorpha expression technology.

 

Quinvaxem

We have no patent protection for the active substances of Quinvaxem.

 

Vivotif

We have no patent protection for the active substances of Vivotif.

 

Dukoral

We have no patent protection for the active substances in Dukoral, but certain aspects of manufacturing are subject to patent.

 

We seek patent protection, whenever possible, commercially feasible and appropriate, in respect of any technology or product development that is important to our business. Together with our affiliates in Switzerland, Sweden, Italy and Korea, we have several platform technologies and

 

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consequently our intellectual property activities concentrate on protecting these technologies and any improvements thereof in the main worldwide vaccine markets of Europe, the U.S., Canada, Japan and Australia. However, because some vaccine markets are outside these countries, we have also sought protection in other countries, such as Korea, India and China. The IP portfolio is constantly reviewed to decide on maintenance of individual patents or patent families considering parameters such as actual product performance, product development, patent term, options for commercialization or out-licensing of non-core IP. Our IP tasks are coordinated, patents are filed on a worldwide basis by specialized patent attorneys.

 

Our patent-related activities do not afford complete protection to our intellectual property rights. Patents in the biotechnology and biopharmaceutical fields involve complex factual and legal questions. Patents may not be issued in respect of our pending applications or in respect of future applications that we file. In addition, a patent that is issued to us may be narrower than our application or found to be invalid. Others may make attempts to copy, reverse engineer or design around aspects of our technology, or to obtain and use information that we regard as proprietary. Our patent filings may be subject to challenges.

 

Patent enforcement and proceedings

We may need to litigate or institute administrative proceedings such as oppositions to a patent to enforce or uphold our intellectual property rights or determine the validity and scope of the proprietary rights of others. Likewise, from time to time it may be necessary to defend our patents in litigation or administrative patent proceedings such as opposition proceedings. We believe that litigation can play a significant role in defining and protecting our intellectual property rights. We are aware, however, that legal and administrative proceedings can be costly and time-consuming, and result in a diversion of resources. As an alternative to litigation, we may enter into licensing, including cross-licensing, arrangements as a means of clarifying the status of our intellectual property rights.

 

In 2005, Probiogen, CEVEC Pharmaceuticals and Serono each individually filed oppositions before the European Patent Office against one or more of our PER.C6 patents. All PER.C6 technology patents were upheld after first instance opposition proceedings.

 

Cell Genesys has filed opposition against our European patent related to our AdVac technology. The opposition is still pending before the opposition division.

 

In 2005 we lodged opposition against a European patent held by Chiron related to certain aspects of the production of influenza viruses in cell culture; the opposition is still pending.

 

Our subsidiary Berna Biotech Korea Corporation (formerly Green Cross Vaccine Corporation) and our partner Novartis (formerly Chiron) lodged oppositions against a patent of GlaxoSmithKline (GSK) in Korea. The patent relates to multivalent vaccine formulations, such as our pentavalent vaccine Quinvaxem. In response to the opposition, the patent was revoked by the Korean Intellectual Property Office in December 2004 on the grounds that the subject-matter claimed in the patent lacks novelty. GSK appealed that decision to the Korean Patent Court. After a hearing which took place in April, 2006, the Korean Patent court dismissed the appeal in June, 2006. GSK has appealed this decision. If the Korean Supreme Court were to reverse the decision of the Patent Court and if GSK were to enforce its patent, Berna Biotech Korea Corp. could be found to have infringed the patent. In this case, we may be forced to delay or even cancel our commercial activities with this vaccine. As a consequence, we would lose revenue and our business would be adversely affected.

 

In addition, production of Quinvaxem requires a particular vaccine component that may become the subject of a patent dispute between either GSK and us or GSK and our supplier of that component. The patent on that particular component, held by GSK, is currently under opposition before the patent office and a definitive outcome on the validity of the patent is expected to take a number of years. A negative outcome of this opposition proceeding could lead to infringement proceedings between GSK and us or GSK and our supplier, although we believe that neither we nor our supplier would be held to have infringed or be infringing that patent. The outcome of legal disputes is invariably difficult to predict with accuracy, but in the event GSK were to prevail in infringement proceedings against us, this would adversely affect our business.

