Annual Reports

 
Other

Crucell NV 20-F 2009

 

As filed with the Securities and Exchange Commission on April 22, 2009

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 20-F

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

 

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)

 

Onno Krap, Vice President Finance

+31 20 71519 9226, onno.krap@crucell.com
Archimedesweg 4-6, 2333 CN, Leiden, The Netherlands

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

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,
each representing one ordinary share,
par value € 0.24

 

NASDAQ Global Select Market

 

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

None

(Title of Class)

 

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

None

(Title of Class)

 

65,833,242 Ordinary Shares

(nominal value EUR 0.24 per share)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes x No o

 

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.

Yes o No x

 

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

Yes x No o

 

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

 

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

 

If “Other” has been checked in response to the previous question, indicate by checkmark which financial statement item the registrant has elected to follow.

Item 17 o Item 18 o

 

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)

Yes o No x

 

 


 

 

Crucell 2008

Combating Infectious Diseases

 

Annual Report and Form 20-F

www.crucell.com

 

 


 

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

 

Cover photo

Crucell’s coworker Marjolein van der Meer (Technician) submitted this photo of herself for an internal photo contest, wearing The Crucell Ambition T-shirt. The photo was taken during a visit to a friend who is doing volunteer work in Africa. The joyful energy of these children in a poor fishing village in Ghana is a powerful reminder of our shared ambition as Crucell employees: to improve global health by advancing the fight against infectious diseases.

 

Shareholders information

Crucell N.V. is a public limited liability company registered in the Netherlands. Crucell’s shares are listed on NYSE Euronext (Amsterdam), and 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 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 US. Cross-references to Form 20-F are set out on pages 188 to 189.

 

The Crucell 2008 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.

 

www.crucell.com | Crucell Annual Report and Form 20-F 2008

 

2008 Key Highlights

 

·  Profitability for the year 2008

·  Additional contracts Quinvaxem® and Hepavax-Gene® bring total to $0.5 billion for the period 2007-2009

·  Hepavax-Gene® approved in China

·  Flu antibody outperforms oseltamivir

·  Rabies antibody combination and tuberculosis vaccine enter Phase II

·  Important advances made in antibody production using PER.C6® technology

·  Record yield of over 27 g/L of an antibody product achieved

·  First PER.C6® licensee entered Phase III

·  Key license agreements signed

 

Total revenues and other operating income in 2008

An increase of 33% compared to €213.1 mln in 2007.


 

 

Gross margin in 2008

Significant improvement from 34% in 2007.

 

 

Net profit in 2008

Compared to a net loss of €42.9 mln in 2007.

 

 


 

Contents

 

Overview

 

 

 

Crucell at a Glance

02

Crucell: A Global Perspective

04

Performance Highlights

06

Message from our CEO

10

Management Committee

14

Report of the Supervisory Board

16

 

 

Our Business

 

 

 

Our Products and R&D Pipeline

18

Products

20

Research & Development

24

Technologies

30

 

 

Our Commitment to CSR

 

 

 

Corporate Social Responsibility

34

 

 

Management Report

 

 

 

Report of the Management Board

52

Information on the Company

57

Risk Factors

81

Operating and Financial Review and Prospects

89

Corporate Governance

103

 

 

Articles of Association and Share Capital

117

 

 

Report of Independent Registered Public Accounting Firm

124

 

 

Financial Statements

 

 

 

Consolidated Income Statements

125

Consolidated Balance Sheets

126

Consolidated Statements of Changes in Equity

127

Consolidated Cash Flow Statements

128

Notes to the Consolidated

 

Financial Statements

129

Company Financial Statements

171

Notes to the Company Financial Statements

172

 

 

Other Information

 

 

 

Other Information

175

Auditor’s Report

176

 

 

Information for Shareholders and Investors

177

 

 

Appendix overview licensees and partners

186

 

 

Cross-reference to Form 20-F

188

 

 

Exhibits

190

 

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. The sustainability of our business is demonstrated by our solid balance sheet and strong cash position, as a consequence we do not need to raise capital in the foreseeable future. For a company of our size, we invest relatively heavily in research and development: our R&D expenditures in 2008 were €70 million.

 

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 leveraging our knowledge in the vaccines field to excel in the antibodies market. Our competitive edge comes from our proprietary technology platforms like PER. C6®, which is used to produce high-value biotech products in scalable and cost-efficient ways. This combination of markets we operate in, technological knowledge and quality marketed products, positions us to be a major player in the multi-billion dollar biopharmaceutical 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

 

Partners and licensees

 

In addition to our own research and development activities, we have strategic partnerships with several leading healthcare companies. Through these agreements, our technologies play a vital role in the development of a vast number of vaccines and antibody products. Some examples of partners and licensees we work with are mentioned below.

 

· CSL

· DSM Biologics

· Gedeon Richter

· GSK

· MedImmune

· Merck

· Novartis

· Sanofi pasteur

· Talecris

· Wyeth

 

Why infectious diseases?

 

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

 

 

 

Cash and cash equivalents at year-end 2008

Strong cash position to invest in profitable growth.

 

 

Growth in 2008

Revenues and other operating income growth.

 

We have strategic partnerships with leading international healthcare companies.

 

 

Net profit per share in 2008

Compared to net loss per share of €0.66 in 2007.

 

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

 

USA*

 

Switzerland

 

Switzerland

 

Switzerland

USA*

 

 

 

 

 

Sweden

 

Sweden (Nordic)

 

 

 

 

 

 

Spain

 

Spain

 

 

 

 

 

 

Korea

 

Italy

 

 

 

 

 

 

 

 

Korea

 

 

 

 

 

 

 

 

China

 

 

 

 

 

 

 

 

Indonesia

 

 

 

 

 

 

 

 

Vietnam

 

 

 

 

 

 

 

 

Argentina

 

 

 

 

 

 

 

 

Canada

 

 

 

 

 

 

 

 

USA

 

* PERCIVIA, a Joint Venture with DSM Biologics

 

 

04


 

Overview

Crucell: A Global Perspective

 

 

Products

 

Our vaccine business provides stable and predictable sales and cash flow. We sold more than 100 million vaccine doses in over 80 countries throughout the world, which makes us the largest independent vaccine player. 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 most important 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.

 

 

 

 

 

 

 

We license proprietary technologies to the biopharma market.

 

Products

 

 

 

Paediatric:

 

Quinvaxem® vaccine against five important childhood diseases.

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

Hepavax-Gene® vaccine against hepatitis B.

MoRu-Viraten® vaccine against measles and rubella.

 

Travel and Endemic:

 

Epaxal® aluminum-free hepatitis A vaccine.

Vivotif® oral typhoid vaccine.

Dukoral® oral cholera vaccine.

Respiratory:

Inflexal® V virosomal adjuvanted influenza vaccine.

 

Details on:

p20

 

Research & Development

 

 

Vaccines in development:

 

·      Yellow fever

·      Influenza seasonal 1

·      Tuberculosis

·      Malaria

·      Ebola and Marburg

·      HIV

 

Human antibodies in development:

 

·      Rabies antibody combination

·      Influenza antibodies H1 & H5

 

 

Details on:

p24

 

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:

p30

 

 

1 Developed by sanofi pasteur using PER.C6®.

 

05


 

Overview

Performance Highlights

Performance Highlights

 

 

 

 

 

2009 outlook for total revenues and other operating income.1

 

Financials

 

Total revenues and other operating income

(€ million)

 

 

Net cash flow from operating activities

(€ million)

 

 

Profit (loss) for the period
(€ million)

 

 

Cash and cash equivalents at December 31

(€ million)

 

 

1 Guidance currency = EUR/USD rate of 1.35.

06


 

Overview

Performance Highlights

 

 

Profitable and strong cash position

 

Revenues and other operating income

 

Revenues and other operating income

(€ million)

 

 

2008 Product sales

(€226 million)

 

 

Outlook for 2009

 

Total revenues and other operating income1

 

20% growth

Operating profit

 

Significantly improved

Cash flow

 

Solid

 

1 Guidance currency = EUR/USD rate of 1.35.

 

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, 2008, 2007 and 2006 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 US (‘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 2008 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 2008.

 

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)

 

2008

 

20071

 

20061

 

2005

 

2004

 

Consolidated income statement data:
Revenues:

 

 

 

 

 

 

 

 

 

 

 

Product sales

 

226,055

 

177,569

 

103,918

 

 

 

License revenues

 

30,202

 

12,211

 

16,955

 

20,848

 

12,429

 

Service fees

 

10,900

 

14,006

 

10,694

 

11,881

 

5,712

 

Total revenues

 

267,157

 

203,786

 

131,567

 

32,729

 

18,141

 

 

 

 

 

 

 

 

 

 

 

 

 

Total cost of goods sold

 

(145,755

)

(134,884

)

(90,489

)

(7,156

)

(5,644

)

Gross margin2

 

121,402

 

68,902

 

41,078

 

25,573

 

12,497

 

 

 

45.4%

 

33.8%

 

31.2%

 

78.1%

 

68.9%

 

Total other operating income

 

16,152

 

9,330

 

9,356

 

4,840

 

4,481

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

(70,229

)

(63,995

)

(67,606

)

(34,048

)

(23,676

)

Selling, general and administrative

 

(64,350

)

(61,752

)

(46,732

)

(13,689

)

(16,819

)

Restructuring

 

 

 

(3,120

)

 

 

(Reversal of) impairment

 

4,888

 

(171

)

(30,416

)

 

 

Total other operating expenses

 

(129,691

)

(125,918

)

(147,874

)

(47,737

)

(40,495

)

Operating profit/(loss)

 

7,863

 

(47,686

)

(97,440

)

(17,324

)

(23,517

)

Financial income

 

6,935

 

13,190

 

13,453

 

2,332

 

1,789

 

Financial expenses

 

(9,597

)

(11,812

)

(11,706

)

(131

)

(394

)

Results non-consolidated companies

 

1,442

 

1,190

 

(1,956

)

(455

)

(704

)

Disposal of subsidiaries

 

(367

)

 

 

 

 

Profit/(loss) before tax

 

6,276

 

(45,118

)

(97,649

)

(15,578

)

(22,826

)

Income tax

 

8,310

 

2,208

 

10,451

 

 

 

Profit/(loss) for the year

 

14,586

 

(42,910

)

(87,198

)

(15,578

)

(22,826

)

 

 

 

 

 

 

 

 

 

 

 

 

Net profit/(loss) per share – undiluted

 

0.22

 

(0.66

)

(1.52

)

(0.39

)

(0.63

)

Weighted average shares outstanding – undiluted

 

65.593

 

65,103

 

57,064

 

39,852

 

36,383

 

Consolidated balance sheet data:
Assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

170,969

 

163,248

 

157,837

 

111,734

 

76,711

 

Total current assets

 

322,318

 

303,262

 

317,071

 

131,038

 

84,155

 

Total assets

 

636,297

 

629,838

 

653,961

 

169,737

 

101,015

 

Liabilities and shareholders’ equity:

 

 

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

453,492

 

441,103

 

497,886

 

137,609

 

80,659

 

Total non-current liabilities

 

64,504

 

73,993

 

65,823

 

9,380

 

5,583

 

Total current liabilities

 

118,301

 

114,742

 

90,252

 

22,748

 

14,773

 

Total liabilities and shareholders’ equity

 

636,297

 

629,838

 

653,961

 

169,737

 

101,015

 

Number of employees

 

1,126

 

1,126

 

1,073

 

282

 

210

 

 

1  2007 and 2006 numbers have been adjusted retrospectively, following the adoption of IFRIC 14 as of January 1, 2008.

2  Gross margin = total revenues less cost of goods sold.

 

09


 

Overview

Message from our CEO

 

Message from our CEO

 

In 2008, Crucell’s vaccines were administered to a vast number of people worldwide, thereby preventing more than 3 million cases of infectious disease and over 700,000 deaths that would otherwise have occurred.

 

Dear fellow shareholder,

I am very proud that for the first time in the history of Crucell, we achieved profitability for the full year. Together with strong revenue growth and cash position, we were able to end 2008 on a historic high.

 

Crucell is a rapidly growing biopharmaceutical company with ambitious goals. We aim to create shareholder value by following a clear and convincing strategy for profitable growth. Our core business is stronger than ever and, with a clear strategy for sustainable growth and even more focus on research and development activities, we continue to increase the number of people we can protect from infectious diseases.

 

The progress we made in 2008 is a clear indication that we are executing on our strategy – The Crucell Ambition. Autonomous growth is the major theme underlying all our efforts; our sales in 2008 increased by 33% compared to 2007 and were driven by strong sales of our paediatric vaccines, travel and endemic vaccines as well as a doubling in license revenues and licensee milestone income. In 2008 Crucell sold more than 100 million vaccine doses in more than 80 countries throughout the world, which makes us the largest independent vaccine player in the world.

 

The significant growth of Quinvaxem® in 2008 is expected to continue in 2009. This product makes a significant contribution to children’s vaccination programs in the developing world and is Crucell’s best selling product. Quinvaxem® has enabled the company to become a major supplier to paediatric vaccination programs worldwide.

 

We intend to use the expansion into new markets and the sales and marketing potential of our marketed products as an important driver for future growth. This growth will further be supported by the progress of our clinical programs, in particular our rabies antibody combination, our tuberculosis and malaria programs, as well as a revolutionary discovery of monoclonal antibodies which have the potential of being used as a universal therapy against flu.

 

Our PER.C6® cell line production process has already proven that it is fully scalable, producing high yields in large bioreactors, and transfers seamlessly to large-scale GMP manufacturing. Furthermore, another key milestone was achieved with the PER.C6® technology in 2008 when our scientists reached a record production level of 27 g/L at harvest for an antibody product. This demonstrates the power and robustness of the PER.C6® technology and shows the impact it will have to the overall economics of manufacturing biopharmaceuticals. This was reflected in the increased number of licensees and income we realized in 2008.

 

As we grow further, capturing synergies and rationalization becomes ever more important. A rigorous review of Crucell’s business processes

 

10


 

Overview

Message from our CEO

 

worldwide has been completed. Our operational excellence program ‘Healthy Ambition’ was rolled out in 2008. The program is targeting savings of €30 million by the end of 2009; initial net cost savings of €5 million were achieved in the second half of 2008. This program contributed to our positive results through improved yields in our production facilities, savings in overhead and several other ‘quick wins’ delivered in 2008.

