**As filed with theSecurities 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 OR15(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 asspecified in its charter)

 

**Crucell N.V.**

(Translation of Registrant’s nameinto English)

 

**The Netherlands**

(Jurisdiction of incorporation ororganization)

 

**Archimedesweg 4-6,2333 CN Leiden, The Netherlands**

(Address of principal executiveoffices)

 

**Onno Krap, Vice President Finance**

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

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

 

Securitiesregistered 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 obligationpursuant to Section 12(g) of the Act.

**None**

(Title of Class)

 

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

**None**

(Title of Class)

 

**65,833,242 Ordinary Shares**

(nominalvalue EUR 0.24 per share)

 

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

Yes x No o

 

If this report is an annual ortransition report, indicate by check mark if the registrant is not required tofile reports pursuant to Section 13 or 15(d) of the SecuritiesExchange Act of 1934.

Yes o No x

 

Indicate by check mark whether theregistrant: (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.

Yes x No o

 

Indicate by check mark whether theregistrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer.

 

See definition of “acceleratedfiler 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 basisof accounting the registrant has used to prepare the financial statementsincluded in this filing:

 

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

 

If “Other” has been checked inresponse to the previous question, indicate by checkmark which financialstatement 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 inRule 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 vaccinesand antibodies that prevent or treat infectious diseases.

 

 

For further information visit

**www.crucell.com**

 

**Cover photo**

Crucell’s coworker Marjolein vander Meer (Technician) submitted this photo of herself for an internal photocontest, wearing The Crucell Ambition T-shirt. The photo was taken during avisit to a friend who is doing volunteer work in Africa. The joyful energy ofthese children in a poor fishing village in Ghana is a powerful reminder of ourshared ambition as Crucell employees: to improve global health by advancing thefight against infectious diseases.

 

**Shareholdersinformation**

Crucell N.V. is a public limitedliability company registered in the Netherlands. Crucell’s shares are listed onNYSE Euronext (Amsterdam), and SWX Swiss Exchange (Zurich) stock exchanges andCrucell’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, aretraded under ticker symbol CRXL. The shares trade under ticker symbol CRX atSWX Swiss Exchange.

 

Our website can be found atwww.crucell.com.

 

This publication comprises the fullAnnual Report that complies with all applicable Dutch regulations for statutorypurposes and the Form 20-F for filing with the Securities and ExchangeCommission (SEC) in the US. Cross-references to Form 20-F are set out onpages 188 to 189.

 

The Crucell 2008 Annual Report andForm 20-F (hereinafter referred to as the Annual Report) is prepared inEnglish as approved by the General Meeting of Shareholders and expressed inEuro. All amounts set forth in this Annual Report, unless otherwise noted, arein thousands of Euro, except share and option data.

 

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

 

**2008 Key Highlights**

 

·  Profitability for the year 2008

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

·  Hepavax-Gene® approved in China

·  Flu antibody outperforms oseltamivir

·  Rabies antibody combination and tuberculosisvaccine enter Phase II

·  Importantadvances made in antibody production using PER.C6® technology

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

·  First PER.C6® licensee enteredPhase III

·  Key licenseagreements signed

 

**Total revenues and other operating income in 2008**

Anincrease of 33% compared to €213.1 mln in 2007.

 

 

**Gross margin in 2008**

Significantimprovement from 34% in 2007.

 

 

**Net profitin 2008**

Compared to a net loss of €42.9mln 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 integratedbiopharmaceutical company. We focus on developing, producing and marketingproducts that combat infectious diseases. We are the largest independentvaccine company in the world. The sustainability of our business isdemonstrated by our solid balance sheet and strong cash position, as aconsequence we do not need to raise capital in the foreseeable future. For acompany 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 addresscurrently unmet medical needs, particularly in the field of infectiousdiseases. We have a fully integrated infrastructure for in-house development,production and marketing of vaccines, and we are leveraging our knowledge inthe vaccines field to excel in the antibodies market. Our competitive edgecomes from our proprietary technology platforms like PER. C6®, which is used to produce high-value biotech products inscalable and cost-efficient ways. This combination of markets we operate in,technological knowledge and quality marketed products, positions us to be amajor player in the multi-billion dollar biopharmaceutical arena.

 

We are a fully integratedbiopharmaceutical company, focusing on developing, producing and marketingproducts that combat infectious diseases.

 

 

02

----

 

**Overview**

Crucellat a Glance

 

**Partnersand licensees**

 

In addition to our own research anddevelopment activities, we have strategic partnerships with several leadinghealthcare companies. Through these agreements, our technologies play a vitalrole 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

·DSMBiologics

·GedeonRichter

·GSK

·MedImmune

·Merck

·Novartis

·Sanofi pasteur

·Talecris

·Wyeth

 

**Whyinfectious diseases?**

 

Infectious diseases currentlyaccount for a significant number of human casualties throughout the world. Thenumber of infectious outbreaks is increasing for many reasons: higherpopulation density which raises exposure to infectious agents; an ageingpopulation which is more susceptible to infection; and the volume of globaltravel which boosts the potential for spreading diseases across borders.

 

 

 

**Cash andcash equivalents at year-end 2008**

Strong cash position to invest inprofitable growth.

 

 

**Growth in2008**

Revenues and other operatingincome growth.

 

We have strategic partnerships with leading international healthcarecompanies.

 

 

**Net profitper share in 2008**

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

 

03

 

**Overview**

Crucell: A Global Perspective

 

**Crucell: A Global Perspective**

 

**Globalfacilities**

 
| **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: AGlobal Perspective

 

 

**Products**

 

Our vaccine business providesstable and predictable sales and cash flow. We sold more than 100 millionvaccine doses in over 80 countries throughout the world, which makes us thelargest independent vaccine player. Within vaccines we operate in three mainmarkets: paediatric, travel and endemic, and respiratory.

 

**Pipeline**

 

We have a number of programs invarious stages of development. Most of these are based on Crucell’s innovativePER.C6® technology.

 

**Technologies**

 

We have five core technologies; ofwhich PER.C6® technology isCrucell’s most important proprietary technology. With over 60 commerciallicenses issued on PER.C6® technology, Crucell has set new industrystandards for the development and industrial-scale manufacturing of vaccines,recombinant proteins including monoclonal antibodies, and gene therapyproducts.

 
|  

 

 

 

 

 

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 Developedby 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 atDecember 31

(€ million)

 

 

1 Guidance currency = EUR/USD rate of1.35.

06

 

**Overview**

PerformanceHighlights

 
|  |   | Profitable and strong  cash position |
|--|--------|--------------------------------------|

 

**Revenues and otheroperating income**

 

Revenues and other operatingincome

(€ 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**

 

**Selectedfinancial data**

 

Our consolidated financialstatements and company financial statements (hereinafter referred to as the‘financial statements’), and the notes thereto, as of and for the years ended December31, 2008, 2007 and 2006 have been prepared in accordance with InternationalFinancial Reporting Standards (‘IFRS’) as endorsed by the European Union (‘EU’)and as issued by the International Accounting Standards Board (‘IASB’). Nodifferences resulted in our financial statements as a result of the preparationin accordance with IFRS as endorsed by the EU and IFRS as issued by IASB asapplied to Crucell.

 

For the years prior to 2006, weprepared our financial statements, as included in form 20-F, in accordance withaccounting principles generally accepted in the US (‘US GAAP’), which differsin certain significant respects from, and is not comparable with, IFRS. On December21, 2007 the SEC approved rule amendments under which Form 20-F asprepared by Foreign Private Issuers (FPIs) will no longer require reconciliationto US GAAP if the financial statements are prepared in accordance with IFRS asissued by the IASB. This rule is applicable for the 2008 financial year. Asa result, we do not provide reconciliation to US GAAP.

 

In May 2006, we published our2005 Annual Report as required under Dutch law. In the Annual Report wepresented our financial statements as of and for the years ended December 31, 2005and 2004 prepared in accordance with IFRS. The 2004 consolidated financialstatements are the first comparative figures that have been prepared inaccordance with IFRS.

 

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

 

The following table shows theselected financial data under IFRS for the years ended December 31, 2004through 2008.

 

The selected financial data shouldbe read in conjunction with ‘Operating and Financial Review and Prospects’ andour financial statements and accompanying notes thereto, included elsewhere inthis Annual Report.

 

08

 

**Overview**

PerformanceHighlights

 
|  |   | 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 financialdata**

 
| **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  margin****2**                                                  |       | **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  2007and 2006 numbers have been adjusted retrospectively, following the adoption ofIFRIC 14 as of January 1, 2008.

2  Grossmargin = total revenues less cost of goods sold.

 

09

 

**Overview**

Message from our CEO

 

**Message from our CEO**

 

In 2008, Crucell’s vaccines wereadministered to a vast number of people worldwide, thereby preventing more than3 million cases of infectious disease and over 700,000 deaths that wouldotherwise have occurred.

 

**Dear fellowshareholder,**

I am very proud that for the firsttime in the history of Crucell, we achieved profitability for the full year. Togetherwith strong revenue growth and cash position, we were able to end 2008 on ahistoric high.

 

Crucell is a rapidly growingbiopharmaceutical company with ambitious goals. We aim to create shareholdervalue by following a clear and convincing strategy for profitable growth. Ourcore business is stronger than ever and, with a clear strategy for sustainablegrowth and even more focus on research and development activities, we continueto increase the number of people we can protect from infectious diseases.

 

The progress we made in 2008 is aclear indication that we are executing on our strategy – The Crucell Ambition. Autonomousgrowth is the major theme underlying all our efforts; our sales in 2008increased by 33% compared to 2007 and were driven by strong sales of ourpaediatric vaccines, travel and endemic vaccines as well as a doubling inlicense revenues and licensee milestone income. In 2008 Crucell sold more than100 million vaccine doses in more than 80 countries throughout the world, whichmakes us the largest independent vaccine player in the world.

 

The significant growth of Quinvaxem® in 2008 is expectedto continue in 2009. This product makes a significant contribution tochildren’s vaccination programs in the developing world and is Crucell’s bestselling product. Quinvaxem® has enabled the company to becomea major supplier to paediatric vaccination programs worldwide.

 

We intend to use the expansion intonew markets and the sales and marketing potential of our marketed products asan important driver for future growth. This growth will further be supported bythe progress of our clinical programs, in particular our rabies antibodycombination, our tuberculosis and malaria programs, as well as a revolutionarydiscovery of monoclonal antibodies which have the potential of being used as auniversal therapy against flu.

 

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

 

As we grow further, capturingsynergies and rationalization becomes ever more important. A rigorous review ofCrucell’s business processes

 

10

 

**Overview**

Message fromour CEO

 

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

 

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

 

For 2009, we expect another goodyear for Crucell. Our sense of shared purpose is stronger than ever, and welook forward to the ongoing growth of our product sales as well as furtherprogress of our pipeline programs.

 

Our achievements so far are thanksto the tireless efforts and motivation of our employees, Crucell’s mostimportant 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 ExecutiveOfficer

Leiden, the Netherlands, April 21, 2009

 

Our ambition:

Protect lives from infectiousdiseases by bringing innovation to global health.

 

 

11

 

**Overview**

Message from our CEO

 

 

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

 

Quotes:

Taken fromCrucell employees about The Crucell Ambition. 

 

Images:

Examples ofphotos submitted by employees for an internal photo contest.

 

1 Winningphoto

2 Runner up

 

12

 

**Overview**

Messagefrom our CEO

 

 

 

**Organization &People**

 

Development of our organization andour people is the foundation for achieving our ambition as a company. Multiplemeasures are being implemented to develop this, such as talent management, linkingour company values to performance measurement and sharing knowledge acrossdisciplines.

 

 

**Focus – FocusedAmbition**

 

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

 

 

**OperationalExcellence – Healthy Ambition**

 

Crucell launched its ‘HealthyAmbition’ operational excellence program at the start of 2008 and is nowimplementing the validated plans drawn up in the first half of 2008. Bystreamlining and optimizing our business processes, the program is expected togenerate run-rate cost savings of €30 million by the end of 2009, of which €5million have already been achieved in the second half of 2008.

 

 

**Deliver onPromises**

 

Crucell has set its sights high andis firmly committed to delivering on its ambitious promises. Evidence-basedtarget setting and a company-wide emphasis on organization and people, focusand operational excellence will enable us to do so. Ultimately delivering onpromises 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 boardstructure in which executive and supervisory responsibilities are clearlyseparated.

 

TheSupervisory Board is comprised of independent, non-executive individuals whoare charged with supervising and advising Crucell’s Management Board.

 

TheManagement Board, which is a subset of the Management Committee, is responsiblefor the general affairs and business of the company and, as such, isresponsible for achieving Crucell’s goals, strategy and policy, as well asresults.

 

**Dr. RonaldBrus (1963)***

**Presidentand Chief Executive Officer**

 

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

 

Dr. Brus is Chairman of theManagement Board.

 

**LeonardKruimer (1958)***

**ChiefFinancial Officer**

 

Mr. Kruimer has been ChiefFinancial Officer, since he joined Crucell in 1998 and is a member of Crucell’sManagement Board and Management Committee. Prior to Crucell, he held interimexecutive positions at Pepsico and Royal Boskalis Westminster. From 1993 to1995, he was Managing Director Continental Europe at TIP Europe, a unit of GECapital. Prior he held senior executive positions at Kwik-Fit Europe andContinental Can Europe. He was a consultant with McKinsey & Co andstarted his career at PriceWaterhouse & Co in New York. He holds anMBA from the Harvard Graduate School of Business Administration and anundergraduate degree from the University of Massachusetts. He is a CPA in NewYork State.

 

**Dr. Ceesde Jong (1961)***

**ChiefOperating Officer**

 

Dr. Cees de Jong joinedCrucell as Chief Operating Officer in September 2007. He became a member ofCrucell’s Management Board in May 2008. Prior he worked at QuestInternational in Naarden, the Netherlands, as a member of the Board responsiblefor the Flavours Division. Prior to Quest, he worked as Managing Director ofDSM Anti-infectives. In 1989 he started his career at Gist Brocades, holding avariety of roles in Business Development, Strategy and General Managementbefore the company’s acquisition by DSM in 1998. He holds a medical degree andearned

 

14

 

**Overview**

ManagementCommittee

 
|        |   |                                                                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |        | ** **

**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 UniversityRotterdam, the Netherlands.

 

**Dr. JaapGoudsmit (1951)***

**ChiefScientific Officer**

 

Dr. Jaap Goudsmit is Crucell’sChief Scientific Officer and is responsible for all R&D activities. Hebecame a member of Crucell’s Management Board in January 2004. He joinedCrucell in 2001 as Senior Vice President Vaccine Research and became a memberof Crucell’s Management Committee in July 2002. Prior to that, he held variouspositions at the Academic Medical Center at the University of Amsterdam and wasChairman of the Research Institute for Infectious Diseases and the Institutefor Science Education. Since 1989 he has been a professor at the University ofAmsterdam and the Academic Medical Center. He holds a medical degree and a PhDfrom the University of Amsterdam, the Netherlands.

 

**RenéBeukema (1964)**

**GeneralCounsel and Corporate Secretary**

 

Mr. Beukema is Crucell’sGeneral Counsel and Corporate Secretary since the company’s incorporation. Heheld the same position at IntroGene after joining the company in 1999. From1994 to 1999, he was Senior Legal Counsel for GE Capital/TIP Europe. From 1991to 1994, he was Legal Counsel for TNT Express Worldwide N.V. He has a Mastersin Law from the University of Amsterdam, the Netherlands.

 

**Arthur Lahr(1968)**

**ChiefStrategy Officer and Executive Vice President Business Development**

 

Mr. Arthur Lahr is Crucell’sChief Strategy Officer and Executive Vice President Business Development. Hejoined Crucell in April 2001 as Executive Director Business Development andbecame a member of the Management Committee in January 2004, Executive VicePresident in January 2006 and assumed responsibility for European marketing &sales and company strategy in 2006. From 1994 to 2001 he was a consultant withMcKinsey & Co. in the Netherlands and New York. Prior to that, heworked at Unilever. He holds a Masters in Business Administration from INSEADand a Masters in Science in Applied Physics from the University of Delft, theNetherlands.

 

**BjörnSjöstrand (1968)**

**ChiefBusiness Officer**

 

Mr. Björn Sjöstrand is ChiefBusiness Officer and a member of Crucell’s Management Committee. He was ChiefExecutive Officer at SBL Vaccines before it was acquired by Crucell in November2006. He headed the Crucell-SBL integration committee and directed the travelfranchise and the Nordic sales force for the Crucell Group. Prior he worked asVice President Operations & IT at Active Biotech and was a member ofthe Senior Management Team. He completed a Bachelor of Science (BSc) degree inEconomics and Business Administration at the University of Örebro, Sweden. Healso studied Financial Investment theory and Commercial law at the sameuniversity.

 

        Full details of the Management Committee can be found onpage 110*.*

 

*                   Member of theManagement 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**

 

**Dearshareholder,**

The Supervisory Board is pleased tosubmit to you the combined Annual Report and Form 20-F, including thefinancial statements of Crucell N.V. for the year ended December 31, 2008, asprepared by the Management Board. Attached to the financial statements is theauditor’s report by Deloitte Accountants B.V., free from any qualification. Weadopted the financial statements for the year 2008 and advise the GeneralMeeting of Shareholders to approve these statements and to grant discharge tothe Management Board, with respect to its management; and to the SupervisoryBoard, with respect to its supervision.

 

The Supervisory Board held sevenmeetings with the Management Board in 2008, of which three were in the form ofconference calls. The meetings were arranged in such a way that on severaloccasions, the Supervisory Board could meet immediately after the departure ofthe Management Board, so called closed sessions. There were also a number ofmore informal contacts between Supervisory Board Members and the ManagementBoard.

 

The Supervisory Board was closelyinvolved in all developments affecting the company in terms of strategy, tacticsand operations in the financial year 2008. The Board’s meeting schedule notonly reflects its commitment to the company’s affairs, but also to the dynamicway in which the company is rapidly consolidating its position in the biotechindustry. Thanks to the well-documented information provided by and to thefrequent discussions with the Management Board, the Supervisory Board was ableto acquire a comprehensive perspective on all aspects of the company’s strategy.Where Supervisory Board approval of proposals was required, it was able toarrive at decisions based on solid facts and coherent arguments.

 

All Supervisory Board meetings andconference calls were well attended. Regular items on the agenda included thecompany’s financial performance, based on quarterly reports, its budget and itsbusiness, including the research and development portfolio, intellectualproperty matters and operational updates. Importantly the Board also discussedthe company’s strategy and its near-; mid- and long-term risks, the current andfuture strategic objectives, planned acquisitions, our DSM collaboration andthe reports from the Audit Committee and the Remuneration Committee. Othersignificant issues addressed were compliance with Section 404 of theAmerican Sarbanes-Oxley Act of 2002 and related regulations (SOX 404), theongoing corporate rationalization processes and the progress made inintegrating acquired businesses.

 

The Supervisory Board alsodiscussed its own performance, reviewing its function and its individualmembers; and the performance of the Management Board and its individual members.The friendly discussion which took place between Wyeth and Crucell to explore apotential combination of the two companies was also discussed with theSupervisory Board and its financial advisors.

 

**SupervisoryBoard Committees**

 

In order to make decisions, theSupervisory Board has established an Audit Committee, a Remuneration Committee,a Nomination Committee and a Scientific Committee. For detailed information onthe composition and activities of these committees see page 107 of this2008 Annual Report.

 

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

 

16

 

**Overview**

Report of theSupervisory Board

 
|   |        |   |        |
|--------|--------|--------|--------|
|   |   |        |   |

 

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

 

The Nomination Committee consistsof the full Supervisory Board and, as such, met four times during the 2008fiscal year to discuss the Supervisory Board’s composition and functioning. TheScientific Advisory Committee held four meetings with R&D management todiscuss issues around protein production and various infectious diseases. Theyalso covered R&D budgets and organizational matters.

 

The Remuneration Committee met fivetimes, of which one via conference call, to review collective 2008 milestonesand set objectives for 2009; to approve and ratify option grants and to discussthe remuneration policy for second and third tiers of management. TheRemuneration Committee and the Supervisory Board operate within the frameworkof the remuneration policy for the Management Board, which was amended andadopted by the Annual General Meeting of Shareholders in May 2008. Theremuneration of the Management Board members is determined by the SupervisoryBoard, based on a proposal by the Remuneration Committee. It conforms to marketpractice and is aimed at attracting qualified and expert management with theskills required to run a publicly listed company active in the biotechnologyindustry.

 

The remuneration of members of theSupervisory Board complies with almost all aspects of the provisions of theDutch Corporate Governance Code. The exceptions are where it conforms moreclosely to customary practice in the biotechnology industry worldwide. Theseexemptions are disclosed in the section ‘Corporate Governance – Exceptions toCompliance with the Code’.

 

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

 

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

 

The Nomination Committee initiateda global search to fill the vacancy in the Supervisory Board. As a result, andafter careful consideration, the Supervisory Board is pleased to report thatSteve Davis was appointed to the Supervisory Board by Crucell’s shareholders inMay 2008. At the same time Dominic Koechlin resigned.

 

**Externalauditors**

 

**DeloitteAccountants B.V. have been Crucell’s external auditors since 2006. Theperformance of Deloitte will be evaluated by the Audit Committee, which willpresent its findings to the full Board.**

 

The Supervisory Board would like tothank the Management Board, the Management Committee, senior management and allemployees for their devotion, their motivation and their loyalty in a year inwhich we achieved profitability for the full year, we continued to showsignificant growth and took further strides toward realizing Crucell’sambitious aspirations.

 

Finally we would like to thank ourshareholders for their continued support.

 

 

**Jan P. Oosterveld**

Chairman of the Supervisory Board

Leiden, the Netherlands, April 21, 2009

 

17

 

**OurBusiness**

Our Products andR&D Pipeline

 

**Our Products and Research & DevelopmentPipeline**

 

 

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 Developedby sanofi pasteur using PER.C6®.

2 Partneredwith Aeras. 

3 Partneredwith NIAID/NIH. 

4 Partneredwith Harvard. 

5 Partneredwith sanofi pasteur.

 

19

 
| **Our Business** |
|------------------|
| Products         |

 

**Products**

 

We focus on developing andmarketing vaccines and antibodies against a range of infectious diseases.Vaccines play a vital role in protecting against these diseases and havecontributed significantly to the improvement of global public health in thetwentieth century. In this section you will find information about our marketedproducts.

 

 

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 combating12 major infectious diseases with our armamentarium of marketed vaccines. In2008 we sold more than 100 million vaccine doses in more than 80 countriesthroughout the world, which makes us the largest independent vaccine player inthe world. Our product portfolio consists of three distinct focus areas:

 

·  Paediatric

·  Travel and Endemic

·  Respiratory

 

Our excellent productsrepresent an untapped source of growth. We are focusing on four activities inorder to unlock this growth potential:

 

**Life-cyclemanagement**

 

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

 

**Untappedmarkets**

 

While we sell in more than80 countries, most of our products are, for example, not sold in the US. Forselected products we will go after untapped markets.

 

**Growth bydifferentiation**

 

We focus on products withhigher margins. As noted above, we are already selling our products on ageographical basis. However, we also differentiate our products by creatingvariations of a vaccine that target a particular market, as we did with Epaxal® by introducing Epaxal® Junior aimed at the paediatricmarket.

 

**Sales andMarketing**

 

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

 

**Quinvaxem****®**

 

Quinvaxem® is a fully liquid vaccinecombining antigens for protection against five potentially deadly childhooddiseases: diphtheria, tetanus, pertussis (whooping cough), hepatitis B, andHaemophilus influenzae type B. As the first internationally available fullyliquid vaccine containing all five of these antigens, Quinvaxem® offers major healthcareadvantages, particularly for low-income countries with infrastructure andhygiene 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 halfhad been sold by the end of 2008. The remainder is expect to be sold in 2009.Quinvaxem® waslaunched 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 vaccineon the market. The absence of aluminum reduces the pain caused onadministration, offering significant advantages in terms of tolerability. Thismakes it particularly well suited to the paediatric market. Epaxal® induces protective antibodylevels within 10 days of primary vaccination and provides seroprotection for atleast 20 years following the second (booster) dose. It can be fitted into theregular immunization schedule for babies.

 

**Hepavax-Gene****®**

 

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

 

**MoRu-Viraten****®**

 

MoRu-Viraten® is a safe, well-tolerated and effectivevaccine for protection against measles and rubella in children, adolescents andadults. MoRu-Viraten® is free of avian proteinsand 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 forpurchase by

UN agencies.

 

**Vivotif****®**

 

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

 

**Dukoral****®**

 

Dukoral® is a drinkable vaccine with a documentedprotective effect against diarrhea caused by cholera, as well as traveler’sdiarrhea. The vaccine stimulates a protective immune response in the gut andhas a demonstrated protective efficacy against cholera of approximately 85%.Dukoral® was first licensed in 1992 and is now licensedin over 60 countries. It is presently the only internationally licensed oralcholera vaccine. To date, over 10 million doses of Dukoral® have been supplied with very few adverseevents reported.

 

**Inflexal****®**** V**

 

Inflexal® V is a virosomal adjuvanted vaccine againstinfluenza, based upon the virosome technology developed and patented by theCrucell company, Berna Biotech. It is the only adjuvanted flu vaccine licensedfor all age groups

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

 

23

 

**Our Business**

Research& Development

 

**Research & Development**

 

Ourresearch efforts today are focusing on developing vaccines and antibodies thataddress unmet medical needs and infectious diseases. Our research efforts arebolstered by our range of technologies, which play a critical role in ourdevelopment programs. The following pages discuss key developmentsrelating 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 ofour product development program, we investigate many different product candidates.

 

Ourdiscovery programs include a number of potential products that are in an earlystage of development. The decision to pursue development of these products andadd them to our product pipeline is dependent on stringent evaluation andselection.

 

**AdVac****®**** technology and AdVac****®****-based vaccines**

 

AdVac® technology encompasses the use of adenoviralvectors such as Ad35 and Ad26 for vaccination against diseases caused byviruses, bacteria or parasites. These vectors are harmless adenoviruses thathave been disabled so that they cannot replicate. A vector functions as anefficient ‘gene taxi’, delivering into the human body a fragment of DNA thatcarries 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’simmune system, which mounts its protective response. Using this versatilevaccine vector platform in combination with PER.C6® manufacturing technology, Crucell and partnersare 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 newcases 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 butleast effective of vaccines. It does reduce the risk of disseminated TB, a formof the disease that spreads from the lungs to other organs, which is especiallylethal in children. However, it does not reliably prevent pulmonary TB, themost prevalent form of TB, in both children and adults. The problem iscompounded by the emergence of extensively drug-resistant tuberculosis(XDR-TB), which is hampering treatment and control efforts (see map onpage 27).

 

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

 

26

 

**Our Business**

Research &Development

 

 

**Malaria**

 

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

 

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

 

**Ebola and Marburg**

 

Crucell isdeveloping a multivalent filovirus vaccine against Ebola and Marburg incollaboration with the Vaccine Research Center of the National Institute ofAllergy and Infectious Diseases (NIAID), part of the US National Institutes ofHealth (NIH). The candidate vaccine is based on Crucell’s proprietaryadenoviral vector technology and is produced using Crucell’s PER.C6® technology. It is a recombinant DNA vaccinethat expresses Ebola virus proteins in order to provide protection againstinfection with the Ebola virus.

 

**HIV**

 

Over thepast 25 years, HIV infection resulting in AIDS has claimed the lives of nearly25 million people, devastated entire communities, and enormously frustratedefforts to fight poverty, improve global health and promote economicdevelopment. In 2007, an estimated 2 million people died due to AIDS, 33million people were living with HIV infection and 2.5 million people becameinfected with the virus. There is no licensed AIDS vaccine available.

 

With thesupport of a $19.2 million grant from the US National Institutes of Health,Crucell is collaborating with Harvard Medical School and its teaching hospitalBeth 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 toavoid the problem of pre-existing immunity to the more commonly used adenovirusserotype 5 (Ad5).

 

27

 

**Our Business**

Research &Development

** **

****

 

**Antibodies**

 

Antibodiesare proteins made naturally by cells of the body’s immune system. They functionas one of the body’s principal defense mechanisms against pathogens, which aredisease causing agents such as parasites, viruses or bacteria. Antibodiesrecognize and bind to invading pathogens, ultimately eliminating them, thusplaying a crucial role in protecting humans against disease.

 

**Influenza antibodies H1N1 and H5N1**

 

There is agrowing fear within the medical community concerning the potential reoccurrenceof a pandemic influenza outbreak, similar to the 1918 ‘Spanish flu’ pandemic. Apandemic can start when a new influenza virus subtype emerges that meets threeconditions: it infects humans causing serious illness; it spreads easily; andthere is sustained human-to-human transmission of the virus.

 

Crucell hasdiscovered the first human monoclonal antibodies for the prevention andtreatment of the ‘bird flu’ strain H5N1, as well as H1N1, which is similar tothe strain responsible for the devastating pandemic in 1918. The antibodiesprovide immediate protection and neutralize a broad range of H5N1 and H1N1strains in pre-clinical models. In December 2008, Crucell presented datashowing that the mAb CR 6261 was 100% successful in preventing infection with H5N1.When given after H5N1 infection, Crucell’s mAb demonstrated the ability toprevent death and cure disease in all cases. The mAb also performedsignificantly better than the anti-influenza drug oseltamivir for the preventionand treatment of H1N1 infection, illustrating the potential use for seasonalapplications as well. This is especially important as the resistance ofinfluenza 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, mainlyin Africa, China and India. This highlights the significant unmet medical needfor a safe, effective and affordable rabies treatment. The approach currentlyused to prevent symptomatic disease and death in people exposed to rabies viruscombines immunoglobulins (antibodies prepared from human or equine blood) withthe vaccine. Concerns about the safety and availability of blood-derived rabiesantibodies have prompted the search for alternatives.

 

UsingMAbstract® and PER.C6® technology, Crucell scientists incollaboration with the Thomas Jefferson University in Philadelphia and the USCenters for Disease Control and Prevention in Atlanta have discovered acombination of human monoclonal antibodies (mAbs) for the post-exposuretreatment of rabies. Clinical testing of this mAb combination made goodprogress during 2008, leading to the presentation in October of verypromising efficacy and safety data from a Phase II trial in the USA. In orderto test the mAb combination in different populations and settings, additionalPhase II trials were started in May 2008 (among children in thePhilippines) and February 2009 (among adults in India).

 

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

 

29

 

**Our Business**

Technologies

 

**Technologies**

 

Our strongproduct portfolio is supported through a range of patented technologies. Ourcutting-edge technology platforms enable the discovery, development andproduction 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 thedevelopment and large-scale manufacturing of biopharma products. In areas whereCrucell does not aim to develop its own products, we license the technology tothe biopharmaceutical industry. Currently over 60 companies and organizationshave selected our PER.C6® technology to develop their own productsacross a wide range of therapeutic areas.

 

**PER.C6****®**** adaptable**

 

Manufacturingof biopharmaceuticals has to take account of rapidly changing factors, such asrising volume demands and more stringent safety requirements. These shifts area major challenge to conventional manufacturing platforms that have not adaptedor become sufficiently flexible to cope with such changes. Our PER.C6® production cell line, however, is designed tomeet 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, potentialcustomers not only need our know-how, but also our PER.C6® cells, which are only available from us underagreement. These agreements put certain restrictions on further disseminationand use of the PER.C6® cells. This combination of protections – patentedknow-how and the need to have access to the actual PER.C6® cells results in the PER.C6® technology being the best protected human celltechnology in the world.

 

**PER.C6****®**** for protein and antibodyproduction**

 

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

 

Workingalongside DSM Biologics on the PER.C6® manufacturing platform, we believe that thereis tremendous potential to reduce the production costs of monoclonalantibodies, whilst increasing yield resulting in more affordable treatments forpatients.

 

InJune 2008, we jointly announced that we had achieved a record-level titerof 27 grams per liter at harvest for an antibody product using PER.C6® at our PERCIVIA joint venture developmentcenter in Massachusetts, the USA.

 

 

33

 

**Our commitment toCSR**

Corporate Social Responsibility

 

**Corporate Social Responsibility**

 

Our commitment toCSR

 

 

34

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**WhatCorporate Social Responsibility means to us**

 

**Crucell’scommitment to CSR**

 

Crucell’s core business isprotecting people from illness and death caused by infectious diseases. This initself is a social responsibility, which we take very seriously. However, ourcommitments to the principles of Corporate Social Responsibility (CSR) gobeyond this. We recognize that Crucell has a responsibility towards itscustomers, partners, employees, shareholders, local communities and society atlarge. In order to fulfil this obligation, everyone in our organization has tobe conscious of what we stand for and the way we want to conduct our business.

 

In 2008 we took an importantstep 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 relationshipsare based. They express what unites us and serve as a guide for our performanceas a responsible company geared for sustainable success.

 

We see the definition of ourCrucell Values as the beginning of a more comprehensive approach to CSRthroughout 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 AnnualReport, we take the opportunity to share with you our ideas, ambitions andactivities regarding CSR, as well as to introduce the parties who are supportingus in CSR development.

 

 

35

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**What we do**

 

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

 

Crucell’s definition ofprofit is twofold. We aim for financial profitability, but also to bring thegreatest possible benefit to human health worldwide. The approach we havechosen to achieve this is essentially different from that of our biotechnologypeers or traditional pharmaceutical companies. Whereas many others focus ontreating illness, Crucell focuses on its prevention. And whereas most of themoney currently spent on pharmaceutical research is directed towards findingsolutions for lifestyle-related illnesses of the developed world, Crucell hasdeveloped a truly global healthcare strategy. Our existing and pipelineproducts are designed to meet the long underestimated - and still significantlyunmet - need for vaccines and antibodies in developing countries and emergingeconomies, as well as the industrialized world. For a company of our size, weinvest relatively heavily in research and development: our R&D expendituresin 2008 were €70 million.

 

Infectious diseases areresponsible for almost one-fifth of the total number of deaths that occur eachyear, according to the latest World Health Organization (WHO) statistics(source: World Health Statistics 2008). Overall, they rank second aftercardiovascular disease as the leading cause of death worldwide. The vastmajority of people who die from infectious diseases live in the world’s poorestand most densely populated countries, although increased global travel andclimate change are expanding the reach of infectious pathogens. The full impactof infectious diseases has to be measured not only by the millions of fatalcases, 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. |   |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--|

 

36

 

**Our commitment to CSR**

Corporate Social Responsibility

 

especially vulnerable toinfectious diseases, with the latter forming a growing group due to the agingpopulation. According to the WHO, about 25 million deaths that occur each yearin children under five are caused by diseases that can be prevented withvaccines.

 

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

 

Crucell is currentlycombating twelve major infectious diseases with its armamentarium of marketedvaccines (see pages 22-23). In 2008 Crucell sold more than 100 millionvaccine doses in more than 80 countries throughout the world, which makes usthe largest independent vaccine player in the world. We focus strongly, thoughnot exclusively, on unmet medical needs in the developing world, whereinfectious diseases exert their heaviest toll.

 

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

 

Our production processes aredescribed in more detail on page 52. The complex chain of steps to reach afinal Crucell product has its impact on both society and the environment inwhich we operate. We understand that our impact on the planet is relativelymodest, but we take our environmental footprint seriously, especially inrelation to the end result of our core business: protecting people from illnessand death caused by infectious diseases. In this chapter however we want to betransparent about our efforts to manage our responsibilities.

 

 

37

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**Crucellon its mission to combat infectious diseases**

 

Crucelltook part in two mass vaccination campaigns against cholera in 2008, with itsoral vaccine Dukoral®. The campaigns were organized in Myanmar andZanzibar, two parts of the world where cholera epidemics are all too common.

 

Togetherwith the International Vaccine Institute, Crucell distributed 137,000 doses ofDukoral® in Myanmar to help prevent anoutbreak of cholera following the cyclone that devastated the country. Another100,000 doses of Dukoral® weredistributed in cooperation with the WHO in Zanzibar, Tanzania, as part of aclinical research program investigating the value of routine vaccination forestablishing widespread protection of a population (herd immunity).

 

Cholera remains asignificant threat to human health, particularly in developing countries whereaccess to safe drinking water and adequate sanitation cannot be guaranteed. Bymaking 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)** |
|------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

38

 

**Our commitment to CSR**

CorporateSocial Responsibility

 
| “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. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

39

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**Who we workwith**

 

Crucell cannot operate in isolation.In our daily work to bring benefits to people’s lives, we interact with a largenumber of stakeholders worldwide. These include legislators, investors, strategicbusiness partners, licensees, suppliers, and customers. Establishing andmaintaining good relationships through continuous dialogue with all of theseparties is integral to our CSR. The dialogue has had a specific impact on ourapproach to CSR. A good example is our partnership with customers as describedon the following pages.

 

**Legislators**

 

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

 

**Investors**

 

Crucell maintains an active andtransparent approach to relations with shareholders and investors, informingthem regularly about the company’s strategy and developments. Quarterly resultsreleases, presentations and press releases on important business developmentsare disseminated on a regular basis and reinforced with briefings by phone andin person. Crucell has a dedicated Investor Relations team whose mission it isto ensure the investor community clearly understands the company’s prospectsand performance. This reflects a serious ambition to widen our investor base aswell as to deepen existing investors’ understanding of Crucell while alwayslistening to investors’ needs and ideas. Our investors make our work possibleand share in our success. They share our vision and support our core businessof protecting people all over the globe from infectious diseases. A continuousdialogue with investors is therefore at the forefront of our activities. Asdescribed on page 177 of this Annual Report, we actively talked to largenumbers of (potential and existing) shareholders and investors all over theworld 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. |   |  |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--|

 

40

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**Businesspartners**

 

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

 

**Licensees**

 

A wide range of pharmaceutical andbiotech companies license Crucell’s proprietary technologies, which enable thediscovery, development and production of vaccines, antibodies, therapeuticproteins, and gene therapy products. One of the key Crucell technologies thatattracts licensees is the PER.C6® manufacturing platform based on human celllines.

 

**Suppliers**

 

Crucell must be able to rely onsuppliers to provide raw materials and equipment of consistently high quality, withoutdelay or interruption. We therefore keep close track of our suppliers, performquality control tests on the goods they deliver and conduct inspections oftheir facilities as deemed appropriate. Legislation from regulatory authoritiessuch as the US’ Food and Drug Administration (FDA) lays down the minimumrequirements for this monitoring of suppliers and supplies.

 

**Customers**

 

Crucell’s customers are importantto us in two ways. By buying our products, they fund the continuation of ouractivities, including R&D aimed at bringing further healthcare innovationsto market. They also represent the vital link to the consumer, ensuring thatour 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

  |   |  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--|

 

41

 

**Our commitment to CSR**

Corporate Social Responsibility

 
| **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 dobusiness**

 

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

 

**People**

 

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

 

42

 

**Our commitment to CSR**

Corporate Social Responsibility

 
|  

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.**

** ** |
|-------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

**Animaltesting**

 

Before any candidate medicalproduct can be given to humans, it must be rigorously tested in pre-clinical (non-human)models. At present, the stringent legal, ethical and scientific standardsgoverning pharmaceutical research and development require pre-clinical tests inboth cells (*in vitro* models) andanimals (*in vivo* models). We arelegally obliged to fulfil these requirements, and also feel a moral obligationto do our utmost to ensure the safety of people who receive our (candidate) products.

 

For these reasons, Crucell doesperform animal testing to the minimum extent necessary. Safety studies inanimals, which are required by law, are conducted in accordance with thehighest international standards, which are designed to prevent or minimize anysuffering of the animals tested.