 

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In addition to protecting our intellectual property rights, our commercial success also depends on our ability to operate without infringing the intellectual property rights of others. We monitor patent applications to the extent available, patents issued and publications of discoveries in scientific or patent literature to keep abreast of the activities of others in our field and, with the assistance of our internal and external patent counsel and other external advisors, assess whether our activities or products infringe the patents or proprietary rights of third parties. A number of third parties have been granted patents that cover technologies related to ours and similar patents may be granted in the future. We believe that our current activities do not infringe any valid claims of patents or any other proprietary rights of third parties. We will consider the intellectual property rights of others as we continue to identify and develop potential products and may have to enter into licensing or other agreements or use alternative technologies.

 

Research has been conducted for many years in the fields of biotechnology and biopharmaceuticals. This has resulted in a substantial number of issued patents and an even larger number of patent applications. The U.S. Patent Office maintains patent applications that are filed only in the U.S. in secrecy until patents issue, and publication of patent applications elsewhere and of discoveries in the scientific or patent literature frequently occurs substantially later than the date of the underlying discoveries. Moreover, patents that appear not to affect our activities may be construed broadly. As such, we or our licensees may be found to infringe the patents or violate other proprietary rights of third parties and may be enjoined from pursuing research, development or commercialization of our or their products or be required to pay damages. In these circumstances, licensing or other arrangements for addressing these infringements or violations may not be available, or may not be available on commercially acceptable terms.

 

Technology licenses from third parties

 

We licensed numerous technology and patents for specific use as part of our technology platforms from a number of third parties.

 

We entered into a technology license agreement with Xoma in the field of bacterial expression technology. This license allows us to develop diagnostic and therapeutic antibodies in the field of infectious disease using phage-display technology. The agreement provides us with options to expand the license to cover additional disease fields. Under the terms of the agreement, we pay Xoma milestone payments and royalties on products as and when developed and marketed using the licensed technology.

 

We also hold a license under the phage antibody display patent portfolio owned or controlled by MedImmune (formerly Cambridge Antibody Technology) and MRC, a cross-license with Transgene S.A. under which we granted to Transgene a non-exclusive PER.C6 license for the manufacture and sale of certain types of vectors for use in gene therapy, and a license to phage antibody-display technology and part human, or chimeric, binding proteins and molecules from Enzon Corporation’s subsidiary, SCA Ventures, Inc.

 

In the field of vaccines, we have concluded an agreement with the Rockefeller University in New York. According to the agreement, we have the exclusive rights to use and exploit the Rockefeller patents related to ex vivo and in vivo targeting of dendritic cells with the use of viral vectors.

 

The Company has licensed adjuvation technology called ISCOMS from Isconova AB for the development, manufacture and commercialisation of improved influenza vaccines.

 

When licensing our technology to third parties we seek to obtain access to any improvement patents via so-called grant-back provisions to reduce the risk of being exempted from using such improvements for our own benefit, or that of our licensees.

 

Technology licenses to third parties

 

We have issued certain licenses on an exclusive basis. These licenses generally state that we will not provide the licensed technology to a party other than the exclusive licensee for use in the area covered by the exclusive license. These licenses also generally provide for higher payments.

 

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Industry and scientific overview

 

Manufacturing systems for biopharmaceutical products

 

Biopharmaceutical products are therapeutics produced by means of biological production systems. Modified bacteria and yeast were initially used to produce the first generation of biopharmaceutical products for humans. The first available human cell-based production systems employed human cells that spontaneously acquired the ability to divide indefinitely. These cell lines have been successfully used to produce a number of human vaccines including those for rubella, mumps, measles, rabies and hepatitis.

 

Vaccines

Vaccines are designed to protect people against potentially life-threatening diseases, including those caused by parasites, viruses and bacteria.

 

Scientific progress in vaccines

Vaccines have contributed significantly to the improvement of global public health in the twentieth century. Smallpox was eradicated through the use of vaccines, and polio is well on its way to eradication. Significant developments include the introduction of combination vaccines and the development of new vaccine technologies that may advance vaccine development. Today, research is underway to develop efficacious and safe vaccines against among others

 

·   Viruses such as HIV;

·   Parasites such as those that cause malaria;

·   Bacteria such as those that cause tuberculosis; and

·   Inherited or acquired diseases such as cancer.