 

Crucell understands its responsibilities with regard to the environment and strives to be as transparent as possible about its activities. This year we included a special section, in which we take the opportunity to share with you our ideas, ambitions and activities regarding Corporate Social Responsibility (CSR). Crucell is fully committed to being a good corporate citizen and conducting business in an honest and ethical way with the lowest possible environmental footprint. See page 34 of this 2008 Annual Report, for more information on our CSR activities.

 

For 2009, we expect another good year for Crucell. Our sense of shared purpose is stronger than ever, and we look forward to the ongoing growth of our product sales as well as further progress of our pipeline programs.

 

Our achievements so far are thanks to the tireless efforts and motivation of our employees, Crucell’s most important asset, and to your willingness as a shareholder to invest in Crucell. We thank you for your continuous support.

 

 

Ronald H.P. Brus

President and Chief Executive Officer

Leiden, the Netherlands, April 21, 2009

 

Our ambition:

Protect lives from infectious diseases by bringing innovation to global health.

 

 

11


 

Overview

Message from our CEO

 

 

The Crucell Ambition is a strategic program encompassing coordinated efforts in the four priority areas: Organization & People, Focus, Operational Excellence and Deliver on Promises. In 2008, The Crucell Ambition was rolled out throughout the whole organization and the Management Board has met with more than 60% of Crucell’s employees from different parts of the organization. The priority areas, which were carefully defined after a thorough review of Crucell’s operations, objectives and potential, are described as follows:

 

Quotes:

Taken from Crucell employees about The Crucell Ambition.

 

Images:

Examples of photos submitted by employees for an internal photo contest.

 

1 Winning photo

2 Runner up

 

12


 

Overview

Message from our CEO

 

 

 

Organization & People

 

Development of our organization and our people is the foundation for achieving our ambition as a company. Multiple measures are being implemented to develop this, such as talent management, linking our company values to performance measurement and sharing knowledge across disciplines.

 

 

Focus – Focused Ambition

 

Crucell is clearly focused on its mission to protect human lives from infectious diseases by bringing innovation to global health. We are building on our strengths by prioritizing those programs that are in line with this ambition and that contribute to our strategic and financial objectives. Focused investments of both human capital as well as cash enables us to increase successful innovation.

 

 

Operational Excellence – Healthy Ambition

 

Crucell launched its ‘Healthy Ambition’ operational excellence program at the start of 2008 and is now implementing the validated plans drawn up in the first half of 2008. By streamlining and optimizing our business processes, the program is expected to generate run-rate cost savings of €30 million by the end of 2009, of which €5 million have already been achieved in the second half of 2008.

 

 

Deliver on Promises

 

Crucell has set its sights high and is firmly committed to delivering on its ambitious promises. Evidence-based target setting and a company-wide emphasis on organization and people, focus and operational excellence will enable us to do so. Ultimately delivering on promises to all our stakeholders.

 

13


 

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 (1963)*

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 (1958)*

Chief Financial Officer

 

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

 

Dr. Cees de Jong (1961)*

Chief Operating Officer

 

Dr. Cees de Jong joined Crucell as Chief Operating Officer in September 2007. He became a member of Crucell’s Management Board in May 2008. Prior he worked 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

 

14


 

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

 

an MBA at the Erasmus University Rotterdam, the Netherlands.

 

Dr. Jaap Goudsmit (1951)*

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 (1964)

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 (1968)

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 (1968)

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 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 (BSc) 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 110.

 

*                   Member of the Management Board.

 

15


 

Overview

Report of the Supervisory Board

 

 

 

 

1 Jan Pieter Oosterveld

 Chairman

 

2 Arnold Hoevenaars

 

3 Steve Davis

 

4 Seán Lance

 

5 Phillip Satow

 

6 Claes Wilhelmsson

 

 

 

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, 2008, 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 2008 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 2008, of which three were 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, so called closed sessions. There were also a number of more informal contacts between Supervisory Board Members and the Management Board.

 

The Supervisory Board was closely involved in all developments affecting the company in terms of strategy, tactics and operations in the financial year 2008. 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. The friendly discussion which took place between Wyeth and Crucell to explore a potential combination of the two companies was also discussed with the Supervisory Board and its financial advisors.

 

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 see page 107 of this 2008 Annual Report.

 

In 2008 the Audit Committee met ten times, of which six were held by conference calls. The company’s external auditor, Deloitte, routinely attended these meetings, in particular where the

 

16


 

Overview

Report of the Supervisory Board

 

 

 

 

 

 

 

Annual Report, the auditor’s report and the quarterly results were discussed.

 

The Nomination Committee consists of the full Supervisory Board and, as such, met four times during the 2008 fiscal year to discuss the Supervisory Board’s composition and functioning. The Scientific Advisory Committee held four 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 Remuneration Committee met five times, of which one via conference call, to review collective 2008 milestones and set objectives for 2009; 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 amended and adopted by the Annual General Meeting of Shareholders in May 2008. 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 to 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 equaling the value of the share grant minus a discount.

 

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

 

The Nomination Committee initiated a global search to fill the vacancy in the Supervisory Board. As a result, and after careful consideration, the Supervisory Board is pleased to report that Steve Davis was appointed to the Supervisory Board by Crucell’s shareholders in May 2008. At the same time Dominic Koechlin resigned.

 

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 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 achieved profitability for the full year, 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, April 21, 2009

 

17


 

Our Business

Our Products and R&D Pipeline

 

Our Products and Research & Development Pipeline

 

 

18

 


 

Our Business

Our Products and R&D Pipeline

 

Development stage

 

Research/

 

Phase I

 

Phase II

 

Phase III

 

Marketed

Comment

 

 

Pre-clinical

 

 

 

 

 

 

 

 

 

Marketed products:

 

 

 

 

 

 

 

 

Quinvaxem®

 

 

 

 

 

Fully liquid vaccine for protection against five childhood diseases.

Hepavax-Gene®

 

 

 

 

 

Recombinant hepatitis B vaccine.

MoRu-Viraten®

 

 

 

 

 

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

Epaxal®

 

 

 

 

 

Aluminum-free hepatitis A vaccine.

Epaxal® Junior

 

 

 

 

 

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

Vivotif®

 

 

 

 

 

Oral typhoid vaccine.

Dukoral®

 

 

 

 

 

Internationally licensed oral vaccine against cholera (and ETEC).

Inflexal® V

 

 

 

 

 

Virosomal adjuvanted influenza vaccine (all age groups).

 

Vaccines in development:

 

 

 

 

 

 

 

 

Flavimun®

 

 

 

 

 

 

Yellow fever vaccine.

Influenza seasonal

 

 

 

 

 

 

 

Pandemic (or seasonal) influenza vaccine.1

Tuberculosis

 

 

 

 

 

 

 

Recombinant AdVac®-based tuberculosis vaccine.2

Malaria

 

 

 

 

 

 

 

 

Recombinant AdVac®-based malaria vaccine.3

Ebola and Marburg

 

 

 

 

 

 

 

 

Recombinant AdVac®-based Ebola and Marburg vaccine.3

HIV

 

 

 

 

 

 

 

 

Recombinant HIV vaccine.4

 

Human antibodies in development:

 

 

 

 

 

 

 

 

Rabies antibody combination

 

 

 

 

 

 

 

Two human antibodies for post-exposure treatment of rabies.5

Influenza antibodies H1 and H5

 

 

 

 

 

 

 

 

 

Neutralizing antibody cross reactive against H1N1 and H5N1.

 

Other:

 

 

 

 

 

 

 

 

 

 

 

 

 

Factor V L/C

 

 

 

 

 

 

 

 

 

 

Blood coagulation Factor V L/C.

 

1 Developed by sanofi pasteur using PER.C6®.

2 Partnered with Aeras.

3 Partnered with NIAID/NIH.

4 Partnered with Harvard.

5 Partnered with sanofi pasteur.

 

19


 

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 marketed products.

 

 

20


 

Our Business

Products

 

 

21


 

Our Business

Products

 

In 2008, Crucell’s vaccines were administered to a vast number of people worldwide, thereby preventing more than 3 million cases of infectious disease and over 700,000 deaths that would otherwise have occurred.

 

 

 

Products

 

Currently we are combating 12 major infectious diseases with our armamentarium of marketed vaccines. In 2008 we sold more than 100 million vaccine doses in more than 80 countries throughout the world, which makes us the largest independent vaccine player in the world. Our product portfolio consists of three distinct focus areas:

 

·  Paediatric

·  Travel and Endemic

·  Respiratory

 

Our excellent 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 more than 80 countries, most of our products are, for example, not sold in the US. For selected products we will go after untapped markets.

 

Growth by differentiation

 

We focus on products with higher margins. As noted above, we are already selling our products on a geographical basis. However, we also differentiate 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.

 

Quinvaxem®

 

Quinvaxem® is a fully liquid vaccine combining antigens for protection against five potentially deadly childhood diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B, and Haemophilus influenzae type B. As the first internationally available fully liquid vaccine containing all five of these antigens, Quinvaxem® offers major healthcare advantages, particularly for low-income countries with infrastructure and hygiene problems. Supranational organizations awarded Crucell contracts worth $0.5 billion in the period 2007-2009 to supply Quinvaxem®, confirming the superior quality of our pentavalent vaccine, of which over half had been sold by the end of 2008. The remainder is expect to be sold in 2009. Quinvaxem® was launched in October 2006 and has a market share of over 50% already.

 

22

 


 

Our Business

Products

 

 

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. 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.

 

Hepavax-Gene®

 

Hepavax-Gene® is a recombinant hepatitis B vaccine. It is one of the WHO’s pre-qualified vaccines for active immunization against hepatitis B virus. In December 2008 Crucell announced that Chinese authorities have approved Hepavax-Gene® for use in the private vaccine market in China.

 

MoRu-Viraten®

 

MoRu-Viraten® is a safe, well-tolerated and effective vaccine for protection against measles and rubella in children, adolescents and adults. MoRu-Viraten® is free of avian proteins and antibiotics, posing no risk to children with allergies to these substances. The vaccine has been marketed since 1986 and is on the WHO list of vaccines for purchase by

UN agencies.

 

Vivotif®

 

Vivotif® is a live attenuated typhoid fever vaccine for oral administration. It is the only oral vaccine indicated for use against Salmonella typhi, the most prevalent of the typhoid fever-causing bacteria. The vaccine is indicated for adults and children over the age of five and has an excellent track record for safety, having been on the market for more than 20 years. It is currently licensed in over 30 countries, including in the USA. Recent results suggest that Vivotif® may be unique in also protecting against S. paratyphi, a similar but milder variant of typhoid.

 

Dukoral®

 

Dukoral® is a drinkable vaccine with a documented protective effect against diarrhea 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® was first licensed in 1992 and is now licensed in over 60 countries. It is presently the only internationally licensed oral cholera vaccine. To date, over 10 million doses of Dukoral® have been supplied with very few adverse events reported.

 

Inflexal® V

 

Inflexal® V is a virosomal adjuvanted vaccine against influenza, based upon the virosome technology developed and patented by the Crucell company, Berna Biotech. It is the only adjuvanted flu vaccine licensed for all age groups

(up from six months). The vaccine’s antigen composition follows yearly WHO recommendations.

 

23


 

Our Business

Research & Development

 

Research & Development

 

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.

 

 

24


 

Our Business

Research & Development

 

 

25


 

Our Business

Research & Development

 

 

 

Key pipeline developments:

 

·     Successful Phase II results of studies in the US and Philippines of our rabies antibody combination, showing safety and tolerability. Third Phase II study in India in progress.

·     Encouraging results from the Phase I Ad35 tuberculosis vaccine study, showing that CD8 immune responses are considerably higher than ever seen in a tuberculosis vaccine study. Program entered Phase II clinical testing.

 

 

 

 

 

 

·     Alternative adenovirus serotypes like Ad26 and Ad35 using Crucell’s AdVac®/PER.C6® technologies were used to express protein of SIV (HIV-like virus). Study showed strong T-cell immune response and provides protection against SIV. Malaria and TB vaccines in development using Ad26 and Ad35.

·     Crucell’s monoclonal antibodies (mAb) against influenza strongly outperforms the anti-influenza drug oseltamivir in pre-clinical tests.

 

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.

 

AdVac® technology and AdVac®-based vaccines

 

AdVac® technology encompasses the use of adenoviral vectors such as Ad35 and Ad26 for vaccination against diseases caused by viruses, bacteria or parasites. These vectors are harmless adenoviruses that have been disabled so that they cannot replicate. A vector functions as an efficient ‘gene taxi’, delivering into the human body a fragment of DNA that carries the code for a protein from a specific pathogen. Once inside the body, the vectors express (produce) these proteins and present them to the person’s immune system, which mounts its protective response. Using this versatile vaccine vector platform in combination with PER.C6® manufacturing technology, Crucell and partners are working to develop vaccines against diseases like tuberculosis, malaria, Ebola, Marburg and HIV.

 

Tuberculosis

 

Tuberculosis (TB) is a major cause of illness and mortality worldwide, with 9.2 million new cases and 1.7 million deaths due to TB in 2006. The current TB vaccine BCG, developed more than 85 years ago, is probably the world’s most widely used but least effective of vaccines. It does reduce the risk of disseminated TB, a form of the disease that spreads from the lungs to other organs, which is especially lethal in children. However, it does not reliably prevent pulmonary TB, the most prevalent form of TB, in both children and adults. The problem is compounded by the emergence of extensively drug-resistant tuberculosis (XDR-TB), which is hampering treatment and control efforts (see map on page 27).

 

To address this urgent need, Crucell is collaborating with the Aeras Global TB Vaccine Foundation to jointly develop the novel TB vaccine candidate AERAS-402/Crucell Ad35. Data from all trials conducted to date support the immunogenicity and safety of AERAS-402/Crucell Ad35 at all dose levels evaluated. A phase II study of this vaccine candidate is being conducted in Cape Town, South Africa, by the University of Cape Town Lung Institute in conjunction with the South African Tuberculosis Vaccine Institute.

 

26


 

Our Business

Research & Development

 

 

Malaria

 

According to the WHO, malaria is one of the most prevalent infections in tropical and subtropical regions, causing severe illness in 300 to 500 million people and death in 1 to 3 million people. Children and pregnant women are the groups most severely affected. No licensed vaccine is available to fight this disease.