 

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

 

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

 

**How we seeour responsibility**

 

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

 

**Socialaspects of our business**

 

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

 

43

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**Crucell works in anenvironment that requires highly skilled employees.**

 

**We valueboth gender and ethnic diversity and accordingly act as an equal opportunityemployer.**

** **

**Thecharacteristics 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 thepast few years. The Netherlands-based company acquired Swiss Berna Biotechearly in 2006, and later in the year further strengthened its presence in thevaccine industry by acquiring US-based Berna Products and Sweden’s SBLVaccines.

 

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

 

As described earlier, Crucell’soperations are governed by the six Crucell Values that have been defined by across-section of employees from different functions and sites, together withCrucell’s Management Board. These Values are a crucial component of ourleadership development programs, which were introduced in 2008. Crucellmanagers worldwide have participated in these programs, which reflect andreinforce our company values. The Crucell Values have also been incorporatedinto our employees’ performance review and coupled to remuneration decisions, therebycreating a solid incentive for our people to behave in accordance with thestandards that have been defined. Crucell hopes that this approach will alsohave a positive effect on the way our employees behave in daily life andsociety at large.

 

Besides promoting adherence to theCrucell values, we want to create true corporate ownership among Crucellemployees. For this reason, when The Crucell Ambition program was launched in2008, employees representing different parts of the company were broughttogether in teams to help define the best way forward in a number of strategicbusiness areas. Since the introduction of The Crucell Ambition strategicprogram, monthly questionnaires have been sent to groups of randomly selectedemployees worldwide, asking them for feedback on the progress made withimplementation of our global strategy, and further improvements needed in theorganization. For more information on The Crucell Ambition program, see page 12of this Annual Report.

 

44

 

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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 employeeownership in Crucell is the system of stock options employees can receive inremuneration for services rendered to the company. In this way, Crucellemployees can receive a tangible share of the business for investing theirtalents and efforts in the success of the company. Approximately 6.4 million ofoutstanding options are held by Crucell employees of which 1.7 million by theExecutive Board.

 

**Safety**

 

Ensuring the safety of Crucell’semployees is of the utmost importance. Because the biotechnology businesspotentially involves exposure to hazardous substances, all employees working inlaboratories are trained in bio-safety procedures and regulations. Primarily, thistraining focuses on standard operating procedures (SOPs and work instructions),which generally include specific safety precautions. When necessary, Crucellfacilitates employee participation in additional training by externalorganizations.

 

The total number of reportedincidents that occurred in 2008 is limited to 34 cases at Crucell sites whereproduct manufacturing and/or development takes place. More than 90% of ouremployees work in these facilities. The accidents vary in severity, but aremostly relatively minor and generic in nature, such as a sprained ankle causedby slipping in a wet hallway. Continuous improvement of accident prevention andof the accident reporting system is a priority, and Crucell aims to reportaccurate and levelled numbers for the whole organization in the years to come.

 

In an important new safetyinitiative, Crucell started the roll-out of global systems for risk and crisismanagement in 2008. By raising employee’s awareness of possible risks andestablishing a systematic consolidation and escalation approach to theirmanagement, the program provides a basis for prioritization of preventiveactivities and resource allocation within Crucell, and aims to enable anypotential crises that might occur to be resolved with optimal speed andefficiency. A well-defined structure with clearly defined responsibilitiesensures that everyone in the organization knows how to respond in a potentiallyunsafe situation so that harms are avoided or minimized.

 

45

 

**Our commitment to CSR**

Corporate Social Responsibility

 

**OurConsumers**

 

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

 

Crucell products are characterizedby their outstanding quality and safety. Medical products–such as vaccines andantibodies–that are used in healthy people to prevent illness have to meet evenhigher regulatory standards of quality and safety than apply to medicines fortreating the sick. Crucell does not simply comply with these stringentregulatory requirements; we surpass them. The products we sell are thoroughlymonitored, reviewed and evaluated to the highest standards both duringdevelopment and following commercialization. Regular inspections of ourfacilities, procedures and products by external authorities, as required in ourhighly regulated business, provide our consumers with a further guarantee ofsafety and quality.

 

More fundamentally, Crucell’s focuson product safety, quality and convenience determines the innovative design andunique properties of our products. For example, our hepatitis A vaccine Epaxal® is based on virosome technology, a revolutionaryadjuvant system that combines high efficacy with unprecedented safety. As aresult, Epaxal® is the onlyhepatitis 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**

  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

46

 

**Our commitment to CSR**

CorporateSocial Responsibility

 

**Environmentalimpact**

 

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

 

At Crucell, we are committed toensuring that our environment, health and safety principles are integratedthroughout our business units and facilities worldwide. In 2008 the decisionwas made to strengthen this commitment through the development of a managementsystem that measures performance. Using a comprehensive plan-do-check-act model,our future EHS Management System is consistent with international standardssuch as OHSAS 18001 and ISO 14001.

 

At this stage, our system forreporting environmental indicators is still in its infancy and does for examplenot enable CO2 calculations. Crucellis working on developing this reporting system so that we will be able topublish more comprehensive and more comparable data in the future.

 

Crucell is aware of theenvironmental footprint of packaging, and is researching the potential forimprovements in this area, such as biodegradable products/packaging. We willcontinue to explore our options in this regard.

 

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

 

Further opportunities for reducingCrucell’s impact on the environment include improving insulation and makingbetter logistical use of our existing facilities. As new facilities are built, environmentallyfriendly solutions are being incorporated into the design of the building, utilitiesand equipment from the blueprint stage. A case in point is the design of theValerio building, our state-of-the-art manufacturing facility in Leiden, theNetherlands.

 
| ** **

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. |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

 

47

 

**Our commitment to CSR**

CorporateSocial Responsibility

 

**Energy &water consumption**

 

The first graph reflects the totalenergy consumption in kWh at Crucell facilities involved in productmanufacturing and development, which represent over 90% of our global employeesbase. A 5,8% increase of energy consumption compared to 2007 can be noted. Thisincrease can be explained by a general increase in activity worldwide, butespecially by the start-up of operations at our new Valerio building in theNetherlands. In the future we expect energy efficiency gains as a result ofthis new building.

 

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

 

The second graph depicts the totalwater consumption in cubic meters (m3) at Crucell facilitiesinvolved in product manufacturing and development, which represent over 90% ofour global employees base. A 15% increase of water use compared to 2007 can benoted. This comes down to some 221 m3 of water use peremployee annually in 2008 (in 2007: 194 m3).

 

Crucell has taken measures toreduce work-related travel, implementing a travel policy and activelyencouraging employees to make use of a virtual conferencing system. Crucell’snew travel policy defines the principles our employees should adhere to inorder to travel in a safe and cost-effective manner as they conduct companybusiness. It is the company objective to simultaneously reduce travel costswhile supporting business development.

 

**Total energyconsumption**(in kWh) 

 

 

**Total energyconsumption**(in m3)

 

 
|  |   | 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. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

48

 

**Our commitment to CSR**

CorporateSocial Responsibility

 

**Economicaspects of our business**

 

Crucell’s core business isprotecting people from illness and death caused by infectious diseases. We aimfor financial profitability, but also to bring the greatest possible benefit tohuman health worldwide. These two goals are inextricably linked. Our solidbalance sheet and strong cash position demonstrate the sustainability of ourcompany and of the healthcare benefits we deliver.

 

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

 

Crucell is a rapidly growingpharmaceutical company with ambitious goals and a clear strategy forsustainable growth. By optimizing our business performance we are continuouslyincreasing the number of people we can protect from illness and death caused byinfectious diseases. Crucell is fully committed to being a good corporatecitizen and conducting business in an honest and ethical way with the lowestpossible environmental footprint.

 

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

 

 

49

 

Forward-Looking Statements/Trademarks

 

**Forward-lookingstatements**

 

This Annual Reportcontains forward-looking statements. All statements regarding our futurefinancial condition, results of operations an business strategy, plans andobjectives are forward-looking. Statements containing the words ‘believes’,‘intends’, ‘expects’, and words of similar meaning are also forward-looking. Inparticular, the following are forward-looking in nature: statements with regardto strategy and management objectives; technology and product developmentefforts; our ability to realize commercially valuable discoveries; ourintellectual property portfolio; our ability to develop potential products andtechnologies suitable for commercialization; the effects of changes or prospectivechanges in regulation; and trends in results, operations and overall markettrend.

 

These forward-lookingstatements involve risks, uncertainties and other factors, some of which arebeyond our control, that may cause our results, performance or achievements orconditions in the markets in which we operate to differ from those expressed orimplied in these forward-looking statements. We describe certain of these risksand uncertainties in the section ‘Risk factors’. We caution not to place unduereliance on these forward-looking statements, which reflect our Management’sview only as of the date of this document.

 

**Trademarks**

 

New trademarks for ourproducts are registered on a worldwide basis. Distribution and agencyagreements normally include a clause specifying that, at the termination of theagreement, trademark and product registration rights return to us. We are theowner 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 certaintrademarks that are owned by our partners, such as Quinvaxem® fromNovartis (formerly Chiron). All other trademarks, service marks, trade namesand registered marks used in this report are trademarks, trade names orregistered marks of their respective owners. Crucell N.V. and its subsidiariesown a number of additional trademarks, including registered trademarks that arenot referenced in this report.

 

 

50

 

**Management Report**

 

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 inthis Annual Report, unless otherwise noted, are in thousands of Euro, exceptshare and option data.

 

 

51

 

**Management Report**

Report of the Management Board

 

**Report of the Management Board**

 

**Overviewof the year**

 

The year 2008 was trulyunique for Crucell as we achieved net profit for the first time in the historyof the Company. In addition we exceeded our revenue targets, considerablyimproved our gross margin and were cash flow positive. It is Crucell‘s ambitionto deliver on promises and we clearly exceeded the targets set at the beginningof the year. Our 2008 financial highlights include:

 

·                  Growth of 33% inrevenues 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 forthe year improved to 45% in 2008 compared to 34% in 2007; and 

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

 

Our mission is todevelop, produce and market vaccines and antibodies that prevent or treatinfectious diseases. We have a fully-integrated infrastructure for in-housedevelopment, production and marketing of vaccines, and we are now leveragingour knowledge in this area to enter the antibodies market for infectiousdiseases. Our business strategy is based on the following business drivers:

 

·                  Leveragingpresence of our marketed vaccines in public and private markets; 

·                  Building a productpipeline with sustainable competitive advantage; and 

·                  Building uponongoing technology licensing programs.

 

The weakness of theglobal economy in 2008 is a challenge for many companies worldwide. The ongoingfinancial crisis became prominent in September 2008 with the failure ornear-failure of several United States and European based financialinstitutions. The resulting deterioration in financial and market conditionsspread around the globe. In recent months, the financial crisis has adverselyaffected businesses in many industries and geographical areas all over theworld at an unexpected pace.

 

Despite the weak globaleconomic climate we achieved all targets we set ourselves for the financialyear 2008. Our success depends in part on our solid customer-base, which isrelatively unaffected by deterioration in the global economy, since many of ourcustomers are governmental agencies or supranational organizations. We do notexpect our business will be significantly affected by the weak global economyin 2009.

 

**Leveragingpresence 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 otherproducts (12%). Our product sales grew by € 48,486 or 27.3%. The increase is primarilyattributable to increased sales of our paediatric vaccines, specificallyQuinvaxem, of € 33,668 and travel and endemic vaccines of € 8,290.

 

Quinvaxem is our fullyliquid pentavalent vaccine against five important childhood diseases that isapproved by the WHO. In 2008 we more than doubled the production and we wereable to continue the success of Quinvaxem as sales grew from 21.3 million unitsin 2007 to 39.6 million units in 2008. In anticipation of the expected furthergrowth of Quinvaxem in 2009, we continued to build up stock of Quinvaxem in thefourth quarter of 2008.

 

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

 

*Operations*

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

 

 

52

** **

**Management Report**

Reportof the Management Board

 

In 2008, we alsoattracted several new senior managers to further improve the quality of ouroperations. During 2008 we strengthened the manufacturing organization and wewere able to improve our performance significantly as yields of importantproduction processes increased and scrap rates decreased. Expenses onoperations were more or less stable compared to 2007 despite a significantincrease in production volumes.

 

All our facilities wereaudited multiple times during the year by customers and/or regulatoryauthorities. All audits were successful, confirming our compliance withrelevant rules and regulations. In Bern, Switzerland, we successfullyrefurbished our MoRu-Viraten (MR) filling line and obtained approval fromSwissmedic to recommence production. In Madrid, Spain, we installed a newfilling line for syringes, bringing the total capacity of our dedicatedfill/finish center in Spain to approximately 100 million syringes per annum.The Spanish authorities audited and approved the new line inDecember 2008.

 

In October 2008, weannounced that an agreement was reached to relocate our Korean productionfacility, that manufactures Quinvaxem and Hepavax-Gene, from the Shingal sitein Yongin City to the Incheon, Free Economic Zone. We agreed on the time-lineand conditions of this relocation with all parties involved, facilitating asmooth transition to the new production facility. The new facility will enablethe further growth and efficient production of Quinvaxem and Hepavax-Gene. Alllitigation surrounding our production facility has been settled.

 

In August 2008, weannounced the intention to move Dukoral and rCTB bulk production, formulationand fill/ finish activities from Sweden to other sites within the Crucellorganization. The Group is currently conducting a feasibility study todetermine the scope and timing of a potential move. The research activitiesconducted at our Swedish site were discontinued in 2008 and are nowconcentrated in Leiden, the Netherlands.

 

We entered into anexclusive vaccine development agreement with Wyeth Pharmaceuticals in which wewill be responsible for the development and manufacturing of certain componentsof a vaccine for use by Wyeth in clinical studies. Wyeth will be responsiblefor the clinical development of the vaccine. The development activities willtake place in Crucell’s dedicated vaccine manufacturing facilities in Bern,Switzerland, which had been fully impaired in 2006, enabling a partial reversalof that impairment in 2008.

 

**Productpipeline with sustainable competitive advantage**

Our rabies candidateproduct achieved positive preliminary results in the phase II study that wascarried out in the US. No adverse events were reported and the study confirmedthe neutralizing activity of the monoclonal antibody product against the rabiesvirus. A second phase II clinical study evaluating the monoclonal antibodycocktail in combination with a vaccine in healthy children and adolescents wasconducted in the Philippines from May to October 2008. Final datafrom this study is expected to become available in the first half of 2009. Anadditional phase II study in healthy adults evaluating Crucell’s monoclonalantibody in combination with another rabies vaccine is scheduled to start inIndia in the second quarter of 2009.

 

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

 

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

 

53

 

**Management Report**

Report of the Management Board

 

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

 

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

 

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

 

In another preclinicalstudy, Crucell’s mAb CR6261 was compared with the anti-influenza drugoseltamivir in terms of their value for flu prevention and treatment. InDecember 2008, we announced that our monoclonal antibody strongly outperformedoseltamivir in the tests that were conducted. The flu strains tested includedthe ‘bird flu’ strain H5N1, which, experts fear, has the potential to cause apandemic, and H1N1, which is similar to the flu strain responsible for thedevastating pandemic in 1918. Importantly, the study showed that CR6261provides immediate protection against the influenza virus, suggesting that itwill be able to prevent the spread of disease. In contrast, oseltamivir wasless efficacious and in some cases not effective at all.

 

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

 

**Uniquetechnologies for licensing business**

 

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

 

In 2008, Crucell signedlicensing agreements with Abraxis Bioscience, Inc., Affitech AS, AranaTherapeutics 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 AnalysisCo. Ltd.

 

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

 

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

 

The followingtechnological progress was achieved during 2008:

 

·                  We achievedimportant advances in antibody production using our PER.C6 technology platformtogether with our partner DSM Biologics. By employing the PER.C6 human cellline and proprietary XDTM technology, we achieved a record yield of over27 grams per liter of IgG antibodies. In addition the high-titer fed-batchprocess was scaled up to 250 liters by DSM Biologics scientists at their GMPfacility in Groningen, The Netherlands;

 

54

 

**Management Report**

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·                  Our PER.C6technology licensee Ark Therapeutics has entered a phase III study with itsproduct Trinam. Ark Therapeutics is the first of our licensees to enter into aphase III study with a product produced on Crucell’s PER.C6 human cell line;and

·                  We announced thatthe novel recombinant adenovirus serotype 26 (rAd26) vector, which is jointlydeveloped by Crucell and the Beth Israel Deaconess Medical Center (BIDMC) inthe US, will be used in a phase I clinical study to test a new HIV vaccine. TherAd26 vector is specifically designed to avoid pre-existing immunity to themore commonly used adenovirus serotype 5 (Ad5), which has recently shownlimitations as an HIV vaccine vector. This clinical trial is the first ‘in man’study of this newly developed vector, which could provide a solution toproblems seen in previous HIV vaccine trials. The rAd26 vaccine is the firstHIV vaccine candidate to emerge from the Integrated Preclinical/Clinical AIDSVaccine Development (IPCAVD) program.

 

In November 2008,the leading scientific journal ‘Nature’ published a study that demonstrated thevalue of our alternative adenovirus serotype technologies. Using Crucell’sAdVac vaccine technology and PER.C6 manufacturing technology, scientistsengineered the rare adenovirus serotypes Ad26 and Ad35 to express a protein ofSIV, the primate equivalent of HIV. We have developed rare serotype adenoviralvectors, such as rAd26 and rAd35, to provide more potent prime-boost vaccineregimens. The study, which investigated the immunogenicity and protectiveefficacy of different vaccination regimes using rAd26, rAd35 or rAd5 as a primer,followed by a boost with rAd5, showed that in particular the rAd26/rAd5combination elicits a strong T-cell immune response and provides protectionagainst the HIV-like virus in primate subjects. We have several vaccines in developmentusing alternative rAd26 and rAd35 vectors, including vaccines against malariaand tuberculosis.

 

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

 

**Subsequentevents**

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

 

**Outlook2009**

 

The key to our strategyis continued growth. The outlook for 2009 is promising as we expect revenue andother operating income to grow, operating profits to increase significantly andto achieve a solid cash flow despite significant investments. Our HealthyAmbition program has a clear focus on achieving operational excellence and ison track to realize cost savings of € 30 million by the end of 2009. We do notexpect our business to be adversely affected in 2009 by the weak global economyresulting from the continuing international financial crisis.

 

In 2009, we will focus oncontinued growth.

 

·                  We expect ourcombined 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 of1.35;

·                  Operating profitfor 2009 is expected to improve significantly compared to 2008;

·                  Furthermore, theCompany expects solid cash flow despite significant investments in the newfacility being built in Korea. These investments are expected to totalapproximately € 50 million, with the majority of the spending in 2009;

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

·                  We will pursue keypartnerships, focus on progress in clinical development and continue withbroadly licensing our technologies.

 

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

 

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

 

55

 

**Management Report**

Information on the Company

 

We expect continuedinvestments in our manufacturing facilities to ensure that they remainstate-of-the-art and continue to meet the highest applicable regulatorystandards. In October 2008, we announced that we will relocate our Koreanproduction facility. The investments in the new facility are expected to totalapproximately € 50 million, with the majority of spending occurring in 2009. Weentered into a mortgage loan facility in Korea for an amount of KRW 50 billionto partly finance the investments in the new Korean facility in 2009.

 

Our continued growthstrategy also includes continued investments in R&D to ensure solidprogress in clinical development. Both vaccine and antibody research is beingfocused on combating infectious diseases, with an emphasis on the existingcategories of paediatric, travel and endemic, and respiratory illnesses. Inaddition, we will continue to invest in discovery programs and progress theseinto the clinical trial phase. Lifecycle investments are required to ensurethat we continue to meet the highest regulatory standards and to furtherimprove the lifecycle of our products.

 

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

 

We expect revenuesthroughout 2009 to be phased similarly to those in 2008. Our cash flow positionis expected to deteriorate significantly in the first half of 2009, which isnormal due to the seasonality of our business. We build-up inventory in thefirst half of the year and sell our respiratory and travel vaccine productsprincipally in the second half of the year.

 

56

 

**Management Report**

Information on the Company

 

**Information on the Company**

 

**History and development of Crucell**

 

We are a public limitedliability company under Dutch company law, incorporated in Leiden, theNetherlands 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 principalexecutive office is located at Archimedesweg 4-6, 2333 CN Leiden, theNetherlands. Our telephone number is +31 (0)71 519 9100. Our registered agentin 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, weacquired a controlling interest in the Swiss biotech company Berna Biotech AGin a share exchange. In September 2006, we acquired the remaining 1.6%minority interest. Berna Biotech AG was founded in 1898. Prior to theacquisition, Berna was a fully integrated biotechnology company that marketednumerous vaccines on a global scale.

 

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

 

In November 2006, weacquired the shares of Stockholm-based SBL Vaccin Holding AB (SBL) from 3i andSEB. SBL was a fully integrated independent Swedish biotechnology company. SBL’smain product was Dukoral. In addition, SBL had a sales and distributionorganization for vaccines in Scandinavia.

 

In November 2006, weand our technology partner DSM Biologics opened the PERCIVIA PER.C6 DevelopmentCenter in Cambridge, Massachusetts, US. The joint venture was conceived anddesigned to further develop the PER.C6 cell line and provide turnkey solutionsfor the production of monoclonal antibodies and recombinant proteins.

 

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

 

**Business drivers**

 

Our business strategy isbased on the following business drivers:

 

**Products**

 

**Leveragingpresence of our marketed vaccines in public and private markets.**

We produce and sellestablished paediatric, respiratory and travel vaccines. We intend to enhanceour position in these markets by highlighting the unique features of theseproducts and by providing outstanding customer service in terms of delivery,reliability and quality and by leveraging our worldwide presence in both publicand private markets.

 

Our core portfolioconsists of the following products:

 

·                  Quinvaxem, afully-liquid vaccine for protection against five important childhood diseases;

·                  Hepavax-Gene, arecombinant vaccine against hepatitis B;

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

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

·                  Vivotif, the onlyoral vaccine again typhoid fever;

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

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

 

**Researchand Development (R&D) product pipeline with competitive advantage**

 

We believe that each ofour selected products targets unmet medical needs, improves current medicationsor is otherwise believed to be marketable due to predictive study models and/orperceived favorable regulatory conditions. These products are predominantlybased on our PER.C6 technology. In addition, we have various discovery programsto find new vaccine and antibody products.

 

Besides our portfolio ofwell known vaccines, we have a pipeline of new potential vaccines andantibodies. Product pipeline programs include

 

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vaccines against yellowfever, influenza, tuberculosis, Ebola and Marburg, malaria, HIV, rabies and H5N1antibodies. Our R&D activities are concentrated in our headquarters in theNetherlands, 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 ofexcellent technologies with applicability to vaccines, antibodies, otherrecombinant proteins and gene therapy. Our licensing program provides a sourceof revenue as well as the potential for future, additional revenue in the formof royalties from products developed by our licensees. In areas where we arenot developing our own products, we offer our technologies to the biopharmaceuticalindustry for the development and production of diverse biopharmaceuticalproducts.

 

We have developed variousproprietary technologies such as PER.C6, AdVac, MAbstract, STAR, our virosomaltechnology, rCTB as well as our Hansenula polymorpha expression system. Webelieve our proprietary PER.C6 technology is well suited for the developmentand large-scale manufacturing of a wide range of biopharmaceuticals includingvaccines, monoclonal antibodies, therapeutic proteins and gene therapy products.AdVac is used to develop novel adenoviral-based products. MAbstract can b usedto develop human antibodies. Our STAR technology is useful for increasingproduction output of recombinant antibodies and therapeutic proteins onmammalian cell lines and there are indications that the technology iscomplementary to our PER.C6 technology.

 

**Products**

 

**Overview**

 

Our products are marketedby our own sales force as well as by our distribution partners. Our sales aresubject to seasonal variations with the majority of our sales coming in thesecond half of the financial year. This is specifically the case for ourinfluenza vaccines as vaccination programs mainly take place in the second halfof the year. In addition, our travel vaccines are also subject to seasonal travelpatterns. See ‘Partners, agreements, investments and other collaborations –Marketing and sales partners’ in this section for more details on our partners.

 

**Vaccinemarkets**

Our core productportfolio currently consists of seven marketed vaccines in three areas of thevaccine market: paediatric vaccines, travel and endemic vaccines andrespiratory vaccines.

 

**Paediatricvaccines**

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

 

**Quinvaxem**

Quinvaxem combinesantigens for protection against five important childhood diseases: diphtheria,tetanus, pertussis (whooping cough), hepatitis B and Haemophilus influenzaetype b, one of the leading causes of bacterial meningitis in children. It isthe first internationally available fully-liquid vaccine containing all five ofthe above antigens, offering a major advantage in terms of convenience of use.Quinvaxem was co-developed with Novartis, which provides four of the fivecomponents in bulk. The fifth component is our vaccine Hepavax-Gene.

 

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

 

As Quinvaxem has beenpre-qualified by the World Health Organization (WHO), it is available forpurchase by supranational organizations. Supranational organizations are majorcustomers for combination vaccines, which are used in large vaccinationprograms around the world. In September 2008, we were awarded with newcontracts totaling over $ 140 million for our Quinvaxem and Hepavax-Genepaediatric vaccines by supranational organizations. The contracts provide forthe supply of these vaccines for the period 2008 – 2009, bringing the totalvalue of the contracts for the period 2007 – 2009 to $500 million.

 

**Hepavax-Gene**

Hepavax-Gene is arecombinant hepatitis B (HBV) vaccine made using Crucell’s proprietaryHansenula polymorpha expression system. It is one of the WHO’s pre-qualifiedvaccines for active immunization against HBV. A key competitive advantage forHepavax-Gene is our stable and efficient production system.

 

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

 

**Abouthepatitis B**

HBV is a viral infectionof the liver that causes various complications if left untreated and may evenultimately cause death. Transmission of HBV occurs as a result of the exchangeof blood, the exchange of fluids during sexual intercourse or the exchange ofbodily 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 rubellain children, adolescents and adults. The immunogenicity and safety ofMoRu-Viraten have been confirmed in clinical trials and extensivepost-marketing surveillance. MoRu-Viraten is free of avian proteins andantibiotics, posing no risk to children with allergies to these substances. Thevaccine has been marketed since 1986 and is on the WHO list of vaccines forpurchase by UN agencies.

 

**Aboutmeasles and rubella**

Measles is a highlycontagious disease caused by the measles virus. It is spread by droplets ordirect contact with nasal or throat secretions of infected persons and lesscommonly through the air or indirect contact. Measles continues to remain aserious public health concern worldwide with 30-40 million cases occurringannually. It may be ultimately responsible for more child deaths than any othersingle agent and is a major cause of preventable blindness in the world.Rubella is a moderately contagious disease caused by the rubella virus. Transmissionof the virus is via airborne droplets. It has been estimated that over 100,000cases of congenital rubella syndrome (CRS) occur in developing countries eachyear.

 

**Traveland endemic vaccines**

 

Our core travel vaccinesare Epaxal, Vivotif and Dukoral.

 

Travel vaccines includeall vaccine products that protect against diseases that are not native to theregion travelers are from, but are present in the regions to which they travel.Generally, the target population groups for these vaccine products areindividuals travelling to endemic and epidemic regions. Our vaccines forhepatitis A, typhoid and cholera are classified as travel vaccines.

 

Our travel vaccines arealso increasingly used in expanded immunization programs. Vaccines used incountries with medium to high endemicity could also be characterized as routineor paediatric vaccination. Furthermore, even in some European countries whereendemicity is low, childhood vaccination against Hepatitis A virus (HAV) isrecommended. This vaccine represents a large potential upside for vaccinemanufacturers as they can be targeted at multiple markets.

 

**Epaxal**

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

 

**Abouthepatitis A**

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

 

**Vivotif**

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

 

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which is caused bySalmonella strains similar to Salmonella Typhi.

 

**Abouttyphoid fever**

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

 

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

 

**Dukoral**

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

 

**AboutCholera**

Cholera is an acute,diarrheal illness caused by infection of the intestine with the bacteriumvibrio cholerae. Over 90% of all cholera cases are mild to moderate and presentthemselves as ordinary traveller’s diarrhea. Approximately 10% of infectedpersons have a severe case, characterized by profuse watery diarrhea, legcramps and vomiting, resulting in rapid loss of body fluids leading to shockand dehydration. Without treatment, death can occur within hours. According tothe US Center for Disease Control and Prevention, cholera has been very rare inindustrialized nations for the last 100 years; however, the disease is stillcommon in other parts of the world and the cholear bacteria can be found inmany travel destinations, for example in most part of Asia, Africa and SouthAmerica. It spreads via contaminated food and water.

 

**Respiratoryvaccines**

 

Our core respiratoryvaccine is Inflexal V.

 

**InflexalV**

Inflexal V is a virosomaladjuvanted Influenza vaccine (subunit), based upon the virosome technologydeveloped and patented by the Crucell company, Berna Biotech AG. It is the onlyadjuvanted flu vaccine licensed for all age groups (from 6 months and up). Thevaccine’s antigen composition follows yearly WHO recommendations. Inflexal Vwas originally introduced in 1997, is registered in 38 countries and has extensivemarket experience, with more than 41 million doses confirming its safetyprofile. The tolerability of Inflexal V is excellent due to itsbiocompatibility and purity.

 

**Aboutinfluenza**

Influenza, commonly knownas ‘flu’, affects large sections of the world’s population each year. Thedisease is characterized by annual winter outbreaks, which often reach epidemicproportions due to the fact that the virus can mutate quickly, often producingnew strains against which human beings do not have immunity. Typical symptomsof flu are usually relatively mild but can become life threatening invulnerable patient groups, such as the elderly and immunodeficient individuals.In a growing number of countries, small children have been added to the list ofpreferred protection groups. Transmission of the flu virus occurs throughairborne particles and upon infection, the incubation period ranges from one tothree days.

 

Each year approximately5%-15% of the world’s population contracts influenza and an estimated 250,000to 500,000 people die annually from influenza-associated complicationsaccording to the World Health Organization. As well as these annual epidemics,a major genetic shift in the influenza virus can occasionally lead to a deadlynew virus strain to which the human population does not have immunity,resulting in a global pandemic. Concerns currently exist that a new avianinfluenza strain (H5N1) endemic among birds in Asia, and showing highpathogenicity for humans, could present a genuine pandemic threat.

 

Several factorscontribute to the rapid growth of the influenza vaccine market. We expect thatthe threat of a pandemic of avian flu, the ageing of the population in numerousdeveloped countries,

 

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nationalgovernment-sponsored vaccination programs in many countries, higher awarenessof the value of a flu vaccination among the public at large, as well asspecific production contracts for vaccines that combat strains of pandemic fluand ongoing activities to increase the preparedness for a flu pandemic willlead to further growth in the seasonal flu markets.

 

**Research and Development pipeline**

 

**Overview**

 

Our product developmentprograms comprise vaccines against yellow fever, influenza, tuberculosis, Ebolaand Marburg, malaria, HIV, human monoclonal antibodies against rabies and humanmonoclonal antibodies against a broad range of influenza.

 

**Overviewof our pipeline based on proprietary technologies**

 

Our PER.C6 technology,complemented by our AdVac and MAbstract technologies, drives the development ofour product pipeline. We continue to develop our technologies while selectingproduct leads for further development based on careful product selectioncriteria that support our long-term business objectives. We have in the pastand may again in the future, enter into collaborative and/or strategic alliancearrangements with third parties to co-develop and market products.

 

Our primary focus is thedevelopment of a range of novel vaccine and antibody products in the area ofinfectious diseases. We currently have a number of core potential products weare 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 productswe have under development, only our yellow fever vaccine does not use our coretechnologies.

 

**Overviewof our late-stage pipeline**

 

**Yellowfever vaccine**

Crucell has developed theyellow fever vaccine, Flavimun, based on a well-established vaccine formerlyproduced by the Robert Koch institute in Germany. We acquired the rights andknow-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 thevaccine have been distributed. The vaccine is safe, highly immunogenic and welltolerated. Protection starts ten days after a single dose and persists for tenyears. The product was submitted for registration with the Swiss authorities inthe first quarter of 2009. Registration submission in Germany is expected in2009.

 

**Overviewof our early-stage pipeline**

 

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

 

**Influenza**

Influenza vaccines wereclassically produced on embryonated chicken eggs. Currently, cell culturesystems are being developed for more efficient influenza vaccine productionbased on Madin Darby Canine Kidney (MDCK) cells and VERO cells. In contrast toMDCK and VERO cells, PER.C6 cells grow well in suspension and are thus easilyscalable, permitting the production of cost-efficient vaccines in largequantities. PER.C6 cells possess the different receptors required for theproduction of vaccines against both human and avian strains of influenza thatmay present a pandemic threat.

 

**Sanofipasteur**

In December 2003, weentered into a strategic agreement with sanofi pasteur to further develop andcommercialize novel influenza vaccines using our PER.C6 technology. Since theinception of the collaboration, production processes have been underdevelopment, with the production of a Good Manufacturing Practice (GMP) mastercell bank already completed. Currently, we are working to develop a pandemicflu vaccine as well as an interpandemic, or seasonal, flu vaccine under thiscontract. A phase II testing of the cell culture-based seasonal influenzavaccine was initiated in the US and started in the fourth quarter of 2007. Inthe third quarter 2008, we received a milestone payment for the progress of thephase II trials involving healthy adult volunteers in the US.

 

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

 

**Tuberculosis**

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

 

A first phase I clinicaltrial, launched in October 2006 in Kansas, US, indicated that the vaccinecandidate, AERAS-402/Crucell Ad 35, is safe in healthy adults in the US. Thepreliminary results of a second study, launched in May 2007, showed thatboth critical arms of the cellular immune system, CD4 and CD8 immune T-cells,were induced and that in those participants who responded, CD8 immune responseswere considerably higher than had ever previously been seen in a TB vaccinestudy. A third phase I study in St. Louis, Missouri, US was launched inDecember 2007 and focuses on the immunogenicity and safety of twoAERAS-402/Crucell Ad35 boost doses administered at three to six month intervalsafter BCG priming in healthy adults.

 

An ongoing study in St.Louis, MO, US is evaluating a longer prime-boost interval. The study has beenfully enrolled and has discovered no safety issues. Immunological data isexpected 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. Themain parameters of the study will be to test the safety of the vaccinecandidate in healthy adults, all of whom have been previously vaccinated withthe BCG vaccine and a subset of whom have evidence of having been exposed toTB. This study is fully enrolled and now in its follow-up segment, with nosafety issues identified. The companies also started the enrollment of thefirst phase II study of the vaccine candidate. The study is beingconducted in Cape Town, South Africa by the University of Cape Town LungInstitute in conjunction with the South African Tuberculosis Vaccine Institute.No evidence of an unacceptable safety issue has been found in its doseescalation design.

 

**Abouttuberculosis**

TB is a major cause ofillness and death worldwide, especially in Asia and Africa, with over 9 millionnew 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 populationhas 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 ofsevere forms of TB in early childhood but is not very effective in preventingpulmonary TB in adolescents and in adults, the populations with the highest TBrates. As the disease is changing and evolving, new vaccines are even morecrucial to control any pandemic. TB is the leading cause of death for peopleliving with HIV/AIDS, particularly in Africa. Multidrug-resistant TB (MDR-TB)and extensively drug-resistant TB (XDR-TB) are hampering treatment and controlefforts. A need for an alternative vaccination approach has emerged in the lasttwo decades.

 

**Ebolaand Marburg**

Crucell is developing anEbola vaccine in collaboration with the Vaccine Research Center (VRC) of theNIAID.

 

In May 2002, weentered into a Collaborative Research and Development Agreement (CRADA) withthe VRC to jointly develop, test and manufacture an adenovirus-based Ebolavaccine. Under the terms of the agreement, we have an option for exclusiveworldwide commercialization rights to the Ebola vaccine resulting from thiscollaboration. In August 2002, the CRADA was extended to cover vaccinesagainst Marburg and lassa infections.

 

In experiments conductedby the VRC together with the US Army Medical Research Institute of InfectiousDiseases (US. AMRIID) during the first half of 2004, our vaccine candidateconfirmed single-dose protection in pre-clinical testing against Ebola. Whatset the results of this trial apart from the earlier successful trial, whichestablished a proof-of-concept, was that the vaccine in this instance wasproduced on PER.C6 technology.

 

In March 2005, weextended the CRADA with the US NIH and continue to develop this vaccine andwill use the Ebola vaccine results in the development of Marburg and lassavaccines. In addition, we obtained an exclusive license to certain NIH patentsto develop and commercialize recombinant vaccines against Ebola.

 

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In October 2008, wesecured a NIAID/ NIH contract aimed at advancing the development of Ebola andMarburg vaccines, ultimately leading to a multivalent filovirus vaccine. Thecontract provides funding of up to $30 million, with additional options thatmay 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 partnershipwith VRC, showed safety and immunogenicity at the doses evaluated. Based onthese results a second phase I study of an Ebola and/or Marburg vaccine isanticipated.

 

**AboutEbola and Marburg**

The Ebola and Marburgviruses are capable of causing hemorrhagic fever, a severe, often-fatal diseasein humans characterized by high fever and massive internal bleeding, causingdeath in 50% to 80% of all cases. Ebola and Marburg outbreaks occur regularlyin tropical Africa, affecting both human and great ape populations. Since theEbola virus was first recognized, approximately 2,200 cases, including over1,500 deaths, have been reported. To date, over 440 cases of Marburg have beenreported with approximately 360 fatalities. Ebola and Marburg usually appear insporadic outbreaks, and spread within a health-care setting. Because of thehigh disease-related mortality rates and lack of any vaccine or therapy, theEbola and Marburg viruses are on the US Centers for Disease Control andPrevention Category ‘A’ list of bio terror agents, together with smallpox andanthrax.

 

**Malaria**

We are developing arecombinant malaria vaccine based on our AdVac technology and produced on our PER.C6production technology. The vaccine is made by inserting the gene for thecircumsporozoite protein (CSP) from a malaria parasite into an adenoviralvector, which acts as a ‘vehicle’ for vaccination delivery.

 

The efficacy of ourmalaria vaccine candidate was tested in pre-clinical models. The study showedthat a single administration of a prototype AdVac vaccine, provided protectionagainst the specific parasite. Since March 2004, we have collaborated withthe NIAID for the support of the development of our candidate malaria vaccine.In September 2006, we extended our collaboration with the NIAID by signinga clinical trial agreement.

 

In partnership with theNIAID, Crucell’s malaria vaccine entered a phase I trial in the US inJanuary 2007. The study is being carried out on two sites, VanderbiltUniversity in Tennessee and Stanford University in California. The first threegroups have been enrolled and ongoing safety monitoring has revealed nosignificant safety concerns to date, but formal analysis awaits unblinding ofthe data. Further updates on this program are expected in the second quarter of2009.

 

**Aboutmalaria**

Malaria is alife-threatening infectious disease caused by the plasmodium parasite andtransmitted from person-to-person through the bite of a female Anophelesmosquito. It is currently one of the most lethal communicable diseases. The diseasecurrently represents one of the most prevalent infections in tropical andsubtropical areas causing severe illness in 300 to 500 million individualsworldwide according to the World Health Organization and causing 1 to 3 milliondeaths every year. Most of these deaths occur among children and pregnant womenin 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 consequenceof discontinued malaria control programs and increasing numbers ofdrug-resistant parasites and insecticide-resistant parasite vectors. Otherfactors include environmental and climatic changes, civil disturbances andincreased mobility of populations. Although the overwhelming majority ofmorbidity 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 grantby 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 withHarvard 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 studyof the novel recombinant HIV vaccine that Crucell is jointly developing withthe Beth Israel Deaconess Medical Center, using adenovirus serotype 26 (rAd26) asvector. The rAd26 vector is specifically designed to avoid the pre-existingimmunity to the more commonly used adenovirus serotype 5 (Ad5). The phase Iclinical study is being conducted at the Brigham and Women’s Hospital inBoston, MA, US and is focused on assessing the safety and immunogenicity of thevaccine. Enrollment is currently ongoing.