 

Vaccine formats

A variety of vaccine formats are in use today and others are evolving through ongoing research and development efforts. Some of the most common vaccine formats include live-attenuated virus vaccines, inactivated whole-killed virus vaccines, subunit vaccines, DNA vaccines, recombinant vector-based vaccines, synthetic vaccines and peptide-based vaccines.

 

Vaccine technology development

A large variety of vaccine technologies are under development in an attempt to improve safety and overall vaccine efficacy. The key objectives of current vaccine technology research and development are to make safer vaccines without compromising efficacy, to generate new vaccines with stronger and broader immunogenicity, to make vaccines using more efficient manufacturing processes and to make vaccines easier to administer.

 

Antibodies

 

Antibodies are proteins made naturally by cells of the body’s immune system. They function as one of the body’s principal defence mechanisms against pathogens, which are disease causing agents such as parasites, viruses or bacteria. Antibodies recognize and bind to invading pathogens, ultimately eliminating them, thus playing a crucial role in protecting humans against disease. Because of their binding characteristics, antibodies can distinguish subtle cell differences between healthy and diseased cells. Antibodies are used to develop therapeutic products that can

 

·   Trigger the death of a target cell, such as a cancer cell,

·   Bind to and block a key interaction of a disease-related cell, such as an inflammatory cell,

·   Block infectious agents.

 

Antibodies may also be used to bind and neutralize toxic products, to develop diagnostic products to detect viruses or bacteria and as tools in scientific research such as genomics and proteomics.

 

Scientific progress in antibodies

Methods for generating monoclonal antibodies have evolved considerably over the last 25 years. The technology originally involved immunizing mice with a target molecule and isolating relevant antibody-producing cells from the mice. Because monoclonal antibodies of rodent origin are recognized as foreign proteins and are rapidly eliminated when applied in humans, methods were developed to produce therapeutic antibodies that are of human origin. These antibodies can be developed either using transgenic mice or by means of phage antibody-display technology. Transgenic mice are genetically engineered mice that carry human antibody genes. This allows the immune systems of mice to generate human antibodies in response to any administered antigenic material. Phage antibody-display technology allows human antibody genes to be cloned into bacteriophages, which are viruses that only infect bacteria. Phages displaying antibody fragments that attach to specific molecules can be selected, enabling isolation of antibodies against targets and/or

 

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enabling the identification of target molecules. Phage antibody-display libraries are large collections of antibody-phages for use in identifying the targets and related antibodies.

 

Therapeutic proteins

Proteins are main constituents of the human body. They consist of amino acid peptide chains folded in a specific conformation, and often contain a number of so-called posttranslational modifications (one of the later steps in protein biosynthesis) which include glycosylation, sulphation, phosphorylation, gamma-carboxylation, and others. Since the 1950s, proteins have been increasingly used as therapeutic drugs, especially diseases caused by a deficiency of certain proteins. Hematology, endocrinology and oncology are the main disease areas in which therapeutic proteins are applied.

 

Scientific progress in recombinant therapeutic proteins

Initially therapeutic proteins were isolated from natural sources such as blood, urine and tissue. Clinical experience with these proteins in the 1960s, and afterwards, revealed a significant risk of transmission of infectious pathogens, particular viruses, from the source material to the recipient. Hence, production of proteins in vitro was investigated. Since the 1970s, developments in molecular biology have made it possible to produce proteins in the laboratory. In addition, transgenics were developed that secrete the protein of interest in milk. Today, there are a number of production platforms for non-mammalian cells such as yeast, as well as mammalian cells.

 

Mammalian cell-based protein production systems mostly use non-human cell lines such as CHO, BHK and others. The type of post-translational modifications carried out by the platform is often determined by the cell-type used. Current thought holds that recombinant proteins should be produced by cell lines in culture media that are completely devoid of human serum components.

 

Competition in product and technology development

 

The biotechnology field is one of rapid change and innovation. We expect that this industry will continue to experience significant technological and other changes in the years ahead. We operate in highly competitive markets and we may experience competition from companies that have similar or other technologies, and other products or forms of treatment for the diseases we are targeting. We also may experience competition from companies that have acquired or may acquire technology from universities and other research institutions. As these companies develop their technologies, they may develop proprietary positions in the areas of our core technologies or obtain regulatory approval for alternative technologies or commercial products earlier than we or its licensees do. Other companies are developing products to address the same diseases and conditions that we and our licensees target and may have or develop products that are more effective than those based on our technologies. We also compete with our licensees in developing new products.