 

Crucell is collaborating with the US National Institute of Allergy and Infectious Diseases (NIAID) on malaria vaccine research and development. A candidate vaccine arising from this partnership is being tested in a Phase I trial at two US sites: Vanderbilt University in Nashville, Tennessee and Stanford University in Palo Alto, California.

 

Ebola and Marburg

 

Crucell is developing a multivalent filovirus vaccine against Ebola and Marburg in collaboration with the Vaccine Research Center of the National Institute of Allergy and Infectious Diseases (NIAID), part of the US National Institutes of Health (NIH). The candidate vaccine is based on Crucell’s proprietary adenoviral vector technology and is produced using Crucell’s PER.C6® technology. It is a recombinant DNA vaccine that expresses Ebola virus proteins in order to provide protection against infection with the Ebola virus.

 

HIV

 

Over the past 25 years, HIV infection resulting in AIDS has claimed the lives of nearly 25 million people, devastated entire communities, and enormously frustrated efforts to fight poverty, improve global health and promote economic development. In 2007, an estimated 2 million people died due to AIDS, 33 million people were living with HIV infection and 2.5 million people became infected with the virus. There is no licensed AIDS vaccine available.

 

With the support of a $19.2 million grant from the US National Institutes of Health, Crucell is collaborating with Harvard Medical School and its teaching hospital Beth Israel Deaconess Medical Center to develop an AdVac®-based vaccine against HIV. Adenovirus serotype 26 (Ad26) is being used as the vaccine vector, in order to avoid the problem of pre-existing immunity to the more commonly used adenovirus serotype 5 (Ad5).

 

27


 

Our Business

Research & Development

 

 

Antibodies

 

Antibodies are proteins made naturally by cells of the body’s immune system. They function as one of the body’s principal defense 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.

 

Influenza antibodies H1N1 and H5N1

 

There is a growing fear within the medical community concerning the potential reoccurrence 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.

 

Crucell has discovered the first human monoclonal antibodies for the prevention and treatment of the ‘bird flu’ strain H5N1, as well as H1N1, which is similar to the strain responsible for the devastating pandemic in 1918. The antibodies provide immediate protection and neutralize a broad range of H5N1 and H1N1 strains in pre-clinical models. In December 2008, Crucell presented data showing that the mAb CR 6261 was 100% successful in preventing infection with H5N1. When given after H5N1 infection, Crucell’s mAb demonstrated the ability to prevent death and cure disease in all cases. The mAb also performed significantly better than the anti-influenza drug oseltamivir for the prevention and treatment of H1N1 infection, illustrating the potential use for seasonal applications as well. This is especially important as the resistance of influenza strains for oseltamivir is rapidly increasing.

 

28


 

Our Business

Research & Development

 

 

Rabies Antibody Combination

 

Globally, around 10 million people a year are treated after exposure to rabies virus. Nevertheless, between 40,000 and 70,000 people die of rabies each year, mainly in Africa, China and India. This highlights the significant unmet medical need for a safe, effective and affordable rabies treatment. The approach currently used to prevent symptomatic disease and death in people exposed to rabies virus combines immunoglobulins (antibodies prepared from human or equine blood) with the vaccine. Concerns about the safety and availability of blood-derived rabies antibodies have prompted the search for alternatives.

 

Using MAbstract® and PER.C6® technology, Crucell scientists in collaboration with the Thomas Jefferson University in Philadelphia and the US Centers for Disease Control and Prevention in Atlanta have discovered a combination of human monoclonal antibodies (mAbs) for the post-exposure treatment of rabies. Clinical testing of this mAb combination made good progress during 2008, leading to the presentation in October of very promising efficacy and safety data from a Phase II trial in the USA. In order to test the mAb combination in different populations and settings, additional Phase II trials were started in May 2008 (among children in the Philippines) and February 2009 (among adults in India).

 

Since January 2008, the route towards global availability of this next-generation, life-saving rabies biological is being facilitated by Crucell’s strategic partnership with sanofi pasteur, a world leader in rabies immunization. The US Food and Drug Administration (FDA) has granted Crucell’s mAb combination Fast Track status, which paves the way for priority handling of the regulatory dossier.

 

29


 

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.

 

 

30

 


 

Our Business

Technologies

 

 

31


 

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 Crucell does not aim to develop its 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

 

Manufacturing 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 vaccines.

 

 

32


 

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 tremendous potential to reduce the production costs of monoclonal antibodies, whilst increasing yield resulting in more affordable treatments for patients.

 

In June 2008, we jointly announced that we had achieved a record-level titer of 27 grams per liter at harvest for an antibody product using PER.C6® at our PERCIVIA joint venture development center in Massachusetts, the USA.

 

 

33


 

Our commitment to CSR

Corporate Social Responsibility

 

Corporate Social Responsibility

 

Our commitment to CSR

 

 

34


 

Our commitment to CSR

Corporate Social Responsibility

 

What Corporate Social Responsibility means to us

 

Crucell’s commitment to CSR

 

Crucell’s core business is protecting people from illness and death caused by infectious diseases. This in itself is a social responsibility, which we take very seriously. However, our commitments to the principles of Corporate Social Responsibility (CSR) go beyond this. We recognize that Crucell has a responsibility towards its customers, partners, employees, shareholders, local communities and society at large. In order to fulfil this obligation, everyone in our organization has to be conscious of what we stand for and the way we want to conduct our business.

 

In 2008 we took an important step forward in this regard by defining a core set of values for the organization. The Crucell Values are the foundation on which all our activities and relationships are based. They express what unites us and serve as a guide for our performance as a responsible company geared for sustainable success.

 

We see the definition of our Crucell Values as the beginning of a more comprehensive approach to CSR throughout the company. We want to raise awareness, internally and externally, of the standards we have set for doing business in a responsible way. Improvements in both our CSR performance and reporting are priorities.

 

In this section of our Annual Report, we take the opportunity to share with you our ideas, ambitions and activities regarding CSR, as well as to introduce the parties who are supporting us in CSR development.

 

 

35


 

Our commitment to CSR

Corporate Social Responsibility

 

What we do

 

Crucell has a clearly defined vision: to bring innovation to global health by discovering, developing, manufacturing, and marketing products that protect people from illness and death caused by infectious diseases. Crucell is the largest independent vaccine company in the world. The sustainability of our business is demonstrated by our solid balance sheet and strong cash position, which means that we do not need to raise capital in the foreseeable future. As a result, the unfolding economic crisis so far has had limited effects on our financial outlook.

 

Crucell’s definition of profit is twofold. We aim for financial profitability, but also to bring the greatest possible benefit to human health worldwide. The approach we have chosen to achieve this is essentially different from that of our biotechnology peers or traditional pharmaceutical companies. Whereas many others focus on treating illness, Crucell focuses on its prevention. And whereas most of the money currently spent on pharmaceutical research is directed towards finding solutions for lifestyle-related illnesses of the developed world, Crucell has developed a truly global healthcare strategy. Our existing and pipeline products are designed to meet the long underestimated - and still significantly unmet - need for vaccines and antibodies in developing countries and emerging economies, as well as the industrialized world. For a company of our size, we invest relatively heavily in research and development: our R&D expenditures in 2008 were €70 million.

 

Infectious diseases are responsible for almost one-fifth of the total number of deaths that occur each year, according to the latest World Health Organization (WHO) statistics (source: World Health Statistics 2008). Overall, they rank second after cardiovascular disease as the leading cause of death worldwide. The vast majority of people who die from infectious diseases live in the world’s poorest and most densely populated countries, although increased global travel and climate change are expanding the reach of infectious pathogens. The full impact of infectious diseases has to be measured not only by the millions of fatal cases, but also in terms of the much larger burden of illness and suffering, lost productivity and even ruined holidays. Children and the elderly are

 

 

A CSR dilemma:

 

The perfect is the enemy of the good (Voltaire, 1772)

 

Our aim to bring the greatest possible benefit to human health and healthcare presents a dilemma. It is conceivable that while developing a new medical product we might discover that particular changes in the production process or product characteristics could enhance its healthcare benefits. Implementing such changes would inevitably delay the time to market, potentially by as much as 5 years. Should we aim for perfection, knowing that people will suffer and die during the period of delay? This dilemma was expressed succinctly by the French philosopher Voltaire: ‘The perfect is the enemy of the good’. In this situation, Crucell has to weigh up conflicting benefits. Our choice would be to take the well tested candidate product already in development and to market it as soon as is safely possible in order to start saving lives. In the meantime we will continue in-house research and development aimed at a next generation product.

 

 

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especially vulnerable to infectious diseases, with the latter forming a growing group due to the aging population. According to the WHO, about 25 million deaths that occur each year in children under five are caused by diseases that can be prevented with vaccines.

 

Crucell’s focus on the prevention of infectious diseases offers long-term benefit to individuals and society, compared to treatment-based approaches. Our vaccines - and the antibodies now progressing through our R&D pipeline - have a vital role to play in protecting lives, preventing suffering and supporting the economic well-being of societies. Vaccination is one of the most cost-effective healthcare interventions and has many indirect benefits for society, as demonstrated by childhood immunization programs. As well as protecting the children themselves from illness, death and possibly permanent disability, these programs prevent the spread of disease in the community.

 

Crucell is currently combating twelve major infectious diseases with its armamentarium of marketed vaccines (see pages 22-23). In 2008 Crucell sold more than 100 million vaccine doses in more than 80 countries throughout the world, which makes us the largest independent vaccine player in the world. We focus strongly, though not exclusively, on unmet medical needs in the developing world, where infectious diseases exert their heaviest toll.

 

In 2008, Crucell’s vaccines were administered to a vast number of people worldwide, thereby preventing more than 3 million cases of infectious diseases and over 700,000 deaths that would otherwise have occurred. These figures are based on the expected number of cases, and fatalities among those cases, in a given population assuming a vaccine waste rate* of 2%.

 

Our production processes are described in more detail on page 52. The complex chain of steps to reach a final Crucell product has its impact on both society and the environment in which we operate. We understand that our impact on the planet is relatively modest, but we take our environmental footprint seriously, especially in relation to the end result of our core business: protecting people from illness and death caused by infectious diseases. In this chapter however we want to be transparent about our efforts to manage our responsibilities.

 

 

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Crucell on its mission to combat infectious diseases

 

Crucell took part in two mass vaccination campaigns against cholera in 2008, with its oral vaccine Dukoral®. The campaigns were organized in Myanmar and Zanzibar, two parts of the world where cholera epidemics are all too common.

 

Together with the International Vaccine Institute, Crucell distributed 137,000 doses of Dukoral® in Myanmar to help prevent an outbreak of cholera following the cyclone that devastated the country. Another 100,000 doses of Dukoral® were distributed in cooperation with the WHO in Zanzibar, Tanzania, as part of a clinical research program investigating the value of routine vaccination for establishing widespread protection of a population (herd immunity).

 

Cholera remains a significant threat to human health, particularly in developing countries where access to safe drinking water and adequate sanitation cannot be guaranteed. By making an essential tool available to international public health organizations, Crucell is delivering on its mission to combat infectious diseases.

 

 

 

 

Previous mass vaccination campaigns with Dukoral®:

 

 

·      Uganda 1997 (63,220 doses distributed)

·      Mayotte 2000 (93,000 people vaccinated)

·      Mozambique 2003-2004 (41,000 people vaccinated)

·      Sudan (Darfur) 2004 (50,000 people vaccinated)

·      Indonesia 2004 (137,000 doses used)

 

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“Although we cannot know how many people at risk received the two doses of Dukoral® needed for protection, it is clear that this mass vaccination initiative saved many thousands of people from serious illness and death.”

 

Lisa Sandberg, Global Product Manager for Dukoral®

 

 

 

An example:

One world, one vaccine

 

To avert the threat of such a cholera outbreak in Myanmar, Crucell teamed up with the International Vaccine Institute (IVI), an international organization based in Korea, to send 137,000 doses of Dukoral® to the cyclone survivors. This is enough to vaccinate at least 65,000 people. Crucell donated 50% of the doses and sold the other 50% to IVI at a price below production cost. The South Korean government supplied IVI with the necessary funds. Crucell shipped the vaccines in special ‘emergency’ packs, each containing 170 vials, rather than the usual two-dose package. This made transport and administration more efficient and helped to speed up the vaccination process.

 

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Who we work with

 

Crucell cannot operate in isolation. In our daily work to bring benefits to people’s lives, we interact with a large number of stakeholders worldwide. These include legislators, investors, strategic business partners, licensees, suppliers, and customers. Establishing and maintaining good relationships through continuous dialogue with all of these parties is integral to our CSR. The dialogue has had a specific impact on our approach to CSR. A good example is our partnership with customers as described on the following pages.

 

Legislators

 

The business in which Crucell operates is highly regulated, and Crucell complies with the wide range of legislation that applies to our activities. Besides adhering to regulations, we cooperate with representatives of various legislative bodies.

 

Investors

 

Crucell maintains an active and transparent approach to relations with shareholders and investors, informing them regularly about the company’s strategy and developments. Quarterly results releases, presentations and press releases on important business developments are disseminated on a regular basis and reinforced with briefings by phone and in person. Crucell has a dedicated Investor Relations team whose mission it is to ensure the investor community clearly understands the company’s prospects and performance. This reflects a serious ambition to widen our investor base as well as to deepen existing investors’ understanding of Crucell while always listening to investors’ needs and ideas. Our investors make our work possible and share in our success. They share our vision and support our core business of protecting people all over the globe from infectious diseases. A continuous dialogue with investors is therefore at the forefront of our activities. As described on page 177 of this Annual Report, we actively talked to large numbers of (potential and existing) shareholders and investors all over the world in 2008.

 

An example:

Warm response to cold chain training

 

The cold chain is a temperature-controlled distribution process ensuring the quality and extended shelf life of foods and medicines. As part of the clinical good manufacturing practice (cGMP) environment, which regulates all drugs and biologicals, the cold chain has to conform to validated practices enforced by the regulatory authorities. Maintaining the cold chain is especially important–and challenging–when vaccines are being transported to remote clinics in countries with hot climates and poor infrastructure.

 

During 2008, Crucell’s office in Latin America organized a successful series of workshops designed to enhance knowledge of the cold chain process among our institutional customers in the region. The workshops focused on theoretical and practical concepts for the cold chain handling of vaccines and other medicines in accordance with regulatory requirements.