 

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**About HIV**

Human immunodeficiency virus or HIV is a retrovirus thatcauses acquired immune deficiency syndrome (AIDS), a condition in humans inwhich 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 peoplesince it was first recognized on December 1, 1981, making it one of themost destructive pandemics in human history.

 

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

 

**Antibodies**

 

**Rabies monoclonal antibodycombination**

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

 

Post-exposure treatment for rabies, when given timely, is100% effective and involves the use of a vaccine plus antibodies. Neithervaccine nor antibodies are effective independent of one another. Current supplyand quality of rabies vaccine is sufficient, but anti-rabies antibodies (HumanRabies Immune Globulin (HRIG) and Equine Rabies Immune Globulin (ERIG)) arewidely recognized as being insufficient in quality and supply, and pose safetyconcerns because they originate from human or equine serum. Marketopportunities for rabies treatments are projected to grow significantly as thecustomer base grows in affected countries such as India and China.

 

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

 

In December 2007, we signed an exclusive collaborationand commercialization agreement with sanofi pasteur for our rabies monoclonalantibody combination to be used in association with rabies vaccine forpost-exposure prophylaxis against this disease. We will continue to perform thedevelopment activities and will be responsible for the manufacturing of the finalproduct and will retain exclusive distribution rights in Europe, the rights tosell to supranational organizations such as UNICEF and co-exclusivedistribution rights in China.

 

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

 

Phase I clinical trials demonstrated that the antibodyproduct is well tolerated, provides the expected immediate passive neutralizingactivity and that it can be safely administered in combination with a rabiesvaccine without interfering with the vaccine’s ability to induce an activeimmunity.

 

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

 

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

 

**About rabies**

Rabies is a viral disease of mammals most often transmittedthrough the bite of an infected animal. The virus infects the central nervoussystem, causing encephalopathy and ultimately death if medical treatment is notsought before symptoms become more severe. Rabies is prevalent in all thecontinental 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 diseaseeach year, mainly in China and India, according to various medicalpublications.

 

**Human monoclonal antibodies againsta broad range of influenza**

Crucell’s scientists discovered a set of human monoclonalantibodies that provides immediate protection and neutralizes the broadestrange of H5N1 strains. When tested in preclinical models for prevention ortreatment of a potentially lethal H5N1 infection, this antibody was shown toprevent death and cure the disease.

 

In another preclinical study, Crucell’s mAb CR6261 wascompared with the anti-influenza drug oseltamivir in terms of its value for fluprevention and treatment. In December 2008, Crucell announced that itsmonoclonal antibody had strongly outperformed the most current anti-influenzadrug 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 issimilar to the strain responsible for the devastating pandemic in 1918.Importantly, the study showed that CR6261 provides immediate protection againstthe influenza virus, suggesting that it will be able to prevent disease spread.In contrast, oseltamivir was less efficacious and in some cases not effectiveat all.

 

**Technologies**

 

**Licensing our technologies to themarket**

We generate a portion of our revenues and other operatingincome from licensing our proprietary technologies to pharmaceutical andbiotechnology companies, from grants and government subsidies obtained tosupport the development of our technologies and potential products and fromservice fees earned under development contracts with our partners. We intend toincrease our revenues in the future from initial license fees, licensemaintenance fees and milestone and royalty payments from products that ourlicensees develop using our technologies.

 

Our business development strategy historically involvedcontacting prospective licensees and partners and assessing their interest inour technologies and products. If the prospective licensee or partner indicatesinterest we negotiate a license and/or collaboration agreement pursuant towhich we deliver the applicable technology to, or collaborate with, thelicensee or partner. For some of the contracts we provide services, for whichwe are paid at different rates.

 

**Core proprietary technologies**

Our product portfolio is supported through five coreproprietary technology platforms.

 

**PER.C6 technology**

 

**Overview**

Our PER.C6 technology provides a manufacturing system thatcan be used to produce a variety of biopharmaceutical products. Crucell’s PER.C6cellline is derived from a single, human retina-derived cell, which waspurposely immortalized using recombinant DNA technology. As a result, PER.C6cells can replicate indefinitely, allowing them to be cultured in single cellsuspension under serum-free conditions in quantities appropriate forlarge-scale manufacturing.

 

The technology has been successfully adapted to grow withoutthe need for serum components or materials that allow cell attachment (microcarriers) and demonstrates excellent cell densities in bioreactors. Thesefeatures are important because they allow us to produce safe biopharmaceuticalproducts in sufficient quantities.

 

In September 2008, DSM Biologics and Crucell announcedthat the high-titer-fed batch process developed at the PERCIVIA PER.C6Development Center, their joint venture in Massachusetts, US (PERCIVIA) wasscaled up to 250 liters by DSM Biologics scientists at their GMP facility inGroningen, the Netherlands. They successfully achieved 8 grams per liter for anIgG antibody expressed by PER.C6 cells using chemically defined cell culturemedium in a single-use bioreactor. In June 2008, the Company reportedrecord-breaking protein yields of 27 grams per liter using DSM’s innovative XDTM technology.

 

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

 

**Vaccine production**

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

 

·                  For classicalvaccine production, PER.C6 cells are infected with the virus against which thevaccine is meant to protect. The virus is subsequently

 

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multiplied on PER.C6 cells to highvirus titer, yielding a potent starting material that can be processed andpurified to produce a final formulation of a whole-killed, split or sub-unitvaccine; and

·                  For recombinantvaccine production, the PER.C6 technology produces delivery agents calledadenoviral vectors. These vectors have been made replication incompetent andthus are only capable of delivering into the human body a portion of DNAencoding for a protein from the pathogen against which the vaccine is meant toprotect. The DNA inserted into the vector can be derived from a virus, aparasite or even bacteria, providing a versatile vaccine vector platform.

 

**Protein production**

PER.C6 technology can be used as a production system fordeveloping and manufacturing both antibodies and other proteins. DNA encodingfor a particular protein of interest is inserted into PER.C6 cells. Thesemodified PER.C6 cells will secrete the desired antibody or other protein. Weare further developing the application of PER.C6 for protein production atPERCIVIA.

 

**Gene therapy**

The primary function of PER.C6 technology in the field ofgene therapy is the production of adenoviral vectors a gene delivery mechanismbased on a common cold virus that carries therapeutic genes and facilitates thedelivery of the gene into the cells. Since the PER.C6 technology is the onlyavailable cell line that does not allow any formation of classical replicationcompetent 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 ofadenoviruses into which individual human genes are inserted to study genefunction. The adenovirus libraries carry many genes with unknown functions,which can be used to determine the role of individual genes in a diseaseprocess. We believe that our PER.C6 technology, therefore, represents a keyanalytical tool in the discovery of new genes and their role in biologicalpathways and human disease.

 

**Key features and advantages**

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

 

·                  PER.C6 technologypotentially offers a system for high yield, large-scale biopharmaceuticalproduct production. PER.C6 technology can be cultured at high densities andengineered to produce large quantities of biopharmaceuticals and may reduceproduction expense.

·                  PER.C6 cells can becultured in a serum-free medium, without micro-carriers, using a variety ofscaling systems, including bioreactors. This simplifies the expansion fromlaboratory- to industrial-scale production, which may lead to the production ofcost-efficient biopharmaceuticals in large quantities. The use of a serum-freemedium also offers the potential to significantly improve the purification ofbiopharmaceuticals produced using the PER.C6 technology and may facilitateregulatory approval.

·                  We have filed aCell Substrate Biologics Master File (BMF) with the US Food and DrugAdministration (FDA) describing the PER.C6 technology, including itsestablishment, development and potential use in production processes. The FDAwill only evaluate the PER.C6 technology in the context of Investigational NewDrug (IND) applications. We believe that the information in the BMF willfacilitate the FDA’s approval of any biopharmaceutical product that we or ourlicensees produce using the PER.C6 technology.

·                  The PER.C6technology can now claim to have achieved a broad endorsement within theindustry. For an overview of our most important licensees and partnerssubsidiaries please see the ‘Appendix Overview licensees and partners’.

·                  We believe thatantibody and other protein products based on the human based PER.C6 technologymay demonstrate enhanced biological properties, rendering them potentially moreefficacious. In addition, PER.C6 technology efficiently supports the growth ofcertain human viruses for vaccine development.

 

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**AdVac technology**

 

**Overview**

Crucell has been a key player in the development ofadenoviral-based vaccines for more than five years, resulting in theavailability of proprietary AdVac vectors. Crucell has generated a wide varietyof research and GMP clinical batches based on AdVac technology for diverseinfectious diseases.

 

AdVac technology is based on vectors constructed from adenoviruses that do not regularly occur in the human population, such as Ad35. Thetechnology supports the practice of inserting DNA coding of pathogen-derivedproteins into a vector. AdVac technology may also be used to develop genetherapy products. AdVac vectors are used in combination with our PER.C6technology. Currently AdVac technology is used by Crucell and its licensees todevelop vaccines against hemorrhagic fevers (Ebola, lassa, Marburg), malaria,TB, HIV/ AIDS and hepatitis C (HCV). While no adenovirus-based recombinantvaccines are currently licensed for human use, AdVac-based vaccines formalaria, HIV/ AIDS, HCV, hemorrhagic fevers, and TB have been successfullyconstructed and are currently in clinical trials.

 

Crucell has generated a series of adenoviruses including Ad35and derivatives thereof as well as manufacturing platforms for these vectors.The AdVac vectors can be produced to carry genetic information derived fromviruses, parasites and bacteria, and thereby have the potential to allowimmunization against life-threatening diseases.

 

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

 

**Key features and advantages**

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

 

·                  Vectors used withAdVac technology share the advantages of the commonly used adenoviral vectorssuch as: scalable production, high yields and the ability to mediate a strongT-cell immune response;

·                  The AdVactechnology can circumvent pre-existing immunity offering accurate dose controlof the vaccines; and

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

 

**MAbstract technology**

 

**Overview**

Our MAbstract technology can be applied to the discovery ofnovel drug targets and the identification of human antibodies against thosedrug targets. MAbstract technology employs a bacteria-infecting virus called abacteriophage, or phage, which expresses part of a human antibody on itssurface. The technology employs a library of phages that carry many differenthuman antibodies. To identify and subsequently isolate relevant antibodies, thelibrary is put in contact with pathogens, or cells suspected of carrying thedrug target, or if the target is already known in advance, the library may beput in contact with the target directly. Subsequently, phage antibodies bindingto the diseased cells or the known target are separated from phage antibodiesthat do not bind at all, or bind to healthy cells added to eliminate irrelevantphage antibodies present in the library. Since irrelevant phage antibodies forthe target in question are often present in great abundance, the eliminationstep aids in enriching the phage-antibody population for potentially relevant,selectively binding phage antibodies.

 

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

 

We use our MAbstract technology to identify antibodiesreactive with whole pathogens, antibodies against protein elements frompathogens or antibodies directed against targets already known to be associatedwith disease. In addition MAbstract can be used to identify targets or epitopeson disease-causing agents that were previously unknown and may make suitablecandidates for antibody-based diagnosis, prevention or therapy of theassociated 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 antibodieswith several potential advantages over current technologies. These advantagesinclude the following:

 

·                  MAbstract technology selectsantibodies for possible therapeutic use and discovers novel drug targets usingwhole cells, tissues or infectious agents. 

·                  MAbstract technology does not haveinherent limitations on antibody specificity. 

·                  MAbstract technology has been usedto isolate antibodies for numerous disease applications. Selected antibodyspecificities can be directly reformatted into antibodies for production using PER.C6technology.

 

**STAR technology**

 

**Overview**

STAR technology is useful for increasing production ofrecombinant antibodies and therapeutic proteins on mammalian cell lines. It isa two component system consisting of (a) STAR elements that counteractgene silencing, resulting in increased levels of production and improvedstability of recombinant proteins, and (b) STAR-select, a very stringentselection system that is directly coupled to the expression of the gene ofinterest, resulting in only a few cell lines that all produce the recombinantprotein at high levels.

 

Multiple companies and licensees are investigating whetherthe STAR technology can increase production yields of biological substances. Weacquired STAR technology in 2004 through the purchase of ChromaGenics B.V., aprivately held biotechnology company based in Amsterdam. In connection with thepurchase, we also entered into a contingent payment agreement with the formershareholders of ChromaGenics that could result in us making additional paymentsof up to € 7.0 million, based upon our receipt of revenues generated from theSTAR technology. In 2007, we paid € 2.0 million to the former shareholdersunder this agreement.

 

**Key features and advantages**

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

 

·                  Establishedmammalian cell banks for antibody and protein production are the starting pointfor STAR technology, thus specially engineered mammalian cells are not needed;

·                  The STAR technologyallows for very rapid stable mammalian cell clone generation; and

·                  The STAR technologytypically yields stable mammalian cell clones that produce five- to ten-foldmore antibody or other therapeutic proteins compared to cell clones generatedwithout STAR.

 

**Virosomal technology**

 

**Overview**

One of the challenges in vaccine development is the creationof products that contain defined antigens of high purity that efficientlyinduce a protective immune response. Many antigen preparations are thereforesupplemented with adjuvants to enhance the body’s immune response to thespecific antigens. The most commonly used and approved adjuvants for human useare aluminum salt derivatives, which are known to cause adverse reactions suchas irritation and inflammation at the injection site. Virosomes are a broadlyapplicable adjuvant and carrier system with prospective applications in areasbeyond conventional antigen-based vaccines. Our virosome technology offers atool for developing novel, predominantly synthetic vaccines applicable toinfectious and chronic diseases. These vaccines offer additional benefitsbecause they are effective even in immune-suppressed patients and infants.

 

**Key features and advantages**

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

 

·                  Virosome technologyprovides a broadly applicable delivery system for antigens or DNA/RNA encodingspecific immune stimulatory proteins;

·                  Virosome technologyenables target-specific delivery of antigens and amplification of the immuneresponse;

 

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·                  Virosomes stimulateboth arms of the immune system, eliciting both antibody and cellular immuneresponses, against inserted immune stimulatory proteins derived from humanpathogens;

·                  Virosomes arecompletely biodegradable and can exert an immune response via different routesof administration; and

·                  Virosome technologyis used in the manufacture of several of Crucell’s registered products where ithas an excellent safety record.

 

**Other proprietary technologies**

 

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

 

**Hansenula polymorpha**

 

**Overview**

The yeast expression technology Hansenula polymorphaprovides us with a highly efficient production technology for proteins, whichcan be used as a basis for developing and manufacturing new vaccines. The yeastHansenula polymorpha production system provides superior characteristics for awide range of industrial applications. In particular its lack of pyrogens,pathogens or viral inclusions, its ease of genetic manipulation and itsrobustness in industrial scale fermentations add to its attractiveness for thesynthesis of pharmaceutical compounds. Our registered HBV vaccine Hepavax-Geneis based on recombinant production in this yeast.

 

**Key features and advantages**

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

 

·                  Hansenulapolymorpha provides an expression system with superior characteristics for thesynthesis of pharmaceutical compounds, including vaccines;

·                  Hansenulapolymorpha provides a safe production platform lacking pyrogens, pathogens orviral inclusions; and

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

 

**Recombinant Cholera Toxin B sub-unittechnology**

Cholera Toxin B (CTB) sub-unit is a powerful inducer ofimmunity both systemically and mucosally. Numerous applications have shown thatcoupling of antigen to CTB increases the immunogenicity of the antigen. In someapplications simple co-administration of CTB with the antigen has been shown tobe effective. This has been shown both for parenteral as well as mucosal(intranasal) applications.

 

CTB is an efficient mucosal carrier for induction ofperipheral immunological tolerance. Oral ingestion of antigen coupled with CTBsuppresses peripheral T-cell reactivity to the coupled antigen. The Group has astate-of-the-art GMP manufacturing facility for recombinant CTB. The productionsystem 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 ofvaccine and antibody products.

 

**Merck**

Since 2000, Crucell and Merck have developed a close workingpartnership, entering into a number of agreements. In June 2003, Merck andCrucell expanded an existing cooperation agreement and agreed to work closelyon matters related to maintenance of the PER.C6 Cell Substrate BMF. We furtherexpanded the relationship in December 2006, when we signed across-licensing agreement for vaccine production technology. The agreementallows Merck to use our technology on an exclusive basis in additionalundisclosed vaccine fields. In return, we received access to Merck’s largescale manufacturing technology for our AdVac-based vaccines under development.In September 2007, Merck exercised an option for the exclusive use of our PER.C6technology and access to our AdVac vaccine technology in two infectious diseaseareas.

 

**DSM Biologics**

In December 2002, we formed an alliance with DSMBiologics to license our PER.C6 technology as a production platform formonoclonal antibodies

 

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and recombinant proteins. The combination of the PER.C6technology and DSM’s manufacturing services provides companies with a turn-keybiologic manufacturing solution reducing cost, risk and time to market.Furthering this commitment to the PER.C6 technology, Crucell and DSMestablished PERCIVIA in August 2006. The innovations resulting from thispartnership will be available to PER.C6 licensees to further enhance theirdevelopment capabilities.

 

**Sanofi pasteur**

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

 

In December 2007, we signed an exclusive collaborationand commercialization agreement with sanofi pasteur for our rabies monoclonalantibodies to be used in association with rabies vaccine for post-exposureprophylaxis.

 

**Novartis**

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

 

**MedImmune**

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

 

**Wyeth**

In March 2008, we entered into an exclusive agreementwith Wyeth pursuant to which we perform contract manufacturing for Wyeth at ourSwiss facilities. We will develop and manufacture certain vaccine componentsthat Wyeth will use in clinical studies. The development activities will takeplace in our facilities in Bern, Switzerland. Wyeth will be responsible for theoverall clinical development of the vaccine.

 

**Other collaborations and agreements**

 

**Manufacturing service arrangements**

We have signed manufacturing service agreements with anumber of our licensees and partners. Under these agreements, we have producedand may produce in the future clinical batches of adenoviral materials,antibodies, or other materials using our PER.C6 technology for the applicablelicensee. We have received and may receive in the future initial fees uponsigning and subsequent payments upon delivery of the batches we produce inaccordance with the terms of the agreement.

 

**University collaborations**

We collaborate with a number of universities worldwide inthe areas of vaccines, antibodies, cell lines, gene therapy, cancer andcardiovascular disease. Some of our collaborations provide for royalty paymentsto be made to the universities in the event product sales arise out of thecollaborations. Generally, these collaboration agreements specify that Crucellprovides the applicable university with a specific amount of funding and theGroup receives certain intellectual property rights and access to the resultsof the university research.

 

**Overview licensees and partners**

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

 

**Our equity investments**

 

**Subsidiaries**

The following transactions changed the scope ofconsolidation in 2008:

 

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

·                  InNovember 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 subsidiariesplease see ‘1.1 Corporate information – List of consolidated companies’ in thefinancial statements.

 

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

 

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**Associates and joint ventures**

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

 

For a complete overview of our associates and joint venturesplease see ‘5.9 Investments in associates and joint ventures’ in the financialstatements.

 

**Other equity investments**

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

 

Galapagos holds a royalty free exclusive license to use our PER.C6technology for conducting activities in the field of functional genomicsresearch. Under the license, Galapagos uses PER.C6 technology in conjunctionwith 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. TheGroup 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 ourmarkets in the Benelux, Switzerland, Italy, Spain, Scandinavia, US and Canada,Argentina, China, Korea, Indonesia and Vietnam. This sales and marketinginfrastructure includes a dedicated sales force for supranationalorganizations. We have also established a strong network of partnerships toensure broader market access for our products. Through these measures, we haveestablished a global marketing and sales organization with strong presence inthe US, US, South-East Asia and supranational organizations.

 

We also distribute and market other companies’ products, tostrengthen our presence in vaccine or therapeutic protein markets. The mostsignificant 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 marketand sell our products. The most significant collaborations in terms of currentsales 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 abilityto compete depends in large part on our ability to protect our proprietarytechnology and information, and to operate without infringing on theintellectual property rights of others. We rely on a combination of patent,trademark and trade secret laws, as well as confidentiality, assignment andlicensing agreements, to establish and protect our proprietary and intellectualproperty rights. Our policy is to actively seek patent protection of ourintellectual property in the US and Europe, as well as in other jurisdictionsas appropriate.

 

We engage European andDutch patent attorneys that file, prosecute, defend and enforce patent rightsas well as manage our patent portfolio. Our patent portfolio comprised 1677active cases (i.e. granted patents in force or pending patent applications) asof December 31, 2008. We aggressively protect our inventions and employ aproactive filing strategy with respect to patent applications. Our portfoliomanagement involves active commercialization and enforcement strategiescombined with disposal of cases that we no longer consider commerciallyattractive.

 

The following tablereflects the total number of active cases (pending or granted) throughDecember 31, 2008, organized according to our different fields ofoperation. All figures include acquired and jointly owned patent cases, butexclude 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 patentfilings relate to AdVac-based, live viral vector vaccines based on ourproprietary measles technology, our virosomal technology and classical wholeinactivated virus, split and sub-unit vaccines.

(2)                Antibodiespatent filings relate to antibodies and/or drug targets, excluding the enablingtechnologies that are classified as technology.

(3)                Technologypatent filings primarily relate to cell-based production technology, adenoviralvector technology, STAR-technology and related technology, functional genomicsand target and antibody discovery technology.

 

**Patentfilings**

In 2008, we filed patentapplications for four new inventions, in the fields of vaccines and technology.Our new filings in the vaccine field in 2008 reflect our efforts to furtherstrengthen our patent portfolio in support of product development programs in thatarea. The new filings in the technology area relate to our continuing effort toprotect and commercialize the PER.C6 technology and related uses of the PER.C6cell lines, as well as our AdVac technology. Since we are not actively involvedin gene therapy research and development, no new filings were made in that areaduring 2008.

 

We maintain ageographically diversified filing strategy, depending on our technological andbusiness needs, as well as our view of long-term economic trends anddevelopments in legal systems in various parts of the world. As ofDecember 31, 2008, we had 64 pending applications in the EU (1), 110 pendingapplications in the US (2), 21 international patent applications (socalled Patent Cooperation Treaty (PCT) applications (3)) and 523applications in the rest of the world (4).

 

A significant number ofour pending patent applications are filed under the PCT, which offers acost-effective method to seek provisional worldwide protection in more than 100countries and territories for 30 or 31 months from the filing date. Thedecision to divide the PCT application into territories in which a grantedpatent is desired may be postponed until the obtainable scope of protection andthe technical and commercial usefulness of the invention becomes clearer.During the pendency of a European patent application, a single application maydesignate 35 countries but is counted as one pending application. As soon asthe European patent application is granted it may be validated for each of thedesignated countries by filing a translation into the official language of thatdesignated state. Once such a translation has been filed, we count each suchpatent as a separate patent.

 

(1)                EU refers to filings made under theEuropean Patent Convention. The EU figures do not include European patentapplications designated in PCT applications while still in the internationalphase.

(2)                US figures donot include US patent applications designated in PCT applications while stillin the international phase.

(3)                Figures reflectPCT applications still in the international phase. Our PCT applicationsroutinely designate all territories and contracting states that are party tothe PCT per the international filing date.

(4)                Rest of worldconsists 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 thesecountries 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 patentsin the US and 275 patents in the rest of the world.

 

The following is asummary of the intellectual property rights related to our major products andproduct developments.

 

**Epaxaland Inflexal V**

Epaxal and Inflexal V arethe two virosomal products which are protected by the patent family ‘Immunostimulatingand immunopotentiating reconstituted influenza virosomes and vaccinescontaining them’, which will expire in 2012. In addition, the hepatitis Astrain used to produce Epaxal is claimed in a patent family which will expirein 2012.

 

**Otherproducts**

We have no patent protectionfor the active substances of Quinvaxem, Hepavax-Gene, Vivotif, Dukoral andMoRu-Viraten.

 

We seek patentprotection, whenever possible, commercially feasible and appropriate, inrespect of any technology or product development that is important to ourbusiness. Together with our affiliates in Switzerland, Sweden, Italy and Korea,we have several platform technologies and consequently our intellectualproperty (IP) activities concentrate on protecting these technologies and anyimprovements thereof in the main worldwide vaccine markets of Europe, the US,Canada, Japan and Australia. However, because some vaccine markets are outsidethese countries, we have also sought protection in other countries, such asKorea, India and China. The IP portfolio is constantly reviewed to decide onmaintenance of individual patents or patent families considering parameterssuch as actual product performance, product development, patent term, optionsfor commercialization or out-licensing of non-core IP. Our IP tasks arecoordinated and patents are filed on a worldwide basis by specialized patentattorneys.

 

**Patentenforcement and proceedings**

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

 

**Oppositionsagainst patents from the Group**

In 2005, each ofProbiogen, CEVEC Pharmaceuticals and Serono filed oppositions with the EuropeanPatent Office against one or more of our PER.C6 patents. All PER.C6 technologypatents were upheld after first instance opposition proceedings. The PER.C6patents pertaining to protein and virus production are no longer subject toopposition proceedings. The basic PER.C6 patent is currently under appeal, withCrucell 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 anopposition against our European patent related to our AdVac technology.Following the withdrawal of Cell Genesys from the opposition a swift resolutionof the maintain opposition in Crucell’s favor is now underway.

 

In addition to protectingour intellectual property rights, our commercial success also depends on ourability to operate without infringing the intellectual property rights ofothers. We monitor patent applications to the extent available, patents issuedand publications of discoveries in scientific or patent literature to keepabreast of the activities of others in our field and, with the assistance ofour internal and external patent counsel and other external advisors, assesswhether our activities or products infringe the patents or proprietary rightsof third parties. A number of third parties have been granted patents thatcover technologies related to ours and similar patents may be granted in thefuture. We believe that our current activities do not infringe any valid claimsof patents or any other proprietary rights of third parties. We will considerthe intellectual property rights of others as we continue to identify anddevelop potential products and may have to enter into licensing or otheragreements or use alternative technologies.

 

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**Oppositionsagainst patents from competitors**

Our subsidiary BernaBiotech Korea Corporation (formerly Green Cross Vaccine Corporation) and ourpartner Novartis (formerly Chiron) lodged opposition against a patent ofGlaxoSmithKline (GSK) in Korea. The patent relates to multivalent vaccineformulations, such as our pentavalent vaccine Quinvaxem. In response to theopposition, the patent was revoked by the Korean Intellectual Property Officein December 2004 on the grounds that the subject-matter claimed in thepatent lacks novelty. GSK appealed that decision to the Korean Patent Court.After a hearing which took place in April, 2006, the Korean Patent Courtdismissed the appeal in June, 2006. GSK has appealed this decision before theKorean Supreme Court. In 2008, the Korean Supreme Court confirmed the decisionby the Korean Patent Court and declared the patent to be invalid. This decisionis final.

 

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

 

In addition, productionof Quinvaxem requires a particular vaccine component that may become thesubject of a patent dispute between either GSK and us or GSK and our supplierof that component. The patent on that particular component, held by GSK, is currentlyunder opposition before the patent office and a definitive outcome on thevalidity of the patent is expected to take a number of years. A negativeoutcome of this opposition proceeding could lead to infringement proceedingsbetween GSK and us or GSK and our supplier, although we believe that neither wenor 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.

 

**Technologylicenses from third parties**

 

We licensed numeroustechnology and patents for specific use as part of our technology platformsfrom a number of third parties.

 

We entered into atechnology license agreement with Xoma in the field of bacterial expressiontechnology. This license allows us to develop diagnostic and therapeuticantibodies in the field of infectious disease using phage-display technology.The agreement provides us with options to expand the license to coveradditional disease fields. Under the terms of the agreement, we pay Xomamilestone payments and royalties on products as and when developed and marketedusing the licensed technology.

 

We also hold a licenseunder the phage antibody display patent portfolio owned or controlled byMedImmune (formerly Cambridge Antibody Technology) and MRC, a cross-licensewith Transgene S.A. under which we granted to Transgene a non-exclusive PER.C6license for the manufacture and sale of certain types of vectors for use ingene therapy, and a license for phage antibody-display technology and parthuman, 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 theRockefeller patents related to ex vivo and in vivo targeting of dendritic cellswith the use of viral vectors.

 

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

 

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

 

**Technologylicenses to third parties**

 

We have issued certainlicenses on an exclusive basis. These licenses generally state that we will notprovide the licensed technology to a party other than the exclusive licenseefor use in the area covered by the exclusive license. These licenses alsogenerally provide for higher payments than non-exclusive licenses.

 

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**Industry and scientific overview**

 

In this section wediscuss the development for the biopharmaceutical areas in which we arepredominantly active: vaccines and antibodies.

 

**Vaccines**

 

Vaccines are biologicalsubstances that stimulate an immune response that allows a vaccinatedindividual to resist future infections and disease. The immune systemrecognizes vaccine agents as foreign, destroys them, and ‘remembers’ them. Whenthe virulent version of an agent comes along the body recognizes the proteincoat on the virus, and thus is prepared to respond by neutralizing the targetagent before it can enter cells, and by recognizing and destroying infectedcells before that agent can multiply to vast numbers.

 

**Scientificprogress in vaccines**

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

 

**Vaccineformats**

A variety of vaccineformats are in use today and others are evolving through ongoing research anddevelopment efforts. Some of the most common vaccine formats includelive-attenuated virus vaccines, inactivated whole-killed virus vaccines,sub-unit vaccines, DNA vaccines, recombinant vector-based vaccines, syntheticvaccines and peptide-based vaccines.

 

**Vaccinetechnology development**

A large variety ofvaccine technologies are under development in an attempt to improve safety andoverall vaccine efficacy. The key objectives of current vaccine technologyresearch and development are to make safer vaccines without compromisingefficacy, to generate new vaccines with stronger and broader immunogenicity, tomake vaccines using more efficient manufacturing processes and to make vaccineseasier to administer.

 

**Antibodies**

 

Antibodies are proteinsmade naturally by cells of the body’s immune system. They function as one ofthe body’s principal defense mechanisms against pathogens, which are diseasecausing agents such as parasites, viruses or bacteria. Antibodies recognize andbind to invading pathogens, ultimately eliminating them, thus playing a crucialrole in protecting humans against disease. Because of their bindingcharacteristics, antibodies can distinguish subtle cell differences betweenhealthy and diseased cells. Antibodies are used to develop therapeutic productsthat can

 

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

·                  Block infectiousagents; and

·                  Trigger the deathof a target cell, such as a cancer cell.

 

Antibodies may also beused to bind and neutralize toxic products, to develop diagnostic products todetect viruses or bacteria and as tools in scientific research such as genomicsand proteomics.

 

**Scientificprogress in antibodies**

Methods for generatingmonoclonal antibodies have evolved considerably over the last 25 years. Thetechnology originally involved immunizing mice with a target molecule andisolating relevant antibody-producing cells from the mice. Because monoclonalantibodies of rodent origin are recognized as foreign proteins and are rapidlyeliminated when applied in humans, methods were developed to produce therapeuticantibodies that are of human origin. These antibodies can be developed eitherusing transgenic mice or by means of phage antibody-display technology.Transgenic mice are genetically engineered mice that carry human antibodygenes. This allows the immune systems of mice to generate human antibodies inresponse to any administered antigenic material. Phage antibody-displaytechnology allows human antibody genes to be cloned into bacteriophages, whichare viruses that only infect bacteria. Phages displaying antibody fragmentsthat attach to specific molecules can be selected, enabling isolation ofantibodies against targets and/or enabling the identification of targetmolecules. Phage antibody-display libraries are large

 

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

 

**Competition in product and technology development**

 

The biotechnology fieldis one of rapid change and innovation. We expect that this industry willcontinue to experience significant technological and other changes in the yearsahead. We operate in highly competitive markets and we may experiencecompetition from companies that have similar or other technologies, and otherproducts or forms of treatment for the diseases we are targeting. We also mayexperience competition from companies that have acquired or may acquiretechnology from universities and other research institutions. As thesecompanies develop their technologies, they may develop proprietary positions inthe areas of our core technologies or obtain regulatory approval foralternative technologies or commercial products earlier than we or ourlicensees do. Other companies are developing products to address the samediseases and conditions that we and our licensees target and may have ordevelop products that are more effective than those based on our technologies.We also compete with our licensees in developing new products.

 

**Vaccines**

 

Other biotechnology andpharmaceutical companies that are focused on developing vaccines againstinfectious 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. Weare aware of licensed vaccines that are produced in cell substrates such asMDCK (Madin Darby Canine Kidney cells) and VERO as well as on production platformsbased on embryonated chicken eggs. There are also mouse brain-derivedinactivated vaccines that are produced in several Asian countries. We are awareof other human expression technologies for licensed and marketed vaccines, aswell as human cell lines supporting products in development.

 

**Adenoviralvector technology and other recombinant vectors**

With respect to vectordevelopment, we are aware of several competing technologies, including those ofGenVec and Merck & Co., which may pose a threat to the commercialviability of our AdVac technology.

 

**Antibodies**

 

Other biotechnologycompanies, including UCB Celltech and PDL BioPharma, currently generatehumanized antibodies, and Medarex, Inc., GenMab, and Regeneron producefully-human antibodies from transgenic mice. MedImmune, MorphoSys AG and Dyaxgenerate fully-human antibodies using phage antibody-display libraries that aresimilar to ours. Companies such as XOMA and SCA Ventures, Inc., asubsidiary of Enzon Corporation, are also working in the field of phage displaylibraries and related technologies.

 

In the area of infectiousdisease antibodies, potential competitors include serum antibody companies suchas CSL and Baxter, and monoclonal antibody companies like MedImmune.

 

**Regulations applicable to the biopharmaceuticalindustry**

 

We operate in a highlyregulated industry. Our products require approval of government healthauthorities before they can be sold, and require significant pre-clinicaltesting before approval will be granted. Our research and development andproduction activities involve the use of hazardous materials, includingbiological materials, many of which we need special approval to obtain and allof which are subject to regulation regarding their handling and disposal.Environmental laws and regulations and laws and regulations relating to safeworking conditions, laboratory conditions, and laboratory and manufacturingpractices also apply to our operations. We conduct our operations in a mannerdesigned to comply with applicable regulations and we believe that we have allthe licenses and permits required to carry out our current activities.

 

Obtaining productapproval is a costly and time-consuming process. All of our potential products,and those of our licensees, are either in research or development. Any productsour licensees or we develop will require regulatory clearances prior toclinical trials and additional regulatory clearances

 

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prior to being producedand distributed commercially. These regulatory processes are generallystringent and time consuming. We expect the European Medicines Agency (EMEA) inthe European Union, the FDA in the US, the College ter Beoordeling van Geneesmiddelen(CBG) in the Netherlands and comparable agencies in other countries to subjectnew biopharmaceutical products to extensive regulation. These regulatoryrequirements with which we and our licensees will have to comply will evolveover time due to the novelty of the biopharmaceutical products and therapiescurrently under development. Fortunately, the harmonization of theserequirements is promoted at an international level (International Conferenceson Harmonization (ICH)) to avoid unnecessary repetition of studies when seekingapproval in various countries. Under the current definitions, we believe thatproducts developed using our technologies will be regulated either asbiological products or as drugs.

 

Before marketing a (bio)pharmaceutical product, companies require regulatory approval from the relevantauthorities. To obtain this approval, pre-clinical and clinical trials must beconducted to demonstrate the safety and efficacy of the product candidates.Clinical trials are the means by which experimental drugs or treatments aretested in human volunteers. New therapies typically advance from laboratoryresearch testing through pre-clinical testing and finally through severalphases of clinical human testing. On successful completion of the clinicaltrials and demonstration that the product can be manufactured in a safe andconsistent manner, approval to market the biopharmaceutical may be requestedfrom the EMEA in Europe, the FDA in the US or their counterparts in othercountries.

 

Clinical trials arenormally done in three phases:

 

·                  **PhaseI:**Firstclinical trial of a new compound generally performed in a small number ofhealthy human volunteers, to assess clinical safety, tolerability as well asmetabolic and pharmacologic properties.

·                  **PhaseII:**Clinical studies that test the safety and efficacy of the compound inpatients with the targeted disease with the goal of determining the appropriatedoses for further testing and evaluating study design as well as identifyingcommon side effects and risks.

·                  **PhaseIII:**Large-scale clinical studies with several hundred or several thousandpatients to establish safety and effectiveness for regulatory approval forindicated uses and to evaluate the overall benefit/risk relationship.

 

Our research and developmentand production activities are undertaken in a number of countries around theworld. These activities are subject to strict regulatory requirements ofnational and supranational authorities in the countries in which they areundertaken such as requirements governing the testing, manufacturing andmarketing of pharmaceutical products. In most countries, it is necessary toobtain an approval to market a pharmaceutical or medical product. The grant ofsuch an approval is subject to a detailed evaluation of data submitted by theapplicant related to the quality, safety and efficacy of the product. Manycountries, including member states of the EU and the US, impose extensivetesting and data submission requirements and conduct rigorous technical appraisalsof product candidates. In addition, different regulatory authorities may imposedifferent conditions upon the marketing of a given product or may refuse togrant or require additional data before granting an approval to market aproduct even though the product may have been approved by another regulatoryauthority. Pre-clinical testing, clinical research and regulatory approval of apharmaceutical or medical product is a lengthy and costly process.

 

Once a product isapproved, the manufacturing and marketing of the product remains subject toperiodic review. Changes in applicable regulations, breaches of regulatoryrequirements or the discovery of problems related to the manufacturing, safety,quality or efficacy or stability as well as changes in the characteristic of aproduct inherent to its biological origin may result in the imposition ofrestrictions upon the manufacturing and sale of such products, including atworst withdrawal of the product from the market and/or the revocation of therelevant regulatory approvals.

 

**Pre-qualificationapplicable to the biopharmaceutical industry**

National and regionalgovernments rely on the pre-qualification granted to biopharmaceutical productsby evaluative bodies such as the WHO and, in some cases, simply elect not topurchase products which have not been granted pre-qualification of approval.

 

The WHO Pre-qualificationproject is carried out to facilitate access to medicines that meet unifiedstandards of quality, safety and efficacy.

 

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Pre-qualification wasoriginally intended to give United Nations procurement agencies, such as UNICEFthe choice of a range of quality medicines. With time, the growing list ofmedicines that have been found to meet the set requirements has come to be seenas a tool for anyone purchasing medicines in bulk, including countriesthemselves and other organizations.

 

Any manufacturer wishingtheir medicines to be included in the pre-qualified products list are invitedto apply. Each manufacturer must present extensive information on the product(or products) submitted to allow qualified assessment teams to evaluate itsquality, safety and efficacy. The manufacturer must also open its manufacturingsites to an inspection team that assesses working procedures for compliancewith WHO Good Manufacturing Practices (GMP).

 

The Pre-qualificationproject does not intend to replace national regulatory authorities or nationalauthorization systems for importation of medicines.

 

**Additional information on the Company**

 

**Legalproceedings**

 

In the ordinary course ofbusiness, we have been and may become involved in disputes. Neither we, nor anyof our subsidiaries, has been party to any legal or arbitration proceedingsthat may have, or have had during the 12 months preceding the date of thisdocument, a significant effect on our results of operations or any of oursubsidiaries nor, as far as we are aware, are any such legal proceedingspending or threatened, except for those disclosed in ‘Intellectual Property –Patent Enforcement and Proceedings’ in this section and those disclosed insection ‘5.18 Provisions, commitments and contingencies – legal proceedings’ inthe financial statements.

 

**Property,plant and equipment**

 

Our corporate offices andresearch activities are located in facilities of approximately 8,700 squaremeters in Leiden, the Netherlands. The section of this building that we use inLeiden includes 3,500 square meters of laboratories, with BioSafety Level (BSL)1, BSL 2 and BSL 3 labs. The remainder of the main building is divided into2,800 square meters of office space and 2,400 square meters for storage,technical areas, washrooms, waste destruction and sterilization. In addition,we lease 1,200 square meters of space adjacent to the corporate main building.