 

Vaccines

 

Other biotechnology and pharmaceutical companies that are focused on developing vaccines against infectious diseases include Wyeth, sanofi pasteur, Merck & Co., GlaxoSmithKline, Novartis, Acambis, Baxter, GenVec, Bavarian Nordic, Baxter, Solvay, Vical and Nobilon.

 

With respect to vaccines, other companies use alternative non-human expression platform technologies. We are aware of licensed vaccines that are produced in cell substrates such as MDCK (Madin Darby Canine Kidney cells) and VERO as well as on production platforms based on embryonated chicken eggs. There are also mouse brain-derived inactivated vaccines that are produced in several Asian countries. We are also aware of other human expression technologies such as WI 38 and MRC 5 for licensed and marketed vaccines, as well as human cell lines supporting products in development such as (HEK) 293.

 

In the area of influenza, we are aware that Solvay has obtained registration in the Netherlands for a vaccine based on MDCK cells. We are aware of other biotechnology and pharmaceutical companies that currently are developing influenza vaccines based

 

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on MDCK cells, including GlaxoSmithKline (including IDB/Shire), Nobilon and Novartis (formerly Chiron). In addition, we are aware that Baxter has obtained approval in Austria for its VERO-based influenza vaccine. For other European markets Baxter appears to have stopped at Phase II in December 2004.

 

In the area of ebola, we are aware that Vical is conducting Phase I clinical efficacy studies with its DNA-based ebola vaccine and has initiated GMP manufacturing for the NIH with whom they are jointly developing the vaccine. We are aware that Health Canada, a federal government organization, is conducting pre-clinical studies with its ebola vaccine that is based on a live replication competent Vesicular Stomatitis Virus (VSV) vector. We are also aware that the U.S. Army Medical Research Institute of Infectious Diseases (U.S.MRIID) is conducting pre-clinical studies with its recombinant ebola vaccine, which is based on ebola virus-like-particle (VLP) technology. U.S.MRIID is also involved in a CRADA with AVI BioPharma in testing the latter’s antisense drugs against ebola. AVI BioPharma received funding from the U.S. Senate Committee on Appropriations in June 2004 to support this and its work on the Marburg virus.

 

In the area of malaria, we are aware of two companies conducting Phase I/II clinical studies with malaria vaccine candidates based on virus-like-particle (VLP) technology: GlaxoSmithKline Biologicals (GSK) and Apovia. GSK has secured significant funding from NGOs for its malaria vaccine RTS,S. We are also aware that Oxford (The Wellcome Trust Centre for Human Genetics) and GSK are jointly developing a malaria vaccine using live vector technology, and that this vaccine is in Phase I/IIa clinical studies. In addition, Oxford is conducting Phase I/II clinical studies with three additional malaria vaccine candidates based on live vector technology, as well as pre-clinical studies with one additional vaccine candidate based on live vector technology. We are aware that the Pasteur Institute is conducting Phase I/IIa clinical studies with its malaria vaccine candidate, which is based on Long Synthetic peptide technology (LSA 3).

 

For tuberculosis, a number of companies, government bodies and academic institutes around the world are working on the development of new vaccines. The NIAID in the U.S. is involved in a range of early-stage efforts relating to live-attenuated, subunit and naked DNA type vaccine candidates. Our partner, the Aeras Global TB Vaccine Foundation, is working on various other programs including a live recombinant TB vaccine with the David Geffen School of Medicine at UCLA, which entered its first clinical trial in March 2004. In October 2004 Nature Medicine announced an Oxford University subunit vaccine, designed to work in tandem with the existing BCG vaccine, had successfully completed safety trials with positive T-cell responses.

 

Adenoviral vector technology and other recombinant vectors

With respect to vector development, we are aware of several competing technologies, including those of GenVec and Merck & Co., which may pose a threat to the commercial viability of our AdVac technology. In particular, Merck & Co. research has established methods that may prevent problems relating to pre-existing immunity to adenovirus 5 vectors.