 

Crucell conducted the workshops in three different cities of the Andean region: Bogotá in Colombia, Lima in Peru and Quito in Ecuador. Each attracted approximately 80 people who are directly or indirectly involved with the distribution of vaccines in their respective countries. These included national managers of the Expanded Program of Immunization (EPI), local representatives of the Pan American Health Organization (PAHO), and medical doctors and nurses.

 

 

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Business partners

 

Partnering with other companies is of strategic importance to Crucell and essential for fulfilling our mission. Whether the partnership takes the form of a strategic alliance for product development, a technology licensing agreement, or a marketing and sales alliance, Crucell works closely with its partners to ensure success for both organizations. For more information on the strategic agreements Crucell has established with several leading companies go to www.crucell. com/partners.

 

Licensees

 

A wide range of pharmaceutical and biotech companies license Crucell’s proprietary technologies, which enable the discovery, development and production of vaccines, antibodies, therapeutic proteins, and gene therapy products. One of the key Crucell technologies that attracts licensees is the PER.C6® manufacturing platform based on human cell lines.

 

Suppliers

 

Crucell must be able to rely on suppliers to provide raw materials and equipment of consistently high quality, without delay or interruption. We therefore keep close track of our suppliers, perform quality control tests on the goods they deliver and conduct inspections of their facilities as deemed appropriate. Legislation from regulatory authorities such as the US’ Food and Drug Administration (FDA) lays down the minimum requirements for this monitoring of suppliers and supplies.

 

Customers

 

Crucell’s customers are important to us in two ways. By buying our products, they fund the continuation of our activities, including R&D aimed at bringing further healthcare innovations to market. They also represent the vital link to the consumer, ensuring that our products reach the people who need them.

 

“The cold chain workshops were very well received by our customers and generate tangible loyalty to Crucell and our vaccines, and above all, better vaccine management practices among our customers.”

 

Carlo Precali, Regional Director Crucell Latin America

 

 

 

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A partnership with customers illustrated:

 

Crucell’s work is supported by grants from both governmental and non-governmental organizations. Furthermore, Crucell works alongside other parties in order to reach common healthcare goals. One example of this type of cooperation is the GAVI Alliance, a global public-private partnership that brings together the talents of different constituencies and individuals to help the poorest parts of the world develop their own sustainable immunization programs. Within the alliance, Crucell invests time by working closely with other vaccine-producing companies, national governments, research and technical health institutes, supranational organizations (including the WHO, Unicef and The World Bank), the Gates Foundation and civil society organizations, in order to accelerate the introduction of new and underused vaccines.

 

This is considered crucial for meeting one of the United Nations (UN) Millennium Development Goals of reducing the mortality rate among children under five by two-third before 2015.

 

In September 2000 the UN set out concrete plans for action to meet the needs of the world’s poorest, which resulted in eight Millennium Development Goals, to be achieved by 2015. More information about the Millennium Development Goals can be found on the UN website www.un.org/millenniumgoals.

 

Crucell is a leading supplier of innovative vaccines to countries supported by the GAVI Alliance, and currently represents the industrialized countries’ vaccine industry on the Program and Policy Committee of the GAVI Alliance. This committee serves as the principal advisory body to the GAVI Board regarding program and policy development.

 

 

How we do business

 

Crucell is committed to adhering to high standards of ethics and transparency in dealing with our stakeholders. We regard this as a social responsibility and believe that it contributes to business success. In 2008 we made an important advance in this regard by defining a core set of values for the organization: Integrity, Respect, Complementarity, Reliability, Innovation, and Passion and Drive. These values represent the foundation on which all our activities and relationships are based, internally and externally. We are determined to ensure that these values are inherent to all our work and behavior.

 

People

 

The Crucell Values have been incorporated in the Code of Conduct, Crucell’s commitment to integrity. The Code of Conduct is easily accessible via our website: www.crucell.com. In 2009 the Code of Conduct will be brought to the attention of all employees by means of ‘town hall’ meetings in which Crucell senior managers – together with local management – will explain and emphasize the importance of the policy. The Code applies to all Crucell representatives and is expressed in a form that all employees should be able to understand. It outlines Crucell’s approach to good business conduct, focusing on the behavior of employees. Central to the code is the stipulation that Crucell’s representatives must not take unfair advantage of anyone by any means and must not accept favors of any form from others. The Code of Conduct includes a whistle-blower policy, encouraging the reporting of any behavior or action that may be in breach of this code.

 

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Our approach to animal testing follows the three Rs: Reduce, Refine and – ultimately –Replace.

 

Crucell’s PER. C6® technology: A revolution in biopharmaceutical production

 

Many of today’s vaccines are produced on animal substrates such as chicken eggs and mouse brains. Inherent problems with these manufacturing processes include limited scalability, lengthy processing times, and relatively low success rates due to the potential safety risks associated with animal-derived products.

 

Crucell’s PER. C 6® technology provides a state-of-the-art alternative. PER. C 6® human cell lines are ideally suited for the development and industrial-scale manufacturing of a wide range of biopharmaceutical products, including vaccines, antibodies and gene therapies. PER.C6® cell lines are derived from a single cell taken from a human retina and immortalized using recombinant DNA technology. Because PER.C6® cells grow in suspension to very high densities, they provide an excellent platform for the production of many different types of vaccines (inactivated whole-virus, live-attenuated,

 

live-vector, split and subunit vaccines). PER.C6® technology also allows efficient production of recombinant proteins, such as live adenovirus vector-based vaccines. For more information about Crucell’s PER.C6® technology, see page 32 of this 2008 Annual Report.

 

 

Animal testing

 

Before any candidate medical product can be given to humans, it must be rigorously tested in pre-clinical (non-human) models. At present, the stringent legal, ethical and scientific standards governing pharmaceutical research and development require pre-clinical tests in both cells (in vitro models) and animals (in vivo models). We are legally obliged to fulfil these requirements, and also feel a moral obligation to do our utmost to ensure the safety of people who receive our (candidate) products.

 

For these reasons, Crucell does perform animal testing to the minimum extent necessary. Safety studies in animals, which are required by law, are conducted in accordance with the highest international standards, which are designed to prevent or minimize any suffering of the animals tested.

 

Simultaneously, Crucell continuously applies the 3R principles – Reduce, Refine and (ultimately) Replace to – pre-clinical studies involving animals. Crucell has been working over many years to replace in vivo tests with in vitro assays, and these efforts have already resulted in the significant reduction of animal testing.

 

Crucell will continue to apply the 3R principles and work closely with the regulatory authorities to further minimize the experimental use of animals in the course of bringing new vaccines and antibodies to the people who need them.

 

How we see our responsibility

 

Having pictured the way in which Crucell sees itself and how it operates at large, we now would like to elaborate on what we do in the field of CSR in three areas: people, planet, and profit. Crucell’s impact on the planet is relatively modest, but we do take our environmental footprint seriously.

 

Social aspects of our business

 

Crucell’s work revolves around people. We value our role as employer and aim to conduct our activities in a manner that both improves the capabilities and performance of our people, and results in safe products of the best possible quality.

 

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Crucell works in an environment that requires highly skilled employees.

 

We value both gender and ethnic diversity and accordingly act as an equal opportunity employer.

 

The characteristics of our workforce are as follows:

 

 

 

China

 

Italy

 

Korea

 

Netherlands

 

Spain

 

Sweden

 

Switzerland

 

USA

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of male employees

 

9

 

12

 

167

 

139

 

30

 

45

 

225

 

11

 

638

 

Number of female employees

 

26

 

10

 

44

 

114

 

39

 

88

 

159

 

8

 

488

 

Total number of employees

 

35

 

22

 

211

 

253

 

69

 

133

 

384

 

19

 

1,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average age of employees

 

31

 

44

 

35

 

36

 

46

 

45

 

42

 

43

 

40

 

Number of women in management

 

3

 

3

 

4

 

23

 

2

 

10

 

10

 

3

 

58

 

Number of nationalities

 

2

 

1

 

3

 

19

 

2

 

4

 

10

 

5

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of employees

 

30

 

38

 

162

 

325

 

66

 

129

 

357

 

19

 

1,126

 

 

Our people

 

Crucell has grown rapidly over the past few years. The Netherlands-based company acquired Swiss Berna Biotech early in 2006, and later in the year further strengthened its presence in the vaccine industry by acquiring US-based Berna Products and Sweden’s SBL Vaccines.

 

Employing talented people with the right mind-set is something to be proud of, but no reason to be complacent. During our period of rapid growth, we set up special programs focusing on talent management, succession planning and remuneration, in order to retain and further develop the best people in each area of our business. Part of the development of our employees is to raise their awareness of the impact of our products and the need for them across the globe.

 

As described earlier, Crucell’s operations are governed by the six Crucell Values that have been defined by a cross-section of employees from different functions and sites, together with Crucell’s Management Board. These Values are a crucial component of our leadership development programs, which were introduced in 2008. Crucell managers worldwide have participated in these programs, which reflect and reinforce our company values. The Crucell Values have also been incorporated into our employees’ performance review and coupled to remuneration decisions, thereby creating a solid incentive for our people to behave in accordance with the standards that have been defined. Crucell hopes that this approach will also have a positive effect on the way our employees behave in daily life and society at large.

 

Besides promoting adherence to the Crucell values, we want to create true corporate ownership among Crucell employees. For this reason, when The Crucell Ambition program was launched in 2008, employees representing different parts of the company were brought together in teams to help define the best way forward in a number of strategic business areas. Since the introduction of The Crucell Ambition strategic program, monthly questionnaires have been sent to groups of randomly selected employees worldwide, asking them for feedback on the progress made with implementation of our global strategy, and further improvements needed in the organization. For more information on The Crucell Ambition program, see page 12 of this Annual Report.

 

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Innovative safety approach

 

As an additional safety measure, Crucell recently introduced a Personal Protection System (PPS) for employees at the facilities in Leiden. The system works with portable transmitters that raise an alarm in the event of an accident or unsafe situation. The warning signal can be sent actively by the person carrying the transmitter, but also transmits automatically if an inbuilt sensor detects that the person has fallen or not moved for a pre-defined period of time. Use of the PPS is mandatory for anyone working alone and/or outside regular office hours at the Leiden site. The system has been implemented as a pilot project in the Dutch facilities and results are being monitored to guide decisions about possible expansion to other sites.

 

 

Another example of employee ownership in Crucell is the system of stock options employees can receive in remuneration for services rendered to the company. In this way, Crucell employees can receive a tangible share of the business for investing their talents and efforts in the success of the company. Approximately 6.4 million of outstanding options are held by Crucell employees of which 1.7 million by the Executive Board.

 

Safety

 

Ensuring the safety of Crucell’s employees is of the utmost importance. Because the biotechnology business potentially involves exposure to hazardous substances, all employees working in laboratories are trained in bio-safety procedures and regulations. Primarily, this training focuses on standard operating procedures (SOPs and work instructions), which generally include specific safety precautions. When necessary, Crucell facilitates employee participation in additional training by external organizations.

 

The total number of reported incidents that occurred in 2008 is limited to 34 cases at Crucell sites where product manufacturing and/or development takes place. More than 90% of our employees work in these facilities. The accidents vary in severity, but are mostly relatively minor and generic in nature, such as a sprained ankle caused by slipping in a wet hallway. Continuous improvement of accident prevention and of the accident reporting system is a priority, and Crucell aims to report accurate and levelled numbers for the whole organization in the years to come.

 

In an important new safety initiative, Crucell started the roll-out of global systems for risk and crisis management in 2008. By raising employee’s awareness of possible risks and establishing a systematic consolidation and escalation approach to their management, the program provides a basis for prioritization of preventive activities and resource allocation within Crucell, and aims to enable any potential crises that might occur to be resolved with optimal speed and efficiency. A well-defined structure with clearly defined responsibilities ensures that everyone in the organization knows how to respond in a potentially unsafe situation so that harms are avoided or minimized.

 

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Our Consumers

 

Crucell’s core business is protecting people from illness and death caused by infectious diseases. We have described our product range in the section ‘What we do’. In addition to our marketed products, we have a broad pipeline of candidate products at various stages of research and development. Details can be found on page 26 of this 2008 Annual Report.

 

Crucell products are characterized by their outstanding quality and safety. Medical products–such as vaccines and antibodies–that are used in healthy people to prevent illness have to meet even higher regulatory standards of quality and safety than apply to medicines for treating the sick. Crucell does not simply comply with these stringent regulatory requirements; we surpass them. The products we sell are thoroughly monitored, reviewed and evaluated to the highest standards both during development and following commercialization. Regular inspections of our facilities, procedures and products by external authorities, as required in our highly regulated business, provide our consumers with a further guarantee of safety and quality.

 

More fundamentally, Crucell’s focus on product safety, quality and convenience determines the innovative design and unique properties of our products. For example, our hepatitis A vaccine Epaxal® is based on virosome technology, a revolutionary adjuvant system that combines high efficacy with unprecedented safety. As a result, Epaxal® is the only hepatitis A vaccine on the market that is free of aluminum, a vaccine adjuvant (efficacy enhancer) that is commonly used but raises some safety concerns.

 

Beyond legislation for safety

 

Crucell’s new manufacturing facility in Leiden, the Valerio Building, is currently being used to produce clinical materials for vaccines. These activities must be conducted in accordance with a range of legislative safety procedures in order to prevent the release of any clinical material into the environment. Besides complying with these legal requirements, Crucell has gone further by installing a sophisticated air exhaust system. Air is channelled through a high-tech afterburner, where it is heated to 450 degrees Celsius to destroy any airborne clinical material. It is then transferred to a cooling station to bring the air temperature back to an environmentally friendly level before it is released from the building.

 

As new facilities are built, environmentally friendly solutions are being incorporated into the design of the building.

 

 

Valerio Building

 

 

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Environmental impact

 

Crucell understands its responsibilities with regard to the environment and strives to be as transparent as possible about its activities.

 

At Crucell, we are committed to ensuring that our environment, health and safety principles are integrated throughout our business units and facilities worldwide. In 2008 the decision was made to strengthen this commitment through the development of a management system that measures performance. Using a comprehensive plan-do-check-act model, our future EHS Management System is consistent with international standards such as OHSAS 18001 and ISO 14001.

 

At this stage, our system for reporting environmental indicators is still in its infancy and does for example not enable CO2 calculations. Crucell is working on developing this reporting system so that we will be able to publish more comprehensive and more comparable data in the future.