 

In 2008, the constructionof the Valerio building, which was named after Crucell co-founder DinkoValerio, was completed. The Valerio building is a GMP Process Technology Centerof 5,400 square meters in Leiden. This new facility can be operated as a BSL 3facility, in which two concurrent products can be produced at the BSL 2 and/orBSL 3 safety levels.

 

The Valerio Buildingmeets the highest environmental and safety standards recommended for thelaboratory activities to be conducted there. The facility has received approvalfrom the Dutch government to produce material for use in humans. Extensiveprecautions will be taken to ensure safety and continuity of operations.Product quality will be strictly monitored, maintained and administeredin-house.

 

Since our 2006acquisitions, we also have office space, laboratories, production facilities,pre-clinical facilities and storage space in Switzerland, Spain, Sweden, Koreaand Italy.

 

The following sets outinformation regarding our main facilities outside the Netherlands.

 

**Bern,Switzerland (owned)**

Crucell has twofacilities located in the canton of Bern. These facilities are FDA/WHO/EMEAapproved and are the primary sites for the manufacturing of Inflexal V,Vivotif, MoRu-Viraten and Epaxal. The combined facilities have a floor space of45,000 m2, 33,000 m2 of which is manufacturing space. The facilities in Bern have thetechnology to manufacture both viral and bacterial vaccines using various manufacturingplatforms within BSL 1 and BSL 2 environments.

 

In addition to themanufacturing, the facilities also have all the necessary support capabilitiesincluding Clinical Affairs, Regulatory Affairs, Quality Control, QualityAssurance, Operations, Finance and Process Development.

 

The Process Developmentgroup has a pilot plant of approximately 2,500 m2. This facility isGMP certified and allows for work to be carried out on BSL 2 products. Thecapabilities within this facility are cell banking, up and downstreammanufacturing, formulation, filling and lyophilisation for bacterial vaccineproduction. This facility is currently being used for life cycle managementactivities as well as conducting CMO activity for one of Crucell’s partners.

 

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**Seoul,Korea (leased)**

Our manufacturingfacilities in Korea are KFDA/WHO approved and are used primarily for theproduction of Quinvaxem and Hepavax-Gene and for formulating and filling vials.The facilities include 3,201 m2 ofproduction and development space, 1,305 m2 of storagespace and 1,818 m2 of office space.

 

In October 2008, weannounced that we will relocate the Korean production facility from Yongin Cityto the Incheon, Free Economic Zone. The investments in the new facility areexpected to total approximately €50 million, with the majority of spending in2009. We entered into a mortgage loan facility in Korea for an amount of KRW 50billion to partly finance the investments in the new Korean facility in 2009.

 

**Madrid,Spain (owned)**

Crucell has its maincentre for filling and packaging operations in Madrid as well as localdistribution. The facility is EMEA approved and it has the capability to fillsyringes on two filling lines, primarily used to fill Inflexal V and Epaxal.The total facility consists of 2,130 m2 ofmanufacturing space, 1,000 m2 of office/ laboratory space and 2,610 m2 ofwarehousing.

 

**StockholmSweden (leased)**

In Sweden, ourmanufacturing facilities are EMEA/ WHO approved and are used for the productionof Dukoral and the recombinant protein rCTB. The manufacturing capabilitiesconsist of large scale cGMP manufacturing of bulk, comprising both bacterialand mammalian systems, formulation and filling, visual inspection and packagingin vials. The site has a total of 4,866 m2 of GMPdevelopment and production space, 5,990 m2 storagespace and 2,662 m2 of office space.

 

In August 2008, weannounced the intention to move Dukoral and rCTB bulk production, formulationand fill/finish activities from Sweden to other sites within the Crucellorganization. The Group is now going through a feasibility study to determinethe scope and timing of the move.

 

In 2008, € 15,787 wasinvested in property, plant and equipment compared to € 27,156 in 2007. Theinvestments in 2008 mainly related to our new Korean production facility in theIncheon, Free Economic Zone, investments in our facilities in Bern, Switzerlandthat will improve current production processes and allow in-house production ofmaterials currently acquired from third parties and investments in our newfilling line in Madrid, Spain.

 

In 2007, € 27,156 wasinvested in property, plant and equipment compared to € 20,337 in 2006. Theinvestments in 2006 and 2007 mainly related to our new GMP production facilityin Leiden, the Netherlands and investments in our facilities in Bern, Switzerland.

 

**Rawmaterials**

 

We require a reliablesupply of materials for the production of our products, including startingmaterials, like the serum-free medium in which we grow our PER.C6 cells, andantigens that are present in certain of our final products. Some of thesematerials are provided by a limited number of third party suppliers. Ourability to conduct research and to launch new products also depends on a steadysupply of these raw materials. Any adverse changes to our existing supplierrelationships will thus likely adversely affect our overall results. Prices forour raw materials are volatile and may change significantly over time. Some ofour raw materials are purchased in foreign currencies and are subject toforeign currency exposures. We try to mitigate these exposures by entering inlong term purchasing arrangements and by hedging the foreign currency exposureson our purchases.

 

**Insurance**

 

We have in place generalthird party public and product liability insurance. Our policy has a limit ofliability and has certain additional conditions to coverage and deductibles. Wedo not insure our phage antibody display library or PER.C6 master cell bank,though identical copies of the same cell bank are stored in multiple locationsin Europe. We believe we carry adequate insurance relating to theft, fire anddamage to the moveable assets within our facilities and other customaryinsurance coverage for most of our activities, including liability insurancecoverage for the members of the Management Board, Management Committee and theSupervisory Board.

 

**Employees**

 

For a breakdown of theemployees by function and geography reference is made to note 5.1 ‘Personnelexpenses’ in the financial statements.

 

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**Materialcontracts**

 

As of the date of thisAnnual Report, we are not party to any contracts (not entered into in theordinary course of business) that are considered material to our results,financial condition or operations.

 

**Dividendsand dividend policy**

 

Crucell N.V. did not payany dividends in 2008. We do not intend to pay dividends on our ordinary sharesfor the coming years, and thereafter only on the condition that our financialperformance is adequate and it is in the shareholders’ interest to paydividends instead of investing the proceeds into the company. Any payment offuture dividends and the amounts thereof will depend upon earnings, statutoryand financial requirements and other factors deemed relevant by our ManagementBoard, and will be subject to withholding tax in the Netherlands. In the eventthat we pay dividends in the future, holders of our American Depository Shares(ADSs) will be entitled to receive payments in US dollars in respect ofdividends on the underlying ordinary shares in accordance with a depositagreement dated October 26, 2000 between The Bank of New York Mellon, asdepository, and us.

 

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**Risk Factors**

 

Our Management Board is responsible for designing,implementing and operating the Company’s internal risk management and controlsystems. The purpose of these systems is to manage in an effective andefficient manner the significant risks to which the Company is exposed. For amore detailed description please see ‘Internal risk management and controlsystem’ in the Corporate Governance section of this Annual Report.

 

An integral part of our internal risk management process isthe identification of risks that could prevent us from reaching our objectives.To identify these risks we performed a corporate risk assessment with theDisclosure Committee of the Company in 2008. The outcome has been discussed inthe Audit Committee and was taken into account in the risk factors describedbelow. We have classified these risk factors in accordance with the categoriesof objectives identified in the COSO model, an integrated internal controlframework established by the Committee of Sponsoring Organizations of theTreadway Commission.

 

You should carefully consider these material risk factors.The risks we face are not limited to the risks listed here. Some risks are notyet known to us and some of the risks that we currently do not believe to bematerial to our operations could prove to be material at a later date. All ofthese risks can materially affect our business, financial condition and resultsof operations.

 

**Strategic**

 

**Concentration of sales**

We are dependent on a limited number of products andcustomers for a majority of our revenues and expect this dependence to continuein the foreseeable future. Our core product portfolio consists of sevenvaccines, namely Quinvaxem, Hepavax-Gene and MoRu-Viraten (paediatric vaccines),Inflexal V (influenza), Dukoral, Epaxal and Vivotif (travel vaccines). Theaggregated revenues for our core product portfolio represented a significantpart of our total product sales in 2008. The sales to our largest customers,which are in the paediatric vaccines area, represented a considerable part ofour net product sales in 2008. In particular, we are highly dependent on salesof Quinvaxem and Inflexal V. If these products were to become subject to anyproblem such as unexpected side effects, product liability litigation, loss ofpatent protection, supply interruptions, regulatory proceedings, publicityaffecting doctor or patient confidence or pressure from competitive products,or if a new more effective treatment is introduced, we could experience asignificant decrease in revenues and an adverse effect on our financialresults.

 

Additionally, our results may fluctuate as a result ofseasonality in our business. In particular, the market for flu vaccines ishighly seasonal so a majority of our distribution and sales tends to occur inthe second half of the year. Delays in any step of our regulatory approval,production or distribution processes could result in a significant salesreduction.

 

**Strategic alliances**

If our current or prospective partners or licensees do notuse our products or technologies, we may not be able to continue to realizerevenues related to those partners or licensees. In particular, our current orprospective licensees or partners may use or develop alternative technologiesor competing products, independently or in collaboration with others, includingour competitors. If any of our licensees or partners becomes involved in abusiness combination or other major corporate transaction, this could cause astrategic shift in their business focus and lead them to discontinue the use ofour products and technologies.

 

Furthermore, we may have disagreements with our licenseesover royalty payments owed to us and may have difficulty collecting thesepayments. Our existing license arrangements generally entitle us to receiveroyalty payments for any products developed using our technology. We depend onour licensees to inform us when they develop products using our technology. Ifour licensees fail to inform us of these developments, we may not otherwiselearn of payments to which we are entitled. In addition, our licensees may havedifficulties making payments to us given the current economic climate or otherfactors. We may also incur significant expenses in collecting royalty payments,or in some instances, may not succeed in collecting these payments at all.

 

**Competition and pricing pressures**

We face competition from other companies in the development,marketing and licensing of new technologies and products. We operate incompetitive markets and compete with companies that have their owntechnologies, products or other forms of treatment for the diseases we target.

 

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Companies may develop proprietary positions in the areas ofour core technologies or obtain regulatory approval for alternativetechnologies or commercial products earlier than we or our licensees do. Othercompanies, including our own licensees, may already have or may in the future developproducts that are more effective or more effectively marketed and sold thanthose based on our technologies. We may not be able to compete effectively withthese companies, and such competition could hamper our ability to bringproducts to market or to license and derive revenue from our technologies.

 

Our existing products may experience pricing pressures fromcompetition with other products on the market. Pricing pressures may furtherincrease due to the introduction of new products, the expansion of productioncapacity, or decreases in demand. We cannot predict with accuracy the impact ofsuch events on our revenues. Products that compete with Quinvaxem have alreadybeen introduced to the market and still others may yet be introduced. Increasedcompetition from these products could result in further pricing pressure onQuinvaxem and a substantially negative impact on our revenues.

 

We experience pricing pressures in the public markets forour products, which typically operate via a tender system. In a tender system,national governments or supranational organizations request proposals for theterms under which a vaccine manufacturer will provide a large quantity of oneor more vaccines. The awarding of the contract is typically based on a numberof factors, including price, supply reliability and product quality. Failure towin one of these public contracts may cause us to be ineligible to supply anational government or supranational organization for a period of time,resulting in a negative impact on our revenues. Pricing pressures may have amaterial adverse effect on our business, results of operations and financialcondition.

 

**Operational**

 

**Product development and clinicaltrials**

All of our products and those of our licensees and partnersmay fail at any stage of development or even after market introduction due tofactors beyond our control. Such failures could have a material adverse effecton our business and prospects.

 

Pre-clinical testing, clinical research and regulatoryapproval of a pharmaceutical or medical product is a very lengthy and costlyprocess, and there is a significant risk of failure at each stage of theprocess should issues arise with respect to the efficacy or safety of aproduct. In particular, because pre-clinical and early clinical studies cannotensure efficacy for humans, actual human studies are required for vaccinedevelopment. Such studies may, however, fail to prove the efficacy of theproduct candidates and are at constant risk of suspension for posingunreasonable health risks. There can be no assurance that any product candidatein our product pipeline will reach or successfully complete the clinicalresearch phase of product development. Although a product that reaches a laterstage of development offers a reasonably high probability of success relativeto products in earlier stages, the chances of failure remain significantthroughout the development process. We have had products fail at later stagesof development in the past. Any or all of our current later-stage productscould fail to be shown sufficiently safe or effective to be brought to market,or could otherwise fail to receive necessary regulatory approvals.

 

Regulators have granted certain of our products provisionalor conditional marketing approval, requiring us to do follow-up studies toassess the safety and efficacy of the product in all or part of the targetpopulation. Poor results in any of these studies may give rise to thewithdrawal of market authorization for some or all indications, in part or in allof the targeted population. Even if the products currently in later-stagedevelopment are introduced to the market, there can be no assurance that demandfor such products will develop or be sustained. If a market does develop, therecan be no assurance that our existing facilities and resources will besufficient to meet demand. Accordingly, there can be no assurance that we willrealize any potential benefits that may be associated with our later-stagedevelopment product portfolio.

 

Our success depends on a sufficient pipeline of new productsand technologies. We therefore commit substantial resources and efforts towardsresearch and development. We have no assurance that these efforts will succeed.Failure to maintain a healthy flow of new products through our pipeline couldresult in higher costs without a proportional increase in revenues.

 

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To a certain extent, we are dependent on third parties withwhom we contract to perform clinical trials of our products. If we fail toadequately manage the work of these third parties, a regulatory authority maydetermine that they have not complied with applicable regulations and thereforemay not approve a product candidate of ours.

 

To continue to develop our core technologies and newproducts, we will need access to biological materials such as virus and tissuesamples, which may be in limited supply. If we lose or do not obtain access tothese biological materials, or if tighter restrictions are imposed on their useor on the information generated from their study, we could be restricted orprevented from conducting certain research and product development.

 

**Interrupted product supply**

Supply interruptions, product recalls or inventory lossescaused by unforeseen events such as manufacturing or distribution interruptionsor regulatory actions, may reduce sales, delay the launch of new products andadversely affect our operating results and financial condition.

 

Our products are manufactured and distributed usingtechnically complex processes requiring specialized facilities, highly specificraw materials and other production constraints. The complexity of theseprocesses as well as strict Group and government standards for the manufactureof our products may expose us to risks affecting our production process.Defects in the manufacturing process, including equipment malfunction, laborproblems, regulatory action, power outages, natural disasters and environmentalfactors may all affect production output. The new EU regulation (EC 1907/2006,REACH), requiring registration of all chemical materials by us and oursuppliers, may cause supply interruptions of raw materials that may in turncause production delays if we need to change our sources of certain rawmaterials or marketing delays due to new validation activities to demonstratesimilarities, or differences in comparability studies between old and newsuppliers. Our vaccine products in particular are subject to the risks of manufacturingproblems and inventory loss because of the difficulties inherent in themanufacture of biological materials, whether in our own facilities or in thefacilities of our suppliers. Vaccine components cannot be sterilized nor canpreservatives be added to the manufactured vaccine. Contamination of ourproducts could result in the loss of entire batches of finished vaccine, whichcould lead to lost sales, damage to customer relations, a significant outlay oftime and money to investigate the cause of the contamination and possibly acostly product recall if contaminated vaccines have already been shipped tocustomers. A disruption in the supply of certain key products or our failure toaccurately predict the demand for those products could have a material adverseeffect on our results.

 

We rely on a separate facility for the manufacture of eachof our products. The marketing and regulatory authorization of biologicalproducts, in particular vaccines, is strongly linked to the production facilityand equipment that are used to manufacture those products. If any event occursthat interrupts production at one of our facilities we may have to transferproduction to a new site, which would be costly and time consuming. Because ofthe short shelf life of biological products, our existing stocks of product maynot be sufficient to supply our customers during such a transition period. Forexample, our manufacturing facility in Korea is our sole production source ofthe Quinvaxem vaccine. As such, we are vulnerable to any event that interrupts,reduces or slows production of Quinvaxem at that facility. We intend torelocate our Quinvaxem operations to another site in Korea and preparations forsuch a move are ongoing. The relocation of the Quinvaxem operations is a complexprocess, which includes the inherent risk of the new facility not coming onlinebefore the old one has shut down. We agreed on the time line and conditions ofthis relocation with parties involved, enabling a smooth transition to the newproduction facility, however there can be no assurance that there will be nodelay in the transition process.

 

We require a reliable supply of materials for the productionof our products, including starting materials, like the serum-free medium inwhich we grow our PER.C6 cells, and antigens that are present in certain of ourfinal products. Some of these materials are provided by a limited number ofthird party suppliers. Any interruption or termination of these supplyrelationships may have adverse effects on our ability to manufacture and sellproducts, particularly if we are unable to source new supplies of the samematerials or adapt our technologies and manufacturing processes to usedifferent starting materials in a timely manner. Our ability to conduct researchand to launch new products also depends on a steady supply of these rawmaterials.

 

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Any adverse changes to our existing supplier relationshipswill thus likely adversely affect our overall results.

 

**Regulatory approval**

We may be unable to obtain regulatory approval tomanufacture and market our new products or may have regulatory approval for themanufacture and marketing of our existing products revoked by regulatory bodiessuch as the US Food and Drug Administration (FDA), the European MedicinesAgency (EMEA), the European Commission or other non-governmental bodies such asthe World Health Organization (WHO).

 

These various regulatory authorities have substantialdiscretion and may impose different conditions upon the marketing of a givenproduct or may refuse to grant, or require additional data before granting, anapproval to market a product even though the product may have already beenapproved by another regulatory authority. National and regional governmentsrely on the (pre) qualification and/or approval of biopharmaceutical productsby evaluative bodies such as the WHO and, in some cases, simply elect not topurchase products which have not been granted (pre) qualification or approval.

 

Once a product is approved, its manufacture and marketingremains subject to regulatory requirements including industry code of conductregulations. Changes in applicable regulations, breaches of regulatoryrequirements or the discovery of problems related to the marketing,manufacture, safety, quality, efficacy or stability of a product, as well aschanges in the characteristics of a manufactured product stemming fromalterations in its biological origins, could result in the imposition of finesor restrictions upon the manufacture and sale of such product, including in theworst case scenario withdrawal of the product from the market altogether and/orthe revocation of necessary regulatory approvals.

 

Regulatory requirements could make product development basedon new technologies highly uncertain because regulatory review of theunderlying technologies is generally required.

 

If regulatory authorities do not approve our new products orother products developed using our technologies, or if they subsequently revoketheir approval, that may impact our revenues generated from the sale ofproducts and/or the licensing of our technologies, which may in turn have amaterial adverse impact on our business, financial condition, results of operationsand prospects.

 

**Intellectual property**

Our efforts to protect our intellectual property rights orto defend ourselves against any claims of infringement of third partyintellectual property may be costly and, if unsuccessful, we may be barred fromusing or licensing our technologies, and from developing and commercializingour new products.

 

Our commercial success depends in part on our ability toobtain and maintain adequate protection of our intellectual property rights,including patents, in our technologies and products in Europe, the US andelsewhere. Our patent-related activities do not afford complete protection toour intellectual property rights. Patents of technology-based enterprises likeours are subject to complex factual and legal issues that may give rise touncertainty as to the validity, scope and priority of a particular patent.There can be no assurance that we will develop products that are patentable,that patents will be granted under pending or future applications or thatpatents granted to us or our collaborators will be of sufficient breadth toprotect against competitors with similar technologies or products. A patentthat is issued to us may be narrower than our application or found to beinvalid. Others may make attempts to copy, reverse engineer or design aroundaspects of our technology, or to obtain and use information that we regard asproprietary. In addition, our patent filings may be subject to challenges. Ourinability to adequately protect our products and technologies in emergingeconomies, such as India and China, may give rise to competition in thosecountries from manufacturers operating in low-cost economies. Due to compulsorylicensing regimes currently in place in many of these underdeveloped anddeveloping jurisdictions, we may not be able to use our intellectual propertyrights to prevent the low-cost manufacture of competing products. Suchcompetition may adversely affect our ability to maintain viable pricing levelsand to sell products in those countries.

 

In addition, production of Quinvaxem requires a particularvaccine component that may become the subject of a patent dispute betweeneither GSK and us or GSK and our supplier of that component. The patent on thatparticular component, held by

 

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GSK, is currently under opposition before the patent officeand a definitive outcome on the validity of the patent is expected to take anumber of years. A negative outcome of this opposition proceeding could lead toinfringement proceedings between GSK and us or GSK and our supplier, althoughwe believe that neither we nor our supplier would be held to have infringed orbe infringing that patent. The outcome of legal disputes is invariablydifficult to predict with accuracy, but in the event GSK were to prevail ininfringement proceedings against us, this would adversely affect our business.

 

For a more detailed discussion of issues surrounding ourpatent enforcement and related proceedings, see ‘Intellectual property – Patentenforcement and proceedings’.

 

We also endeavor to protect our proprietary technologies,processes, know-how and data by entering into confidentiality agreements withour employees, consultants, partners and certain contractors. We have noassurance that these agreements or other trade secret protections will providemeaningful protection to us.

 

Our commercial success also depends on not infringing on thepatents and other proprietary rights of third parties. As our activities in thebiotechnology and biopharmaceutical markets expand and as more patents areissued in the field, the risk that our technologies and products may give riseto claims of alleged infringement increases. Licensing or other arrangementsfor addressing these infringements or violations may not be available, or maynot be available on commercially acceptable terms if we or our licensees areunable to obtain licenses from third parties for the use of their intellectualproperty in the manufacture of our products, we or our licensees may be unableto develop or market those of our products which are based in part on theintellectual property of others.

 

**Product liability exposure**

We may be exposed to product liability and other claims ifthird parties allege that our technologies or products have caused some harm.

 

If a third party sues us for an injury caused by ourproducts or by products developed using our technologies, our liability couldexceed our total assets. Because our vaccines that constitute our core productsare administered to healthy individuals, any adverse health consequencesassociated with such administration may be more apparent and perceived as lesstolerable than similar side effects associated with the treatment of disease.

 

Lawsuits against us arising out of clinical trials mayincrease as more and more licensees utilize our technologies, thereby reducingour control over the manner of their use. We maintain product liabilityinsurance in respect of all of our marketed products. We may seek to obtainadditional product liability insurance in the future, though it cannot beassured that such additional insurance will not be prohibitively expensive, orthat it will cover all of our potential liabilities. If we are unable to obtainsufficient insurance coverage at an acceptable cost or if we are otherwiseunable to protect ourselves against potential product liability claims, weand/or our licensees may be prevented or inhibited from commercializing newproducts.

 

Product liability cases, claims and even relatively minorpotential health risks associated with our products may give rise to adverseregulatory action, and/or a negative market perception of us and our products,resulting in a material adverse effect on our business, financial condition,results of operations and prospects. Though we believe we have strong defensesin these and other cases, including patent infringement cases, there can be noassurance as to the outcome of these matters and we could incur judgments or enterinto settlements of claims that could have a material adverse effect on ourresults of operations.

 

**Qualified personnel**

We may not be able to continue to recruit and retain highlyqualified management, scientific, manufacturing, sales and marketing and financepersonnel. Competition for qualified personnel could be intense and may limitour ability to attract and retain qualified personnel on acceptable terms andmay therefore significantly increase our labor costs. The inability to attractand retain highly skilled personnel on acceptable terms could have a materialadverse effect on our business, financial condition, results of operations andprospects.

 

**Hazardous biological materials**

Our manufacturing, research and development processesinvolve the controlled use of hazardous biological materials. Certain of ourlaboratory

 

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facilities are qualified up to Biosafety Level III(BSL-III), which allows us to work on-site with hazardous biological materials.Our operations may also produce hazardous biological waste. Given theinherently dangerous nature of certain biological materials we may work with inour BSL-III laboratory facilities, we cannot eliminate the risk of accidentalcontamination or discharge or any injuries that result therefrom. Various lawsand regulations govern the use, manufacture, storage, handling and disposal ofthese materials. We could be subject to civil damages and significant adversepublicity in the event of an improper or unauthorized release of, or exposureof individuals to, hazardous materials.

 

**Competition laws**

We cannot be certain that our licensing or other agreementsare not in breach of applicable competition laws and will not be rendered voidby the relevant competition authorities. In the past, we have not notified theEuropean Commission competition authorities of any of our licensing or otheragreements or sought clearance from any other competition authority. We takethe view that these agreements are unlikely to be found to infringe EuropeanUnion or other applicable competition regulations. It is possible, however, thatcurrent or future licensing or other agreements of ours could be found toinfringe applicable competition regulations. If so, among other things, we maybe subject to fines and claims of damages and these agreements may beconsidered void and unenforceable. Under the European Union’s 2004 TechnologyTransfer Block Exemption Regulation, we may be required to review and possiblyamend existing license and technology transfer agreements in the future. Forexample, if certain market share thresholds will be or have been reached in therelevant markets by those third parties that use our technologies to producetheir products, the Regulation may require us to revise our agreements withthose parties to ensure the agreements are in compliance with applicableEuropean competition law.

 

**Financial**

 

**Substantial use of capital**

In the past, we have had to raise additional funds to acquireother companies and assets while continuing to research and develop ourtechnologies and products. We also have incurred accumulated net operatinglosses since our incorporation.

 

Although the Company generated positive cash flow in 2008,we may have cash outflows and net operating losses in the future due to theoccurrence of events that would consume our available capital resources. We mayseek additional funding through public or private financing (including debt orequity financing), strategic alliances or other arrangements. We may not haveaccess to additional financing and, if we do, it may not be on favorable terms.If we fail to raise sufficient funds, we may have to forego acquisitions,reduce our capital expenditures, scale back our product development, reduce ourworkforce and/or license products or technologies to others that we mightotherwise commercialize ourselves.

 

**Weakness in the global economy couldnegatively affect our business**

The weakness of the global economy in 2008 was a challengefor many companies worldwide. The ongoing financial crisis became prominent inSeptember 2008 with the failure or near-failure of several United Statesand European based financial institutions and the resulting deterioration infinancial and market conditions spread around the globe. In recent months thefinancial crisis has adversely affected businesses in many industries andgeographical areas all over the world at an unexpected pace.

 

The weakness of the global economy has not had a significantimpact on our liquidity or on our ability to derive revenues from ouroperations. However, there can be no assurance that our liquidity will not beaffected by recent and possible future changes in global financial markets andglobal economic conditions.

 

Financial distress and bankruptcies experienced by ourcustomers and suppliers resulting from the recent global economic slowdowncould impair their ability, as the case may be, to purchase our products, payfor products previously purchased or meet their obligations to us under supplyagreements. This could lead to a material adverse effect in our revenues.

 

We do not know how long the current financial crisis willcontinue nor how severe it will ultimately be. In the long run, we may beaffected if governmental agencies or supranational organizations decide torealign priorities and allocate fewer funds to public health initiatives. Thefinancial crisis may have

 

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a negative impact on the travel pattern, which is the keydriver of our travel vaccines.

 

**Foreign currency risk**

The majority of our total revenues in 2008 were incurrencies other than our functional currency, the Euro. Currency fluctuationsmay cause significant economic foreign currency exposure and transactionalforeign currency exposure. Fluctuations in the currencies in which we dobusiness relative to the Euro have affected our results in the past and, giventhe current economic climate and the substantial recent fluctuations ininterest rates and currency exchange rates, may do so again in the future.Notwithstanding our efforts to foresee and mitigate the effects of changes infiscal circumstances, we cannot predict with certainty changes in currency andinterest rates, inflation or other factors affecting our business. Because ofthe variability of currency exposures and the potential volatility of currencyexchange rates, we may suffer significant foreign currency losses in thefuture, particularly if the Euro strengthens relative to currencies in which asignificant number of our operations are conducted. We engage on a limitedbasis in derivative transactions to hedge our foreign currency exposure. Seesection 3.2 ‘Foreign currency risk’ in the financial statements for furtherdetails on our foreign currency risk.

 

**Taxation**

We are subject to the tax laws of the countries in which weoperate as well as to European tax law. We may incur additional tax charges,including penalties, resulting from changes in tax laws or the interpretationof tax laws or from failure to comply with obligations required by relevant taxauthorities. Disputes with tax authorities may arise with regard to theinterpretation and application of tax laws. If any of these risks materializes,leading to tax costs associated with particular transactions being greater thananticipated, it could affect the profitability of our business as a whole. Seenote 5.4 ‘Income tax’ in the financial statements for further details on ourtaxation.

 

**Compliance and other**

 

**Ethical, legal and social issuesrelated to the use of genetic technology**

The use of genetic technology and materials derived fromhuman fetal tissue, such as our PER.C6 technology, may raise ethical, legaland/or social issues that could hinder regulatory approval, patentability ormarket acceptance of our technologies and the products developed using them. Ifthese risks materialize they could have adverse consequences for our businesssince they could reduce or eliminate altogether potential markets for our ownor our licensees’ products.

 

**Protective measures included in articlesof association**

Protective measures included in our articles of association,in accordance with Dutch law, may prevent corporate action and/or shareholdertransactions that might be in the best interests of our Company or theshareholders. Among other things, our articles of association provide that ourSupervisory Board may make binding nominations for the election of its members.Only a shareholders’ resolution approved by an absolute majority of the votescast, representing more than one-third of our total outstanding shares, canoverride those nominations. Furthermore, under Dutch law, we may issuepreference shares to a foundation, Stichting Preferente Aandelen Crucell, orthe Preferred Foundation, giving it preferred dividend rights, which may dilutethe voting rights held by the holders of other classes of shares. The PreferredFoundation has an option to acquire a number of preference shares equal to thenumber of our total outstanding shares. The chairman of our Supervisory Board,Jan Oosterveld, and four independent members comprise the board of thePreferred Foundation. These and other provisions in our articles of associationmay have the effect of delaying, deterring or preventing corporate action thatmight be in the best interest of the Company or our shareholders and/orpreventing our shareholders from selling their ordinary shares or ADSs at apremium to the market price. See ‘Other information’ and ‘Articles ofAssociation and Share Capital’ for additional information regarding thepreference shares and our articles of association.

 

**US and other non-Dutch holders ofour ordinary shares may not be able to exercise pre-emption rights.**

In the event of an increase in our share capital, holders ofour ordinary shares are generally entitled to certain pre-emption rights unlessthese rights are excluded by a resolution of the General Meeting ofShareholders or a meeting of the Management Board if so delegated by theGeneral Meeting of Shareholders. However, US holders of our ordinary

 

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shares may not be able to exercise pre-emption rights unlessa registration statement under the Securities Act is declared effective withrespect to the shares issuable upon exercise of such rights or an exemptionfrom the registration requirements is available. No assurance can be given thatany registration statement will be filed or, that if filed, it will be declaredeffective or that any exemption from registration would be available to enablethe exercise of a US holder’s pre-emption rights.

 

**Shareholders may have difficultyprotecting their interests as shareholders as we are a Dutch limited liabilityCompany.**

Dutch law and our articles of association govern issuesregarding the legal organization, internal constitution, corporate authorityand liability of members of our Management Board and Supervisory Board. Most ofour offices and assets are located outside the US. In addition, a majority ofthe members of our Supervisory Board, all of the members of our ManagementBoard and management team are residents of, and most of their assets arelocated in, jurisdictions outside the US. As a result, it may be difficult toserve process on these persons within the US. It may also be difficult toenforce a US court judgment against them in a US court or in a Dutch court orto enforce a Dutch court’s judgment against them in a US court. This caninclude actions under the US securities laws. In addition, it may be difficult to enforce, in original actions broughtin courts in jurisdictions located outside the US, claims under US securitieslaws. For a more complete discussion of potential difficulties in protectingyour rights, see ‘Articles of Association and Share Capital – Enforcement ofCivil Liabilities’.

 

**Share price volatility**

Our ordinary shares and ADSs may have a highly volatiletrading price. Shareholders may not be able to resell their ordinary shares orADSs at or above the price they pay for them, the ADSs may vary in value andour share price may render us vulnerable to a takeover bid. Our ordinary sharesare listed on NYSE Euronext Amsterdam and the SWX Swiss Exchange, and our ADSsare listed on the NASDAQ Global Select Market. The trading prices of ordinaryshares of biotechnology companies in general have experienced significantvolatility in the past and are likely to continue to be volatile. In addition,any negative change in the public’s perception of the prospects ofbiotechnology companies could depress our ordinary share or ADS priceregardless of our results of operations. Other broad market and industryfactors, such as discussions on business combinations and a weak global economymay affect the trading price of our ordinary shares and ADSs, regardless of ourperformance.

 

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**Operating and FinancialReview and Prospects**

 

The following discussionsshould be read in conjunction with our financial statements and the notesthereto included elsewhere in this Annual Report. We refer to ‘Forward-lookingstatements’ as well as to ‘Risk factors’ for certain factors that may affectour operating results. Unless otherwise mentioned all amounts in this sectionare in thousands of Euro, except share and option data.

 

**General**

 

We are a fully integratedbiopharmaceutical Company, focused on developing, producing and marketingvaccines and antibodies against infectious diseases for private and publicmarkets worldwide. We have a portfolio of well-known vaccines and a pipeline ofpotential new vaccines and antibodies. We combine proprietary technologies todiscover, develop and produce a variety of vaccines and antibodies to combatinfectious diseases.

 

**Summaryof the full year financial results**

 

Total revenue and otheroperating income for the year ended December 31, 2008 were € 283,309,which represent a 32.9% increase over the € 213,116 in revenues and otheroperating income reported in 2007. The increase in total revenues and otheroperating income is mainly attributable to increased sales of paediatricvaccines, travel and endemic vaccines and higher license revenues.

 

Total operating expensesamounted to € 129,691 (2007: € 125,918). R&D expenses of € 70,229 (2007: €63,995) reflect our continued focus on (pre-) clinical development.

 

We achieved profitabilityfor the full year 2008, reporting a net profit of € 14,586, compared to a netloss of € 42,910 in 2007. This amounted to € 0.22 net profit per share in 2008,compared to a net loss per share of € 0.66 in 2007.

 

Cash and cash equivalentsat December 31, 2008 amounted to € 170,969 (2007: € 163,248).

 

Our operating cash flowwas € 254 negative in 2008, compared to a positive operating cash flow of €22,194 in 2007. The reduction is mainly due to the build-up of Quinvaxeminventory for sales in 2009.

 

**Segments**

 

We operate in onereportable segment, which comprises the development, production and marketingof products that combat infectious diseases. The Group early adopted IFRS 8 ‘OperatingSegments’, which replaces IAS 14, ‘Segment reporting’, as of January 1,2007. The Management Board is identified as the ‘chief operating decision maker’.The Management Board reviews the consolidated operating results regularly tomake decisions about resources and to assess overall performance.

 

In 2007, our segmentationwas based on the two segments that were reported to our Management Board:

 

·                  Vaccines:developing, producing and marketing vaccines worldwide to combat infectiousdiseases; and

·                  Proteins: leverageour novel, proprietary technologies to develop monoclonal antibodies to combatinfectious diseases.

 

In 2008, the ManagementBoard decided to integrate both business units and reduce the complexity of ourorganisation. In 2008, the separate segments were no longer reported to theManagement Board.

 

**Retrospectiveapplication of newly adopted accounting policies**

 

We adopted IFRIC 14, ‘IAS19 – The limit on a defined benefit asset, minimum funding requirements andtheir interactions’ in 2008. This interpretation provides guidance on assessingthe limit of the surplus in a defined benefit pension plan that can berecognized as an asset. It also explains how a pension asset or liability maybe affected by a statutory or contractual minimum funding requirement. Ourpension fund in Switzerland has a minimum funding requirement and theapplication of the interpretation resulted in an increase in the assetsrecorded on the Group’s balance sheet of € 7,853 (2007: € 4,918, 2006: € 746)and a corresponding increase in the Group’s equity of € 6,165 (2007: € 3,861,2006: € 586). As a result of the adoption of IFRIC 14, the result for the yearincreased by € 2,101 (2007: € 3,037, 2006: € 367). As required by IFRS, allcomparative figures were adjusted as if the interpretation had always beenapplied.

 

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**Acquisitionsand divestments**

In 2006, we acquired acontrolling interest in the Swiss biotech Company Berna Biotech AG (BernaBiotech), in a share exchange. In September 2006, we acquired theremaining 1.6% minority interest in Berna Biotech. In October 2006, wepurchased the assets and liabilities of Florida-based Berna Products Corp.(BPC) from Acambis plc. In November 2006, we acquired Stockholm-based SBLVaccin Holding AB (SBL) from the private equity firm 3i and the financial groupSEB.

 

2007 is the first yearthat includes the consolidated results of the acquired companies for a fullyear. Our 2006 financial results included one month of SBL’s financial results,three months of BPC’s financial results and ten months of Berna Biotech’sfinancial results.

 

**Economicand industry-wide factors**

 

Various economic andindustry-wide factors are relevant to us and could affect our business,including the factors set forth below.

 

Our financial strengthand ability to adapt to the current market and economic conditions aredependent, in part, on the success of our existing products, the cost ofbringing novel products to market and the success of our licensees indeveloping commercial products using our technology. Our industry is subject toextensive government regulation, and we must make significant expenditures tocomply with these regulations. Our business success is dependent in asignificant part on our success in establishing intellectual property rights,either internally or through licenses of third-party intellectual propertyrights, and protecting our intellectual property rights.

 

Our sales are exposed toseasonal variations, and the majority of our sales is made in the second halfof the year. This is specifically the case for our influenza vaccines asvaccination programs mainly take place in the second half of the year.Furthermore, our travel vaccines sales are subject to seasonal travel patterns.The 2008 flu season was comparable to 2007 in our major markets in Europe.

 

To be successful, we mustretain qualified clinical, scientific, marketing, administrative and managementpersonnel. We face significant competition for experienced personnel. In 2008,the number of employees of the Group remained stable at 1,126 employees (2007:1,126).

 

The above economic andindustry-wide factors are discussed in more detail in the section ‘Risk factors’.

 

**Result of operations**

 

**Revenues**

 

The table below shows ourrevenues for each of the years in the three-year period ended December 31,2008 and the percentage change between these periods.

 

In thousands of Euro

 
|                |   | Year ended December 31, |       | % Change |       |
|---------------------|--------|----------------------------------------|------------|---------------|------------|
|                |   | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Product sales       |   | **226,055**                            |       | 177,569       |       | 103,918 |   | 27.3 |   | 70.9 |   |
| License revenues    |   | **30,202**                             |       | 12,211        |       | 16,955 |   | 147.3 |   | (28.0 | ) |
| Service fees        |   | **10,900**                             |       | 14,006        |       | 10,694 |   | (22.2 | ) | 31.0 |   |
| **Total  revenues** |   | **267,157**                            | ** ** | **203,786**   | ** ** | **131,567** | ** ** | **31.1** | ** ** | **54.9** | ** ** |

 

In 2008, total revenuesincreased by € 63,371 or 31.1% from € 203,786 in 2007 to € 267,157 in 2008. Theincrease is attributable to an increase in product sales of € 48,486 or 27.3%and license revenues of € 17,991 or 147.3%. The increase is partly offset by adecrease in revenue from service fees of € 3,106 or (22.2%).

 

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Total revenues grew by €72,219 in 2007 or 54.9% from € 131,567 in 2006 to € 203,786 in 2007. The increaseis primarily attributable to increases in sales of paediatric vaccines by €41.438 or 115.3% and travel and endemic vaccines by € 24.210 or 104.9% andhigher revenues related to the acquisitions made in the second half of 2006.

 

Reference is made to ‘4.4Geographical segments’ in the financial statements for the breakdown of ourrevenues by geographic segment.