 

Antibodies

Other biotechnology companies, including Celltech Group plc and Protein Design Laboratories, Inc., currently generate humanized antibodies, and Medarex, Inc., GenMab AG, and Regeneron produce fully-human antibodies from transgenic mice. MedImmune (formerly Cambridge Antibody Technology), MorphoSys AG and Dyax generate fully-human antibodies using phage antibody-display libraries that are similar to ours. Companies such as XOMA and SCA Ventures, Inc., a subsidiary of Enzon Corporation, are also working in the field of phage display libraries and related technologies.

 

In the area of infectious disease antibodies, potential competitors include serum antibody companies such as CSL and Baxter, and monoclonal antibody companies like MedImmune. For rabies specifically, our antibody product may offer an alternative to the existing rabies immune globulin products, both Human (HRIG) and Equine (HRIG), that are currently paired with rabies vaccine for effective post-exposure treatment.

 

Production of recombinant proteins and monoclonal antibodies

Monoclonal antibodies and recombinant proteins are produced by other companies on a variety of platforms. Simple proteins that do not demand extensive post-translational modifications are produced in bacterial systems (E. coli). For example, the human recombinant insulin is produced entirely on E. coli.

 

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Monoclonal antibodies and complex recombinant proteins are produced mainly on mammalian cell lines, which are used for commercial production of monoclonal antibodies and other recombinant proteins by companies including Genentech, Biogen, Centocor, Amgen, Lonza and Boehringer Ingelheim. We are aware of a human cell line expression platform used for production of recombinant proteins, the 293 human cell line, which shares some of the advantages of the PER.C6 technology. The 293 human cell line is utilized by Eli Lilly & Company to produce a protein for the treatment of adult severe sepsis. The FDA and the EMEA have approved this product and it is currently available for use. We are aware that scientists have published research describing human cell culture systems that appear to have similarities to our PER.C6 technology.

 

In addition to microbial and mammalian cell culture systems, transgenics are also exploited for the manufacture of complex recombinant proteins. Transgenic plants are also used as a platform for the manufacture of monoclonal antibodies and complex recombinant proteins. Cell culture systems derived from plants are currently used as well, like moss and cultured plant cells, which are currently used for manufacturing recombinant proteins. None of the products produced in transgenics have reached the market yet.

 

Regulations applicable to the biopharmaceutical industry

 

We operate in a highly regulated industry. Our products require approval of government health authorities before they can be sold, and require significant pre-clinical testing before approval will be granted. Our research and development and production activities involve the use of hazardous materials, including chemicals and radioactive and biological materials, many of which we need special approval to obtain and all of which are subject to regulation regarding their handling and disposal. Environmental laws and regulations and laws and regulations relating to safe working conditions, laboratory conditions, and laboratory and manufacturing practices also apply to our operations. We conduct our operations in a manner designed to comply with applicable regulations and we believe that we have all the licenses and permits required to carry out our current activities.

 

Our ability and that of our licensees to commercially distribute biopharmaceuticals depends in part on the extent to which governmental health administration authorities, health insurance companies, government health policies, health maintenance organizations, or HMOs, and other organizations are willing to pay for the costs of these products. The willingness of governments and HMOs to pay for the costs of newly developed health care products is uncertain. There are efforts by governmental payers and HMOs to contain or reduce the costs of health care and we expect that there will continue to be a number of legislative proposals to do so.

 

Obtaining product approval is a costly and time- consuming process. All of our potential products, and those of our licensees, are either in research or development. Any products our licensees or we develop will require regulatory clearances prior to clinical trials and additional regulatory clearances prior to being produced and distributed commercially. These regulatory processes are generally stringent and time consuming. We expect the European Medicines Agency (EMEA) in the European Union, the FDA in the U.S., the College ter Beoordeling van Geneesmiddelen (CBG) in the Netherlands and comparable agencies in other countries to subject new biopharmaceutical products to extensive regulation. These regulatory requirements with which we and our licensees will have to comply will evolve over time due to the novelty of the biopharmaceutical products and therapies currently under development. Fortunately, the harmonization of these requirements is promoted at an international level (International Conferences on Harmonization (ICH)) to avoid unnecessary repetition of studies when seeking approval in various countries. Under the current definitions, we believe that products developed using our technologies will be regulated either as biological products or as drugs.