 

Crucell is aware of the environmental footprint of packaging, and is researching the potential for improvements in this area, such as biodegradable products/packaging. We will continue to explore our options in this regard.

 

In the area of greening our information services, we have already made significant progress by moving towards ‘virtual’ servers, replacing paper-based data storage with digital archives and working wherever possible with environmentally friendly suppliers. For example, our intranet supplier was chosen partly because it offers a sustainable CO2-neutral hosting service.

 

Further opportunities for reducing Crucell’s impact on the environment include improving insulation and making better logistical use of our existing facilities. As new facilities are built, environmentally friendly solutions are being incorporated into the design of the building, utilities and equipment from the blueprint stage. A case in point is the design of the Valerio building, our state-of-the-art manufacturing facility in Leiden, the Netherlands.

 

 

Crucell’s environmental efforts go beyond legal compliance

 

 

An example: Combining vaccines for a diversity of benefits

 

Crucell’s development of the pentavalent vaccine Quinvaxem® is a good example of how we are working to increase vaccination coverage and save lives in countries where healthcare resources are less than optimal. Quinvaxem® is a fully liquid vaccine combining antigens for protection against five potentially deadly childhood diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B, and Haemophilus influenzae type B. As the first internationally available fully liquid vaccine containing all five of these antigens, Quinvaxem® offers major healthcare advantages, particularly for low-income countries with infrastructure and hygiene problems. The fully liquid, single-vial formulation of Quinvaxem® reduces waste and decreases the risk of contamination compared to products requiring reconstitution, as well as being more convenient. And because five antigens are delivered in a single shot, fewer injections and visits to a clinic are necessary.

 

This greatly increases the chance that children will receive protection against important diseases. Supranational organizations have awarded Crucell contracts worth $0.5 billion to supply Quinvaxem®, confirming the superior quality of our pentavalent vaccine, of which over half had been sold by the end of 2008. The remainder is expect to be sold in 2009. Quinvaxem® was launched end 2006 and has a market share of over 50% already. Currently Crucell is working on developing a hexavalent vaccine.

 

 

 

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Energy & water consumption

 

The first graph reflects the total energy consumption in kWh at Crucell facilities involved in product manufacturing and development, which represent over 90% of our global employees base. A 5,8% increase of energy consumption compared to 2007 can be noted. This increase can be explained by a general increase in activity worldwide, but especially by the start-up of operations at our new Valerio building in the Netherlands. In the future we expect energy efficiency gains as a result of this new building.

 

Energy use includes electricity, natural gas, oil, and other fuels as gasoline and diesel, all of which are converted to kWh. Compared to an average household (using 3400 kWh and 1650 m3 of natural gas), Crucell’s total energy consumption for 2008 resembles that of some 3502 households (in 2007: 3309 households).

 

The second graph depicts the total water consumption in cubic meters (m3) at Crucell facilities involved in product manufacturing and development, which represent over 90% of our global employees base. A 15% increase of water use compared to 2007 can be noted. This comes down to some 221 m3 of water use per employee annually in 2008 (in 2007: 194 m3).

 

Crucell has taken measures to reduce work-related travel, implementing a travel policy and actively encouraging employees to make use of a virtual conferencing system. Crucell’s new travel policy defines the principles our employees should adhere to in order to travel in a safe and cost-effective manner as they conduct company business. It is the company objective to simultaneously reduce travel costs while supporting business development.

 

Total energy
consumption

(in kWh)

 

 

Total energy
consumption

(in m
3)

 

 

 

Crucell is fully committed to being a good corporate citizen and conducting business in an honest and ethical way with the lowest possible environmental footprint.

 

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Economic aspects of our business

 

Crucell’s core business is protecting people from illness and death caused by infectious diseases. We aim for financial profitability, but also to bring the greatest possible benefit to human health worldwide. These two goals are inextricably linked. Our solid balance sheet and strong cash position demonstrate the sustainability of our company and of the healthcare benefits we deliver.

 

Crucell is making progress with regard to reporting its CSR activities and this section of the 2008 Annual Report marks the beginning of a more comprehensive, transparent approach to CSR. Our efforts to develop a more comprehensive management system will certainly contribute to the achievement of this ambition. This year we have not chosen to perform a third party verification of our CSR chapter and data. We see this as a possible future option that could strengthen our CSR performance.

 

Crucell is a rapidly growing pharmaceutical company with ambitious goals and a clear strategy for sustainable growth. By optimizing our business performance we are continuously increasing the number of people we can protect from illness and death caused by infectious diseases. Crucell is fully committed to being a good corporate citizen and conducting business in an honest and ethical way with the lowest possible environmental footprint.

 

Crucell welcomes any feedback with regard to activities and disclosure around CSR on: csr@crucell.com.

 

 

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Forward-Looking Statements/Trademarks

 

Forward-looking statements

 

This Annual Report contains forward-looking statements. All statements regarding our future financial condition, results of operations an 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 trend.

 

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®, Epaxal® Junior, INFLEXAL®, VIVOTIF®, FLAVIMUN®, DUKORAL®, HEPAVAX-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.

 

 

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Contents

 

Management Report

 

 

 

Report of the Management Board

52

 

 

Information on the Company

57

 

 

History and Development of Crucell

57

Business Drivers

57

Products

58

Research and Development Pipeline

61

Technologies

65

Partners, Agreements, Investments and Other Collaborations

69

Intellectual Property

72

Industry and Scientific Overview

75

Competition in Product and Technology Development

76

Regulations applicable to the Biopharmaceutical Industry

76

Additional Information on the Company

78

 

 

Risk Factors

81

 

 

Operating and Financial Review and Prospects

89

 

 

Results of Operations

90

Critical Accounting Policies and Estimates

100

 

 

Corporate Governance

103

 

 

Corporate Governance at Crucell

103

Directors, Senior Management and Board Practices

105

Remuneration Policy for Management Board and Supervisory Board

111

Controls and Procedures

114

 

 

Report of Independent Registered Public Accounting Firm

116

 

 

Articles of Association and Share Capital

117

 

All amounts set forth in this Annual Report, unless otherwise noted, are in thousands of Euro, except share and option data.

 

 

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Report of the Management Board

 

Overview of the year

 

The year 2008 was truly unique for Crucell as we achieved net profit for the first time in the history of the Company. In addition we exceeded our revenue targets, considerably improved our gross margin and were cash flow positive. It is Crucell‘s ambition to deliver on promises and we clearly exceeded the targets set at the beginning of the year. Our 2008 financial highlights include:

 

·                  Growth of 33% in revenues and other operating income in 2008;

·                  Net profit of € 14,586 in 2008 compared to a net loss of € 42,910 in 2007;

·                  Gross margin for the year improved to 45% in 2008 compared to 34% in 2007; and

·                  Positive cash flow of € 7,721 increasing the 2008 year-end cash position to €170,969.

 

Our mission is to develop, produce and market vaccines and antibodies that prevent or treat 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 for infectious diseases. Our business strategy is based on the following business drivers:

 

·                  Leveraging presence of our marketed vaccines in public and private markets;

·                  Building a product pipeline with sustainable competitive advantage; and

·                  Building upon ongoing technology licensing programs.

 

The weakness of the global economy in 2008 is a challenge for many companies worldwide. The ongoing financial crisis became prominent in September 2008 with the failure or near-failure of several United States and European based financial institutions. The resulting deterioration in financial and market conditions spread around the globe. In recent months, the financial crisis has adversely affected businesses in many industries and geographical areas all over the world at an unexpected pace.

 

Despite the weak global economic climate we achieved all targets we set ourselves for the financial year 2008. Our success depends in part on our solid customer-base, which is relatively unaffected by deterioration in the global economy, since many of our customers are governmental agencies or supranational organizations. We do not expect our business will be significantly affected by the weak global economy in 2009.

 

Leveraging presence of our marketed vaccines

For the full year 2008, product sales were € 226,055, representing sales of paediatric vaccines (49%), travel and endemic vaccines (25%), respiratory vaccines (14%) and other products (12%). Our product sales grew by € 48,486 or 27.3%. The increase is primarily attributable to increased sales of our paediatric vaccines, specifically Quinvaxem, of € 33,668 and travel and endemic vaccines of € 8,290.

 

Quinvaxem is our fully liquid pentavalent vaccine against five important childhood diseases that is approved by the WHO. In 2008 we more than doubled the production and we were able to continue the success of Quinvaxem as sales grew from 21.3 million units in 2007 to 39.6 million units in 2008. In anticipation of the expected further growth of Quinvaxem in 2009, we continued to build up stock of Quinvaxem in the fourth quarter of 2008.

 

In 2008, the Chinese authorities approved Hepavax-Gene, our recombinant Hepatitis B vaccine, which is a significant advancement in the expansion of Crucell’s business in the highly strategic Chinese vaccine market. This will accelerate the growth of our Chinese operations.

 

Operations

In February 2008, our Chief Operating Officer, Cees de Jong, was nominated to join the Management Board. This nomination was approved by our shareholders at the Company’s annual general meeting on May 30, 2008. Cees joined Crucell in September 2007 and he was already part of Crucell’s Management Committee, prior to his nomination to the Management Board.

 

 

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In 2008, we also attracted several new senior managers to further improve the quality of our operations. During 2008 we strengthened the manufacturing organization and we were able to improve our performance significantly as yields of important production processes increased and scrap rates decreased. Expenses on operations were more or less stable compared to 2007 despite a significant increase in production volumes.

 

All our facilities were audited multiple times during the year by customers and/or regulatory authorities. All audits were successful, confirming our compliance with relevant rules and regulations. In Bern, Switzerland, we successfully refurbished our MoRu-Viraten (MR) filling line and obtained approval from Swissmedic to recommence production. In Madrid, Spain, we installed a new filling line for syringes, bringing the total capacity of our dedicated fill/finish center in Spain to approximately 100 million syringes per annum. The Spanish authorities audited and approved the new line in December 2008.

 

In October 2008, we announced that an agreement was reached to relocate our Korean production facility, that manufactures Quinvaxem and Hepavax-Gene, from the Shingal site in Yongin City to the Incheon, Free Economic Zone. We agreed on the time-line and conditions of this relocation with all parties involved, facilitating a smooth transition to the new production facility. The new facility will enable the further growth and efficient production of Quinvaxem and Hepavax-Gene. All litigation surrounding our production facility has been settled.

 

In August 2008, we announced the intention to move Dukoral and rCTB bulk production, formulation and fill/ finish activities from Sweden to other sites within the Crucell organization. The Group is currently conducting a feasibility study to determine the scope and timing of a potential move. The research activities conducted at our Swedish site were discontinued in 2008 and are now concentrated in Leiden, the Netherlands.

 

We entered into an exclusive vaccine development agreement with Wyeth Pharmaceuticals in which we will be responsible for the development and manufacturing of certain components of a vaccine for use by Wyeth in clinical studies. Wyeth will be responsible for the clinical development of the vaccine. The development activities will take place in Crucell’s dedicated vaccine manufacturing facilities in Bern, Switzerland, which had been fully impaired in 2006, enabling a partial reversal of that impairment in 2008.

 

Product pipeline with sustainable competitive advantage

Our rabies candidate product achieved positive preliminary results in the phase II study that was carried out in the US. No adverse events were reported and the study confirmed the neutralizing activity of the monoclonal antibody product against the rabies virus. A second phase II clinical study evaluating the monoclonal antibody cocktail in combination with a vaccine in healthy children and adolescents was conducted in the Philippines from May to October 2008. Final data from this study is expected to become available in the first half of 2009. An additional phase II study in healthy adults evaluating Crucell’s monoclonal antibody in combination with another rabies vaccine is scheduled to start in India in the second quarter of 2009.

 

For our Ebola and Marburg vaccine research we secured a contract with the US National Institute of Allergy and Infectious Diseases (NIAID), which is part of the National Institutes of Health (NIH) aimed at advancing the development of Ebola and Marburg vaccines, the ultimate goal being a multivalent filovirus vaccine. The contract provides us with funding of up to US Dollar ($) 30 million, with additional options that may be triggered at the discretion of the NIH worth a further $ 40 million. The phase I study of an adenovirus 5 (Ad5)-based Ebola vaccine, being developed in partnership with the Vaccine Research Center (VRC) of the NIAID/NIH, showed safety and immunogenicity. Based on these results, a second phase I study of an Ebola and/or Marburg vaccine is anticipated. The study will use alternative adenovirus vectors, which are able to bypass pre-existing immunity against Ad5.

 

Our research on a tuberculosis vaccine in collaboration with Aeras is ongoing. In October 2008, Crucell and the Aeras Global TB Vaccine Foundation announced the start of a phase I clinical trial in Kenya. The main parameters of the study are to test the safety of the vaccine candidate in healthy adults. We also started the enrollment of the first phase II study of the vaccine candidate, which will be conducted in South Africa by the University of

 

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Cape Town Lung Institute in conjunction with the South African Tuberculosis Vaccine Institute.

 

Our malaria research in collaboration with the NIAID/ NIH is progressing as we are carrying out a phase I trial in the US. The study is being carried out at two sites: Vanderbilt University in Nashville, Tennessee, US, and Stanford University in Palo Alto, California, US. The first three groups have been enrolled and ongoing safety monitoring has revealed no significant safety concerns to date, but formal analysis awaits. Enrollment for the fourth and final group of volunteers is ongoing.

 

In our influenza research, Crucell’s scientists discovered a set of human monoclonal antibodies that provides immediate protection and neutralizes the broadest range of H5N1. When tested in preclinical models for prevention or treatment of a potentially lethal H5N1 infection, these antibodies were shown to prevent death and cure the disease.

 

In another preclinical study, Crucell’s mAb CR6261 was compared with the anti-influenza drug oseltamivir in terms of their value for flu prevention and treatment. In December 2008, we announced that our monoclonal antibody strongly outperformed oseltamivir in the tests that were conducted. The flu strains tested included the ‘bird flu’ strain H5N1, which, experts fear, has the potential to cause a pandemic, and H1N1, which is similar to the flu strain responsible for the devastating pandemic in 1918. Importantly, the study showed that CR6261 provides immediate protection against the influenza virus, suggesting that it will be able to prevent the spread of disease. In contrast, oseltamivir was less efficacious and in some cases not effective at all.