 

**Productsales**

Our product sales by typeof product in 2008, 2007 and 2006, as well as the percentage change between theperiods, are shown below:

 

In thousands of Euro

 
|                        |       | Year ended December 31, |       | % Change |       |
|-----------------------------|------------|----------------------------------------|------------|---------------|------------|
|                        |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Paediatric vaccines         |       | **111,039**                            |       | 77,371        |       | 35,933 |   | 43.5 |   | 115.3 |   |
| Respiratory vaccines        |       | **32,474**                             |       | 33,188        |       | 40,386 |   | (2.2 | ) | (17.8 | ) |
| Travel and endemic vaccines |       | **55,572**                             |       | 47,282        |       | 23,072 |   | 17.5 |   | 104.9 |   |
| Other products              |       | **26,970**                             |       | 19,728        |       | 4,527 |   | 36.7 |   | 335.8 |   |
| **Total  product sales**    | ** ** | **226,055**                            | ** ** | **177,569**   | ** ** | **103,918** | ** ** | **27.3** | ** ** | **70.9** | ** ** |

 

In 2008, product salesgrew by € 48,486 or 27.3%. The increase is primarily attributable to increasedsales of paediatric vaccines of € 33,668 or 43.5%, travel and endemic vaccinesof € 8,290 or 17.5% and other products of € 7,242 or 36.7%.

 

In 2008, paediatricvaccines grew mainly due to increased Quinvaxem sales. Supranational organizationsawarded us additional contracts for Quinvaxem and Hepavax Gene amounting to $140million for the period 2008-2009. Travel and endemic vaccines showedconsiderable growth on an overall basis. ‘Other products’ include sales ofvaccine and proteins trade goods that we distribute for third parties and alsosales of conjugates to Wyeth. The increase in other products mainly relates toincreased sales under our distribution agreement with Talecris as 2008 includesa whole year of sales under this agreement for the first time.

 

Our core productportfolio consists of seven vaccines: Quinvaxem, Hepavax-Gene, MoRu-Viraten(paediatric vaccines), Inflexal V (respiratory), Dukoral, Epaxal and Vivotif(travel and endemic vaccines). The aggregated revenues for our core productportfolio amounted to € 191,631 in 2008 (2007: € 151,791, 2006: € 92,144) andrepresented 84.8% (2007: 85.5%, 2006: 88.7%) of our total product sales.

 

In 2008, sales to our twolargest customers, which are in the paediatric vaccines area, amounted to €85,142 or 37.6% and € 18,390 or 8.1% of net product sales. In 2007, sales tothese customers accounted for € 45,480 or 25.6% and € 23,457 or 13.2% of netproduct sales, respectively.

 

In 2007, product salesgrew by € 73,651 or 70.9%. The growth in revenue from product sales was mainlydue to increased revenue from sales of paediatric vaccines of € 41,438 or115.3%, travel and endemic vaccines of € 24,210 or 104.9% and sales of otherproducts of € 15,201 or 335.8%. The increase in product sales was partly offsetby a decrease in respiratory vaccines of € 7,198, mainly caused by lowerinfluenza vaccine sales as a result of a mild flu-season in 2007.

 

The majority of our salesare export sales. Domestic product sales amount to € 3,743 or 1.7% (2007: € 717or 0.4% and 2006: nil). Almost all of our license revenues and service fees arebilled to foreign parties.

 

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**Licenserevenues**

In 2008, license revenuesincreased by € 17,991 or 147.3% to € 30,202 compared to 2007. This increasemainly results from milestone payments related to the rabies and influenzaprograms from sanofi pasteur and upfront fees received from Talecris for theexclusive production rights of two specific proteins.

 

In 2007, our licenserevenues decreased to € 12,211, a reduction of € 4,744 or 28.0% compared to2006, which was mainly due to one-off issuance fees included in contracts withDSM and sanofi pasteur in 2006. The underlying agreements with DSM and sanofipasteur are still in effect. The decrease was partly offset by recognizedissuance fees on contracts signed in 2007 with MedImmune, ADImmune and Wyeththat totaled € 4.3 million and numerous other smaller contracts.

 

In December 2007, wesigned an exclusive collaboration and commercialization agreement with sanofipasteur related to our rabies monoclonal antibodies. We received a payment of €10.0 million, which will be recognized as license revenues over the period thatthe development activities are performed. We will be eligible for additionalpotential milestone payments of up to € 66.5 million.

 

**Servicefees**

In 2008, service feesamount to € 10,900, a decrease of € 3,106 or 22.2% compared to 2007. In 2008, servicefees on the sanofi pasteur influenza project were less compared to 2007.Service fees include revenues relating to various collaboration agreements.Typically we do not retain the residual interest on products developed underthese agreements. We are more selective in the programs that we want to carryout and we tend to put more focus on the profitability of these types ofprograms.

 

In 2007, service feesamounted to € 14,006, an increase of € 3,312 or 31.0% compared to 2006. Thisincrease was mainly attributable to consulting services provided to ADImmuneand increased service fees in Sweden realized on miscellaneous projects.

 

**Costof goods sold**

The following table showsour cost of goods sold for each of the years in the three-year period ended December 31,2008 and the percentage change between these periods.

 

In thousands of Euros

 
|                          |       | Year ended December 31, |       | % Change |       |
|-------------------------------|------------|----------------------------------------|------------|---------------|------------|
|                          |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Cost of product sales         |       | **138,790**                            |       | 124,557       |       | 83,518 |   | 11.4 |   | 49.1 |   |
| Cost of service fees          |       | **6,965**                              |       | 10,327        |       | 6,971 |   | (32.6 | ) | 48.1 |   |
| **Total  cost of goods sold** | ** ** | **145,755**                            | ** ** | **134,884**   | ** ** | **90,489** | ** ** | **8.1** | ** ** | **49.1** | ** ** |

 

**Costof product sales**

Costs of product salescomprise direct labor, materials, and overhead costs incurred in performingwork under various

collaboration agreementsdirectly related to product sales. The cost of product sales increased in 2008mainly due to an increase in product sales of 27.3%. This increase was partlyoffset by the reduction in purchase price allocation charges in 2008. The 2008 costof product sales includes additional expenses of € 3,473 (2007: € 10,191)relating to the purchase price allocations of the businesses acquired by theGroup. The gross margin on product sales amounts to 38.6% (2007: 29.9%). Thepercentage increase in gross margin is mainly due to the strengthening of theUS Dollar in the second half of 2008, product-mix changes, improvements inproduction performance and a reduction of the purchase price allocation chargesin 2008.

 

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**Costof service fees**

Cost of service feescomprises direct labor, materials and overhead costs related to work undervarious collaboration agreements. We do not retain the residual interest onproducts developed under the agreements and will normally not have ownership ofintellectual property rights on these products.

 

In 2008, the cost ofservice fees decreased by € 3,362 or 32.6% compared to 2007. The decreasereflects the lower level of service fee revenues, which reduced our expenses.The gross margin on service fees was 36.1% in 2008 compared to 26.3% in 2007.In 2008, there has been a shift in strategy to focus more on programs thatgenerate higher margins.

 

In 2007, the cost ofservice fees increased by € 3,356 or 48.1% compared to 2006, which is primarilyattributable to the increase of the service fee revenues by 31.0%. The grossmargin on service fees was 26.3% in 2007 compared to 34.8% in 2006.

 

**Otheroperating income**

 

The following table showsour other operating income for each of the years in the three-year period endedDecember 31, 2008 and the percentage change between these periods.

 

In thousands of Euro

 
|                              |       | Year ended December 31, |       | % Change |       |
|-----------------------------------|------------|----------------------------------------|------------|---------------|------------|
|                              |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Government grants                 |       | **5,380**                              |       | 7,086         |       | 6,901 |   | (24.1 | ) | 2.7 |   |
| Other operating income            |       | **10,772**                             |       | 2,244         |       | 2,455 |   | 380.0 |   | (8.6 | ) |
| **Total  other operating income** | ** ** | **16,152**                             | ** ** | **9,330**     | ** ** | **9,356** | ** ** | **73.1** | ** ** | **(0.3** | **)** |

 

**Governmentgrants**

In 2008, governmentgrants decreased by € 1,706 or 24.1% compared to 2007. The grants decreased asseveral projects were completed in 2007. The most significant grants in 2008were received from NIH and from SenterNovem, an agency of the Dutch Ministry ofEconomic Affairs, for numerous research projects.

 

In 2007, governmentgrants were stable compared to 2006. The most significant grants in 2007 werereceived from NIAID for further research on HIV and from SenterNovem.

 

**Otherincome**

Other income mainlyconsists of the reimbursement of development costs and funding received fromnon-governmental agencies. Other income also includes non-core businesstransactions such as the sale of property, plant and equipment and incomegenerated from training courses. Other income increased by € 8,528 or 380.0%mainly due to reimbursement of development costs on the rabies program, forwhich the partnership with sanofi pasteur started in 2008, and increasedfunding from non-governmental agencies in 2008.

 

The amount of otherincome in 2007 was stable compared to 2006.

 

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**Otheroperating expenses**

 

The following table showsour other operating expenses for each of the years in the three-year periodended December 31, 2008 and the percentage change between these periods.

 

In thousands of Euro

 
|                                 |       | Year ended December 31, |       | % Change |       |
|--------------------------------------|------------|----------------------------------------|------------|---------------|------------|
|                                 |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Research and  development            |       | **70,229**                             | ** ** | 63,995        |       | 67,606 |   | 9.7 |   | (5.3 | ) |
| Selling, administrative  and general |       | **64,350**                             | ** ** | 61,752        |       | 46,732 |   | 4.2 |   | 32.1 |   |
| Restructuring                        |       | **—**                             | ** ** | —        |       | 3,120 |   | — |   | — |   |
| (Reversal of impairment)/ impairment |       | **(4,888**                             | **)**      | 171           |       | 30,416 |   | (2,958.5 | ) | (99.4 | ) |
| **Total  other operating expenses**  | ** ** | **129,691**                            | ** ** | **125,918**   | ** ** | **147,874** | ** ** | **3.0** | ** ** | **(14.8** | **)** |

 

**Researchand development expenses**

Research and developmentexpenses consist of personnel expenses, laboratory expenses, technologypurchases, patent related fees, technology license fees, depreciation ofproperty, plant and equipment and amortization of intangible assets related toresearch and development, and lease expenses for lab space and equipment lease.Research and development expenses also include fees we pay to third parties whoconduct research on our behalf.

 

Research and developmentexpenses increased in 2008 by € 6,234 or 9.7% compared to 2007. This increaseis mainly attributable to increased expenditures on the rabies program forwhich two phase II clinical trials were performed.

 

Research and developmentexpenses comprised 54.2% of total other operating expenses in 2008 (2007:50.8%). We expect that research and development expenses will continue to be asignificant portion of our overall expenses in the future.

 

In 2007, research anddevelopment expenses decreased by € 3,611 or 5.3% compared to 2006, which wasprimarily attributable to the cost-saving effect of the restructuring programthat took place in 2006 to centralize research and development activity inLeiden and phasing out work on both a vaccine candidate as well as on programsat the Center of Mammalian Cell Culture.

 

**Selling,general and administrative expenses**

Selling, general andadministrative expenses consist of personnel expenses and other operatingexpenses in marketing and sales, finance, human resources, investor relations,legal and general management.

 

These expenses increasedin 2008 by € 2,598 or 4.2% to € 64,350 in 2008 compared to € 61,752 in 2007.This increase is primarily due to the overall growth of the Group as a whole.Specific items are the increased distribution and sales expenses as a result ofincreased revenues, annual salary increases and the recognition of specificprovisions. The increase in selling, general and administrative programs ispartly offset by cost reductions realized through our Healthy Ambition program.

 

Selling, general andadministrative expenses increased in 2007 by € 15,020 or 32.1% to € 61,752 in2007, compared to € 46,732 in 2006. Selling costs increased as a result of thecost base of the companies acquired in 2006, which are for the first timeincluded for a whole year in 2007. General and administrative expenses alsoincluded integration costs of the 2006 acquisitions and additional costsrelating to compliance with internal control over financial reporting requirementsunder US law.

 

**Restructuring**

A restructuring programin our Italian subsidiary Berna Biotech Italia Srl. was executed in 2008. Atotal provision of € 684 was recognized, of which € 610 is recorded inrestructuring provisions as per year-end

 

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2008. The majority ofthis provision was paid in the first quarter of 2009. The costs for therestructuring are included in the applicable operating expenses as they have anoperating nature.

 

There were norestructuring expenses in 2007.

 

The restructuring expensein 2006 is related to centralizing R&D functions in Leiden and phasing outR&D projects in Switzerland, including the candidate vaccine Aerugen, andthe Center of Mammalian Cell Culture. The decision to concentrate R&D inLeiden was made to increase efficiency in R&D spending. The provision wasrecognized in 2006 as recognition criteria were met at that time. The actualreduction in the number of staff employed was effected in the first quarter of2007.

 

**Impairment**

In the first quarter of2008, we reversed € 5,219 of previously impaired property, plant and equipment.In 2008, we entered into an exclusive agreement with Wyeth Pharmaceuticals inwhich we will develop and manufacture certain components of a vaccine for useby Wyeth in clinical studies. The contract manufacturing takes place in one ofthe two buildings that were impaired in 2006 as described below. We reassessedthe recoverable amount of the asset and as the outcome exceeded the carryingvalue of nil, we partially reversed the previously recognized impairment losson this building.

 

In the fourth quarter of2008, we recognized an impairment charge of € 331 for the animal housingfacility in Bern, Switzerland that was not in use anymore. As there was noalternative use for this building for any of the Group’s other activities andthe building cannot be sold directly to other parties as it is on our campus,the Group impaired the carrying value to zero.

 

In 2007, we recognized animpairment charge of € 171 for a warehouse in Korea that was demolished to makeway for the construction of a light railway.

 

In 2006, we recognized atotal impairment of € 30,416. The impairment related to two buildings inSwitzerland including installed equipment, for an amount of € 19,568 and toacquired in-process research and development related to the Tetra vaccine foran amount of € 10,848.

 

**Operatingprofit/ (loss)**

 

The following table showsour operating profit/ (loss), for each of the years in the three-year periodended December 31, 2008 and the percentage change between these periods.

 
|                          |       | Year ended December 31, |       | % Change |   |
|-------------------------------|------------|----------------------------------------|------------|---------------|--------|
|                          |       | **2008**                               |       | 2007          |   | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| **Operating  profit/ (loss)** | ** ** | **7,863**                              | ** ** | **(47,686**   | **)**  | **(97,440** | **)** | **(116.5** | **)** | **(51.1** | **)** |

 

The movements inoperating loss are explained by the operating results discussed above.

 

**Financialincome and expense, net**

 

The following table showsour financial income and expenses, net, for each of the years in the three-yearperiod ended December 31, 2008 and the percentage change between theseperiods.

 
|                                            |       | Year ended December 31, |       | % Change |       |
|-------------------------------------------------|------------|----------------------------------------|------------|---------------|------------|
|                                            |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Financial income and expenses                   |       | **(2,662**                             | **)**      | 1,378         |       | 1,747 |   | (293.2 | ) | (21.1 | ) |
| Results  investments non-consolidated companies |       | **(128**                               | **)**      | (996          | )          | (1,956 | ) | (87.1 | ) | (49.1 | ) |
| Results  on disposal non-consolidated companies |       | **1,570**                              | ** ** | 2,186         |       | — |   | (28.2 | ) | — |   |
| Disposal of subsidiaries                        |       | **(367**                               | **)**      | —        |       | — |   | — |   | — |   |
| **Total  financial income/ (expense), net**     | ** ** | **(1,587**                             | **)**      | **2,568**     | ** ** | **(209** | **)** | **(161.8** | **)** | **(1,328.7** | **)** |

 

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**Financial income and expenses**

Financial income and expenses mainly consist of interestincome and expenses, foreign exchange losses and other financial expenses.

 

In 2008, the negative result on net financial income andexpenses totaled € 2,662 and consists of interest income of € 5,021, foreignexchange losses of € 3,926, interest expenses of € 2,719 and other financialexpenses of € 1,038.

 

The net financial income and expenses decreased by € 4,040or 293.2% compared to 2007. The decrease is primarily attributable to foreignexchange losses of € 3,926. These losses mainly resulted from a weaker Euro inconjunction with Euro receivables in Switzerland, as the Swiss Franc is thefunctional currency of our subsidiary Berna Biotech AG. In addition, foreignexchange losses were realized on Euro liabilities and losses on US Dollartransactions in Korea.

 

See – ‘Financial risk management – 3.2 Foreign currency risk’in the financial statements for more details on foreign currency risk managementincluding the use of hedging instruments by the Group.

 

Other changes in the net financial income and expenses were:

 

·      A reduction of interest income by €690, mainly caused by a lower average cash balance in 2008 compared to 2007;

·      Increased interest expenses of € 438as a result of increased finance leases and short-term financial liabilities;and

·      An increase other financial expensesof € 292 primarily due to factoring arrangements engaged in during 2008.

 

In 2007, net financial income and expenses decreased by €369 or 21.1% compared to 2006. The decrease was primarily attributable to:

 

·      Increased negative foreign exchangeresults of € 1,142 as the foreign currencies in which we traded lost valuecompared to the Euro;

·      Increased interest expenses of € 544as a result of additional charges relating to leasing and the full year effectof our 2006 acquisitions; and

·      An increase in other financialexpenses of € 402 primarily due to factoring arrangements engaged in during2007. The decrease was partly offset by increased interest income of € 1,993resulting primarily from higher interest rates in 2007.

 

**Results investments non-consolidatedcompanies**

At December 31, 2008, we had one associate, ADImmuneCorp and one joint venture, Percivia. In July 2008, we sold our investmentin Kenta Biotech AG. The results of investments in non-consolidated companiesinclude the results of Kenta Biotech AG up to the moment of the sale. Theresults of investments in non-consolidated companies are accounted for underthe equity method and amount to a total loss in 2008 of € 128 (2007: € 996).The decrease of € 868 or 87.1% compared to 2007 year is mainly due to thereduced losses on Kenta Biotech AG.

 

In 2007, the losses from investments in non-consolidatedcompanies were reduced by € 960 or 49.1%. The decrease was primarilyattributable to the reduced losses in Pevion Biotech AG and Kenta Biotech AG.

 

**Results on disposal non-consolidatedcompanies**

On July 3, 2008 the Group sold all of the 2,625,000shares it owned In Kenta Biotech AG to Ingro Finanz AG. Prior to this sale, ourownership interest had already been diluted from 37% in 2006 to 22% by the endof 2007. We realized an accounting gain in 2008 of € 1,570 on the sale.

 

On November 5, 2007 the Group sold all of the 2.9million shares it owned in Pevion Biotech AG for an amount of € 6,081 to othershareholders of Pevion Biotech AG. The Group realized an accounting gain in2007 of € 2,186 on the sale.

 

**Disposal of subsidiaries**

In November 2008, we sold our fully-owned subsidiaryEtna Biotech Srl to Zydus Cadila. The sale resulted in net proceeds of € 182and an accounting loss on disposal of € 367.

 

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**Income tax**

 

The table shows our income tax for each of the years in thethree-year period ended December 31, 2008 and the percentage changebetween these periods.

 
|           |       | Year ended December 31, |       | % Change |       |
|----------------|------------|----------------------------------------|------------|---------------|------------|
|           |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| **Income tax** | ** ** | **8,310**                              | ** ** | **2,208**     | ** ** | **10,451** | ** ** | **276.4** | ** ** | **(78.9** | **)** |

 

In 2008, tax income increased by € 6,102 or 276.4%. Theincrease resulted from a change in deferred tax of € 11,503 (2007: € 3,024)that mainly consists of carry forward losses not previously recognized in oursubsidiary Berna Biotech AG for € 8,585 and a reduced expected tax realizationrate on our deferred tax liabilities of € 3,384 in Korea. The increase ispartially offset by current tax charges of € 3,200 compared to € 811 in 2007 asa result of taxable income in Sweden, Korea, Spain and the US.

 

The Group has a negative effective tax rate of 132.4% in2008 compared to positive effective tax rates of 4.9% in 2007 and 10.7% in2006. Our effective tax rate was impacted by numerous items.

 

The effective tax reconciliation starts with our IFRSprofit/ (loss) per subsidiary multiplied by the domestic rate of tax in thecountry in which our subsidiaries are domiciled. In 2008, our total profitunder IFRS of € 6,276 had a negative correlation with our total taxes based ondomestic rates of € 820. This effect was mainly caused by a loss under IFRS inour Dutch operation at a tax rate of 25.5% and a profit of our Koreansubsidiary at a lower average tax rate of 21.0%.

 

In addition, the following transactions significantlyaffected our effective tax rate reconciliation:

 
| · | We reached an agreement with the Dutch tax  authorities to retroactively change the valuation of our intellectual  property, to avoid the evaporation of unrecognized tax carry forward losses.  This agreement allows us to recognize € 72,000 of our intellectual property  as assets for tax purposes. Under IFRS no deferred tax assets were recognized  on these temporary differences, which on a combined basis with the  utilization of previously unrecognized carry forward losses in our Dutch  fiscal unity in 2008, causes a net negative tax effect of € 6,103; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | We reassessed the valuation of our carry forward  losses and recognized previously unrecognized carry forward losses in our  subsidiary Berna Biotech AG, which resulted in a taxation gain of € 8,585;                                                                                                                                                                                                                                                                                                                                                                            |
| · | As of the year 2012, we will benefit from a tax  holiday to our investment in the Incheon, Free Economic Zone, Korea, which  will significantly reduce the effective Korean income tax rate for a period  of 5 years. The reduced expected realization rate for our deferred tax  liabilities in Korea resulted in a taxation gain of € 3,384;                                                                                                                                                                                                                                     |
| · | In 2008, we benefited in Korea from a research and  development tax credit for an amount of € 2,916; and                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| · | Non-deductible stock-option expenses are recognized  in the Netherlands for an amount of € 1,251 in 2008.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

See – ‘1 General information – 1.4 Use of estimates andjudgments’ in the financial statements section for a description of estimatesand management judgments in determining the tax position and ‘5.4 Income tax’in the financial statements for a numerical reconciliation of our effective taxrates.

 

Changes in the underlying timing differences in 2007resulted in a taxation income of € 3,024 in 2007 compared to € 10,922 in 2006.

 

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**Liquidity**

We have a strong cash position, which we believe makes itpossible to continue financing important development programs. Our cash andcash equivalents amounted to € 170,969 and € 163,248 as of December 31,2008 and 2007, respectively. We believe that our liquidity is sufficient forour present requirements.

 

In 2009, we entered into a mortgage loan facility in Koreafor an amount of KRW 50 billion to partly finance the investments in the newKorean facility.

 

**Cash flows**

The following table shows our cash flow statement for eachof the years in the three-year period ended December 31, 2008 and thepercentage change between these periods.

 

In thousands of Euro

 
|                                                       |       | Year ended December 31, |       | % Change |       |
|------------------------------------------------------------|------------|----------------------------------------|------------|---------------|------------|
|                                                       |       | **2008**                               |       | 2007          |       | 2006 |   | 08 vs. 07 |   | 07 vs. 06 |   |
| Profit/ (loss) of the period                               |       | **14,586**                             | ** ** | (42,910       | )          | (87,198 | ) | (134.0 | ) | (50.8 | ) |
| Adjustments for non-cash items                             |       | **18,801**                             | ** ** | 44,593        |       | 58,505 |   | (57.8 | ) | (23.8 | ) |
| Changes in net working capital                             |       | **(30,381**                            | **)**      | 24,208        |       | (23,174 | ) | (225.5 | ) | (204.5 | ) |
| Interest and taxes paid                                    |       | **(3,260**                             | **)**      | (3,697        | )          | (2,087 | ) | (11.8 | ) | 77.1 |   |
| **Net cash  flows from/ (used in) operating activities**   | ** ** | **(254**                               | **)**      | **22,194**    | ** ** | **(53,954** | **)** | **(101.1** | **)** | **(141.1** | **)** |
| **Net cash  flows from/ (used in) investing activities**   | ** ** | **(8,907**                             | **)**      | **(24,241**   | **)**      | **23,159** | ** ** | **(63.3** | **)** | **(204.7** | **)** |
| **Net cash flows from financing  activities**              | ** ** | **16,626**                             | ** ** | **11,244**    | ** ** | **78,731** | ** ** | **47.9** | ** ** | **(85.7** | **)** |
| Effect of exchange rates on cash  and cash equivalents     |       | **256**                                | ** ** | (3,786        | )          | (1,833 | ) | (106.8 | ) | 106.5 |   |
| **Net increase/  (decrease) in cash and cash equivalents** | ** ** | **7,721**                              | ** ** | **5,411**     | ** ** | **46,103** | ** ** | **42.7** | ** ** | **(88.3** | **)** |
| Cash and cash equivalents at  beginning of period          |       | **163,248**                            | ** ** | 157,837       |       | 111,734 |   | 3.4 |   | 41.3 |   |
| Cash and cash equivalents at end of period                 |       | **170,969**                            | ** ** | 163,248       |       | 157,837 |   | 4.7 |   | 3.4 |   |

 

**Net cash flows from/ (used in)operating activities**

In 2008, our net cash flow from operating activitiesdecreased by € 22,448 or 101.1% compared to 2007. The decrease resulted from anincrease of our working capital by € 54,589 and a reduction in the adjustmentsfor non-cash items by € 25,792. The decrease is partly offset by € 57,496 dueto improved results in 2008 compared to 2007.

 

In 2008, the decrease in changes in the net-working capitalcompared to 2007 amounted to € 54,589. The year 2008 had relatively stable cashflows on the monetary working capital items compared to positive cash flows in2007. The decrease in 2008 compared to 2007 mainly resulted from inventoriesfor € 30,993 due to build-up of Quinvaxem inventory for 2009 sales, and othercurrent liabilities for € 22,327.

 

In 2008, adjustments for non-cash items were reduced by €25,792. This reduction was mainly caused by:

 
| · | One-off cash receipts in 2007 in the amount of €  11,500 in 2007 relating to the non-current deferred revenue on the ADImmune  technology license and the rabies program;    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Non-cash revenues realized in 2008 for an amount of  € 4,728 that related to the above transactions; and                                                                     |
| · | Partial reversal of the impairment loss on one of  our buildings in Switzerland in 2008 for an amount of € 5,219 as we now  perform contract manufacturing at this location. |

 

In 2007, our net cash flow from operating activitiesincreased by € 76,148 or 141.1% compared to 2006. The increase resulted from areduction of our working capital by € 47,382 and a reduction of our net loss by€ 44,288. The increase is partly offset by a decrease in the adjustments fornon-cash items of € 13,912 and an increase in interest and taxes paid by €1,610 in 2007.

 

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**Net cash flows from/ (used in)investing activities**

Our cash flow used in investing activities amounted to €8,907 in 2008, compared to € 24,241 in 2007.

 

In 2008, the most significant cash flows used in investingactivities resulted from investments made in property, plant and equipment foran amount of € 15,787. These investments mainly related to our new Koreanproduction facility, investments in our facilities in Bern, Switzerland thatwill improve current production processes and allow in-house production ofmaterials currently acquired from third parties, as well as investments in ournew filling line in Madrid, Spain.

 

In 2008, the most significant cash flows from investingactivities were from the following transactions:

 
| · | Interest received of € 4,395 in 2008 (2007: €  5,274);                                        |
|--------|---------------------------------------------------------------------------------------------------------|
| · | The sale of all shares owned by the Group in Kenta  Biotech AG for € 1,570 to Ingro Finanz AG; and |
| · | Restricted deposits that were transferred to cash  and cash equivalents for € 1,500.               |

 

In 2007, the most significant cash flows used in investingactivities were from the following transactions:

 
| · | Investments were made in property, plant and  equipment for an amount of € 27,156, which mainly related to our new GMP  production facility in Leiden, the Netherlands and investments in our  facilities in Bern, Switzerland to improve production processes and allow  in-house production of materials currently acquired from third parties; and |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | The Group acquired a 20% equity-stake in ADImmune  Corp. in March 2007 for € 8,553.                                                                                                                                                                                                                                                              |

 

In 2007, the most significant cash flows from investingactivities were from the following transactions:

 
| · | The sale of all shares owned by the Group in Pevion  Biotech AG, Switzerland for € 6,081 to other shareholders of Pevion Biotech;  and |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
| · | Interest received of € 5,274 in 2007.                                                                                                  |

 

**Net cash flows from/ (used in)financing activities**

Our cash flow from financing activities amounted to € 16,626in 2008, € 11,244 in 2007 and € 78,731 in 2006.

 

In 2008, the cash flow from financing activities increasedby € 5,382 or 47.9% compared to 2007 and, mainly related to:

 
| · | Additional short-term financing facilities in Korea  for an amount of € 22,222; and                                             |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|
| · | Finance leases with proceeds of € 12,368 relating  to our GMP-facility in Leiden, the Netherlands and our Spanish filling-line. |

 

The most significant cash flows used in financing activitiesmainly related to:

 
| · | Redemption of a Korean Won-denominated privately  placed bond in Korea for € 11,869 and a partial redemption of a short-term  Euro loan also in Korea for € 1,455;                           |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Settlement of financial liabilities relating to  factored Italian trade accounts receivable by € 5,653 for which the Group did  not substantially transfer all the risks and rewards in 2007; and |
| · | Repayment of finance lease liabilities for an  amount of € 1,922.                                                                                                                                 |

 

In 2007, the cash flow from financing activities decreasedby € 67,487 or 85.7% compared to 2006 as we limited the use of additionalfinancing and funded our operations and investments with our own resources. Thecash flow from financing activities in 2007 mainly related to:

 
| · | Factoring of trade accounts receivable in Italy for  an amount of € 5,653; and                                                                         |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Finance leases with proceeds of € 4,247. These  finance leases mainly related to equipment for the new production and  development facility in Leiden. |

 

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**Criticalaccounting policies and estimates**

 

The methods, estimates and judgments we use in applying ourmost critical accounting policies have a significant impact on the results wereport in our financial statements. Please see ‘1 General information – 1.4 Useof estimates and judgments’ in the financial statements for further details onour most critical policies and the methods, estimates and judgments used.

 

In addition to the critical accounting policies andestimates, the Group chooses to disclose the impact of discounts, rebates andreturns.

 

**Discounts, rebates and returns**

 

At the time sales revenue is recognized, we also recordestimates for revenue deductions, including discounts, rebates and productreturns. We report net sales after deducting all sales deductions from grosssales revenue. The following table identifies the items that reduced our grossproduct revenue as at the end of the periods ended December 31, 2008, 2007and 2006.

 

In thousandsof Euro

 
| ** **                           | ** ** | **2008**    |       | 2007        |       | 2006        |       |
|--------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Product sales, gross                 |       | **227,791** |       | 179,395     |       | 105,059     |       |
| Discounts and rebates                |       | **945**     |       | 626         |       | 291         |       |
| Returns                              |       | **791**     |       | 1,200       |       | 850         |       |
| Total discounts, rebates and returns |       | **1,736**   |       | 1,826       |       | 1,141       |       |
| **Product sales, net**               | ** ** | **226,055** | ** ** | **177,569** | ** ** | **103,918** | ** ** |

 

**Discounts and rebates**

Discounts include prompt payment discounts and charge backs.In 2008, our discounts and rebates amounted to € 945.

 

We generally offer our US wholesalers a prompt-pay cashdiscount as an incentive to remit payment in full within one month after thedate of an invoice. Prompt-pay discount calculations are based on the grossamount of each invoice. We account for these discounts by reducing productsales by the estimated discount amount when the product is sold.

 

Wholesaler charge backs, customary in our industry, arearrangements that relate to contractual agreements to sell products to GroupPurchasing Organizations (GPOs) in the US at fixed prices that are lower thanthe list prices we charge wholesalers. When the GPOs purchase our productsthrough wholesalers at these reduced prices, the wholesaler charges us for thedifference between the price the wholesaler paid to us and the price at whichthey sold the products to the GPO. Accruals for wholesaler charge backs closelyapproximate actual results because charge back amounts are fixed at the date ofpurchase by the GPOs. As the charge backs are settled within a short time ofincurring the liability, the outstanding accruals are relatively low.

 

We offer rebates primarily in connection with attainment ofsales targets by wholesalers and large retailers in contractually agreedpercentages. The rebates are accrued as the underlying sales transactions arerecognized and are based on reasonable estimates on the attainment of the salestargets.

 

**Returns**

Returns that reduce our gross product revenue may arise fromthe following:

 

·      Customers return of productsdefective upon delivery;

·      Specific right of return in accordancewith contractual terms; and

·      Returns via the normal distributionchannels if the product is in good condition, pursuant to local law in certainjurisdictions.

 

In 2008, returns amounted to € 791 (2007: € 1,200) orapproximately 0.4% (2007: 0.7%) of our net product sales.

 

The following table shows the percentage of productsreturned as a percentage of the gross product sales per country during 2008based on the country from which the products were originally sold.

 
|        |   | Returns |   | Returns |   | Returns |   |
|-------------|--------|---------|--------|---------|--------|---------|--------|
| Country     |   | 2008    |   | 2007    |   | 2006    |   |
| Spain       |   | 3.0%    |   | 2.5%    |   | 1.7%    |   |
| Italy       |   | 1.1%    |   | 1.4%    |   | 0.1%    |   |
| Switzerland |   | 0.1%    |   | 0.1%    |   | 0.7%    |   |
| US 2.1%     |   | 1.9%    |   | 0.9%    |   |    |   |
| Sweden      |   | 0.9%    |   | 0.1%    |   | 0.2%    |   |
| Korea       |   | —  |   | —  |   | —  |   |
| Netherlands |   | —  |   | —  |   | —  |   |

 

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**Roll-forward information**

The table below shows the roll-forward information of ourdiscounts, rebates, and product returns:

 

In thousands of Euro

 
|                                         |   | Accrual for |   |             |   |   |   |
|----------------------------------------------|--------|------------------|--------|------------------|--------|--------|--------|
|                                         |   | discounts        |   | Accrual          |   |   |   |
|                                         |   | and rebates |   | for returns |   | Total  |   |
| January 1, 2008                         |   | (190             | )      | (1,117           | )      | (1,307 | )      |
| Additions – current period              |   | (945             | )      | (791             | )      | (1,736 | )      |
| Actual returns/credits – current period |   | 762              |   | 240              |   | 1,002  |   |
| Actual returns/credits – prior period   |   | 160              |   | 975              |   | 1,135  |   |
| Release of accruals – current period    |   | —           |   | —           |   | — |   |
| Release of accruals – prior period      |   | —           |   | —           |   | — |   |
| Effect of movements in exchange rates        |   | 24               |   | 18               |   | 42     |   |
| December 31, 2008                       |   | (189             | )      | (675             | )      | (864   | )      |

 

**Discounts and rebates**

We base our estimates for discounts and rebates primarily onhistorical experience and contractual agreements, supplemented by management’sjudgment. In 2008, our estimates for rebates based on historical experience didnot differ materially from actual results. With respect to discounts, we havelimited uncertainties in determining our estimates, because these deductionsgenerally occur within a short time frame of incurring the liability.

 

For calculating our rebates estimates we make use ofquantifiable contractual rebates data. In general, our rebates are based onfixed rebate percentages on product sales to customers that have been grantedrebates.

 

**Returns**

We base our estimates of product returns on the percentageof returns that we have experienced historically. We may adjust these return estimatesif we are aware of other factors that we believe could meaningfully impact ourexpected return percentages. For example, in respect of our influenza vaccine,we specifically take into account the development of the flu season, inparticular, the number and impact of outbreaks. While we do not have a formulathat estimates the impact of the number and impact of outbreaks on the level ofthe accrual for returned vaccines, an increased number of outbreaks willgenerally result in a lower accrual for returned influenza vaccines, because itbecomes more unlikely that vaccines will be returned. Alternatively, a lowernumber of outbreaks can result in a higher accrual, because it becomes morelikely that influenza vaccines will be returned unused at the end of a mild fluseason.

 

In addition, in our estimates of returns, we take intoaccount other information, such as media coverage of vaccination programs,estimates of inventory levels of our product in the distribution channel,vaccine shelf life and known sales and market trends. These are reflected inthe accruals by means of management’s judgment.

 

Increased media coverage of vaccination programs, either byadvertising campaigns or coverage of flu outbreaks, results in an increasedpublic awareness. Consequently, this may lead to an increased number of fluvaccinations and fewer unsold doses with our customers, which limits the levelof accruals for product returns.

 

Relatively high levels of inventory of our product in thedistribution channel and short shelf life of product sold can be indicators foran increased level of returns.

 

Sales and market trends are taken into account by referenceto the life cycle phase of products. If product sales show a decreasing revenuepattern over time, this can be an indicator for an increased level of returns.We do not rely on quantitative externally sourced information in ourcalculation of returns estimates. We are not aware of any available externalquantitative information or other quantifiable data that would provide us thebenefit of a more reliable estimate.

 

The rate of product returns is quantifiable. We monitorreturns primarily on a per country basis based on the country from which theproduct was sold because our accruals are determined at this level. Within theindividual countries, we monitor the returns on a product-by-product basis. In2008, our estimates for returns did not differ materially from actual results.

 

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**Tabular disclosure of contractualobligations**

 

Future minimum payments for all contractual obligations foryears subsequent to December 31, 2008 are as follows:

 

In thousands of Euro

 
|                                                   |        | Less than |           |           | More than |
|--------------------------------------------------------|-------------|----------------|----------------|----------------|----------------|
|                                                   | Total       | one year  | 1-3 years | 3-5 years | 5 years   |
| **Contractual obligations**                            | ** **  | ** **     | ** **     | ** **     | ** **     |
| Debt obligations (excluding finance lease obligations) | 40,225      | 22,677         | 2,239          | 861            | 14,448         |
| Finance lease obligations (1)                          | 20,526      | 2,777          | 6,381          | 7,911          | 3,457          |
| Interest payments on debt obligations                  | 12,580      | 2,105          | 3,512          | 2,314          | 4,649          |
| Derivative financial instruments (2)                   | 45,560      | 45,560         | —         | —         | —         |
| Accounts payable                                       | 59,205      | 59,205         | —         | —         | —         |
| Other liabilities                                      | 21,114      | 20,523         | 591            | —         | —         |
| **Recognized obligations**                             | **199,210** | **152,847**    | **12,723**     | **11,086**     | **22,554**     |
| ** **                                             | ** **  | ** **     | ** **     | ** **     | ** **     |
| **Commitments**                                        | ** **  | ** **     | ** **     | ** **     | ** **     |
| Operating lease obligations (3)                        | 24,662      | 3,830          | 6,575          | 3,498          | 10,759         |
| Capital expenditure commitments (4)                    | 20,380      | 16,163         | 4,217          | —         | —         |
| **Total commitments**                                  | **45,042**  | **19,993**     | **10,792**     | **3,498**      | **10,759**     |
|                                                   |        |           |           |           |           |
| Total recognized obligations and commitments           | 244,252     | 172,840        | 23,515         | 14,584         | 33,313         |

 

(1)      Finance lease obligations

Certain ofthe Group’s fixtures and equipment are finance leases. The finance leasesrelate to equipment for the new production facility in Leiden, the Netherlandsand to the filling line in Spain. Interest rates are fixed at the contractdate. All leases are on a fixed repayment basis and no arrangements have beenentered into for contingent rental payments.

(2)      Derivative financial instruments areforeign exchange contracts. The contractual obligations are € 45,060. Thecorresponding receivables are € 46,442.

(3)      Operating lease obligations

The operatinglease obligations include rental obligations. Crucell concluded long-termrental agreements for premises in Sweden and the Netherlands. In addition,Crucell leases certain motor vehicles and items of machinery and equipment.

(4)      Capital expenditure commitments

Thecontractual commitments for purchases of property, plant and equipment as perDecember 31, 2008 amount to approximately € 20,380 (2007: € 4,696, 2006: €11,693).

Thesecommitments mainly relate to our new production facility in Incheon, FreeEconomic Zone, Korea.

See note ‘5.19Short and long-term financial liabilities’ in the notes to the financialstatements for details on the maturity profile and the interest rateenvironment of our financial liabilities.