 

Before marketing a (bio) pharmaceutical product, companies require regulatory approval from the relevant authorities. To obtain this approval, pre- clinical and clinical trials must be conducted to demonstrate the safety and efficacy of the product candidates. Clinical trials are the means by which experimental drugs or treatments are tested in human volunteers. New therapies typically advance from laboratory research testing through pre- clinical testing and finally through several phases

 

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of clinical human testing. On successful completion of the clinical trials and demonstration that the product can be manufactured in a safe and consistent manner, approval to market the biopharmaceutical may be requested from the EMEA in Europe, the FDA in the U.S. or their counterparts in other countries.

 

Clinical trials are normally done in three phases:

 

·       Phase I: First clinical trial of a new compound, generally performed in a small number of healthy human volunteers, to assess clinical safety, tolerability as well as metabolic and pharmacologic properties.

·       Phase II: Clinical studies that test the safety and efficacy of the compound in patients with the targeted disease with the goal of determining the appropriate doses for further testing and evaluating study design as well as identifying common side effects and risks.

·        Phase III: Large-scale clinical studies with several hundred or several thousand patients to establish safety and effectiveness for regulatory approval for indicated uses and to evaluate the overall benefit/risk relationship.

 

Our research and development and production activities are undertaken in a number of countries around the world. These activities are subject to strict regulatory requirements of national and supranational authorities in the countries in which they are undertaken such as requirements governing the testing, manufacturing and marketing of pharmaceutical products. In most countries, it is necessary to obtain an approval to market a pharmaceutical or medical product. The grant of such an approval is subject to a detailed evaluation of data submitted by the applicant related to the quality, safety and efficacy of the product. Many countries, including member states of the EU and the U.S., impose extensive testing and data submission requirements and conduct rigorous technical appraisals of product candidates. In addition, different regulatory authorities may impose different conditions upon the marketing of a given product or may refuse to grant or require additional data before granting an approval to market a product even though the product may have been approved by another regulatory authority. Pre-clinical testing, clinical research and regulatory approval of a pharmaceutical or medical product is a very lengthy and costly process.

 

Once a product is approved, the manufacturing and marketing of the product remains subject to periodic review. Changes in applicable regulations, breaches of regulatory requirements or the discovery of problems related to the manufacturing, safety, quality or efficacy or stability as well as changes in the characteristic of a product inherent to his biological origin may result in the imposition of restrictions upon the manufacturing and sale of such product, including at worst withdrawal of the product from the market and/or the revocation of the relevant regulatory approvals.

 

Prequalification applicable to the biopharmaceutical industry

National and regional governments rely on the prequalification granted to biopharmaceutical products by evaluative bodies such as the WHO and, in some cases, simply elect not to purchase products which have not been granted prequalification of approval.

 

The WHO Prequalification project is carried out to facilitate access to medicines that meet unified standards of quality, safety and efficacy for HIV/AIDS, malaria and tuberculosis.

 

Prequalification was originally intended to give United Nations procurement agencies, such as UNICEF the choice of a range of quality medicines. With time, the growing list of products (i.e. medicines) that have been found to meet the set requirements has come to be seen as a tool for anyone bulk purchasing medicines, including countries themselves and other organizations.

 

Any manufacturer wishing their medicines to be included in the prequalified products list are invited to apply. Each manufacturer must present extensive information on the product (or products) submitted to allow qualified assessment teams to evaluate its quality, safety and efficacy. The manufacturer must also open its manufacturing sites to an inspection team which assesses working procedures for compliance with WHO Good Manufacturing Practices (GMP).

 

The Prequalification project does not intend to replace national regulatory authorities or national authorization systems for importation of medicines.