 

Registration submission of Flavimun, our yellow fever vaccine in Switzerland was completed in the first quarter of 2009. Registration submission in Germany is expected in 2009.

 

Unique technologies for licensing business

 

In 2008, our license revenues grew by € 17,991 or 147.3%. The increase is mainly due to revenues generated by our collaboration with sanofi pasteur.

 

In 2008, Crucell signed licensing agreements with Abraxis Bioscience, Inc., Affitech AS, Arana Therapeutics Ltd, Bioceros, Biochrom, Cangene Corp., Celltrion, Inc., Gedeon Richter, GlaxoSmithKline, CSL Ltd., Lonza, Medarex Inc., MorphoSys AG, Profibrix B.V., Synthon B.V., Talecris Biotherapeutics and Toyobo Gene Analysis Co. Ltd.

 

We signed two exclusive, commercial license agreements with Talecris Biotherapeutics for two undisclosed and specific proteins and the exclusive rights to produce those proteins using the PER. C6 cell line. In total, we received upfront payments of $4 million upon the execution of the agreement and will be eligible for milestone payments of approximately $50 million more.

 

There were also positive developments for our intellectual property. We were successful in opposing European patents of our competitors as we managed to obtain complete revocations of European patents owned or controlled by GenVec, Genentech, Baxter, Novartis Vaccines & Diagnostics, Wellcome Foundation (GlaxoSmithKline (GSK)), and others. In addition, we obtained a favorable decision from the South-Korean Supreme Court in the longstanding invalidity law suit in South Korea against GSK’s multivalent Hepatitis B virus vaccine patent. These developments further paved the way for Crucell’s pipeline development activities and marketed products. Conversely, we were successful in defending our own PER.C6 and AdVac patents against attacks by its competitors. Except for one PER.C6 patent that has been maintained in amended form and is now pending before the board of appeal, all PER.C6 patents have survived opposition before the European Patent Office essentially intact.

 

The following technological progress was achieved during 2008:

 

·                  We achieved important advances in antibody production using our PER.C6 technology platform together with our partner DSM Biologics. By employing the PER.C6 human cell line and proprietary XDTM technology, we achieved a record yield of over 27 grams per liter of IgG antibodies. In addition the high-titer fed-batch process was scaled up to 250 liters by DSM Biologics scientists at their GMP facility in Groningen, The Netherlands;

 

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·                  Our PER.C6 technology licensee Ark Therapeutics has entered a phase III study with its product Trinam. Ark Therapeutics is the first of our licensees to enter into a phase III study with a product produced on Crucell’s PER.C6 human cell line; and

·                  We announced that the novel recombinant adenovirus serotype 26 (rAd26) vector, which is jointly developed by Crucell and the Beth Israel Deaconess Medical Center (BIDMC) in the US, will be used in a phase I clinical study to test a new HIV vaccine. The rAd26 vector is specifically designed to avoid pre-existing immunity to the more commonly used adenovirus serotype 5 (Ad5), which has recently shown limitations as an HIV vaccine vector. This clinical trial is the first ‘in man’ study of this newly developed vector, which could provide a solution to problems seen in previous HIV vaccine trials. The rAd26 vaccine is the first HIV vaccine candidate to emerge from the Integrated Preclinical/Clinical AIDS Vaccine Development (IPCAVD) program.

 

In November 2008, the leading scientific journal ‘Nature’ published a study that demonstrated the value of our alternative adenovirus serotype technologies. Using Crucell’s AdVac vaccine technology and PER.C6 manufacturing technology, scientists engineered the rare adenovirus serotypes Ad26 and Ad35 to express a protein of SIV, the primate equivalent of HIV. We have developed rare serotype adenoviral vectors, such as rAd26 and rAd35, to provide more potent prime-boost vaccine regimens. The study, which investigated the immunogenicity and protective efficacy of different vaccination regimes using rAd26, rAd35 or rAd5 as a primer, followed by a boost with rAd5, showed that in particular the rAd26/rAd5 combination elicits a strong T-cell immune response and provides protection against the HIV-like virus in primate subjects. We have several vaccines in development using alternative rAd26 and rAd35 vectors, including vaccines against malaria and tuberculosis.

 

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

 

Subsequent events

On January 7, 2009, we announced that we were in friendly discussions with Wyeth regarding a potential combination of the two companies. On January 26, 2009, we announced that Wyeth withdrew from these discussions.

 

Outlook 2009

 

The key to our strategy is continued growth. The outlook for 2009 is promising as we expect revenue and other operating income to grow, operating profits to increase significantly and to achieve a solid cash flow despite significant investments. Our Healthy Ambition program has a clear focus on achieving operational excellence and is on track to realize cost savings of € 30 million by the end of 2009. We do not expect our business to be adversely affected in 2009 by the weak global economy resulting from the continuing international financial crisis.

 

In 2009, we will focus on continued growth.

 

·                  We expect our combined full-year 2009 total revenue and other operating income to grow by 20% in constant currencies that are set at a guidance rate of Euro/US Dollar of 1.35;

·                  Operating profit for 2009 is expected to improve significantly compared to 2008;

·                  Furthermore, the Company expects solid cash flow despite significant investments in the new facility being built in Korea. These investments are expected to total approximately € 50 million, with the majority of the spending in 2009;

·                  We do not expect our business to be significantly affected by the weak global economy in 2009; and

·                  We will pursue key partnerships, focus on progress in clinical development and continue with broadly licensing our technologies.

 

In the course of 2009, we expect to make further decisions that may impact our income statement. Consequently we cannot comment on expected 2009 results in more detail than described above.

 

Our Healthy Ambition program has a clear focus on achieving operational excellence. The program works towards exploiting synergies, reducing costs and funding growth. Important elements of the program include: product portfolio optimization, process and infrastructure optimization, network rationalization and further integration and streamlining of various functions. Healthy Ambition is targeting savings of € 30 million by the end of 2009. For 2009, the focus will be on reducing complexity and further streamlining the organization.

 

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We expect continued investments in our manufacturing facilities to ensure that they remain state-of-the-art and continue to meet the highest applicable regulatory standards. In October 2008, we announced that we will relocate our Korean production facility. The investments in the new facility are expected to total approximately € 50 million, with the majority of spending occurring in 2009. We entered into a mortgage loan facility in Korea for an amount of KRW 50 billion to partly finance the investments in the new Korean facility in 2009.

 

Our continued 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 endemic, and respiratory illnesses. In addition, we will continue to invest in discovery programs and progress these into the clinical trial phase. Lifecycle investments are required to ensure that we continue to meet the highest regulatory standards and to further improve the lifecycle of our products.

 

We expect the deal flow from our PER.C6 licensing business to continue. We believe that the number of licenses and the revenue flow from the PERCIVIA joint venture will continue to be significant.

 

We expect revenues throughout 2009 to be phased similarly to those in 2008. Our cash flow position is expected to deteriorate significantly in the first half of 2009, which is normal due to the seasonality of our business. We build-up inventory in the first half of the year and sell our respiratory and travel vaccine products principally in the second half of the year.

 

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Information on the Company

 

History and development of Crucell

 

We are a public limited liability company under Dutch company law, incorporated in Leiden, the Netherlands with the legal and commercial name Crucell N.V., (‘Crucell’ or the ‘Company’) 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 registered agent in the US is CT Corporation, 111 Eighth Avenue, New York, New York 10011. Crucell and its subsidiaries together constitute the Crucell Group, or the ‘Group’. The Company has subsidiaries in the Netherlands, Switzerland, Spain, Italy, Sweden, Korea and the US.

 

In February 2006, we acquired a controlling interest in the Swiss biotech company Berna Biotech AG in a share exchange. In September 2006, we acquired the remaining 1.6% minority interest. Berna Biotech AG was founded in 1898. Prior to the acquisition, Berna was a fully integrated biotechnology company that marketed numerous vaccines on a global scale.

 

In October 2006, the Company purchased, via its subsidiary Crucell Vaccines Inc., the assets and liabilities of the Florida-based Berna Products Corp. from Acambis plc. Berna Products Corp. was originally established in 1990 by Berna Biotech AG to market Vivotif, Berna’s oral typhoid fever vaccine, in the US and Canada and was acquired by Acambis plc in 2003.

 

In November 2006, we acquired the shares of Stockholm-based SBL Vaccin Holding AB (SBL) from 3i and SEB. SBL was a fully integrated independent Swedish biotechnology company. SBL’s main product was Dukoral. In addition, SBL had a sales and distribution organization for vaccines in Scandinavia.

 

In November 2006, we and our technology partner DSM Biologics opened the PERCIVIA PER.C6 Development Center in Cambridge, Massachusetts, US. The joint venture was conceived and designed to further develop the PER.C6 cell line and provide turnkey solutions for the production of monoclonal antibodies and recombinant proteins.

 

On January 7, 2009, we announced that we were in friendly discussions with Wyeth regarding a potential combination of the two companies. On January 26, 2009, we announced that Wyeth withdrew from these discussions.

 

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, a fully-liquid vaccine for protection against five important childhood diseases;

·                  Hepavax-Gene, a recombinant vaccine against hepatitis B;

·                  MoRu-Viraten, a vaccine against measles and rubella (all age groups);

·                  Epaxal and Epaxal Junior, the only aluminum-free and biodegradable vaccine against hepatitis A;

·                  Vivotif, the only oral vaccine again typhoid fever;

·                  Dukoral, the only oral vaccine against diarrhea caused by cholear and ETEC (Enterotoxigenic E. Coli); and

·                  Inflexal V, the only virosomal adjuvanted influenza vaccine for all age groups.

 

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

 

We believe that each of our selected products targets unmet medical needs, improves current medications or is otherwise believed to be marketable due to predictive study models and/or perceived favorable 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 products.

 

Besides our portfolio of well known vaccines, we have a pipeline of new potential vaccines and antibodies. Product pipeline programs include

 

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vaccines against yellow fever, influenza, tuberculosis, Ebola and Marburg, malaria, HIV, rabies and H5N1 antibodies. Our R&D activities are concentrated in our headquarters in the Netherlands, but we also have R&D facilities in Switzerland and Korea. Product development is concentrated at our Swiss operations in Bern.

 

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 b 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 there are indications that the technology is complementary to our PER.C6 technology.

 

Products

 

Overview

 

Our products are marketed by our own sales force as well as by our distribution partners. Our sales are subject to seasonal variations with the majority of our sales coming 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. In addition, our travel vaccines are also subject to seasonal travel patterns. See ‘Partners, agreements, investments and other collaborations – Marketing and sales partners’ in this section for more details on our partners.

 

Vaccine markets

Our core product portfolio currently consists of seven marketed vaccines in three areas of the vaccine market: paediatric vaccines, travel and endemic vaccines and respiratory vaccines.

 

Paediatric vaccines

Our core paediatric vaccines are Quinvaxem, Hepavax-Gene and MoRu-Viraten.

 

Quinvaxem

Quinvaxem 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. It is the first internationally available fully-liquid vaccine containing all five of the above antigens, offering a major advantage in terms of convenience of use. Quinvaxem was co-developed with Novartis, which provides four of the five components in bulk. The fifth component is our vaccine Hepavax-Gene.

 

We produce Quinvaxem together with our hepatitis B vaccine Hepavax-Gene in Korea. In October 2008, we announced that we will relocate the Korean production facility from Yongin City to the Incheon, Free Economic Zone. The new facility will enable the further growth and more efficient production of Quinvaxem and Hepavax-Gene.

 

As Quinvaxem has been pre-qualified by the World Health Organization (WHO), it is available for purchase by supranational organizations. Supranational organizations are major customers for combination vaccines, which are used in large vaccination programs around the world. In September 2008, we were awarded with new contracts totaling over $ 140 million for our Quinvaxem and Hepavax-Gene paediatric vaccines by supranational organizations. The contracts provide for the supply of these vaccines for the period 2008 – 2009, bringing the total value of the contracts for the period 2007 – 2009 to $500 million.

 

Hepavax-Gene

Hepavax-Gene is a recombinant hepatitis B (HBV) vaccine made using Crucell’s proprietary Hansenula polymorpha expression system. It is one of the WHO’s pre-qualified vaccines for active immunization against HBV. A key competitive advantage for Hepavax-Gene is our stable and efficient production system.

 

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In 2008, the Chinese authorities released Hepavax-Gene for registration and quality control in China. Market researcher Decision Resources estimates that the Chinese HBV drug market will more than double between 2007 and 2012 (from $340 million in 2007 to $800 million in 2012).

 

About 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 or the exchange of bodily fluids between an infected mother and a newborn baby at birth.

 

MoRu-Viraten

MoRu-Viraten is a safe, well-tolerated and effective vaccine for protection against measles and rubella in children, adolescents and adults. The immunogenicity and safety of MoRu-Viraten have been confirmed in clinical trials and extensive post-marketing surveillance. MoRu-Viraten is free of avian proteins and antibiotics, posing no risk to children with allergies to these substances. The vaccine has been marketed since 1986 and is on the WHO list of vaccines for purchase by UN agencies.

 

About measles and rubella

Measles is a highly contagious disease caused by the measles virus. It is spread by droplets or direct contact with nasal or throat secretions of infected persons and less commonly through the air or indirect contact. Measles continues to remain a serious public health concern worldwide with 30-40 million cases occurring annually. It may be ultimately responsible for more child deaths than any other single agent and is a major cause of preventable blindness in the world. Rubella is a moderately contagious disease caused by the rubella virus. Transmission of the virus is via airborne droplets. It has been estimated that over 100,000 cases of congenital rubella syndrome (CRS) occur in developing countries each year.

 

Travel and endemic vaccines

 

Our core travel vaccines are Epaxal, Vivotif and Dukoral.

 

Travel vaccines include all vaccine products that protect against diseases that are not native to the region travelers are from, but are present in the regions to which they travel. 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 endemicity could also be characterized as routine or paediatric vaccination. Furthermore, even in some European countries where endemicity is low, childhood vaccination against Hepatitis A virus (HAV) is recommended. This vaccine represents a large potential upside for vaccine manufacturers as they can be targeted at multiple markets.

 

Epaxal

Epaxal is the only aluminum-free and biodegradable HAV vaccine on the market, offering significant advantages in terms of tolerability. It was the first product to be based on the virosome technology developed and patented by the Crucell company, Berna Biotech AG. It induces protective antibody levels within 10 days of primary vaccination, and provides seroprotection for at least 20 years following the second (booster) dose. In most countries, the vaccine is licensed for adults and children over the age of one. It is currently licensed in more than 40 countries under the brands Epaxal, HAVpur and VIROHEP-A.