 

**Off-balance sheet arrangements**

 

As of December 31, 2008, we have no unconsolidatedspecial purpose financing or partnership entities or other off-balance sheetarrangements that have or are reasonably likely to have a current or futureeffect on our financial condition or lead to changes in financial condition,revenues or expenses, results of operations, liquidity, capital expenditures orcapital resources, that is material to investors.

 

The Group has investments in one associate and in one jointventure that are both non-consolidated companies. Details are provided in ‘5.9Investments in associates and joint venture’ in the financial statements.

 

Further details on our off-balance sheet arrangements suchas our guarantees and covenants are disclosed in note 3 ‘Financial riskmanagement’ in our financial statements.

 

**Quantitative and qualitativedisclosure about market risk**

 

Market risk is the risk of loss related to adverse changesin market prices, including currency risk, interest rate risk and risk offinancial instruments. During the ordinary course of business, the Group isexposed to various financial market risks, primarily from foreign exchange,interest rates and credit risk. Details on our market risks are disclosed in ‘3Financial risk management’ in the financial statements.

 

**Impact of inflation**

Crucell does not operate subsidiaries in countries withhyperinflation. Sales to customers in hyperinflationary countries are made inhard currency, mainly Euro, US Dollar, Swiss Franc and Swedish Crown.

 

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**Corporate Governance**

 

**Corporategovernance at Crucell**

 

Corporate governance concerns the relationship betweenmanagement and the shareholders, and more generally the stakeholders, of theCompany. It is the formal codification of the manner in which the Company isgoverned, of the accountability of its management and its supervision, of themanner in which stakeholders, and more particularly shareholders, are able togain an insight into the state of affairs within the Company, and finally, ofthe way in which they can influence the decision-making process. With regard tothis final issue, voting rights and the manner in which votes can be exercised,play an important role.

 

As a Dutch corporation, Crucell is subject to the DutchCorporate Governance Code (the ‘Code’). As a foreign private issuer whose ADSstrade on NASDAQ Global Select Market (NASDAQ), we are also subject to USsecurities laws (including the provisions of the Sarbanes-Oxley Act of 2002)and the NASDAQ rules.

 

As a foreign private issuer Crucell may follow its homecountry practice in lieu of the requirements of certain rules of NASDAQ.Our Annual Report discloses those requirements that are not followed anddescribes the home country practice that is followed instead, see ‘Exemptionsfrom certain NASDAQ Corporate Governance Rules’ in this section.

 

Also under the rules of the SWX Swiss Exchange, whereCrucell has a secondary listing, it is allowed to apply the Code.

 

**Corporate governance developments**

 

We monitor and assess applicable corporate governance rules,including recommendations and initiatives regarding principles of corporategovernance. These include those that have been developed in the US, both byNASDAQ and by the SEC pursuant to the Sarbanes-Oxley Act of 2002, as well as inthe Netherlands, through the Code, which came into effect as of the financialyear starting on or after January 1, 2004.

 

**Dutch Corporate Governance Code**

 

The Code has been instituted by government decree. Accordingto Dutch law, a public company should include in its annual report a statementabout the compliance with the principles and best practice provisions of theCode that regard the Management Board and Supervisory Board. If a corporationdoes not, or does not intend to comply with one or more of the principles andbest practice provisions, it must explain its motivation in the annual report.According to the Code, substantial amendments to the Company’s existingcorporate governance structure and compliance with the Code should be submittedfor discussion to the General Meeting of Shareholders.

 

Important principles of the Code are:

 

·                  Strengthening therole of the Supervisory Board and its committees and increasing itsindependence, quality and expertise;

·                  Strengthening therole of the shareholders with respect to control of the functioning of theManagement Board and the Supervisory Board, as well as with respect tonomination and remuneration of members of the Management Board and theSupervisory Board;

·                  Facilitating andstimulating shareholders to use their voting power and to actively participatein the General Meeting of Shareholders;

·                  Defining the roleof the external auditor vis-à-vis the Supervisory Board as its principalcontact; and

·                  Maintaining anappropriate internal risk and control system.

 

For an overview of Crucell’s conformity with the Code,please refer to our website (www.crucell.com), where the following documentscan be consulted:

 

·                  Corporategovernance at Crucell;

·                  By-laws of theManagement Board;

·                  Remuneration policyManagement Board;

·                  By-laws of theSupervisory Board; and

·                  Code of Conduct(Crucell’s company code) including whistle-blower policy.

 

In 2003, we adopted a code of business conduct and ethics(Code of Conduct) that applies to all employees of the Company, including ourprincipal executive officer and principal financial officer. The Code of Conductunderlines that one of the most valuable assets of Crucell is its integrity.The Code of Conduct was amended in 2008 and has been filed as an exhibit to ourForm 20-F for the fiscal year ended December 31, 2008. The amendedCode of Conduct adheres to the same underlying principles as the original Codeof Conduct, but reflects that we are a fully integrated company that operatesin numerous countries. No waivers of the Code of Conduct were granted during2008.

 

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We have a whistle blower policy in place, which encouragesemployees to report abuses and non-compliance with our Code of Conduct,anonymously if necessary.

 

**Compliance with the Code**

In June 2005, the General Meeting of Shareholdersapproved our current corporate governance structure. Except for the threeprovisions of the Code referenced below Crucell has fully implemented therecommendations set forth in the Code and incorporated them into its corporate governancepolicies.

 

**Exceptions to compliance with theCode**

The Code contains a ‘comply-or-explain’ principle, offeringthe possibility to deviate from the Code as long as any such deviations areexplained. Crucell complies with all of the principles and best practiceprovisions of the Code, except for the following:

 

**Remuneration of Management Boardmembers**

 

Under the Code, the maximum severance pay for a ManagementBoard member should be no more than one year’s salary, unless this ismanifestly unreasonable. We do not apply this principle in the event of adismissal arising from an unwanted change of control for Management Boardmembers. The employment contracts of those members of the Management Board thatwere already in place as at 1 January 2004 (the date on which the Codetook effect) remain unchanged. In other cases agreed severance payments can behigher if otherwise this would obstruct the recruitment of the right person fora Management Board position.

 

**Loans to the Company’s management**

 

We do not apply the provision in the Code that no personalloans shall be granted to a company’s Management Board member because, prior tothe Code’s development and passage of similar legislation in the US, loans weremade to Management Board members and one such loan currently remainsoutstanding. Reference is made to note 5.23 ‘Related parties’ in the financialstatements. We have not granted additional loans to Management Board memberssince 2002.

 

**Remuneration of Supervisory Boardmembers**

 

We do not apply the provision that remuneration of themembers of the Supervisory Board should not include share grants. Crucell deemsthis form of remuneration adequate because this is customary amongbiotechnology companies operating internationally, and it helps attract well-qualifiedsupervisory directors with specific expertise in biotechnology andinternational business fields.

 

**Exemptions from certain NASDAQcorporate governance rules**

 

NASDAQ rules provide that NASDAQ may provide exemptionsfrom the NASDAQ corporate governance standards to a foreign issuer when thosestandards are contrary to a law, rule or regulation of any publicauthority exercising jurisdiction over such issuer or contrary to generallyaccepted business practices in the issuer’s country of domicile. We are exemptfrom certain NASDAQ corporate governance standards that are contrary to thelaws, rules, regulations or generally accepted business practices of theNetherlands. These exemptions and the practices followed by our Company aredescribed below:

 

·                  We are exempt fromNASDAQ’s quorum requirements applicable to meetings of shareholders. In keepingwith Dutch law and generally accepted business practice, our articles ofassociation provide that there are no quorum requirements for the generalmeeting of shareholders.

·                  We are exempt fromNASDAQ’s requirements regarding the solicitation of proxies and provision ofproxy statements for meetings of shareholders. We inform shareholders ofmeetings in a public notice, but we do not solicit proxies for the GeneralMeeting of Shareholders. Dutch law does not have a regulatory regime for thesolicitation of proxies and the solicitation of proxies is not a generallyaccepted business practice in the Netherlands. In connection with our AmericanDepositary Shares (ADSs), the Bank of New York Mellon, as depositary,distributes proxy materials to holders of our ADSs.

·                  NASDAQ requiresshareholder approval or prior to the issuance of securities when a stock optionor purchase plan is to be established or materially amended or other equitycompensation arrangement made or materially amended, pursuant to which stockmay be acquired by officers, directors, employees, or consultants. Under DutchCompany law and the Code shareholder approval is only required for equity compensationplans (or changes thereto) for members of the Management Board and

 

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SupervisoryBoard, and not for equity compensation plans for other groups of employees. Ourarticles of association provide that a resolution of the General Meeting ofShareholders to amend our articles of association, to dissolve the Company, orto merge or demerge the Company shall only be adopted on a proposal of theSupervisory Board.

·                  We do notdistribute Annual Reports to all of our shareholders in accordance with NASDAQrules. As our shares are bearer shares, according to Dutch law we are notrequired to distribute copies of annual and interim reports to allshareholders. Copies of such reports are available to shareholders at ourcorporate headquarters, and are filed with NASDAQ and the Bank of New YorkMellon as depositary under our depositary agreement relating to our ADSs. Uponrequest the Bank of New York Mellon distributes our Annual Reports to holdersof our ADSs.

·                  The Company has atwo-tiered board structure, in contrast to the one-tier board structure used bymost US companies. In the Netherlands, a public limited liability company has aManagement Board as its management body and a Supervisory Board which advisesand supervises the Management Board. In general, Management Board members areemployees of the company while members of the Supervisory Board are oftenformer state or business leaders and sometimes former members of the ManagementBoard. Members of the Management Board and other officers and employees cannotsimultaneously act as members of the Supervisory Board. The Supervisory Boardmust approve certain specified decisions of the Management Board. Under theCode all members of the Supervisory Board with the exception of not more thanone person, shall be ‘independent’. The definition of ‘independence’ under theCode however, differs from the definition of ‘independence’ under the NASDAQlisting standards (e.g. employment by the Company in the three years prior tothe appointment as member of the Supervisory Board versus five years underNASDAQ and the Code respectively).

·                  Dutch law requiresthat the external auditors be appointed at the General Meeting of Shareholders andnot by the Audit Committee.

·                  Our Audit Committeecurrently consists of two Supervisory Board members whereas the NASDAQ listingrules require three. The Company is currently recruiting a thirdSupervisory Board member with financial expertise to fill the vacancy in theAudit Committee.

 

**Directors,senior management and board practices**

 

Crucell has a ‘two-tier’ governance structure, in whichexecutive and supervisory responsibilities are clearly segregated. OurManagement Board is responsible for managing the Company’s daily affairs andbusiness and, as such, is responsible for achieving Crucell’s goals, strategy,policy, and results.

 

**Supervisory Board**

 

The Supervisory Board, which consists solely of independentdirectors, supervises the Management Board. In the execution of their duties,the members of the Supervisory Board must be guided by the best interests ofCrucell and its stakeholders.

 

The Supervisory Board reports to the General Meeting ofShareholders with regard to the corporate governance of Crucell, its structureand the compliance with applicable internal and external rules andregulations.

 

The principal duty of the Supervisory Board is to supervisethe policies of the Management Board and to provide advice. The SupervisoryBoard oversees the corporate strategy, the risks inherent in the Company’sactivities and supervises the structure and operation of the internal riskmanagement and control systems, the financial reporting process and theCompany’s compliance with relevant legislation and regulations.

 

Our Supervisory Board must approve certain categories ofresolutions of our Management Board, which categories are specified in ourarticles of association. In addition, our Supervisory Board may give ourManagement Board written notice of other corporate actions that it wishes toapprove. The division of duties and the procedures within the Supervisory Boardare set forth in the by-laws of the Supervisory Board and can be found onCrucell’s website (www.crucell.com).

 

Our articles of association provide that at least threeSupervisory Board members must serve on our Supervisory Board. We must fill anyvacancies on the Supervisory Board as soon as possible, but until they arefilled, the remaining members of our Supervisory Board constitute a competentboard. Under Dutch law, Supervisory Board members cannot serve as members ofour Management Board.

 

The members of our Supervisory Board are appointed for termsending on the date of the first General Meeting of Shareholders that is heldfour years

 

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after the date of their appointment. They may be reappointedfor two additional consecutive terms of four years each. Our Supervisory Boardnominates its own members. To be binding, there must be at least two nomineesfor each vacancy on the Supervisory Board. The nominee earning the highestnumber of votes of Supervisory Board members becomes a binding nomination. TheGeneral Meeting of Shareholders can override these binding nominations by avote of an absolute majority of the votes cast. This vote must represent morethan one third of our total issued and outstanding share capital. If theSupervisory Board does not make any nominations within three months after avacancy has occurred, our General Meeting of Shareholders can fill SupervisoryBoard vacancies. If the Supervisory Board makes a non-binding nomination (i.e.,only one nominee is presented to the Supervisory Board for any particularvacancy), then such nomination can only be overturned by a resolution of theGeneral Meeting of Shareholders taken by an absolute majority of the votescast, representing at least one third of the Company’s total issued andoutstanding share capital. The Supervisory Board members retire according to arotation plan established by the Supervisory Board itself.

 

Our Supervisory Board appoints its own chairman and mustadopt rules for its own internal governance, including the creation ofcommittees. The Supervisory Board must, in any event, establish an AuditCommittee, a Remuneration Committee and a Nomination Committee. PassingSupervisory Board decisions requires a majority of the votes cast at a meetingof our Supervisory Board, unless otherwise provided for in the articles ofassociation or the by-laws of the Supervisory Board. The company secretaryassists the Supervisory Board.

 

A Supervisory Board member can be suspended or dismissed atany time by a resolution of a General Meeting of Shareholders passed by anabsolute majority of the votes cast. This vote must represent more than onethird of our total issued and outstanding share capital if the resolution tosuspend or dismiss a Supervisory Board member is not proposed by theSupervisory Board itself. Within three months after a suspension, a GeneralMeeting of Shareholders must either dismiss the Supervisory Board member,terminate or extend the suspension. The total suspension may not exceed threemonths.

 

The General Meeting of Shareholders determines theSupervisory Board members’ compensation. In contrast to the provisions of theCode, until the end of our 2004 fiscal year we paid our Supervisory Boardmembers in options on our ordinary shares as well as in cash. Starting in 2005,we began paying them in ordinary shares and cash, or cash only, at the member’sdiscretion. We also reimburse Supervisory Board members for their expensesincurred in work relating to Crucell. The remuneration policy is intended to beable to attract and retain qualified and expert Supervisory Board members. Itis in line with what is customary in the US biotechnology industry and is inline, as much as possible, with the best practice provisions of the Code.

 

According to the best practice provisions of the Code, anindividual may hold a maximum of five Supervisory Board memberships in Dutchlisted companies, with the chairmanship of a Supervisory Board counting as twomemberships. All members of our Supervisory Board comply with this provision.

 

All members of the Supervisory Board comply with thecriteria for independence as set out in the NASDAQ rules, the Code and therequirements of applicable EU and Swiss rules.

 

The business address of each Supervisory Board member is theaddress of our principal executive office in Leiden, the Netherlands. As ofApril 17, 2009 our Supervisory Board members held an aggregate of 0.17% ofour ordinary shares.

 

As of December 31, 2008 the Supervisory Board ofCrucell consisted of:

 
|              |    |          | End of |
|-------------------|---------|---------------|-------------|
|              |    |          | current     |
| **Name**          | **Age** | Position      | term        |
| Jan Oosterveld    | 64      | Chairman      | 2010        |
| Phillip Satow     | 67      | Member        | 2009        |
| Claes Wilhelmsson | 69      | Member        | 2011        |
| Seán Lance   | 61      | Vice-Chairman | 2011        |
| Arnold Hoevenaars | 59      | Member        | 2009        |
| Steve Davis (1)   | 51      | Member        | 2012        |

 

(1)      Mr. Davis was appointed asmember of the Supervisory Board at the Company’s General Meeting ofShareholders on May 30, 2008.

 

**Mr. Jan Oosterveld** has servedas chairman of our Supervisory Board since June 2006 and as a member ofthe Supervisory Board since his appointment at the General Meeting ofShareholders on June 3, 2004. He retired from Royal Philips Electronics N.V.on April 1, 2004, after an international career of 32 years. At hisretirement he was responsible for Corporate Strategy, Corporate Alliances andthe joint

 

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ventures with LGE, Korea, relating to Cathode Ray Tubes(CRTs) and Liquid Crystal Displays (LCDs). In the latter responsibility, he wasthe Chairman of the board of LG Philips Ltd, which went public inApril 2004, and Vice-Chairman of the board of LG Philips Displays B.V. Hewas also the CEO of Philips Asia Pacific. He graduated with a degree inmechanical engineering from the Technical University Eindhoven and holds an MBAfrom the Instituto de Estudios Superiores de la Empresa (IESE) in Barcelona. Hewas appointed Professor at IESE in 2003. He is also a Member of the Board ofBarco, Kortrijk, Belgium, Cookson Group, London, U.K., Candover, London, U. K.and Continental, Hannover, Germany. Mr. Oosterveld is a Dutch citizen.

 

Mr. Phillip Satow has served as a member of ourSupervisory Board since our incorporation. He worked 14 years withPfizer, Inc. where his last position was Vice President, Pfizer Europe.From 1985 to 1997, he was Executive Vice President Marketing at Forest Laboratories, Inc.From 1998 to 1999 he was President of Forest Pharmaceuticals, and ExecutiveVice President of Forest Laboratories Inc. In addition to the ForestLaboratories Board which he served on from 1999 to 2005, Mr. Satow is aformer Board member of Eyetech Pharmaceuticals Inc. Mr. Satow co-founded,and served as Chairman and CEO of JDS Pharmaceuticals LLC, a privately heldcompany that was sold to Noven Pharmaceuticals Inc. in 2007. Mr. Satow iscurrently a Member of the Board of Directors of Noven Inc. Mr. Satow is aUS citizen.

 

Mr. Claes Wilhelmsson has served as a member of ourSupervisory Board since May 2003. He was previously the Executive Directorof Research and Development of AstraZeneca plc from 1999 to July 2002,responsible for AstraZeneca’s global R&D. He joined Astra in 1985 and heldvarious positions until the company merged with Zeneca in 1999. Prior toworking for Astra, he was a lecturer and researcher at the University ofGöteborg in Sweden, where he also completed his medical education and PhD. Hecurrently serves on the boards of a number of biotechnology and start-upcompanies. Dr. Wilhelmsson previously served on the board of AstraZenecaplc. Mr. Wilhelmsson is a Swedish citizen.

 

Mr. Seán Lance has served as a member of our SupervisoryBoard since January 2004. Mr. Lance is a former Chairman of ChironCorporation. He joined Chiron as President and Chief Executive Officer in 1998.From 1985 to 1998 he was employed at Glaxo Holdings where his last position wasgroup Chief Operating Officer and CEO designate. He is a former President ofthe International Federation of Pharmaceutical Manufacturers Association.Mr. Lance is a chartered company secretary and administrator and alsoholds a post-graduate degree in Advanced Financial Management. Mr. Lanceis a South African citizen.

 

Mr. Arnold Hoevenaars has served as a member of ourSupervisory Board since June 2005. Mr. Hoevenaars is a charteredaccountant in the Netherlands and his previous positions include, among others,Chairman of the Management Board of the Achmea Group; Chairman of the Board ofDirectors and Chairman/CEO of the Executive Board of Eureko B. V.; and Memberof the Management Board and CFO of Royal Boskalis Westminster N.V.Mr. Hoevenaars is a Dutch citizen.

 

Mr. Steve Davis has served as a member of ourSupervisory Board since June 2008. Mr. Davis is a Senior Advisor toMcKinsey & Company’s Social Sector Office based in Seattle,Washington, US. He is also a Lecturer in Intellectual Property at theUniversity of Washington Law School. He recently served as the Interim CEO ofIDRI (Infectious Disease Research Institute) and is now Chairman of its Boardof Directors. Previously, Mr. Davis was CEO of Corbis Corporation andpresently acts as a senior advisor to the company. He has held positions withthe United Nations High Commission for Refugees and several refugeeresettlement programs. Currently, he is a member of the Board of Trustees forPATH, a non-profit organization focused on improving public health in thedeveloping world, and the Fred Hutchinson Cancer Research Center, one of theworld’s leading cancer centers. He also holds board positions with IntrepidLearning Solutions, The Seattle Foundation and Global Partnerships.Mr. Davis holds a Bachelor of Arts from Princeton University, a Master ofArts from the University of Washington and a Doctorate in Law from ColumbiaUniversity School of Law. Mr. Davis is a US citizen.

 

**Committees**

 

The Supervisory Board appoints from its members an AuditCommittee, a Remuneration Committee, a Nomination Committee and a ScientificAdvisory Committee. The function of these committees is to advise and assistthe Supervisory Board to make decisions.

 

**Audit Committee**

Arnold Hoevenaars (chairman) and Seán Lance.

 

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The Audit Committee currently consists of two SupervisoryBoard members who are independent within the meaning of the NASDAQ listingrules and the Code. The Company is in the process of recruiting aSupervisory Board member with financial expertise to fill the vacancy in theAudit Committee. The Audit Committee is responsible for, among other things,reviewing our annual and interim reports and accounts and for securing andmonitoring our external auditors’ involvement in that process.The Audit Committee is the firstpoint of contact of the external auditor when irregularities are found in thecontents of the financial reports. Ultimate responsibility for reviewing ourAnnual Report and interim financial reporting lies with our Supervisory Board.At the request of the Audit Committee, the chairman of the Supervisory Boardmay be invited to attend its meetings.

 

Our Audit Committee is in compliance with all of therelevant rules and regulations of the Netherlands. We believe that themembers of our Audit Committee have sufficient financial and other experienceto perform their responsibilities on the Committee. Mr. A. Hoevenaars is a‘financial expert’ as defined in the rules promulgated under theSarbanes-Oxley Act of 2002.

 

**Remuneration Committee**

Phillip Satow (chairman), Claes Wilhelmsson and JanOosterveld

 

The Remuneration Committee advises on policies and reviewsand determines objectives relevant to the compensation of the members of theManagement Board and members of the Management Committee. The RemunerationCommittee evaluates the performance of members of the Management Board andManagement Committee in view of these objectives and advises on thecompensation of the members. In advising on short and long-term incentivecompensation, the Remuneration Committee considers, among other factors, ourfinancial and commercial performance, scientific performance and progress andany increases in the value of the Company. External compensation survey dataavailable for the biotechnology industry is also used as a benchmark fordetermining compensation levels. It is the aim of the Remuneration Committee toposition the remuneration packages for members of the Management Board andManagement Committee at competitive levels. Bonuses are paid to members of theManagement Board in connection with achievement of certain objectives set bythe Supervisory Board.

 

Crucell maintains stock option plans whereby theRemuneration Committee may grant options to employees and members of theManagement Board and Supervisory Board as well as non-employees in exchange forconsulting services, subject to approval by the shareholders.

 

In addition, the Remuneration Committee reviews the generalcompensation and benefit policies for all of our employees.

 

**Nomination Committee**

The Nomination Committee consists of all of the SupervisoryBoard members. This committee (a) draws up selection criteria andappointment procedures for members of the Supervisory Board and the ManagementBoard, (b) periodically assesses the size and composition of theSupervisory Board and the Management Board and makes proposals of nominees tothe Supervisory Board, (c) periodically assesses the functioning ofindividual members of the Supervisory Board and the Management Board, andreports on this to the Supervisory Board and (d) supervises the policy ofthe Management Board on the selection criteria and appointment procedures forsenior management. The committee also makes proposals for appointments ofManagement Board members to the Supervisory Board.

 

**Scientific Advisory Committee**

Claes Wilhelmsson (chairman)

 

The Scientific Advisory Committee consists of oneSupervisory Board member who is independent within the meaning of the NASDAQlisting rules. This committee is responsible for, among other things, reviewingprogress in our research and development activities. The committee reports tothe Supervisory Board on a regular basis.

 

**Management Board**

Our Management Board manages our general affairs andbusiness, under the supervision of our Supervisory Board. Under our articles ofassociation, the Management Board requires prior approval of the SupervisoryBoard to:

 

·                  Expand into a new,or cease an existing, line of business;

·                  Participate, sellan interest, change its participation, or otherwise take an interest in, orassume the management of, another business enterprise;

·                  Enter into,terminate or amend any joint venture or pooling arrangement;

 

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·                  Acquire fixedassets exceeding price limits set by the Supervisory Board; and

·                  Enter intofinancial commitments, other then in the ordinary course of business and/ orexceeding price limits set by the Supervisory Board or for longer than a year.

 

Under Dutch law, in certain circumstances, Management Boardactions may require the approval of the General Meeting of Shareholders.

 

Our Supervisory Board determines the size of our ManagementBoard after consultation with our Chief Executive Officer. The General Meetingof Shareholders appoints the members of our Management Board from a list ofcandidates nominated by our Supervisory Board. If the list of members containsthe names of at least two persons it shall be binding. However, the generalmeeting of shareholders may at any time, by resolution passed with an absolutemajority of the votes cast representing more than one third of the Company’sissued capital, resolve that such list shall not be binding. If our SupervisoryBoard does not nominate anyone for a specific position within three monthsafter a vacancy occurs, our General Meeting of Shareholders can appoint amember at its own discretion. If the Supervisory Board makes a non-bindingnomination (i.e., only one nominee is presented to the Supervisory Board forany particular vacancy), then such nomination can only be overturned by aresolution of the General Meeting of Shareholders taken by an absolute majorityof the votes cast, representing at least one third of the Company’s totalissued and outstanding share capital. A member of the Management Board may beappointed or reappointed for a term of not more than four years at a time.

 

Our Management Board may establish rules governing itsinternal organization. Our Supervisory Board must approve the adoption of andany changes to these rules. Our Management Board may charge each member of theManagement Board with particular duties. The allocation of duties requires theapproval of the Supervisory Board. Resolutions of our Management Board arepassed by a majority of votes cast, unless provided otherwise in the by-laws ofthe Management Board. The Management Board shall appoint a Company Secretarywho will assist the Management Board. The appointment and dismissal of theCompany Secretary requires the approval of the Supervisory Board.

 

Each member of the Management Board may be suspended orremoved by the General Meeting of Shareholders at any time. A resolution tosuspend, remove or revoke the suspension of a member of the Management Boardother than at the proposal of the Supervisory Board may only be passed by theGeneral Meeting of Shareholders with an absolute majority of the votes castrepresenting at least one third of the Company’s total issued and outstandingshare capital.

 

Our Supervisory Board may also suspend (but not dismiss) amember of our Management Board. We must hold a General Meeting of Shareholderswithin three months after a suspension to either terminate or extend it. Anysuspension may be extended one or more times, but may not last longer thanthree months in the aggregate. If at the end of that period no decision hasbeen taken on termination of the suspension, or on removal, the suspensionshall cease.

 

Our Supervisory Board determines the compensation and benefitsof the members of our Management Board, based on a proposal by the RemunerationCommittee, within the scope of the remuneration policy adopted by the GeneralMeeting of Shareholders. The business address of the members of our ManagementBoard is the same as the address of our principal executive office in Leiden,the Netherlands.

 

Pursuant to the Code, members of the Management Board areallowed to hold a maximum of two Supervisory Board positions in other listedcompanies. The members of the Management Board did not hold any such positionsin 2008.

 

The name, date of appointment and position of the members ofour Management Board are:

 
| Name/Position                         |   | Date of appointment |
|---------------------------------------|--------|-------------------------------|
| **Ronald Brus**                       |   | May 30, 2008             |
| Chairman of the Management Board,     |   |                          |
| President and Chief Executive Officer |   |                          |
| **Leonard Kruimer**                   |   | May 30, 2008             |
| Chief Financial Officer               |   |                          |
| **Cees de Jong**                      |   | May 30, 2008             |
| Chief Operating Officer               |   |                          |
| **Jaap Goudsmit**                     |   | May 30, 2008             |
| Chief Scientific Officer              |   |                          |

 

**Management Board service contracts**

The contracts for the Management Board members have beenentered into for an indefinite period and provide for a notice period of up tosix months

 

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upon termination by us and a notice period of three monthsupon termination by the individual. Nominations for a seat on the ManagementBoard members are for a period of four years.

 

A dismissal arising from an unwanted change of control willresult in a severance arrangement limited to a maximum of two years’ worth ofbase salaries for the Management Board members.

 

The contracts of the Management Board members containnon-compete provisions that would apply for a period of one year after the endof their employment with us.

 

**Management Committee**

For its day-to-day operations Crucell has established aManagement Committee that is responsible for the design, implementation andmanagement of long and short-term strategy under the ultimate responsibility ofthe Management Board. The Management Board determines the number of members ofthe Management Committee. Members of the Management Committee are appointed anddismissed by the Management Board, with the approval of our Supervisory Board.The Management Committee generally meets once a month, and works closely withother members of our management. Our Management Board may establishrules governing its relationship with our Management Committee. OurSupervisory Board must approve the adoption of and any changes to these rules.

 

The following tablesets forth the name, age and position of each of the members of our ManagementCommittee:

 
| Name/position                                    |   | Age    |
|--------------------------------------------------|--------|--------|
| **Ronald Brus**                                  |   |   |
| Chairman of Management Committee,                |   |   |
| President and Chief Executive Officer            |   | 45     |
| **Leonard Kruimer**                              |   |   |
| Chief Financial Officer                          |   | 50     |
| **Cees de Jong**                                 |   |   |
| Chief Operating Officer                          |   | 47     |
| **Jaap Goudsmit**                                |   |   |
| Chief Scientific Officer                         |   | 57     |
| **René Beukema**                            |   |   |
| General Counsel and Corporate Secretary          |   | 44     |
| **Björn Sjöstrand**                    |   |   |
| Chief Business Officer                           |   | 40     |
| **Arthur Lahr**                                  |   |   |
| Chief Strategy Officer & Executive Vice |   |   |
| President Business Development                   |   | 40     |

 

The following paragraphs contain brief biographies of themembers of our Management Board and the members of our Management Committee:

 

**Mr. Ronald Brus** is chairmanof the Management Board and President and Chief Executive Officer sinceJanuary 2004, and has been a member of our Management Committee sinceincorporation. He was Executive Vice President, Business Development atIntroGene from 1997 to 2000 and Chief Operating Officer at Crucell fromMarch 2003 until his appointment as President and Chief Executive Officer.From 1994 to 1996, he was product-planning physician at Forest Laboratories(New York) and from 1990 to 1994 he was medical director for Zambon B.V. Heholds a medical degree (MD) from the University of Groningen. Mr. Brus isa Dutch citizen.

 

**Mr. Leonard Kruimer** became amember of the Management Board in January 2005. He has been our ChiefFinancial Officer and a member of our Management Committee since incorporation.He held the same position at IntroGene from 1998 to 2000. From 1996 to 1998 hewas an independent consultant with companies such as Pepsico and Royal BoskalisWestminster N. V. From 1988 to 1995, he held senior executive positions atContinental Can Europe, GE Capital/TIP Europe and Kwik-Fit Europe B.V. He was aconsultant at McKinsey & Co. and has worked with PriceWaterhouse & Co. He holds a Masters in Business Administration fromthe Harvard Business School, a degree from the University of Massachusetts,Amherst, and is a CPA in New York State. Mr. Kruimer is a Dutch citizen.

 

**Mr. Cees de Jong** joinedCrucell as Chief Operating Officer in 2007. Prior to joining CrucellMr. De Jong was with Quest International in Naarden, the Netherlands as amember of the Board and responsible for the Flavours Division. Mr. De Jonghas also worked as Managing Director of DSM Anti-infectives. In 1989Mr. De Jong started his career at Gist Brocades, holding a variety ofroles in business development, strategy and general management before thecompany’s acquisition by DSM in 1998. Mr. De Jong holds a Medical Degreefrom the Erasmus University of Rotterdam and an MBA from the RSM ErasmusUniversity.

 

**Mr. Jaap Goudsmit** is a memberof the Management Board since January 2004. He was Senior Vice PresidentVaccine Research from September 2001 until July 2002 and member ofthe Management Committee from July 2002 as Executive Vice PresidentVaccine R&D. In September 2002 he was

 

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appointed Chief Scientific Officer. He chaired the AcademicMedical Center of the University of Amsterdam, the Research Institute forInfectious Diseases and the Institute for Science Education. He was thefounding Chairman of the Scientific Advisory Committee of the InternationalAIDS Vaccine Initiative (IAVI) and the founding co-Chairman of the EuropeanVaccine Effort against HIV/AIDS (EuroVac). Since 1989, he has been a professorat the University of Amsterdam and the Academic Medical Center. He holds amedical degree (MD) and a PhD from the University of Amsterdam.Mr. Goudsmit is a Dutch citizen.

 

Mr. René Beukema has been our General Counsel andCompany Secretary since our incorporation. He held the same position atIntroGene from 1999 to 2000. From 1994 to 1999 Mr. Beukema was seniorlegal counsel for GE Capital/TIP Europe. From 1991 to 1994, he was legalcounsel for TNT Express Worldwide N. V. He has a Masters in Law from theUniversity of Amsterdam.

 

Mr. Arthur Lahr is Crucell’s Chief Strategy Officer andExecutive Vice President Business Development. He joined Crucell inApril 2001 as Executive Director Business Development, was appointed VicePresident Business Development in December 2003, a member of theManagement Committee in January 2004; Executive Vice President inJanuary 2006; and assumed responsibility for European marketing and salesand company strategy in 2006. From 1994 to 2001, he was a consultant withMcKinsey & Co. Prior to that, he worked with Unilever. He holds aMasters in Business Administration from INSEAD and a Masters in Science,Applied Physics, from the University of Delft.

 

Mr. Björn Sjöstrand joined Crucell in 2007 and isCrucell’s Chief Business Officer. He was Chief Executive Officer of SBLVaccines before it merged with Crucell in November 2006.Mr. Sjöstrand successfully headed the Crucell-SBL integration committeewhile directing the travel franchise and the Nordic sales force for the CrucellGroup. He initiated and led a management buyout of SBL Vaccin AB funded by 3iand SEB Företagsinvest. At SBL, he successfully turned around the company fromloss-making to a growth-focused, profit-making company between 2004 and 2006.Between 1999 and 2001, he was Vice President Operations & IT at ActiveBiotech, where he was also a member of the senior management team. Mr. Sjöstrandcompleted a Bachelor of Science (BSc) degree in Economics and BusinessAdministration at the University of Örebro. He also studied FinancialInvestment Theory and Commercial Law at the same university.

 

**Disclosure Committee**

The Disclosure Committee is designed to help seniormanagement, particularly the Chief Executive Officer and Chief FinancialOfficer, in the maintenance and evaluation of our disclosure controls andprocedures. The Disclosure Committee gathers all relevant financial andnon-financial information and assesses materiality, timeliness and necessity ofdisclosure of such information. The Disclosure Committee is comprised of themembers of the Management Committee and selected senior managers. Members ofthe Disclosure Committee have direct access to our external legal counsel andour external auditor. The Disclosure Committee reports to the Chief ExecutiveOfficer and Chief Financial Officer.

 

The Disclosure Committee is an integrated part of our organizationand is essential to our internal control over financial reporting. TheDisclosure Committee and additional actions taken to further improve disclosureand internal control are intended to help us comply with the requirements ofthe Sarbanes-Oxley Act of 2002 and regulations promulgated by the Securitiesand Exchange Commission under that Act.

 

**Remunerationpolicy for Management Board and Supervisory Board**

 

The Remuneration Committee advised the Supervisory Board in2008 to make certain changes to the remuneration policy for the ManagementBoard, based on developments in the market as well as recommendations by theMonitoring Commission on Corporate Governance (Commissie Frijns). The mainobjectives of these changes are to:

 

·                  Decrease thecomplexity of the existing policy; and

·                  Re-balance thevariable components (Short, and Long-Term Incentive bonus) to better reflectthe responsibility of the Management Board to achieve both short-term goals andlong-term strategy, following market practice.

 

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The Supervisory Board reviewed the changes in theremuneration policy as proposed by the Remuneration Committee. The generalmeeting of shareholders in 2008 approved the changes in the existingremuneration policy, which took effect in 2008 and are described below.

 

**Remuneration structure**

The Management Board members receive fixed remuneration inthe form of a base salary as well as performance-based compensation in the formof a short-term incentive plan and a long-term incentive plan.

 

The incentive for achieving target performance for the ChiefExecutive Officer equals 115% of base salary (65% in short-term incentive and50% in long-term incentive). For other Management Board members the incentiveis 90% of base salary (50% in short-term incentive and 40% in long-termincentive). For the Chief Executive Officer, this breaks down to 46.5% ofsalary in fixed compensation and 53.5% of salary in performance-basedcompensation. For the other three Management Board members, the breakdown is52.6% fixed compensation compared to 47.4% performance-based compensation.

 

**Base salary**

In 2009, the base salary levels of the Management Board havebeen increased by 3 to 5% in order to keep up with inflation. Each year theSupervisory Board considers whether base salary levels should be adjustedaccording to external and internal business factors.

 

**Short-term incentive**

At the General Meeting of Shareholders in 2008, ourshareholders approved the implementation of short-term cash-based incentiveplans (STI). The STI bonus is now payable in cash, which is different from theshare-based STI bonus in the previous years. In the approved policy, payment ofthe bonus begins upon 70% achievement of certain milestones. In order tocompensate higher achievement of certain milestones, the payment limit wasincreased from 100% to 130%.

 

The STI bonus is linked to the achievement of predeterminedcollective and individual milestones. The collective milestones are based onpredetermined annual goals for research, development, business development,finance, intellectual property and corporate legal affairs.

 

We do not disclose specific details of these goals as thisis commercially sensitive information. The individual milestones depend on thespecific responsibilities of the individual Management Board member. Milestoneslinked to the STI bonus plan are revised annually and approved by ourSupervisory Board.

 

The table below shows the relative weight of the collectiveand individual milestones in the STI bonus plan structure:

 
|                  |   | Collective | Individual |
|-----------------------|--------|------------|------------|
| Management Board |   | milestones | milestones |
| CEO, CFO, CSO, COO    |   | 70%        | 30%        |

 

The target bonus of the Chief Executive Officer amounts to65% of base salary and for the Chief Financial Officer, Chief OperationalOfficer and Chief Scientific Officer a target bonus of 50% of base salary isapplicable. The bonus can be increased with a maximum of 30% in the eventperformance exceeds expectations to a considerable extent.The Supervisory Boardhas the discretionary power to increase or decrease the bonus by 25%.

 

**Long-term incentive**

At the General Meeting of Shareholders in 2008, ourshareholders approved certain proposed changes in the long-term incentive (LTI)plan. The main changes in the LTI plan are as follows:

 

·                  Shift from paymentin shares to payment in conditionally granted options; and

·                  Reduction ofcomplexity by removing the circuit breaker and the ranking of the Company onTotal Shareholder Return (TSR) in the Goldman Sachs European Biotech Index asperformance indicators.

 

Target LTI compensation levels amount to 50% of base salaryfor the Chief Executive Officer and 40% for the other Management Board members.The LTI compensation can be increased up to 200% of the target award whenachieving maximum performance.

 

Under the terms of the LTI plan, options are conditionallygranted and vest at the end of a four-year performance period. The number ofLTI options that vests depends on the fulfilment of the LTI performancecondition.