 

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Additional information on the Company

 

Legal proceedings

 

In the ordinary course of business, we have been and may become involved in disputes. Neither we, nor any of our subsidiaries, has been party to any legal or arbitration proceedings that may have, or have had during the 12 months preceding the date of this document, a significant effect on our financial position or any of our subsidiaries nor, as far as we are aware, are any such legal proceedings pending or threatened, except for those disclosed in ‘Intellectual Property – Patent Enforcement and Proceedings’ in this section and the following matters:

 

Deductibility of research and development costs

In Italy, Berna Biotech Italia Srl. was subject to a tax audit for fiscal years 2001 and 2002. For the year 2001, a settlement was reached with the Italian tax authorities in 2007. For the year 2002, no settlement is reached. The tax authorities issued an assessment that deviates from the assessment in the tax return filed. We are challenging this assessment in court. We made a provision for the costs of additional taxes, penalties and interest, as well as lawyers’ fees, which we expect we will have to pay as a result. One of the items in dispute is the deductibility of the research and development costs we make in Italy. In the event that we lose the court case on this subject, the Italian tax authorities may challenge the deductibility of research and development costs for the years 2003 up until 2007. We consider it more likely than not that the research and development cost will be tax deductible.

 

Complaint filed by Korean landlord

The Group leases the property on which our Korean factory is build from our landlord, Green Cross Holdings Corp under a lease that expires in 2010, and which can be extended for an additional five years at our election. We are the only party entitled to terminate the lease.

 

Our landlord plans to surrender a portion of the land on which our Korean facility sits, to the local and regional authorities due to construction of a light railway and a subway line extension along with the potential urban development associated therewith. In 2007, we demolished a warehouse that was directly in the path of the construction of the subway line. Currently, none of our property is in the way of the construction projects. Our landlord has advised us it will stop providing utilities to us in early 2009. Furthermore, our landlord filed a complaint against us in November 2007, seeking the demolition of two more of our buildings at the Korean facility and delivery to them of the land on which those buildings are located. The suit alleges that there is an implied lease agreement for those buildings and the land on which they sit, which automatically terminated upon commencement of the subway line extension project. In January 2008, we submitted our answer to the Court, denying the landlord’s allegations on the grounds that there was no new (whether implied or express) agreement to demolish the buildings and deliver the relevant land. Such an agreement would be inconsistent with the long-term lease agreement which we and the landlord executed in April 2000. We expect this court case to last several years.

 

An unfavourable outcome of the court case may have a material adverse effect on our business, financial condition and results of operations.

 

Property, plant and equipment

 

Our corporate offices and research activities are located in facilities of approximately 8.700 square meters in Leiden, the Netherlands. The section of this building that we use in Leiden includes 3.500 square meters of laboratories, with BioSafety Level (BSL) 1, BSL 2 and BSL 3 labs. The remainder of the main building is divided into 2,800 square meters of office space and 2,400 square meters for storage, technical areas, washrooms, waste destruction and sterilization.

 

In addition, we lease 1200 square meters of space adjacent to the corporate main building. In 2007 we closed our pilot plant and production facility, which was located in a separate building in the Leiden BioScience Park.

 

In 2005, we began to construct a new GMP Process Technology Center of 5.400 square meters in Leiden. This new facility will be a BioSafety Level (BSL) 3 facility, in which two concurrent products can be produced, on either BSL 2 and/or BSL 3 safety level. The building will consist of 1,500 square meters of production space; 220 square meters of quality control labs; 185 square meters BSL 3 research and development labs; 80 square meters filling (up to 2,000 ampoules); 40 square meters of buffer and medium preparation; 310 square meters of offices; 350 square meters of storage and 2,715 square meters for utilities, washing area, waste destruction and sterilization and technical areas.

 

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The new centre is named after Crucell co-founder Dinko Valerio, and is known as PTC Valerio Building. The PTC Valerio Building will give us the in-house capability to support vaccine, protein and monoclonal antibody process design and development, minimizing requirements for outsourcing. Bioreactors of 2, 10, 30 and 100-liter capacities have already been constructed off-site and are installed. There is also room for expansion, with multiple 100-liter wave-bags, disposable stirred tank bioreactors, and large scale down stream processing equipment and scale-up of fill and finish capacity.

 

When fully operational, the Valerio Building will meet the highest environmental and safety standards recommended for the laboratory activities to be conducted there. The facility must receive approval from the Dutch government to produce material for use in humans. Extensive precautions will be taken to ensure safety and continuity of operations. Product quality will be strictly monitored, maintained and administered in-house. The facility is currently scheduled to become operational in the first half of 2008.

 

Since our 2006 acquisitions, we also have office space, laboratories, production facilities, pre-clinical faciliti