 

About hepatitis A

Hepatitis A (HAV) is a highly contagious infection that causes temporary acute inflammation of the liver. It can range in severity from a mild illness lasting a few weeks to a severe illness lasting several months. HAV infection produces a self-limited disease that does not result in chronic infection or chronic liver disease. HAV is generally contracted orally and commonly spreads through improper handling of food, contact with household members, sharing toys at day-care centers or eating raw shellfish taken from polluted waters.

 

Vivotif

Vivotif is a live attenuated typhoid fever vaccine for oral administration. The vaccine is indicated for adults and children over the age of five and has an excellent track record for safety, having been on the market for more than 20 years. Protective efficacy is proven in several large-scale field trials including more than 500,000 subjects. It is currently licensed in over 30 countries, including the United States. Data suggests that Vivotif may be unique in also protecting against paratyphoid A and B fever

 

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which is caused by Salmonella strains similar to Salmonella Typhi.

 

About typhoid fever

Typhoid fever is a debilitating and life-threatening illness caused by the bacteria Salmonella Typhi. Symptoms of the disease include fever, stomach pain, weight loss, loss of appetite, delirium, severe diarrhea (in children), constipation (in adults), cerebral dysfunction and intestinal perforation. The disease is transmitted by faecal contamination of food or water, or by person to person contact.

 

Typhoid fever is endemic in many parts of Africa, Asia and Latin America. 21 million people are estimated to develop typhoid fever each year. 1-4% of persons with typhoid fever die. At least 5 million people are believed to develop paratyphoid fever annually.

 

Dukoral

Dukoral is an oral vaccine that protects against cholera and the enterotoxigenic Escherichia coli (ETEC) and is registered in more than 60 countries. The vaccine has demonstrated a protective efficacy against cholera of approximately 85% and 60% against ETEC. Dukoral acts by inducing antibodies against both the bacterial components and cholera toxin (CTB). The vaccine is suitable for travelers and is indicated for use in adults and children over two years of age. Pregnant and lactating women may use it. Other than Dukoral there is no cholera and ETEC combination vaccine available in the world.

 

About Cholera

Cholera is an acute, diarrheal illness caused by infection of the intestine with the bacterium vibrio cholerae. Over 90% of all cholera cases are mild to moderate and present themselves as ordinary traveller’s diarrhea. Approximately 10% of infected persons have a severe case, characterized by profuse watery diarrhea, leg cramps and vomiting, resulting in rapid loss of body fluids leading to shock and dehydration. Without treatment, death can occur within hours. According to the US Center for Disease Control and Prevention, cholera has been very rare in industrialized nations for the last 100 years; however, the disease is still common in other parts of the world and the cholear bacteria can be found in many travel destinations, for example in most part of Asia, Africa and South America. It spreads via contaminated food and water.

 

Respiratory vaccines

 

Our core respiratory vaccine is Inflexal V.

 

Inflexal V

Inflexal V is a virosomal adjuvanted Influenza vaccine (subunit), based upon the virosome technology developed and patented by the Crucell company, Berna Biotech AG. It is the only adjuvanted flu vaccine licensed for all age groups (from 6 months and up). The vaccine’s antigen composition follows yearly WHO recommendations. Inflexal V was originally introduced in 1997, is registered in 38 countries and has extensive market experience, with more than 41 million doses confirming its safety profile. The tolerability of Inflexal V is excellent due to its biocompatibility and purity.

 

About influenza

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 upon infection, the incubation period ranges from one to three days.

 

Each year approximately 5%-15% 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.

 

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,

 

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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 markets.

 

Research and Development pipeline

 

Overview

 

Our product development programs comprise vaccines against yellow fever, influenza, tuberculosis, Ebola and Marburg, malaria, HIV, human monoclonal antibodies against rabies and human monoclonal antibodies against a broad range of influenza.

 

Overview of our 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 again in the future, enter into collaborative and/or strategic alliance arrangements with third parties to co-develop and market products.

 

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:

 

·

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

·

Our Ebola and Marburg, malaria and TB vaccine candidates are recombinant vaccines based on PER.C6 technology that also employ AdVac technologies; and

·

Our candidate rabies and influenza 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.

 

Overview of our late-stage pipeline

 

Yellow fever vaccine

Crucell has developed the yellow fever vaccine, Flavimun, based on a well-established vaccine formerly produced by the Robert Koch institute in Germany. We acquired the rights and know-how for this vaccine against yellow fever from the Robert Koch Institute, which has produced the vaccine since 1963. Over 2.5 million doses of the vaccine have been distributed. The vaccine is safe, highly immunogenic and well tolerated. Protection starts ten days after a single dose and persists for ten years. The product was submitted for registration with the Swiss authorities in the first quarter of 2009. Registration submission in Germany is expected in 2009.

 

Overview of our early-stage pipeline

 

The following is a short description of our main potential products in the early-stage pipeline as well as the diseases those products target.

 

Influenza

Influenza vaccines were 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 thus easily scalable, permitting the production of cost-efficient vaccines in large quantities. PER.C6 cells possess the different receptors required for the production of vaccines against both human and avian strains of influenza that may present a pandemic threat.

 

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 Good Manufacturing Practice (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 US and started in the fourth quarter of 2007. In the third quarter 2008, we received a milestone payment for the progress of the phase II trials involving healthy adult volunteers in the US.

 

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The trials focus on the safety profile and immunogenicity of the cell-based vaccine.

 

Tuberculosis

Crucell is developing a recombinant tuberculosis (TB) vaccine based on our AdVac and PER.C6 technology. The development of this vaccine is being carried out in collaboration with the Aeras Global TB Vaccine Foundation (AERAS). The Crucell-Aeras TB vaccine program is focusing on an AdVac based vaccine that can boost the immune response against TB, initially induced by Bacille Calmette-Guérin (BCG) vaccine, using our PER.C6 and AdVac technologies.

 

A first phase I clinical trial, launched in October 2006 in Kansas, US, indicated that the vaccine candidate, AERAS-402/Crucell Ad 35, is safe in healthy adults in the US. The preliminary results of a second study, launched in May 2007, showed that both critical arms of the cellular immune system, CD4 and CD8 immune T-cells, were induced and that in those participants who responded, CD8 immune responses were considerably higher than had ever previously been seen in a TB vaccine study. A third phase I study in St. Louis, Missouri, US was launched in December 2007 and focuses on the immunogenicity and safety of two AERAS-402/Crucell Ad35 boost doses administered at three to six month intervals after BCG priming in healthy adults.

 

An ongoing study in St. Louis, MO, US is evaluating a longer prime-boost interval. The study has been fully enrolled and has discovered no safety issues. Immunological data is expected to be available in the first half of 2009.

 

In October 2008, Crucell and AERAS announced the start of a phase I clinical trial in Kenya. The main parameters of the study will be to test the safety of the vaccine candidate in healthy adults, all of whom have been previously vaccinated with the BCG vaccine and a subset of whom have evidence of having been exposed to TB. This study is fully enrolled and now in its follow-up segment, with no safety issues identified. The companies also started the enrollment of the first phase II study of the vaccine candidate. The study is being conducted in Cape Town, South Africa by the University of Cape Town Lung Institute in conjunction with the South African Tuberculosis Vaccine Institute. No evidence of an unacceptable safety issue has been found in its dose escalation design.

 

About tuberculosis

TB is a major cause of illness and death worldwide, especially in Asia and Africa, with over 9 million new cases diagnosed in 2006. According to the World Health Organization (WHO), an estimated 1.7 million people died from TB in 2006. One third of the world’s population has been infected with the TB bacillus and current treatment takes 6-9 months. The current TB vaccine BCG, developed over 85 years ago, reduces the risk of severe forms of TB in early childhood but is not very effective in preventing pulmonary TB in adolescents and in adults, the populations with the highest TB rates. As the disease is changing and evolving, new vaccines are even more crucial to control any pandemic. TB is the leading cause of death for people living with HIV/AIDS, particularly in Africa. Multidrug-resistant TB (MDR-TB) and extensively drug-resistant TB (XDR-TB) are hampering treatment and control efforts. A need for an alternative vaccination approach has emerged in the last two decades.

 

Ebola and Marburg

Crucell is developing an Ebola vaccine in collaboration with the Vaccine Research Center (VRC) of the NIAID.

 

In May 2002, we entered into a Collaborative Research and Development Agreement (CRADA) with the VRC to jointly develop, 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.

 

In experiments conducted by the VRC together with the US Army Medical Research Institute of Infectious Diseases (US. AMRIID) 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.

 

In March 2005, we extended the CRADA with the US 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.

 

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In October 2008, we secured a NIAID/ NIH contract aimed at advancing the development of Ebola and Marburg vaccines, ultimately leading to a multivalent filovirus vaccine. The contract provides funding of up to $30 million, with additional options that may be triggered at the discretion of the NIAID for an additional $40 million. The phase I study of an Ad5 based Ebola vaccine, being developed in partnership with VRC, showed safety and immunogenicity at the doses evaluated. Based on these results a second phase I study of an Ebola and/or Marburg vaccine is anticipated.

 

About Ebola and Marburg

The Ebola and Marburg viruses are capable of causing hemorrhagic fever, a severe, often-fatal disease in humans characterized by high fever and massive internal bleeding, causing death in 50% to 80% of all cases. Ebola and Marburg outbreaks occur regularly in tropical Africa, affecting both human and great ape populations. Since the Ebola virus was first recognized, approximately 2,200 cases, including over 1,500 deaths, have been reported. To date, over 440 cases of Marburg have been reported with approximately 360 fatalities. Ebola and Marburg usually appear in sporadic outbreaks, and spread within a health-care setting. Because of the high disease-related mortality rates and lack of any vaccine or therapy, the Ebola and Marburg viruses are on the US Centers for Disease Control and Prevention Category ‘A’ list of bio terror agents, together with smallpox and anthrax.

 

Malaria

We are developing a recombinant malaria vaccine based on our AdVac technology and produced on our PER.C6 production technology. The vaccine is made by inserting the gene for the circumsporozoite protein (CSP) from a malaria parasite into an adenoviral vector, which acts as a ‘vehicle’ for vaccination delivery.

 

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 collaborated with the NIAID for the support of the development of our candidate malaria vaccine. In September 2006, we extended our collaboration with the NIAID by signing a clinical trial agreement.

 

In partnership with the NIAID, Crucell’s malaria vaccine entered a phase I trial in the US in January 2007. The study is being carried out on two sites, Vanderbilt University in Tennessee and Stanford University in California. The first three groups have been enrolled and ongoing safety monitoring has revealed no significant safety concerns to date, but formal analysis awaits unblinding of the data. Further updates on this program are expected in the second quarter of 2009.

 

About 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 currently one of the most lethal 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 1 to 3 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 travelers.

 

HIV

In August 2005, Crucell, along with Harvard Medical School, was awarded a $19.2 million grant by the US NIH to develop new adenovirus vector-based vaccines against HIV/AIDS. The Investigational New Drug Application (IND) for phase I of the trial with Harvard Medical School (supported by the NIH) was approved by the FDA in January 2008. In April 2008, the Company announced the start of a Phase I clinical study of the novel recombinant HIV vaccine that Crucell is jointly developing with the Beth Israel Deaconess Medical Center, using adenovirus serotype 26 (rAd26) as vector. The rAd26 vector is specifically designed to avoid the pre-existing immunity to the more commonly used adenovirus serotype 5 (Ad5). The phase I clinical study is being conducted at the Brigham and Women’s Hospital in Boston, MA, US and is focused on assessing the safety and immunogenicity of the vaccine. Enrollment is currently ongoing.

 

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About HIV

Human immunodeficiency virus or HIV is a retrovirus that causes acquired immune deficiency syndrome (AIDS), a condition in humans in which the immune system begins to fail, leading to life-threatening infections. HIV infection occurs on a global scale. A joint United Nations Program on HIV/ AIDS and the WHO estimate that AIDS has killed more than 25 million people since it was first recognized on December 1, 1981, making it one of the most destructive pandemics in human history.

 

There currently is no treatment for HIV or AIDS. The only known methods of prevention are based on avoiding exposure to the virus or, failing that, an antiretroviral treatment directly after a highly significant exposure, called post-exposure prophylaxis (PEP). Protective sex is another form of prevention of the deadly disease. Antiretroviral drugs (ARVs) which significantly delay the progression of HIV to AIDS and allow people living with HIV to live relatively normal, healthy lives, have been available in wealthier parts of the world since around 1996.

 

Antibodies

 

Rabies monoclonal antibody combination

We are developing a human monoclonal antibody combination for the post-exposure treatment of rabies. The use of Crucell’s MAbstract technology resulted in a combination of two human anti-rabies antibodies. The monoclonal antibodies are produced on Crucell’s PER.C6 technology.

 

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 the customer base grows in affected countries such as India and China.

 

We have developed the human monoclonal antibody combination in collaboration with the Thomas Jefferson University (TJU) based in Pennsylvania, US and the Center for Disease Control (CDC) in Georgia, US using MAbstract and PER.C6 technology. Our rabies monoclonal antibody combination demonstrated protection at least equivalent to HRIG in pre-clinical trials.

 

In December 2007, we signed an exclusive collaboration and commercialization agreement with sanofi pasteur for our rabies monoclonal antibody combination 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, the rights to sell to supranational organizations such as UNICEF and co-exclusive distribution rights in China.

 

The program has been granted a Fast Track designation by the US Food and Drug Administration (FDA).

 

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.

 

Phase II clinical trials began in the US in March 2008. In October 2008, the positive preliminary results of the US study were presented. No serious adverse events were reported and the study confirmed the neutralizing activity of the antibody product against the rabies virus. In May 2008, a second phase II clinical study began in the Philippines and was completed before year-end 2008. Final data from this study are expected to become available in the first half of 2009.

 

An additional phase II study in healthy adults evaluating Crucell’s monoclonal antibody in combination with a rabies vaccine started in February 2009.

 

About rabies

Rabies is a viral disease of mammals most often transmitted through the bite of an infected animal. The virus infects the central nervous system, causing encephalopathy and ultimately death if medical treatment is not sought before symptoms become more severe. 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

 

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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.