 

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On a vesting date Crucell’s Total Shareholder Return (TSR)performance is measured against the performance of the NASDAQ BiotechnologyIndex during the applicable performance period. The positive difference inpercentages, if any, between Crucell’s TSR compared to the performance of theNASDAQ Biotechnology Index, determines the number of LTI options which vest, inaccordance with the table set out below:

 
| **NASDAQ Biotech Index Vesting Scheme** |
|-------------------------------------------------------------|

 
| Positive difference between            |   |                      |
|--------------------------------------------------|--------|---------------------------|
| TSR performance Crucell                |   | Vesting as %    |
| and the NASDAQ Biotech Index |   | of target award |
| 3 50                                        |   | 200%                      |
| 3 35 and  < 50                           |   | 150%                      |
| 3 20 and  < 35                           |   | 100%                      |
| 3 10 and  < 20                           |   | 50%                       |
| 3 0 and  < 10                            |   | 25%                       |
| < 0                                           |   | 0%                        |

 

**Ad-hoc option grant**

At the General Meeting of Shareholders in 2008 theshareholders of the Company approved an additional one-off stock option grantto members of the Management Board. The objective of the additional optiongrant is to increase the alignment of interests of shareholders and theManagement Board and to provide an extra retention incentive.

 

In total, 800,000 additional options were granted to themembers of the Management Board and these options were allocated as follows:the CEO received 300,000 options, the Chief Operational Officer 200,000 and theother Management Board members 150,000.

 

The options are conditionally granted and vest at the end ofa three-year performance period. The options are granted conditionally as theyinclude a predetermined performance condition. The performance condition is aTSR of at least 50% as of the vesting date.

 

**Pension**

At the beginning of our 2005 fiscal year a new pension planfor our Management Board was introduced. The plan is a defined contributionplan, with a pensionable age of 65 years. The employee contribution is set at7% of the pensionable salary (base pay minus an offset). The table belowoutlines the annual contribution rates, including the employee contribution.The risk premium for the survivor’s pension is financed separately by theemployer.

 

Total contribution rates for our Management Board membersare:

 
|     |   | Contribution |
|----------|--------|--------------|
| Age      |   | rate         |
| 25 to 30 |   | 8.4%         |
| 30 to 35 |   | 10.2%        |
| 35 to 40 |   | 12.5%        |
| 40 to 45 |   | 15.2%        |
| 45 to 50 |   | 18.7%        |
| 50 to 55 |   | 23.0%        |
| 55 to 60 |   | 28.6%        |
| 60 to 65 |   | 36.1%        |

 

**Shareholdings of the Management andSupervisory Boards**

 

As of April 17, 2009 members of our Management Boardand Supervisory Board held the following ordinary shares and options.

 
|              | Ordinary shares     | Options             |       |           |
|-------------------|---------------------|---------------------|------------|----------------|
|              | held per            | held per            | Year of    | Exercise       |
| Name of Holder    | April 17, 2009 | April 17, 2009 | expiration | price (€) |
| R. H. P Brus      | 239,202             | 200,000             | 2011       | 3.49           |
|              |                | 90,000              | 2011       | 2.64           |
|              |                | 125,000             | 2011       | 5.94           |
|              |                | 300,000             | 2013       | 12.23          |
|              |                | 36,170              | 2016       | 10.82          |
| L. Kruimer        | 28,195              | 30,000              | 2011       | 3.49           |
|              |                | 125,000             | 2011       | 5.94           |
|              |                | 150,000             | 2013       | 12.23          |
|              |                | 19,490              | 2016       | 10.82          |
| C. de Jong        | 2,406               | 185,000             | 2012       | 14.58          |
|              |                | 200,000             | 2013       | 12.23          |
|              |                | 20,655              | 2016       | 10.82          |
| J. Goudsmit       | 169,276             | 125,000             | 2011       | 5.94           |
|              |                | 150,000             | 2013       | 12.23          |
|              |                | 23,388              | 2016       | 10.82          |
| **Totals**        | **439,079**         | **1,779,703**       |       |           |
| J. P. Oosterveld  | 12,000              | 10,000              | 2009       | 8.81           |
|              |                | 10,000              | 2009       | 11.55          |
| S. P. Lance       | 12,500              | 10,000              | 2011       | 7.86           |
|              |                | 10,000              | 2009       | 11.55          |
| P. M. Satow       | 66,300              | 10,000              | 2009       | 11.55          |
|              |                | 22,000              | 2011       | 3.49           |
|              |                | 10,000              | 2011       | 6.48           |
| C. E. Wilhelmsson | 10,000              | 10,000              | 2009       | 11.55          |
|              |                | 10,000              | 2011       | 6.48           |
| A. Hoevenaars     | 10,000              | 5,000               | 2009       | 8.81           |
|              |                | 10,000              | 2009       | 11.55          |
| S. Davis          | 5,000               | —              | —     | —         |
| **Totals**        | **115,800**         | **117,000**         |       |           |

 

During the period December 31, 2008 and April 17,2009, a number of 250,000 options with an exercise price of € 9.4 wereexercised by Ronald Brus and 85,000 options were exercised by Jaap Goudsmitwith an exercise price of € 9.4. There were no other changes in the number ofoptions held by members of the Management Board or Supervisory Board.

 

For additional details on remuneration of members of theManagement and Supervisory Boards reference is made to note 5.23 ‘Relatedparties’ in the financial statements.

 

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**Principalaccountant fees and services**

 

Deloitte Accountants B.V.audited the acCompanying consolidated balance sheets of Crucell N.V. andsubsidiaries (the ‘Group’) as of December 31, 2008 and 2007 and therelated consolidated income statements, shareholders’ equity, and cash flowsfor the years then ended.

 

The Sarbanes-Oxley Act of2002 requires that Audit Committees pre-approve all services provided by theCompany’s external auditor. This process is critical to the auditor maintainingindependence. Our process requires that all services provided by the externalauditor are pre-approved by the Audit Committee.

 

During 2008 and 2007, wepaid the following amounts to our external auditors for audit services, auditrelated services and tax services.

 
| Year ended December 31,                               | **2008** | 2007    |
|------------------------------------------------------------|----------|---------|
| Audit fees                                                 | **840**  | 904     |
| Audit related fees                                         | **75**   | 64      |
| Fees for services related to Consultations  on tax matters | —   | —  |
| **Total**                                                  | **915**  | **968** |

 

Audit fees include feesassociated with the annual audit, interim reviews, required statutory auditsand services that only the external auditor can reasonably provide, such asservices associated with documents issued in connection with securitiesofferings.

 

Audit-related feesinclude accounting consultations on financial and accounting reportingstandards.

 

**ResponsibilityStatement**

 

Crucell’sManagement Board, as required by section 5.25c paragraph 2c of the Dutch Act onFinancial Supervision (Wet op het Financieel Toezicht), confirms that to thebest of their knowledge:

·      Thefinancial statements of 2008 give a true and fair view of the assets,liabilities, financial position and the profit or loss of the Group;

·      TheAnnual Report gives a true and fair view of the Group’s position and the stateof affairs as per December 31, 2008; and

·      TheAnnual Report contains a description of the material risk factors that theGroup faces.

 

**Controls and procedures**

 

**Internalrisk management and control system**

 

Crucell’s ManagementBoard is responsible for designing, implementing and operating the Company’sinternal risk management and control systems. The purpose of these systems isto manage in an effective and efficient manner the significant risks to which theCompany is exposed. Crucell’s internal and risk management and control systemswith respect to financial reporting are in line with the guidance set forth inthe COSO model, an integrated internal control framework established by theCommittee of Sponsoring Organizations of the Treadway Commission. The Company’sinternal risk management and control systems are designed to provide reasonableassurance that strategic objectives can be met. Such systems can never provideabsolute assurance regarding achievement of Company objectives, nor can theyprovide an absolute assurance that material errors, losses, fraud, and theviolation of laws or regulations will not occur. A summary of the risks thatcould prevent Crucell from realizing its objectives is included in the section ‘RiskFactors’ of this report.

 

Our internal risk managementand control systems make use of various measures including:

 

·                  Annual strategicevaluations of our business;

·                  Periodicoperational review meetings of the Management Board with the ManagementCommittee;

·                  Quarterlyfinancial planning meetings of the Management Board with the Supervisory Board;

·                  A planning andcontrol cycle consisting of annual, quarterly and monthly procedures, includingsubsequent follow-up on achievements of targets set;

·                  Advice of Crucell’sDisclosure Committee to our Chief Executive Officer and Chief Financial Officerwith respect to the timely review, disclosure and evaluation of periodical(financial) reports as well as with respect to the maintenance and evaluationof disclosure controls and procedures;

·                  Letters ofrepresentation that are signed by selected key-management members on aquarterly basis in which they confirm that for their area of responsibilitybased upon their knowledge:

-                    An effective system of internal controls andprocedures is maintained; and

-                    The financial reports fairly present thefinancial position, results of operations and cash flows;

·                  Management lettersand audit reports provided by our external auditor;

·                  Crucell’sstandardized and formalized working practices, including the Biological SafetyManual which was developed in-house to meet the specific needs of Crucell’sworking environment; and

·                  The Code ofConduct of Crucell.

 

The Management Board hasdiscussed the internal risk management and control system with the AuditCommittee and the Supervisory Board.

 

As a result of itslisting at NASDAQ, Crucell is also obliged to comply with Section 404 ofthe Sarbanes-Oxley Act of 2002 and related regulations (Section

 

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404). Section 404addresses the responsibility of the Management Board for establishing andmaintaining an adequate system of internal control over financial reporting.Internal control over financial reporting is a process to provide reasonable assuranceregarding the reliability of our public financial reporting.

 

**Evaluationof disclosure controls and procedures**

We have evaluated, withthe participation of our Chief Executive Officer and Chief Financial Officer,the effectiveness of our disclosure controls and procedures as ofDecember 31, 2008. There are inherent limitations to the effectiveness ofany system of disclosure controls and procedures, including the possibility ofhuman error and the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives. Based upon ourevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat the disclosure controls and procedures as of December 31, 2008 wereeffective to provide reasonable assurance that information required to bedisclosed in the reports we file or submit under the US. Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported,within the time periods specified in the applicable rules and forms, andthat it is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

**Management’sReport on Internal Control over Financial Reporting**

Management of the Companyis responsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) under theUS Securities Exchange Act of 1934. The Company’s internal control overfinancial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. The Company’s internal control over financial reporting includesthose policies and procedures that:

 

·                  Pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and disposition of the assets of the Company;

·                  Provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the Company are being madeonly by authorized employees in accordance with documented authorizations; and

·                  Provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of the Company’s assets that could have a material effect onthe financial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness forfuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance withpolicies or procedures may deteriorate.

 

As required bySection 404 of the Sarbanes-Oxley Act of 2002, Management assessed theeffectiveness of the Company’s internal control over financial reporting as ofDecember 31, 2008. In making this assessment, Management used the criteriaset forth by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO) in Internal Control-Integrated Framework.

 

Based on its assessmentand those criteria, Management concluded that the Company maintained effectiveinternal control over financial reporting as of December 31, 2008.

 

Deloitte Accountants B.V.,the independent registered public accounting firm that audited the financialstatements included in this Annual Report, has issued an attestation report onthe effectiveness of the Company’s internal control over financial reporting asof December 31, 2008 as stated in their report beginning on page 116of this report.

 

**Changesin internal control over financial reporting**

There has not been anychange in the internal controls over financial reporting of the Company thatoccurred during the period covered by this report that has materially affected,or is reasonably likely to materially affect, such internal controls overfinancial reporting.

 

115

 

**ManagementReport**

Corporate Governance

 

**Report of IndependentRegistered Public Accounting Firm**

 

**Tothe Supervisory Board and Shareholders of Crucell N.V. Leiden, the Netherlands**

 

We have audited theinternal control over financial reporting of Crucell N.V. and subsidiaries (the‘Company’) as of December 31, 2008, based on criteria established inInternal Control –*Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

The Company’s managementis responsible for maintaining effective internal control over financialreporting and for its assessment of the effectiveness of internal control overfinancial reporting, included in the acCompanying Management’s Report onInternal Control over Financial Reporting. Our responsibility is to express anopinion on the Company’s internal control over financial reporting based on ouraudit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk, and performing such other procedures as we considered necessaryin the circumstances. We believe that our audit provides a reasonable basis forour opinion.

 

A Company’s internalcontrol over financial reporting is a process designed by, or under thesupervision of, the Company’s principal executive and principal financialofficers, or persons performing similar functions, and effected by the company’sboard of directors, management, and other personnel to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company;(2) provide reasonable assurance that transactions are recorded asnecessary to permit preparation of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe company are being made only in accordance with authorizations of managementand Directors of the Company; and (3) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the company’s assets that could have a material effect on thefinancial statements.

 

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, materialmisstatements due to error or fraud may not be prevented or detected on atimely basis. Also, projections of any evaluation of the effectiveness of theinternal control over financial reporting to future periods are subject to therisk that the controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

 

In our opinion, theCompany maintained, in all material respects, effective internal control overfinancial reporting as of December 31, 2008, based on the criteriaestablished in*Internal Control – IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission.

 

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements as of and for the yearended December 31, 2008 of the Company and our report dated April 21,2009 expressed an unqualified opinion on those financial statements andincluded an explanatory paragraph regarding the adoption of IFRIC 14 by theCompany.

 

**Deloitte Accountants B.V.**

Amsterdam, TheNetherlandsApril 21, 2009

 

116

 

**Management Report**

CorporateGovernance

 

**Articles of Association andShare Capital**

 

**Memorandumand Articles of Association**

 

Set out below is asummary of material information concerning our shares, which are our ordinaryshares together with our preference shares, and related material provisions ofour articles of association and of Book 2 of the Dutch Civil Code (Boek 2 vanhet Burgerlijk Wetboek). This summary is not complete and is qualified in itsentirety by reference to our articles of association and to Dutch law.

 

**General**

We were incorporated as alimited liability company (naamloze vennootschap) on October 9, 2000 bydeed executed before Mr. R.J.J. Lijdsman, civil law notary. Our corporateseat is in Leiden, the Netherlands, and we have offices at Archimedesweg 4-6,2333 CN Leiden, the Netherlands. We are registered in the trade register of theChamber of Commerce and Industry for Leiden under number 28087740. Thestatement of no objection of the Minister of Justice in respect of our deed ofincorporation was issued on October 9, 2000 under number N.V. 1133178. Ouragent in the US is CT Corporation, 111 Eighth Avenue, New York, New York 10011.Our articles of association were last amended on 23 July 2008 beforeMr. R.J.J. Lijdsman, civil law notary.

 

**Corporatepurpose**

The objects of theCompany are set out in Article 3 of the articles of association. Ourobjects include acquiring, establishing and managing companies in our field,controlling and using intellectual property, and funding of our operations aswell as to do all that is connected therewith or may be conducive thereto.

 

**Limitationof liability and indemnification matters**

Pursuant to Dutch law,each member of our Supervisory and Management Boards is responsible to us forthe proper performance of his or her assigned duties. They are also responsiblefor taking measures to prevent the consequences of any improper performance ofduties by another member of our Supervisory Board or our Management Board. Ourarticles of association provide that our Management Board members and ourSupervisory Board members are released from liability for the exercise of theirduties as board members, if our General Meeting of Shareholders adopts aresolution to that effect. This discharge extends only to the exercise of theduties reflected in the annual accounts or otherwise disclosed to our GeneralMeeting of Shareholders prior to the adoption of the annual accounts.  

 

This release of liabilitymay be limited by virtue of Dutch law, such as in the case of bankruptcy. UnderDutch law, our Supervisory Board members and members of our Management Boardgenerally cannot be held personally liable for actions taken in their capacityas such, provided, however, that the foregoing shall not eliminate or limit theliability (1) for any breach of such individual’s duty of loyalty to theCompany or its shareholders, (2) for acts or omissions not in good faithor which involve intentional misconduct or a knowing violation of law,(3) for any transaction from which the member derived an improper personalbenefit or (4) for personal liability which is imposed by Dutch law, asmay be amended from time to time.

 

Our articles ofassociation provide that we shall generally indemnify any person who is or wasa member of our Supervisory Board or our Management Board, and suffers any lossas a result of any action in connection with the execution of his duties forus, provided he acted in good faith and in a manner he reasonably believed tobe in or not opposed to our best interests, and with respect to criminal actionor proceeding, had no reasonable cause to believe his conduct was unlawful orbeyond his mandate.

 

This indemnificationgenerally will not be available if the person seeking indemnification wasadjudged liable for acting with gross negligence or wilful misconduct in theperformance of his duties to us, unless the court in which the action wasbrought, determines that indemnification is appropriate nonetheless.

 

**Sharecapital**

 

Our authorized sharecapital amounts to € 40.8 million divided into: 85,000,000 ordinary shares and85,000,000 preference shares, each with a par value of € 0.24.

 

At December 31,2008, there were 65,833,242 ordinary shares issued and outstanding. No preferenceshares are currently issued and outstanding. The ordinary shares can be issuedin bearer or registered form. The preference shares can only be issued inregistered form. Only bearer ordinary shares can trade on NYSE EuronextAmsterdam. No share certificates will be issued for shares in registered form.

 

117

 

**ManagementReport**

Articles of Association andShare Capital

 

**Ordinaryshares**

Our ordinary shares maybe in registered or bearer form and will be in bearer form unless theshareholder indicates otherwise in writing.

 

**Bearerordinary shares**

All of our bearerordinary shares are embodied in a single global share certificate which willnot be exchanged for single or multiple physical securities and which we willdeposit with the Dutch Securities Depository (NECIGEF) for safekeeping onbehalf of the parties entitled to the ordinary shares in bearer form.

 

The ordinary sharesrepresented by the single global share certificate may only be transferredthrough the book-entry system maintained by NECIGEF. A participant in thecollective deposit (verzameldepot) of a securities institution admitted toNECIGEF may, at his own expense, require conversion of one or more of hisbearer ordinary shares into ordinary shares in registered form.

 

**Registeredordinary shares**

We enter holders ofregistered ordinary shares in the register of shareholders. We do not issueshare certificates. However, the shareholder may request an extract from theshareholders’ register regarding the ordinary shares registered in his name. Weare required to provide this free of charge. Dutch law requires that transfersof registered ordinary shares be recorded in a written instrument to which weare a party or which is served on us, or that the transaction is acknowledgedby us.

 

**Preferenceshares**

As of the date of thisAnnual Report, we have not issued any preference shares. On October 25,2000, we established a foundation called Stichting Preferente Aandelen Crucell,also referred to as the Preferred Foundation. The Preferred Foundation’sobjective is to safeguard our interests, our business and parties connectedtherewith by blocking any influences that may threaten these interests, whichinterests may include the continuity of the Company, identity of the proposedacquirer or identity of us, our business and the parties connected therewith.The Preferred Foundation can safeguard these interests through acquiring andmanaging our preference shares and by exercising the rights attaching to these shares,in particular, the voting rights.

 

The Preferred Foundationhas an option to acquire preference shares up to 100% of the number of ouroutstanding shares, necessary to match the total number of statutory votes onall of the ordinary shares outstanding at the time of an acquisition. ThePreferred Foundation must pay at least 25% of the nominal value of thepreference shares it acquires from us. If we acquire any preference shares,they may be cancelled.

 

A board of governors ofup to five persons directs the Preferred Foundation. Jan Oosterveld, in hiscapacity as chairman of our Supervisory Board, and Pieter Bouw, Mick W. denBoogert, Sweder van Wijnbergen and Gerard P. Krans, have been appointed to theboard of governors. A majority of these members may not be members or formermembers of our Management or Supervisory Board, or an employee of any of ouradvisers, any of our banks or us. These independent members are appointed bythe board of governors. The non-independent members are appointed by our SupervisoryBoard after consultation with our Management Board.

 

Membership of the boardof governors of the Preferred Foundation terminates upon:

 

·                  Voluntaryretirement, reaching the age of 72, death or bankruptcy;

·                  For our nonindependent members, resignation, or dismissal by the members of ourSupervisory Board;

·                  For ourindependent members, if they cease to be independent;

·                  Dismissal by thecomplete board of the Preferred Foundation; or

·                  Periodicretirement in accordance with a rotation plan to be drawn up by the PreferredFoundation’s board of governors, however, these members may be reappointed.

 

**Issueof shares and pre-emptive rights**

Our General Meeting ofShareholders, or our Management Board if the General Meeting of Shareholdershas delegated the power to it, has the authority to decide on any furtherissuance of shares or rights to subscribe for shares and on the terms andconditions of such issuance. Our Management Board is the authorized corporatebody (orgaan) for this purpose until November 30, 2009, and theauthorization may at any time be extended by the General Meeting ofShareholders for periods of up to five years. Our Management Board’s authorityto issue shares is limited to a maximum of 10% of the issued share capital atthe time of issue, plus a further issue up to 10% of the issued share capitalat the time of issue in case the issue takes place in relation to a merger oran acquisition.

 

118

 

**ManagementReport**

Articles ofAssociation and Share Capital

 

Our Management Board canissue shares of any class if it has the approval of our Supervisory Board.Without specific authorization from our General Meeting of Shareholders ourManagement Board may not issue preference shares or grant options for suchshares if, as a result, more preference shares than ordinary shares will orcould become outstanding.

 

Each holder of ordinaryshares has pre-emptive rights to subscribe for any ordinary shares that weissue and has pre-emptive rights to subscribe if we grant rights to subscribefor ordinary shares. Pre-emptive rights are in proportion to the percentage ofour outstanding ordinary shares that the holder owns. Pre-emptive rights do notapply to ordinary shares issued for a non-cash contribution, to ordinary sharesissued to our employees or ordinary shares issued to a person who exercises apreviously acquired right to subscribe for ordinary shares. Holders ofpreference shares do not have pre-emptive rights if we issue ordinary shares,and holders of ordinary shares have no pre-emptive rights to purchasepreference shares if we issue preference shares.

 

If our Management Boardhas been delegated the authority to issue shares, it can limit or exclude anypre-emptive rights as long as the general meeting of shareholders has grantedit that power and our Supervisory Board approves. At present, our ManagementBoard is authorized to do this. This authorization is valid untilNovember 30, 2009 and the General Meeting of Shareholders may at any timeextend this authorization for periods of up to five years.

 

Our shares cannot beissued below par. The ordinary shares must be fully paid up upon issue.Preference shares may be issued without being fully paid up, but at leastone-quarter of the nominal amount must be paid up upon subscription, and eachissue of preference shares must have the same amount paid up. Our ManagementBoard may determine the day and the amount of a further call for payment onpreference shares.

 

**Acquisitionby us of shares in our own capital**

We may acquire our ownfully paid up shares if the following conditions are met:

 

·                  Our GeneralMeeting of Shareholders has authorized our Management Board to acquire theshares;

·                  The authorizationspecifies the number of shares that we may acquire, the manner in which theymay be acquired and the limits within which the price must be set;

·                  Our shareholders’equity, after deduction of the price of acquisition, is not less than the sumof the paid and called up portion of the share capital and the reserves thatprovisions of Dutch law or our articles of association require us to maintain;and

·                  The aggregate parvalue of the shares to be acquired, together with the shares in our sharecapital that we already hold directly, indirectly or as pledgee, does not equalmore than one-tenth the aggregate par value of our total issued share capital.

 

An authorization by theGeneral Meeting of Shareholders for a term of a maximum of 18 months is neededin the event of an acquisition for valuable consideration. Currently anauthorization is granted to the Management Board by the General Meeting ofShareholders to repurchase fully paid up ordinary shares up to 10% of ouroutstanding share capital until November 30, 2009. The repurchase pricelies between the nominal value of the shares and an amount equal to 110% of thehighest price officially quoted on the NASDAQ National Market and the NYSEEuronext Amsterdam stock exchange on any of five (5) banking dayspreceding the date of the repurchase.

 

We and our subsidiariesmay not vote shares that we or they hold. We may acquire shares to transferthem to our employees or the employees of our group companies under designatedstock option plans without authorization.

 

**Capitalreduction**

If our Management Boardproposes, our Supervisory Board approves and Dutch law permits, the GeneralMeeting of Shareholders can reduce our issued share capital by cancellation ofshares or reduction of the nominal value of shares.

 

**Otherkey provisions of our articles of association**

 

**Votingrights and shareholders’ meetings**

We must hold annualgeneral meetings of shareholders within six months of the end of our financialyear. The annual meeting is held, among other things, to adopt our annualaccounts. We must hold extraordinary general meetings of shareholders whenever:

 

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**Management Report**

Articlesof Association and Share Capital

 

·                  Shareholders andholders of American depositary receipts for shares together representing atleast one- tenth of our outstanding share capital request it in writing,listing the topics to be discussed; and

·                  Our ManagementBoard or our Supervisory Board deems appropriate.

 

General meetings ofshareholders may only be held in the municipalities of Leiden, Amsterdam,Haarlemmermeer (including Schiphol Airport and Schiphol-Rijk), Utrecht,Rotterdam and The Hague.

 

Each shareholder canattend general meetings in person or by proxy, address the meeting and vote.Each share, whether ordinary or preference, confers one vote on theshareholder. The Management Board must be notified in writing of a registeredshareholder’s intention to attend the General Meeting of Shareholders. Theholders of bearer ordinary shares can vote if a NECIGEF participant sends awritten statement as to their shareholdings to our offices. Resolutions arepassed by absolute majority of votes cast unless stated otherwise in Dutch lawand our articles of association.

 

Shareholders representingalone, or in aggregate, at least one percent (1%) of our issued capital or –according to the Euronext Official Price List – at least a value of 50 millionEuro, have the right to request the Management Board and the Supervisory Boardto place items on the agenda of the General Meeting of Shareholders. Theserequests shall be honoured on the condition:

 

·                  That theshareholders have a reasonable interest in the items to be considered;

·                  That the placingon the agenda is not in conflict with the orderly course of the meeting andthat there shall be no material interest against placing the item on theagenda; and

·                  That the requesthas been filed in writing with the Management Board or the Chairman of theSupervisory Board at least 60 days prior to the date of the General Meeting ofShareholders.

 

The General Meeting ofShareholders can amend our articles of association, dissolve us, merge us ordemerge us only if proposed by the Supervisory Board.

 

Dutch law and ourarticles of association do not impose any limitations on non-Dutch ownership orvoting of our ordinary shares.

 

**Approvalrights of the Supervisory Board**

Our Supervisory Boardmust approve certain resolutions of our Management Board, which are specifiedin our articles of association.

 

**AnnualReport**

We have a calendarfinancial year. Dutch law requires that within four months after the end of ourfinancial year, unless the general meeting of shareholders has extended thisperiod for a maximum of six months, our Management Board must make available tothe shareholders a report with respect to that financial year. This report mustinclude the financial statements and a report of an independent accountant. TheAnnual Report is submitted to the annual General Meeting of Shareholders foradoption. See ‘Information for Shareholders and Investors – Limitation ofLiability and Indemnification Matters’.

 

**Dividends**

Annual dividends may onlybe paid out of profits as shown in the adopted annual financial statements. Wemay not make distributions if the distribution would reduce our shareholder’sequity below certain reserves required by Dutch law or by our articles ofassociation. The profits must first be used to set up and maintain reservesrequired by Dutch law and must then be set off against certain financiallosses. The dividends for the preference shares will be a certain percentage oftheir nominal value. These will be paid first. With Supervisory Board approval,our Management Board then decides whether and how much of the remaining profitthey will reserve. Any profits remaining shall be paid as a dividend on theordinary shares, if the retained earnings are negative or are to be used toform a statutory reserve no dividend will be paid out. With the approval of ourSupervisory Board and subject to Dutch law, our Management Board can pay aninterim dividend.

 

We can make distributionsto shareholders at the charge of one or more of our reserves. Holders of sharesare entitled to the full dividend for the financial year 2000 and subsequentfinancial years. Any dividends that are not claimed within five years of theirdeclaration revert to us.

 

**Amendmentof our articles of association and liquidation rights**

The General Meeting ofShareholders may only resolve to amend our articles of association or todissolve, merge or demerge us on the proposal of our Supervisory Board. Theclass of shareholders

 

120

 

**Management Report**

Articlesof Association and Share Capital

 

affected must approve aresolution to amend the articles of association to change the rights of the class.If we are dissolved and liquidated, after we pay all debts and liquidationexpenses, the holders of preference shares have first rights to payment of anydividends not fully paid to them in previous years and of the nominal value oftheir preference shares. Any remaining assets will be distributed to theholders of ordinary shares.

 

**Enforcementof civil liabilities**

We are incorporated underthe laws of the Netherlands, and the majority of the members of our SupervisoryBoard, all of the members of our Management Board and management team and allof the experts named in this document are residents of, and most of our andtheir assets are located in, jurisdictions outside the US. As a result, it maynot be possible for you to effect service of process within the US upon us orthese persons, or to enforce against us or these persons in courts in the US,judgments of these courts predicated upon the civil liability provisions of USsecurities laws. In addition, it is not clear whether a Dutch court would imposecivil liability on us, members of our Management Board or Supervisory Board ormanagement team or any of the experts named in this document in an originalaction based solely upon the federal securities laws of the US brought in acourt of competent jurisdiction in the Netherlands. Dutch law, furthermore, doesnot recognize a shareholder’s right to bring a derivative action on behalf of acorporation.

 

Our legal counsel in theNetherlands, Allen & Overy, has advised us that because there is notreaty on the reciprocal recognition and enforcement of judgments in civil andcommercial matters between the US and the Netherlands, courts in theNetherlands will not automatically enforce a final judgment rendered by a UScourt. In order to obtain a judgment enforceable in the Netherlands, claimantsmust litigate the relevant claim again before a Dutch court of competentjurisdiction. Under current practice, however, a Dutch court will recognize afinal and conclusive judgment rendered by a US court if the Dutch court findsthat:

 

·                  The US courtassumed jurisdiction on grounds that are acceptable from an international lawperspective;

·                  The final judgmentresults from proceedings compatible with Dutch concepts of due process; and

·                  The final judgmentdoes not contravene public policy of the Netherlands.

 

If the Dutch courtrecognizes the final US judgment, that court generally will grant the samejudgment without the parties having to litigate again on the merits.

 

**Obligationsof shareholders to disclose holdings under Dutch law**

Under the FinancialSupervision Act any person who, directly or indirectly, acquires, or disposesof, an interest in the capital and/or the voting rights of a public limitedliability company incorporated under Dutch law with an official listing on astock exchange within the European Economic Area must immediately give writtennotice to the Dutch securities regulator AFM by means of a standard form, ofsuch acquisition or disposal if, as a result of such acquisition or disposal,the percentage of capital interest and/or voting rights held by such personmeets, exceeds or falls below the following thresholds: 5%, 10%, 15%, 20%, 25%,30%, 40%, 50%, 60%, 75% and 95%.

 

The notification requirementalso applies if a person’s capital interest or voting right meets, exceeds orfalls below the above mentioned thresholds as a result of a change in the sharecapital or voting rights, and the notification must be made no later than thefourth trading day after the AFM has published the notification as described inthe following sentence. Crucell is required to notify the AFM immediately ifits share capital or voting rights change by 1% or more since the previousnotification. Other changes must be notified periodically.

 

In addition, the membersof the Management Board and Supervisory Board are required to immediatelynotify the AFM of any change in the number of Crucell shares or options theyhold or voting rights in respect of these shares. The AFM will disclose thisinformation in a public register on its website. Non-compliance with theobligations of the Financial Supervision Act can lead to criminal prosecution.In addition, a civil court can issue orders against any person who fails tonotify or incorrectly notifies in accordance with the Financial SupervisionAct, including suspension of the voting rights in respect of such person sordinary shares.

 

121

 

**Management Report**

 

 

122

 
| **Contents** | ** ** |
|--------------|------------|

 
| **Report  of Independent Registered****Public  Accounting Firm** | **124**    |
|------------------------------------------------------------------|------------|
| ** **                                                       | ** ** |
| **Financial  Statements**                                        | **125**    |
|                                                             |       |
| 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**                                           | **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**    |

 

123

 

**Report ofIndependent Registered Public Accounting Firm**

 

**Report of IndependentRegistered Public Accounting Firm**

 

**Tothe Supervisory Board and Shareholders of Crucell N.V. Leiden, the Netherlands**

 

We have audited theaccompanying consolidated balance sheets of Crucell N.V. and subsidiaries (the ‘Company’) as of December 31, 2008 and 2007, and the related consolidatedstatements of income, changes in equity, and cash flows for each of the threeyears in the period ended December 31, 2008. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on the financial statements based on our audits.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financial statements. Anaudit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Crucell N.V. and subsidiaries as of December 31,2008 and 2007, and the results of their operations and their cash flows foreach of the three years in the period ended December 31, 2008, inconformity with International Financial Reporting Standards as issued by theInternational Accounting Standards Board.

 

As discussed in note1.5.1 to the financial statements as of January 1, 2008, the Companychanged its method of accounting for pension assets to conform to IFRIC 14, andretrospectively, adjusted the 2007 and 2006 financial statements for thechange.

 

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the Company’s internal control over financial reporting as ofDecember 31, 2008, based on the criteria established in *Internal Control – Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated April 21, 2009 expressed an unqualified opinion onthe Company’s internal control over financial reporting.

 

**Deloitte Accountants B.V.**

Amsterdam, TheNetherlands 

April 21, 2009

 

124

 

**Financial Statements**

Consolidated Income Statements

 

**Consolidated Income Statements**

 
| **Year ended December 31,**                                                    | ** ** | **Notes**  | ** ** | **2008**     | ** ** | **2007**     | ** ** | **2006**     | ** ** |
|-----------------------------------------------------------------------------------------------|------------|------------|------------|--------------|------------|--------------|------------|--------------|------------|
| (Amounts in thousands of Euro, except per share data) | ** ** | ** ** | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Product sales                                                                                 |       |       | ** ** | **226,055**  | ** ** | 177,569      |       | 103,918      |       |
| License revenues                                                                              |       |       | ** ** | **30,202**   | ** ** | 12,211       |       | 16,955       |       |
| Service fees                                                                                  |       |       | ** ** | **10,900**   | ** ** | 14,006       |       | 10,694       |       |
| **Total revenues**                                                                            |       | 4          | ** ** | **267,157**  | ** ** | **203,786**  | ** ** | **131,567**  | ** ** |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Cost of product sales                                                                         |       |       | ** ** | **(138,790** | **)**      | (124,557     | )          | (83,518      | )          |
| Cost of service and license fees                                                              |       |       | ** ** | **(6,965**   | **)**      | (10,327      | )          | (6,971       | )          |
| **Total cost of goods sold**                                                                  |       | 5.1        | ** ** | **(145,755** | **)**      | **(134,884** | **)**      | **(90,489**  | **)**      |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| **Gross margin**                                                                              |       |       | ** ** | **121,402**  | ** ** | **68,902**   | ** ** | **41,078**   | ** ** |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Government grants                                                                             |       |       | ** ** | **5,380**    | ** ** | 7,086        |       | 6,901        |       |
| Other income                                                                                  |       |       | ** ** | **10,772**   | ** ** | 2,244        |       | 2,455        |       |
| **Total other operating income**                                                              |       |       | ** ** | **16,152**   | ** ** | **9,330**    | ** ** | **9,356**    | ** ** |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Research and development                                                                      |       | 5.1        | ** ** | **(70,229**  | **)**      | (63,995      | )          | (67,606      | )          |
| Selling, general and administrative                                                           |       | 5.1        | ** ** | **(64,350**  | **)**      | (61,752      | )          | (46,732      | )          |
| Restructuring                                                                                 |       | 5.18       | ** ** | **—**   | ** ** | —       |       | (3,120       | )          |
| Reversal of impairment/ (impairment)                                                          |       | 5.6/5.7    | ** ** | **4,888**    | ** ** | (171         | )          | (30,416      | )          |
| **Total other operating expenses**                                                            |       |       | ** ** | **(129,691** | **)**      | **(125,918** | **)**      | **(147,874** | **)**      |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| **Operating profit/(loss)**                                                                   |       |       | ** ** | **7,863**    | ** ** | **(47,686**  | **)**      | **(97,440**  | **)**      |
| Financial income                                                                              |       | 5.2        | ** ** | **6,935**    | ** ** | 13,190       |       | 13,453       |       |
| Financial expenses                                                                            |       | 5.3        | ** ** | **(9,597**   | **)**      | (11,812      | )          | (11,706      | )          |
| Results investments non-consolidated companies                                                |       | 5.9        | ** ** | **(128**     | **)**      | (996         | )          | (1,956       | )          |
| Results disposal of non-consolidated companies                                                |       | 5.9        | ** ** | **1,570**    | ** ** | 2,186        |       | —       |       |
| Disposal of subsidiaries                                                                      |       | 1.1        | ** ** | **(367**     | **)**      | —       |       | —       |       |
| **Profit/ (loss) before tax**                                                                 |       |       | ** ** | **6,276**    | ** ** | **(45,118**  | **)**      | **(97,649**  | **)**      |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Income tax                                                                                    |       | 5.4        | ** ** | **8,310**    | ** ** | 2,208        |       | 10,451       |       |
| **Profit/ (loss) for the year**                                                               |       |       | ** ** | **14,586**   | ** ** | **(42,910**  | **)**      | **(87,198**  | **)**      |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Attributable to:                                                                              |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Equity holders of the parent                                                                  |       |       | ** ** | **14,586**   | ** ** | (42,910      | )          | (86,946      | )          |
| Minority interest                                                                             |       |       | ** ** | **—**   | ** ** | —       |       | (252         | )          |
|                                                                                          |       |       | ** ** | **14,586**   | ** ** | (42,910      | )          | (87,198      | )          |
| ** **                                                                                    |       |       | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| **Profit/ (loss) per share –  basic and diluted**                                        |       | 5.5        | ** ** | **0.22**     | ** ** | **(0.66**    | **)**      | **(1.52**    | **)**      |
|                                                                                          |       |       | ** ** | ** **   | ** ** |         |       |         |       |
| Weighted average shares outstanding – basic (in thousands)                               |       | 5.5        | ** ** | **65,593**   | ** ** | 65,103       |       | 57,064       |       |
| Weighted average shares outstanding – diluted (in  thousands)                            |       | 5.5        | ** ** | **66,315**   | ** ** | 65,103       |       | 57,064       |       |

 

Following the adoption of IFRIC 14as of January 1, 2008, the equity in 2006 and the entries for definedbenefit post-employment plans and corresponding deferred tax liabilities havebeen adjusted for the years 2006 and 2007. The impact of this retrospectiveapplication on the financial statements is provided in note 1.5.

 

The accompanying notes are anintegral part of these financial statements.