 

Human monoclonal antibodies against a broad range of influenza

Crucell’s scientists discovered a set of human monoclonal antibodies that provides immediate protection and neutralizes the broadest range of H5N1 strains. When tested in preclinical models for prevention or treatment of a potentially lethal H5N1 infection, this antibody was shown to prevent death and cure the disease.

 

In another preclinical study, Crucell’s mAb CR6261 was compared with the anti-influenza drug oseltamivir in terms of its value for flu prevention and treatment. In December 2008, Crucell announced that its monoclonal antibody had strongly outperformed the most current anti-influenza drug in these tests.

 

The flu strains tested included the ‘bird flu’ strain H5N1, which, experts fear, has the potential to cause a pandemic, and H1N1, which is similar to the strain responsible for the devastating pandemic in 1918. Importantly, the study showed that CR6261 provides immediate protection against the influenza virus, suggesting that it will be able to prevent disease spread. In contrast, oseltamivir was less efficacious and in some cases not effective at all.

 

Technologies

 

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.

 

Our business development strategy historically involved contacting prospective licensees and partners and 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.

 

Core proprietary technologies

Our product portfolio is supported through five core proprietary technology platforms.

 

PER.C6 technology

 

Overview

Our PER.C6 technology provides a manufacturing system that can be used to produce a variety of biopharmaceutical products. Crucell’s PER.C6 cellline is derived from a single, human retina-derived cell, which was purposely immortalized using recombinant DNA technology. As a result, PER.C6 cells can replicate indefinitely, allowing them to be cultured in single cell suspension under serum-free conditions in quantities appropriate for large-scale manufacturing.

 

The technology has been successfully adapted to grow without the need for serum components or materials that allow cell attachment (micro carriers) and demonstrates excellent cell densities in bioreactors. These features are important because they allow us to produce safe biopharmaceutical products in sufficient quantities.

 

In September 2008, DSM Biologics and Crucell announced that the high-titer-fed batch process developed at the PERCIVIA PER.C6 Development Center, their joint venture in Massachusetts, US (PERCIVIA) was scaled up to 250 liters by DSM Biologics scientists at their GMP facility in Groningen, the Netherlands. They successfully achieved 8 grams per liter for an IgG antibody expressed by PER.C6 cells using chemically defined cell culture medium in a single-use bioreactor. In June 2008, the Company reported record-breaking protein yields of 27 grams per liter using DSM’s innovative XDTM technology.

 

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

 

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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 sub-unit vaccine; and

·                  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. We are further developing the application of PER.C6 for protein production at PERCIVIA.

 

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 cold 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:

 

·                  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.

·                  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.

·                  We have filed a Cell Substrate Biologics Master File (BMF) with the US 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 we or our licensees produce using the PER.C6 technology.

·                  The PER.C6 technology can now claim to have achieved a broad endorsement within the industry. For an overview of our most important licensees and partners subsidiaries please see the ‘Appendix Overview licensees and partners’.

·                  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.

 

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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 vectors constructed from adeno viruses that do not regularly occur in the human population, such as Ad35. The technology supports the practice of inserting DNA coding of 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 by Crucell and its licensees to develop vaccines against hemorrhagic fevers (Ebola, lassa, Marburg), malaria, TB, HIV/ AIDS and hepatitis C (HCV). While no adenovirus-based recombinant vaccines are currently licensed for human use, AdVac-based vaccines for malaria, HIV/ AIDS, HCV, hemorrhagic fevers, and TB 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; and

·                  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.

 

MAbstract technology

 

Overview

Our MAbstract technology can be applied to 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 put in contact with pathogens, or cells suspected of carrying the drug target, or if the target is already known in advance, the library may be put in contact 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 eliminate irrelevant phage antibodies present in the library. Since irrelevant phage antibodies for the target in question are often present in great abundance, the elimination 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 binding function but have accessory 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, 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:

 

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

·                  MAbstract technology does not have inherent limitations on antibody specificity.

·                  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 useful for increasing production of recombinant antibodies and therapeutic proteins on mammalian cell lines. 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 biological substances. 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. 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; and

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

 

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 aluminum 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 offers a tool for developing novel, predominantly synthetic vaccines applicable to 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;

 

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·                  Virosomes stimulate both arms of the immune system, eliciting both 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; and

·                  Virosome technology is used in the manufacture of several of Crucell’s registered products where it has an excellent safety record.

 

Other proprietary technologies

 

In addition to our core proprietary technology platforms the companies employs numerous other technologies. Of these other proprietary technologies we would like to highlight the following two.

 

Hansenula polymorpha

 

Overview

The yeast expression technology Hansenula polymorpha provides us with a highly efficient production technology for proteins, 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; and

·                  Hansenula polymorpha is easy to manipulate genetically and is robust in industrial scale fermentations.

 

Recombinant Cholera Toxin B sub-unit technology

Cholera Toxin B (CTB) sub-unit 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 has been shown to be effective. 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 ingestion of antigen coupled with CTB suppresses peripheral T-cell reactivity to the coupled antigen. The Group 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 toxins.

 

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 June 2003, Merck and Crucell expanded an existing cooperation agreement and agreed to work closely on matters related to maintenance of the PER.C6 Cell Substrate BMF. 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 received 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 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

 

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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 established PERCIVIA in August 2006. 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.

 

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 in 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.

 

Wyeth

In March 2008, we entered into an exclusive agreement with Wyeth pursuant to which we perform contract manufacturing for Wyeth 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 overall clinical development of the vaccine.

 

Other collaborations and agreements

 

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. 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 terms 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 product sales arise out of the collaborations. Generally, these collaboration agreements specify that Crucell provides the applicable university with a specific amount of funding and the Group receives certain intellectual property rights and access to the results of the university research.

 

Overview licensees and partners

For an overview of our most important licensees and partners subsidiaries please see the ‘Appendix Overview licensees and partners’.

 

Our equity investments

 

Subsidiaries

The following transactions changed the scope of consolidation in 2008:

 

·                  In December 2008 SBL Vaccin Holding AB and Vitec AB Rhein Vaccines B.V. legally merged into SBL Vaccin AB; and

·                  In November 2008 we sold our fully-owned subsidiary Etna Biotech Srl (Catania, Italy) to Zydus Cadila (Ahmedabad, India).

 

For a complete overview of our most significant subsidiaries please see ‘1.1 Corporate information – List of consolidated companies’ in the financial statements.

 

We are not aware of any legal or economic restrictions on the ability of our subsidiaries to transfer funds to the Company in the form of cash dividends, loans or advances other than withholding taxes due in certain countries in which we operate.

 

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Associates and joint ventures

On July 3, 2008 the Group sold all of the 2,625,000 shares it owned in Kenta Biotech AG to Ingro Finanz AG. Prior to this sale, our ownership interest had already been diluted from 37% in 2006 to 22% by the end of 2007. We realized an accounting gain of € 1.6 million on the sale in 2008.

 

For a complete overview of our associates and joint ventures please see ‘5.9 Investments in associates and joint ventures’ in the financial statements.

 

Other equity investments

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. We have agreed with Tibotec to not compete with the activities of Galapagos, which holds the rights to the products and technologies that it develops. The Group owns 5.8% of Galapagos as of December 31, 2008 (2007: 5.8%).

 

Marketing and sales partners

 

We have our own sales and marketing infrastructure in our markets in the Benelux, Switzerland, Italy, Spain, Scandinavia, US and Canada, Argentina, China, Korea, Indonesia and Vietnam. This sales and marketing infrastructure includes a dedicated sales force for supranational organizations. We have also established a strong network of partnerships to ensure broader market access for our products. Through these measures, we have established a global marketing and sales organization with strong presence in the US, US, South-East Asia and supranational organizations.

 

We also distribute and market other companies’ products, to strengthen our presence in vaccine or therapeutic protein markets. The most significant collaborations in terms of current sales value are:

 

 

 

Our partners:

Marketing, sales and distribution partner for:

Sanofi pasteur – MSD

part of the sanofi pasteur – MSD portfolio in Sweden.

Novartis Vaccines and Diagnostics

part of the Novartis vaccine portfolio in Sweden.

Statens Serum Institute Denmark (SSI)

part of SSI’s product portfolio in Spain and Sweden.

Green Cross Corporation Korea

Green Cross Corporation’s Japanese encephalitis vaccine in Europe.

Netherlands Vaccine Institute (NVI)

part of NVI’s product portfolio in the Benelux

Talecris Biotherapeutics

Talecris’s product Prolastin in nine Western European countries.

 

In addition, we developed a network of companies that market and sell our products. The most significant collaborations in terms of current sales value are:

 

Our Partners:

Marketing, sales and distribution partner for:

Zuellig

several vaccines in China.

Baxter International Inc.

several vaccines in Austria, Germany, Greece and Russia.

Infectopharm Germany

our flu vaccine in Germany.

Masta UK

our travel vaccines in the UK.

Novartis

our travel vaccines in Germany.

Sanofi pasteur

Dukoral in Canada, Australia and a number of other countries outside Europe and the US.

Sanofi pasteur – MSD

our flu vaccine in the UK.

Kedrion

our flu vaccine in Italy.

 

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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 on 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 US and Europe, as well as in other jurisdictions as appropriate.

 

We engage European and Dutch patent attorneys that file, prosecute, defend and enforce patent rights as well as manage our patent portfolio. Our patent portfolio comprised 1677 active cases (i.e. granted patents in force or pending patent applications) as of December 31, 2008. 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, 2008, 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.

 

2008 Patent filings

 

 

 

Pending

 

Granted

 

Active

 

Vaccines(1)

 

259

 

367

 

626

 

Antibodies(2)

 

141

 

77

 

218

 

Technology(3)

 

268

 

344

 

612

 

Gene Therapy

 

50

 

171

 

221

 

Total

 

718

 

959

 

1,677

 

 

(1)                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.

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

(3)                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.

 

Patent filings

In 2008, we filed patent applications for four new inventions, in the fields of vaccines and technology. Our new filings in the vaccine field in 2008 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 our AdVac technology. Since we are not actively involved in gene therapy research and development, no new filings were made in that area during 2008.

 

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, 2008, we had 64 pending applications in the EU (1), 110 pending applications in the US (2), 21 international patent applications (so called Patent Cooperation Treaty (PCT) applications (3)) and 523 applications in the rest of the world (4).

 

A significant number of our pending patent applications are filed under the PCT, which offers a cost-effective method to seek provisional worldwide protection in more than 100 countries and territories for 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 35 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 PCT applications while still in the international phase.

(2)                US figures do not include US 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 PCT 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.

 

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Patents

At December 31, 2008, we owned or co-owned 601 granted patents in the EU territory, 83 patents in the US and 275 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.

 

Other products

We have no patent protection for the active substances of Quinvaxem, Hepavax-Gene, Vivotif, Dukoral and MoRu-Viraten.

 

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 consequently our intellectual property (IP) activities concentrate on protecting these technologies and any improvements thereof in the main worldwide vaccine markets of Europe, the US, 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 and patents are filed on a worldwide basis by specialized patent attorneys.

 

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.

 

Oppositions against patents from the Group

In 2005, each of Probiogen, CEVEC Pharmaceuticals and Serono filed oppositions with 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. The PER.C6 patents pertaining to protein and virus production are no longer subject to opposition proceedings. The basic PER.C6 patent is currently under appeal, with Crucell as the only appellant and CEVEC Pharmaceuticals as party as of right. The outcome of appeal proceedings can only improve Crucell’s position.

 

Cell Genesys has filed an opposition against our European patent related to our AdVac technology. Following the withdrawal of Cell Genesys from the opposition a swift resolution of the maintain opposition in Crucell’s favor is now underway.

 

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.

 

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Oppositions against patents from competitors

Our subsidiary Berna Biotech Korea Corporation (formerly Green Cross Vaccine Corporation) and our partner Novartis (formerly Chiron) lodged opposition 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 before the Korean Supreme Court. In 2008, the Korean Supreme Court confirmed the decision by the Korean Patent Court and declared the patent to be invalid. This decision is final.

 

In 2005, we filed opposition against a European patent held by Novartis Vaccines and Diagnostics (formerly: Chiron) related to certain aspects of the production of influenza viruses in cell culture. The patent was revoked during oral proceedings.

 

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.

 

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 for 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, US. 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 Group has licensed adjuvation technology called ISCOMS from Isconova AB for the development, manufacturing and commercialization of improved influenza vaccines.

 

When licensing our technology to third parties we seek to obtain access to any improvement patents by our licensees 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 than non-exclusive licenses.

 

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Industry and scientific overview

 

In this section we discuss the development for the biopharmaceutical areas in which we are predominantly active: vaccines and antibodies.

 

Vaccines

 

Vaccines are biological substances that stimulate an immune response that allows a vaccinated individual to resist future infections and disease. The immune system recognizes vaccine agents as foreign, destroys them, and ‘remembers’ them. When the virulent version of an agent comes along the body recognizes the protein coat on the virus, and thus is prepared to respond by neutralizing the target agent before it can enter cells, and by recognizing and destroying infected cells before that agent can multiply to vast numbers.

 

Scientific progress in vaccines

Vaccines have contributed to the eradication of smallpox, one of the most contagious and deadly diseases known to man. Other diseases such as rubella, polio, measles, mumps, chickenpox, and typhoid are nowhere near as common as they were a hundred years ago. As long as the vast majority of people are vaccinated, it is much more difficult for an outbreak of disease to occur or to spread. Significant developments include the introduction of combination vaccines and the development of new vaccine technologies that may advance vaccine development. Today, research is under way to develop efficacious and safe vaccines against among others: viruses, parasites, bacteria and inherited or acquired diseases.

 

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, sub-unit 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 defense 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

 

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

·                  Block infectious agents; and

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

 

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 enabling the identification of target molecules. Phage antibody-display libraries are large

 

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collections of antibody-phages for use in identifying the targets and related antibodies.

 

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 our 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 aware of other human expression technologies for licensed and marketed vaccines, as well as human cell lines supporting products in development.

 

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.

 

Antibodies

 

Other biotechnology companies, including UCB Celltech and PDL BioPharma, currently generate humanized antibodies, and Medarex, Inc., GenMab, and Regeneron produce fully-human antibodies from transgenic mice. MedImmune, 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.

 

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 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.

 

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

 

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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 US, 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 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 US 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.

·                  Pha