 

125

 

**FinancialStatements**

Consolidated Balance Sheets

 

**Consolidated Balance Sheets**

 
| **Year ended December 31,**           | ** ** | **Notes**  | ** ** | **2008**    | ** ** | **2007**    |
|------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|
| (Amounts in thousands of Euro)   | ** ** | ** ** | ** ** | ** **  | ** ** | ** **  |
| ** **                                           |       |       |       | ** **  |       |        |
| **Assets**                                           |       |       |       | ** **  |       |        |
| **Non-current  assets**                              |       |       |       | ** **  |       |        |
| Property, plant and equipment                        |       | 5.6        |       | **151,206** |       | 145,525     |
| Intangible assets                                    |       | 5.7        |       | **79,004**  |       | 94,045      |
| Goodwill                                             |       | 5.8        |       | **46,076**  |       | 44,377      |
| Investments in associates and joint  ventures        |       | 5.9        |       | **9,239**   |       | 9,070       |
| Pension asset                                        |       | 5.10       |       | **8,612**   |       | 7,397       |
| Available-for-sale investments                       |       | 3.5        |       | **4,922**   |       | 10,009      |
| Other financial assets                               |       | 5.11       |       | **14,920**  |       | 16,153      |
|                                                 |       |       |       | **313,979** |       | 326,576     |
| **Current  assets**                                  |       |       |       | ** **  |       |        |
| Cash and cash equivalents                            |       | 5.12       |       | **170,969** |       | 163,248     |
| Trade accounts receivable                            |       | 5.13       |       | **40,108**  |       | 47,563      |
| Inventories                                          |       | 5.14       |       | **91,847**  |       | 67,233      |
| Other current assets                                 |       | 5.15       |       | **19,394**  |       | 25,218      |
|                                                 |       |       |       | **322,318** |       | 303,262     |
| **Total  assets**                                    |       |       |       | **636,297** |       | **629,838** |
|                                                 |       |       |       | ** **  |       |        |
|                                                 |       |       |       | ** **  |       |        |
| **Liabilities  and equity**                          |       |       |       | ** **  |       |        |
| Equity attributable to equity holders of  the parent |       | 5.16       |       | **453,492** |       | 441,103     |
|                                                 |       |       |       | ** **  |       |        |
| **Non-current  liabilities**                         |       |       |       | ** **  |       |        |
| Long-term provisions                                 |       | 5.18       |       | **4,577**   |       | 4,573       |
| Long-term financial liabilities                      |       | 5.19       |       | **35,297**  |       | 28,030      |
| Deferred tax liabilities                             |       | 5.4        |       | **16,985**  |       | 29,267      |
| Other non-current liabilities and deferred  income   |       | 5.20       |       | **7,645**   |       | 12,123      |
|                                                 |       |       |       | **64,504**  |       | 73,993      |
| **Current  liabilities**                             |       |       |       | ** **  |       |        |
| Short-term provisions                                |       | 5.18       |       | **1,581**   |       | 761         |
| Short-term financial liabilities                     |       | 5.19       |       | **25,454**  |       | 24,765      |
| Other current liabilities and deferred  income       |       | 5.20       |       | **29,284**  |       | 37,897      |
| Income tax payable                                   |       |       |       | **2,777**   |       | 349         |
| Trade accounts payable                               |       | 5.21       |       | **59,205**  |       | 50,970      |
|                                                 |       |       |       | **118,301** |       | 114,742     |
|                                                 |       |       |       | ** **  |       |        |
| Total liabilities                                    |       |       |       | **182,805** |       | 188,735     |
| **Total  liabilities and equity**                    |       |       |       | **636,297** | ** ** | **629,838** |

 

Following the adoption ofIFRIC 14 as of January 1, 2008, the equity in 2006 and the entries fordefined benefit post-employment plans and corresponding deferred taxliabilities have been adjusted for the years 2006 and 2007. The impact of thisretrospective application on the financial statements is provided in note 1.5.

 

The accompanying notesare an integral part of these financial statements.

 

126

** **

**Financial Statements**

ConsolidatedStatements of Changes in Equity

 

**Consolidated Statements ofChanges in Equity**

 
| (Amounts in thousands of Euro)                                                           | ** ** |          |       |        |       |                    |       |       |       |        | ** ** |         | ** ** | ** **  | ** ** |       | ** ** |        | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|---------------|------------|-------------|------------|-------------------------|------------|------------|------------|-------------|------------|--------------|------------|-------------|------------|------------|------------|-------------|------------|
| ** **                                                                                                   | ** ** | Issued        |       | Share       |       | Net   unrealized  gains |       | Hedging    |       | Translation | ** ** | Accumulated  | ** ** | ** **  | ** ** | Minority   | ** ** | Total       | ** ** |
| ** **                                                                                                   | ** ** | capital  |       | premium     |       | reserve                 |       | reserve    |       | reserve     |       | deficit      |       | Total       |       | interests  |       | equity      |       |
| **At January 1, 2006**                                                                                  | ** ** | **9,946**     | ** ** | **278,592** | ** ** | **9,630**               | ** ** | **—** | ** ** | **—**  | ** ** | **(160,559** | **)**      | **137,609** | ** ** | **—** | ** ** | **137,609** | ** ** |
| **Change in accounting methodology – IFRIC 14**                                                         | ** ** | **—**    | ** ** | **—**  | ** ** | **—**              | ** ** | **—** | ** ** | **(13**     | **)**      | **232**      | ** ** | **219**     | ** ** | **—** | ** ** | **219**     | ** ** |
| Foreign currency translation                                                                                 |       | —        |       | —      |       | —                  |       | —     |       | (7,920      | )          | —       |       | (7,920      | )          | (814       | )          | (8,734      | )          |
| Unrealized result on available for sale securities                                                           |       | —        |       | —      |       | 1,040                   |       | —     |       | —      |       | —       |       | 1,040       |       | —     |       | 1,040       |       |
| **Total income and expense for the year recognized  directly in equity**                                     | ** ** | **—**    | ** ** | **—**  | ** ** | **1,040**               | ** ** | **—** | ** ** | **(7,920**  | **)**      | **—**   | ** ** | **(6,880**  | **)**      | **(814**   | **)**      | **(7,694**  | **)**      |
| Loss for the year                                                                                            |       | —        |       | —      |       | —                  |       | —     |       | —      |       | (86,946      | )          | (86,946     | )          | (252       | )          | (87,198     | )          |
| **Total recognized income and expense for the year**                                                         | ** ** | **—**    | ** ** | **—**  | ** ** | **1,040**               | ** ** | **—** | ** ** | **(7,920**  | **)**      | **(86,946**  | **)**      | **(93,826** | **)**      | **(1,066** | **)**      | **(94,892** | **)**      |
| Issue of shares                                                                                              |       | 5,458         |       | 433,104     |       | —                  |       | —     |       | —      |       | —       |       | 438,562     |       | 12,093     |       | 450,655     |       |
| Costs share based payment transactions                                                                       |       | —        |       | 4,000       |       | —                  |       | —     |       | —      |       | —       |       | 4,000       |       | —     |       | 4,000       |       |
| Issue of warrants and non – employee stock options to  acquire ordinary shares in exchange for services |       | 149           |       | 10,878      |       | —                  |       | —     |       | —      |       | —       |       | 11,027      |       | (11,027    | )          | —      |       |
| Stock based incentive plan                                                                                   |       | —        |       | 295         |       | —                  |       | —     |       | —      |       | —       |       | 295         |       | —     |       | 295         |       |
|                                                                                                         |       |          |       |        |       |                    |       |       |       |        |       |         |       |        |       |       |       |        |       |
| **At December 31, 2006**                                                                                | ** ** | **15,553**    | ** ** | **726,869** | ** ** | **10,670**              | ** ** | **—** | ** ** | **(7,933**  | **)**      | **(247,273** | **)**      | **497,886** | ** ** | **—** | ** ** | **497,886** | ** ** |
| Foreign currency translation                                                                                 |       | —        |       | —      |       | —                  |       | —     |       | (20,384     | )          | —       |       | (20,384     | )          | —     |       | (20,384     | )          |
| Unrealized result on available for sale securities                                                           |       | —        |       | —      |       | (2,330                  | )          | —     |       | —      |       | —       |       | (2,330      | )          | —     |       | (2,330      | )          |
| **Total income and expense for the year recognized  directly in equity**                                     | ** ** | **—**    | ** ** | **—**  | ** ** | **(2,330**              | **)**      | **—** | ** ** | **(20,384** | **)**      | **—**   | ** ** | **(22,714** | **)**      | **—** | ** ** | **(22,714** | **)**      |
| Loss for the year                                                                                            |       | —        |       | —      |       | —                  |       | —     |       | —      |       | (42,910      | )          | (42,910     | )          | —     |       | (42,910     | )          |
| **Total recognized income and expense for the year**                                                         |       | **—**    | ** ** | **—**  | ** ** | **(2,330**              | **)**      | **—** | ** ** | **(20,384** | **)**      | **(42,910**  | **)**      | **(65,624** | **)**      | **—** | ** ** | **(65,624** | **)**      |
| Issue of shares                                                                                              |       | 132           |       | 2,185       |       | —                  |       | —     |       | —      |       | —       |       | 2,317       |       | —     |       | 2,317       |       |
| Costs share based payment transactions including  non-employee stock options                                 |       | —        |       | 6,524       |       | —                  |       | —     |       | —      |       | —       |       | 6,524       |       | —     |       | 6,524       |       |
|                                                                                                         |       |          |       |        |       |                    |       |       |       |        |       |         |       |        |       |       |       |        |       |
| **At December 31, 2007**                                                                                |       | **15,685**    | ** ** | **735,578** | ** ** | **8,340**               | ** ** | **—** | ** ** | **(28,317** | **)**      | **(290,183** | **)**      | **441,103** | ** ** | **—** | ** ** | **441,103** | ** ** |
| Foreign currency translation                                                                                 |       | —        |       | —      |       | —                  |       | —     |       | (4,709      | )          | —       |       | (4,709      | )          | —     |       | (4,709      | )          |
| Unrealized result on available for sale securities                                                           |       | —        |       | —      |       | (5,086                  | )          | —     |       | —      |       | —       |       | (5,086      | )          | —     |       | (5,086      | )          |
| Result unrealized cash flow hedges                                                                           |       | —        |       | —      |       | —                  |       | (685       | )          | —      |       | —       |       | (685        | )          | —     |       | (685        | )          |
| **Total income and expense for the year recognized  directly in equity**                                     |       | **—**    | ** ** | **—**  | ** ** | **(5,086**              | **)**      | **(685**   | **)**      | **(4,709**  | **)**      | **—**   | ** ** | **(10,480** | **)**      | **—** | ** ** | **(10,480** | **)**      |
| Profit for the year                                                                                          |       | —        |       | —      |       | —                  |       | —     |       | —      |       | 14,586       |       | 14,586      |       |       |       | 14,586      |       |
| **Total recognized income and expense for the year**                                                         |       | **—**    | ** ** | **—**  | ** ** | **(5,086**              | **)**      | **(685**   | **)**      | **(4,709**  | **)**      | **14,586**   | ** ** | **4,106**   | ** ** | **—** | ** ** | **4,106**   |       |
| Issue of shares                                                                                              |       | 115           |       | 3,115       |       | —                  |       | —     |       | —      |       | —       |       | 3,230       |       | —     |       | 3,230       |       |
| Costs share based payment transactions including  non-employee stock options                                 |       | —        |       | 5,053       |       | —                  |       | —     |       | —      |       | —       |       | 5,053       |       | —     |       | 5,053       |       |
| **At December 31, 2008**                                                                                |       | **15,800**    | ** ** | **743,746** | ** ** | **3,254**               | ** ** | **(685**   | **)**      | **(33,026** | **)**      | **(275,597** | **)**      | **453,492** | ** ** | **—** | ** ** | **453,492** | ** ** |
|                                                                                                              |            |               |            |             |            |                         |            |            |            |             |            |              |            |             |            |            |            |             |            |  |

 

Following the adoption of IFRIC 14 as of January 1,2008, the equity in 2006 and the entries for defined benefit post-employmentplans and corresponding deferred tax liabilities have been adjusted for theyears 2006-2007. The impact of this retrospective application on the financialstatements is provided in note 1.5.

 

The accompanying notes are an integral part of thesefinancial statements.

 

127

 

**Financial Statements**

ConsolidatedCash Flow Statements

 

**Consolidated Cash FlowStatements**

 
| **Year ended December 31,**                                    | ** ** | **Notes**      | ** ** | **2008**    | ** ** | **2007**    | ** ** | **2006**    | ** ** |
|---------------------------------------------------------------------|------------|----------------|------------|-------------|------------|-------------|------------|-------------|------------|
| (Amounts in thousands of Euro)                                      | ** ** | ** **     | ** ** | ** **  | ** ** | ** **  | ** ** | ** **  | ** ** |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| **Cash  flows from (used in) operating activities**                 |       |           |       | ** **  | ** ** |        |       |        |       |
| Profit/ (loss)  of the year                                         |       |           |       | **14,586**  | ** ** | (42,910     | )          | (87,198     | )          |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| Adjustments for  non-cash items                                     |       |           |       | ** **  | ** ** |        |       |        |       |
| Income tax                                                          |       | 5.4            |       | **(8,310**  | **)**      | (2,208      | )          | (10,451     | )          |
| Results of  investments in associates and joint ventures            |       | 5.9            |       | **128**     | ** ** | 996         |       | 1,956       |       |
| Financial income  and expenses                                      |       | 5.2/ 5.3       |       | **3,963**   | ** ** | (1,378      | )          | (1,747      | )          |
| Depreciation                                                        |       | 5.6            |       | **16,629**  | ** ** | 14,453      |       | 14,275      |       |
| Amortization                                                        |       | 5.7            |       | **11,674**  | ** ** | 11,894      |       | 7,560       |       |
| (Reversal of  impairment)/impairment                                |       | 5.6/ 5.7       |       | **(4,888**  | **)**      | 171         |       | 30,416      |       |
| Fair value  adjustments on inventory                                |       | 5.14           |       | **1,165**   | ** ** | 8,493       |       | 11,272      |       |
| Change in  long-term liabilities, receivables and provisions        |       | 5.11/5.18/5.19 |       | **(5,309**  | **)**      | 7,591       |       | (287        | )          |
| Gain on disposal  of assets                                         |       | 5.6/5.9        |       | **(1,304**  | **)**      | (2,236      | )          | (176        | )          |
| Stock-based  compensation                                           |       | 5.17           |       | **5,053**   | ** ** | 6,817       |       | 5,687       |       |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| Changes in net working  capital                                     |       |           |       | ** **  | ** ** |        |       |        |       |
| Trade accounts  receivable                                          |       |           |       | **(912**    | **)**      | 8,583       |       | (25,755     | )          |
| Inventories                                                         |       |           |       | **(37,121** | **)**      | (6,128      | )          | (15,674     | )          |
| Other current  assets                                               |       |           |       | **5,103**   | ** ** | (615        | )          | 1,136       |       |
| Trade accounts  payable                                             |       |           |       | **15,978**  | ** ** | 16,274      |       | 18,509      |       |
| Other current  liabilities                                          |       |           |       | **(14,080** | **)**      | 8,247       |       | (3,211      | )          |
| Short-term  provisions                                              |       |           |       | **1,218**   | ** ** | (1,191      | )          | 1,821       |       |
| Interest paid                                                       |       |           |       | **(2,684**  | **)**      | (2,152      | )          | (2,211      | )          |
| Income taxes  paid                                                  |       |           |       | **(576**    | **)**      | (1,545      | )          | 124         |       |
| Payments out of  provisions                                         |       |           |       | **(567**    | **)**      | (962        | )          | —      |       |
| **Net  cash flows from (used in) operating activities**             | ** ** | ** **     | ** ** | **(254**    | **)**      | **22,194**  | ** ** | **(53,954** | **)**      |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| **Cash  flows from (used in) investing activities**                 |       |           |       | ** **  | ** ** |        |       |        |       |
| Purchase of  property, plant and equipment                          |       | 5.6            |       | **(15,787** | **)**      | (27,156     | )          | (20,337     | )          |
| Proceeds from  sale of equipment                                    |       | 5.6            |       | **—**  | ** ** | 113         |       | 197         |       |
| Acquisition of  intangible assets                                   |       | 5.8            |       | **(237**    | **)**      | —      |       | (12,371     | )          |
| Proceeds from  sale intangible assets                               |       | 5.7            |       | **—**  | ** ** | —      |       | 225         |       |
| Acquisition of  Berna Biotech AG, Switzerland, net of cash acquired |       | 5.8            |       | **—**  | ** ** | —      |       | 67,784      |       |
| Acquisition of  SBL, Sweden, net of cash acquired                   |       | 5.8            |       | **—**  | ** ** | —      |       | (33,386     | )          |
| Investments/capital  increase in joint ventures                     |       | 5.9            |       | **—**  | ** ** | (8,553      | )          | (1,427      | )          |
| Proceeds from  disposal joint ventures/associates/subsidiaries      |       | 5.9            |       | **182**     | ** ** | 6,081       |       | —      |       |
| Assets  classified as held for sale                                 |       |           |       | **—**  | ** ** | —      |       | 11,772      |       |
| Proceeds from  financial assets                                     |       |           |       | **2,540**   | ** ** | —      |       | 7,627       |       |
| Interest  received                                                  |       | 5.2            |       | **4,395**   | ** ** | 5,274       |       | 3,075       |       |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| **Net  cash flows from (used in) investing activities**             | ** ** | ** **     | ** ** | **(8,907**  | **)**      | **(24,241** | **)**      | **23,159**  | ** ** |
|                                                                |       |           |       | ** **  | ** ** |        |       |        |       |
| **Cash  flows from financing activities**                           |       |           |       | ** **  | ** ** |        |       |        |       |
| Proceeds from  issue of share capital                               |       | 5.16           |       | **3,230**   | ** ** | 2,281       |       | 82,797      |       |
| Proceeds from  financial liabilities                                |       | 5.19           |       | **35,732**  | ** ** | 10,309      |       | 14,703      |       |
| Repayment of  financial liabilities                                 |       | 5.19           |       | **(22,336** | **)**      | (1,346      | )          | (18,769     | )          |
| **Net  cash flows from financing activities**                       | ** ** | ** **     | ** ** | **16,626**  | ** ** | **11,244**  | ** ** | **78,731**  | ** ** |
| Effect of  exchange rates on cash and cash equivalents              |       |           |       | **256**     | ** ** | (3,786      | )          | (1,833      | )          |
| **Net  increase (decrease) in cash and cash equivalents**           | ** ** | ** **     | ** ** | **7,721**   | ** ** | **5,411**   | ** ** | **46,103**  | ** ** |
| Cash and cash  equivalents at beginning of the year                 |       | 5.12           |       | **163,248** | ** ** | 157,837     |       | 111,734     |       |
| **Cash  and cash equivalents at end of the year**                   | ** ** | 5.12           | ** ** | **170,969** | ** ** | **163,248** | ** ** | **157,837** | ** ** |

 

The accompanying notesare an integral part of these financial statements.

 

128

** **

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**Notes to the ConsolidatedFinancial Statements**

 

**1**                 **General information**

 

**1.1**      **Corporate information**

 

**General**

Crucell N.V. (‘Crucell’or the ‘Company’) is incorporated and domiciled in Leiden, the Netherlands. Itsshares are publicly traded on NYSE Euronext Amsterdam (CRXL), and SWX SwissExchange Zurich (CRX). Its American Depositary Shares (ADSs) are publiclytraded on NASDAQ New York (CRXL). Crucell and its subsidiaries togetherconstitute the Crucell Group, or the ‘Group’. The Company has subsidiaries inthe Netherlands, Switzerland, Spain, Italy, Sweden, Korea and the US. Crucellemployed 1,126 people at December 31, 2008 (2007: 1,126).

 

Crucell is a fullyintegrated biopharmaceutical company, focused on developing, producing andmarketing products to combat infectious diseases. Its core vaccine portfolioincludes Inflexal V, a vaccine against influenza, paediatric vaccinesHepavax-Gene, Quinvaxem and MoRu-Viraten, and travel vaccines Vivotif, Dukoral,and Epaxal. In addition to these portfolio vaccines, the Group has a broadpipeline of new potential vaccines and proteins. The Group has developedvarious proprietary technologies such as PER.C6, MAbstract, AdVac, STAR andvirosome-adjuvanted technologies. Crucell licenses these proprietarytechnologies to other companies in the biopharmaceutical industry.

 

**Changesin the scope of consolidation**

The consolidatedfinancial statements include the results of the acquired companies for theperiod from the date of acquisition unless mentioned otherwise. There have beenthe following changes in the scope of consolidation in 2008.

 

·                  InNovember 2008, the Group sold its fully-owned subsidiary Etna Biotech Srl(Catania, Italy) to Zydus Cadila (Ahmedabad, India). The sale resulted in netproceeds for Crucell of € 182;

·                  InDecember 2008, SBL Vaccin Holding AB and Vitec AB legally merged into SBLVaccin AB; 

 

On November 30, 2007,Rhein Vaccines B.V. legally merged into Berna Rhein B.V. and ceased to exist asof that date.

 

In 2006, the mostsignificant changes in the scope of consolidation were due to:

 

·                  The acquisition ofthe shares of Berna Biotech AG (February 2006);

·                  The establishmentof Crucell Vaccines Inc. followed by the acquisition of the assets andliabilities of Berna Products Corporation (October 2006); and

·                  The acquisition ofthe shares of SBL Vaccin Holding AB (November 2006).

 

Further details on theseacquisitions are provided in note 5.8.

 
| **List  of consolidated companies** |
|-------------------------------------|
| ** **                          |

 

The Company’s mostsignificant subsidiaries as of December 31, 2008 were:

 
|                         | Legal seat     |            | 2008      | 2007      | 2006      |
|------------------------------|----------------|-----------------|-----------|-----------|-----------|
| Name                         | ownership      | Country         | ownership | ownership | ownership |
| Crucell Holland B.V.         | Leiden         | the Netherlands | 100%      | 100%      | 100%      |
| U-BiSys B.V.                 | Utrecht        | the Netherlands | 100%      | 100%      | 100%      |
| ChromaGenics B.V.            | Amsterdam      | the Netherlands | 100%      | 100%      | 100%      |
| Berna Biotech AG             | Bern           | Switzerland     | 100%      | 100%      | 100%      |
| Berna Biotech España SA | Madrid         | Spain           | 100%      | 100%      | 100%      |
| Berna Biotech Italia Srl     | Milano         | Italy           | 100%      | 100%      | 100%      |
| Etna Biotech Srl             | Catania        | Italy           | —    | 100%      | 100%      |
| Berna Rhein B.V.             | Leiden         | the Netherlands | 100%      | 100%      | 100%      |
| Rhein Vaccines B.V.          | Maastricht     | the Netherlands | —    | —    | 100%      |
| Berna Biotech Korea corp.    | Seoul          | Korea           | 100%      | 100%      | 100%      |
| Crucell Holding Inc.         | Wilmington, DE | United States   | 100%      | 100%      | 100%      |
| Crucell Vaccines Inc.        | Wilmington, DE | United States   | 100%      | 100%      | 100%      |
| Crucell Biologics Inc.       | Wilmington, DE | United States   | 100%      | 100%      | 100%      |
| SBL Vaccin Holding AB        | Stockholm      | Sweden          | —    | 100%      | 100%      |
| SBL Vaccin AB                | Stockholm      | Sweden          | 100%      | 100%      | 100%      |
| Vitec AB                     | Stockholm      | Sweden          | —    | 100%      | 100%      |

 

129

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

Joint venture andassociated companies (not consolidated)

 
|                  | Joint venture/      | Legal seat    |              | 2008      | 2007      | 2006      |
|-----------------------|---------------------|---------------|-------------------|-----------|-----------|-----------|
| Name                  | associate ownership | ownership     | Country           | ownership | ownership | ownership |
| Percivia LLC          | Joint venture       | Cambridge, MA | United States     | 50.0%     | 50.0%     | 50.0%     |
| ADImmune corp.        | Associated company  | Taipei        | Republic of China | 11.8%     | 20.0%     | —    |
| Kenta Biotech AG  *   | Sold                | Bern          | Switzerland       | —    | 22.0%     | 37.0%     |
| Pevion Biotech  AG ** | Sold                | Bern          | Switzerland       | —    | —    | 50.0%     |

 

*          On July 3,2008 the Group sold all of the 2,625,000 shares it owned in Kenta Biotech AG toIngro Finanz AG.

**      On November 5, 2007 theGroup sold all shares it owned in Pevion Biotech AG to other shareholders ofPevion Biotech.

 

**1.2Basis of preparation**

 

The consolidatedfinancial statements of the Group have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as issued by the IASB andare prepared on a historical cost basis unless stated otherwise. As the Groupadopted IFRIC 14 there are no differences between IFRS applied by the Group andIFRS as endorsed by the EU.

 

As permitted by article362 of Book 2 of the Netherlands Civil Code, the company financial statementshave been prepared applying the same IFRS accounting policies as used in theconsolidated financial statements. In conformity with article 402, Book 2 ofthe Dutch Civil Code, the Company income statement is presented in abbreviatedform.

 

The consolidatedfinancial statements for the year ended December 31, 2008 on form 20-Fwere authorized for issue in accordance with a director’s resolution onApril 17, 2009.

 

**Foreigncurrency translation**

The functional andpresentation currency of the Company is the Euro. All values are rounded to thenearest thousand (€ 000) unless indicated otherwise.

 

Each entity in the groupdetermines its own functional currency based on the primary economicenvironment in which the entity operates. Items included in the financialstatements of each entity are measured using that functional currency.Transactions in foreign currencies are initially recorded in the functionalcurrency rate ruling at the date of the transaction. Monetary assets andliabilities denominated in foreign currencies are retranslated at thefunctional currency rate of exchange ruling at the balance sheet date. Alldifferences are taken to the income statement. Non-monetary items that aremeasured in terms of historical cost in a foreign currency are translated usingthe exchange rates as at the dates of the initial transactions. Non-monetaryitems measured at fair value in a foreign currency are translated using theexchange rates at the date when the fair value was determined.

 

At the reporting date,the assets and liabilities of subsidiaries with different functional currenciesare translated into Euro at the rate of exchange ruling at the balance sheetdate and their income statements and cash flow statements are translated intoEuro at the weighted average exchange rates for the year. The exchange ratedifferences arising on the translation are taken directly to the translationreserve, a separate component of equity.

 

**1.3Basis of consolidation**

 

The consolidatedfinancial statements comprise the financial statements of the Company and itssubsidiaries per December 31 and for the period then ended. The financialstatements of the subsidiaries are prepared for the same reporting year as theGroup, using consistent accounting policies. All intra-group balances andtransactions are eliminated in full.

 

**Subsidiaries**

Subsidiaries are entitiescontrolled by the Company. Control is achieved where the Company has the powerto govern the financial and operational policies of an enterprise so as toobtain benefits from its activities. Subsidiaries are fully consolidated fromthe date of acquisition, which is the date on which the Group obtains control,and continue to be consolidated until the date such control ceases.

 

Minority interestsrepresent the portion of profit or loss for the year and net assets at the endof the year not held by the Group and are presented separately in theconsolidated income statement and within equity in the consolidated balancesheet, separately from the equity attributable to equity holders of the parent.

 

130

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**Jointventures**

A joint venture is acontractual arrangement whereby two or more parties undertake an economicactivity that is subject to joint control. A jointly controlled entity is ajoint venture that involves the establishment of a separate entity in whicheach venturer has an interest. The Group recognizes its interest in jointventures using the equity method. Under the equity method, the investment inthe joint venture is carried in the balance sheet at cost plus post-acquisitionchanges in the Group’s share of net assets of the joint venture. The incomestatement reflects the share of the results of operations of the joint venture.Periodically the Group determines whether it is necessary to recognize animpairment loss with respect to the Group’s net investment in the jointventure. The reporting dates of the joint ventures are the same as those of theGroup and the accounting policies of the joint ventures conform to those usedby the Group.

 

**Associates**

The Group’s investmentsin associates are accounted for under the equity method of accounting and areinitially recognized at cost. An associate is an entity in which the Group hassignificant influence and which is neither a subsidiary nor a joint venture.The reporting dates of the associates are the same as those of the Group andthe associates’ accounting policies conform to those used by the Group.

 

**1.4Use of estimates and judgments**

 

The preparation offinancial statements requires Management to make judgments, estimates andassumptions that affect the application of accounting policies and the reportedamounts of assets, liabilities, income and expenses. Actual results may differfrom these estimates.

 

Estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognized in the period in which the estimate is revised and in any futureperiods affected. In particular, information about significant areas ofestimation uncertainty and use of critical judgments in applying accountingpolicies that have the most significant effect on the amount recognized in thefinancial statements are described below.

 

**Revenuerecognition**

Sales transactions concludedby the Group may be complex as the underlying sales agreements can containmultiple components whose accounting treatment may be affected by the othercomponents. Reviewing these agreements requires due care and a degree ofmanagement’s judgment. Revenue is not recognized before it is assessed thatsignificant risks and rewards of ownership have been transferred and that theGroup retains no continuing managerial involvement or effective control overthe goods sold. For some transactions this can result in cash receipts beinginitially recognized as deferred income and then released to income oversubsequent periods on the basis of the performance of the conditions specifiedin the agreement. The Group is also subject to various licensing agreements thatcontain milestones that may only be recognized if they are ‘substantive’.Determining whether a milestone is substantive also requires managementjudgment.

 

**Valuationof deferred tax assets and liabilities**

Determination of incometaxes in jurisdictions in which the Group operates, requires exercisingjudgment. This involves estimating the actual current tax exposure togetherwith assessing the valuation of carry forward losses and temporary differences.The temporary differences mainly relate to intangible assets, property, plantand equipment, inventories and pension assets.

 

In assessing thevaluation of the deferred tax assets and liabilities the following items areconsidered: the future taxable profit projections, historical results, taxplanning strategies, changes (substantially) enacted in tax laws and thespecific timing of the recovery of deferred tax positions. In the event thatactual results differ from these estimates due to future changes in income taxlaw or after final review of our tax returns by tax authorities, the Group mayneed to adjust the valuation of our deferred tax assets and liabilities, whichcould materially impact the financial position and results of operations.Management believes that the estimates are reasonable.

 

As at December 31,2008, the Group had unrecognized tax carry forward losses of € 172,732 (2007: €254,511, 2006: € 222,338) that are available, with certain restrictions intime, for offset against future taxable profits of the companies in which thelosses arose. Management assessed the likelihood that the carry forward losseswill be recovered from future taxable profit. To the extent Management believesthat recovery is probable, a deferred tax asset was recognized, which atDecember 31, 2008

 

131

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

was € 9,060 (2007: € 678,2006: € 749). To the extent the likelihood of recovery of deferred tax assetschanges, an expense or a gain within the tax charge in our income statement forthe relevant period will be included.

 

**Accountingfor business combinations**

Business combinations areaccounted for using the purchase method. This involves recognizing identifiableassets (including previously unrecognized intangible assets) and liabilities(including contingent liabilities) of the acquired business at the estimatedfair values at acquisition date. Judgments, made in identifying and valuatingassets and liabilities assumed in a business combination and in determining theuseful life of any acquired assets, can significantly affect both currentperiod as future periods operating results. Estimated fair values in a businesscombination are based on information available at the date that the purchaseprice allocation is completed. Assets and liabilities may be adjusted orrecognized retrospectively within the period of one year if management receivesadditional information about facts and circumstances that existed at theacquisition date.

 

Goodwill is measured asthe excess of the total consideration over the net of the acquisition-dateamounts of the identifiable assets acquired and the liabilities assumed.Goodwill includes intangible assets that were identified in a businesscombination, but not valued separately because the assets were either notseparable or could not be measured reliably. Assets identified and included aspart of goodwill can be specific customer relationships, supply contracts notmeeting the recognition requirements or the workforce acquired. Goodwillrecognized can significantly affect both current period as future periodsoperating results as goodwill is subject to an annual impairment review and notto periodical amortization.

 

Goodwill atDecember 31, 2008 amounted to € 46,076 compared to € 44,377 at the end of2007. Goodwill increased due to a strengthening of the foreign currencies underlyingthe investment in the foreign operations. The increase is mainly caused by theappreciation of the Swiss Franc and the US Dollar against the Euro in 2008.

 

**Impairmentreviews of property, plant and equipment, intangible assets and goodwill**

An asset’s recoverableamount is the higher of the asset’s fair value less costs to sell and its valuein use. For goodwill, the recoverable amount is tested at the level of the cashgenerating unit. The Group starts its impairment reviews of property, plant andequipment, intangible assets and goodwill by determining the asset’s (or cashgenerating unit’s) recoverable amount based on the fair value less costs tosell of an asset. If the fair value less costs to sell does not exceed thecarrying amount, the Group will also consider the value in use before an assetis impaired. The best evidence of an asset’s fair value less costs to sell is aprice in a binding sale agreement in an arm’s length transaction, adjusted forincremental costs that would be directly attributable to the disposal of theasset. However for most of the Group’s assets there are typically no observablemarket prices as the assets have a level of specificity for which no activemarket exists. The fair values less costs to sell are predominantly based ondiscounted net present value calculations that use assumptions applicable inthe current market. Key assumptions are those regarding the discount rates, theestimated terminal growth rate, expected changes to market share and theselling prices and costs in the forecasted period. Where applicable, theforecasted cash flows for pre-clinical programs are adjusted for the risk offailure of the program.

 

*Property,plant and equipment and intangible assets*The Group assessesfor its property, plant and equipment and intangible assets at each reportingdate whether there is an indication that an asset may be impaired. If there issuch an indication of impairment or when an annual impairment test for an assetis required, an impairment test is performed.

 

In the year endedDecember 31, 2006, an impairment loss of € 19,568 was recognized for twobuildings, including installed equipment, that were acquired in the businesscombination with Berna Biotech AG. Both buildings are located in Switzerland.Berna Biotech AG performed contract manufacturing and conducted a candidatevaccine development program in those buildings. The development of thecandidate vaccine and the contract manufacturing were phased out during 2007.The buildings are specially configured for biotechnology purposes and it isimpracticable to separate the equipment from the buildings. Since at the timethere was no direct use for these buildings for any of the Group’s otheractivities, no market for the sale of the buildings to third parties and noexpectation that these buildings

 

132

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

could be utilized in theforeseeable future, an impairment was recorded for the total carrying amount of€ 19,568 as at December 31, 2006.

 

In the fourth quarter of2006 an impairment loss of € 10,848 was recognized on the in-process researchand development of the Tetra vaccine which was acquired in February 2006when the Company acquired Berna Biotech AG. Management decided to stop thedevelopment of Tetra after Quinvaxem received approval by the WHO.Consequently, the carrying value of Tetra was impaired for the total amount of€ 10,848.

 

An impairment lossrecognized in prior periods for an asset other than goodwill shall be reversedif, and only if, there has been a change in the estimates used to determine theasset’s recoverable amount since the last impairment loss was recognized. Inthe first quarter of 2008, the Group entered into an exclusive agreement withWyeth Pharmaceuticals. The Group develops and manufactures certain componentsof a vaccine for use by Wyeth in clinical studies. The contract manufacturingtakes place in one of the two buildings that was impaired in 2006, as discussedabove. The Group reassessed the recoverable amount of the asset and reversed €5,219 of the previously recognized impairment loss in the 2008 financialstatements.

 

In the fourth quarter of2008, the Group also recognized an impairment charge of € 331 for the animalhousing facility in Bern, Switzerland, that is no longer in use.

 

*Goodwill*

Goodwill is reviewedannually or more frequently when changes in circumstances indicate that thecarrying amount may be impaired. The discounted net present value calculationsare derived from the Group’s most recent long range plan, which forecasts theperiod for the next five years. Beyond this five year window, cash flows areextrapolated based on the estimated terminal growth rate.

 

Management exercisedjudgment in determining the segments and the subsequent allocation of thegoodwill. In 2008, the Group reorganized its reporting structure in a way thatchanges the composition of one or more cash-generating units to which goodwillhas been allocated, as the Vaccines and Proteins business units wereintegrated. In the prior year, all goodwill was allocated to the Vaccines Unit.As a result of the change in composition, Management had to reallocate thegoodwill and decided to assign all goodwill to the 2006 business acquisitionsthat led to the recognition of the goodwill. Management decided not to allocatethe goodwill to the individual business acquisitions as the operations areintegrated and the allocation would be arbitrary.

 

**Valuationof defined benefit plans**

Under defined benefitplans, the pension entitlements are calculated using the projected unit creditactuarial method. The pension liability recognized in the balance sheet is thepresent value of the defined benefit obligation at the balance sheet date, lessthe fair value of the plan assets after adding or subtracting unrecognizedactuarial gains or losses and past-service costs.

 

The defined benefitobligation is calculated separately for each plan by estimating the amount offuture benefit that employees have earned in return for their service in thecurrent and prior periods. That benefit is discounted to determine its presentvalue and any unrecognized past service costs and the fair value of any planassets are deducted.

 

The weighted average ofthe principal assumptions used in determining the employee benefit obligationsfor the defined benefit plans of the Group are shown below:

 
|                            | **2008**  | 2007  | 2006  |
|---------------------------------|-----------|-------|-------|
| Discount rate                   | **3.37%** | 3.40% | 3.32% |
| Expected  return on plan assets | **4.53%** | 4.53% | 4.55% |
| Future salary increases         | **1.19%** | 1.22% | 1.19% |
| Future pension increases        | **0.71%** | 0.78% | 0.66% |

 

**Sharebased payments**

*Optionplans*

The Company operatesshare-based payment programs, whereby in consideration for equity instrumentsboth employees and non-employees render services.

 

The cost of equity-settledshare-based option programs are measured by reference to the fair value at thedate on which they are granted. The Company accounts for its stock optionsunder the fair value method. The following weighted average assumptions wereused in determining the fair value of the stock options.

 

133

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 
| **Year ended December 31,** | **2008**   | 2007   | 2006   |
|----------------------------------|------------|--------|--------|
| Risk-free interest rate          | **4.3%**   | 4.1%   | 3.6%   |
| Expected dividend yield          | **—** | — | — |
| Expected volatility              | **36.7%**  | 33.3%  | 41.8%  |
| Expected life (years)            | **4.76**   | 4.25   | 4.25   |

 

Expected volatilities arebased on historical volatilities of the Company’s stock measured over a periodcommensurate with the expected term of the grants. The expected term used isbased on the anticipated exercise behaviour. Dividend yields used are based onhistorical information as to dividends declared by the Company. Risk-freeinterest rates used are equal to the implied yield available on zero-coupon Dutchgovernment bonds with a remaining term equal to the expected term of theshare-based instrument.

 

Some of our share-basedoption programs include specific market-based conditions that are estimated atthe time of the grant, as IFRS 2 does not allow updates to the originalestimate for market-based conditions during the vesting period. Estimates ofmarket based conditions that have an effect on the fair values of any shares oroptions allocated in our share based payment plans are share price growth on thestock markets and our Total Shareholder Return (‘TSR’) compared to a index ofbiotech companies. TSR reflects the return received by a shareholder, takinginto account both the change in share price and dividends received, whileassuming dividends are re-invested in the Company.

 

**Recognitionof provisions for litigations and claims**

Provisions are recognizedwhen the Group has a present obligation (legal or constructive) as a result ofa past event, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation and a reliable estimate canbe made of the amount of the obligation. Management uses judgment indetermining the provision for litigations and exposure to contingentliabilities related to pending litigation or other outstanding claims. Judgmentis used in assessing the likelihood that a pending claim will succeed or aliability will arise and in quantifying the possible range of the finalsettlement.

 

The Group is subjected to(potential) lawsuits and other legal proceedings, resulting from the ordinarycourse of business. The current status of pending proceedings has been reviewedwith legal counsel. Upon consideration of known relevant facts andcircumstances, provisions were recognized for losses that are considered to bemore likely than not and that can reasonably be estimated as of the balancesheet date.

 

**Valuationof inventories**

Inventories are stated atthe lower of cost and net realizable value. Management exercises judgment indetermining the allowance for obsolete inventory. Inventories are usuallywritten down to net realizable value item by item. In some circumstances,however, it may be appropriate to group similar or related items. In thesecases, the Group considers numerous items, which include test results byquality control, review by local supply chain, historic scrapping and rejectionpercentages per product and the current product portfolio. The allowancerecognized in 2008 is € 3,218 (2007: € 6,428).

 

**1.5 Changes in accounting policies**

 

**1.5.1****New adopted accounting policies in the financial year2008**

IFRIC 14, ‘IAS 19 – Thelimit on a defined benefit asset, minimum funding requirements and theirinteractions’, as issued by the IASB is effective in periods beginning on orafter January 1, 2008. This interpretation is endorsed by the EU with thechange that it should be applied at the latest, as from the commencement dateof its first financial year starting after 31 December 2008. Thedifference in the effective date would for the Group cause a difference inequity and results between IFRS as issued by the IASB and IFRS as endorsed bythe EU. Foreign private issuers that are unable to assert compliance withIASB-issued IFRS have to reconcile their financial information to US GAAP. Toavoid a mandatory reconciliation between IFRS as endorsed by the EU and USGAAP, the Group adopted IFRIC 14 effective as of January 1, 2008.

 

The interpretation providesguidance on assessing the limit of the surplus in a defined benefit pensionfund that can be recognized as an asset. It also explains how the pension assetor liability may be affected by a statutory or contractual minimum fundingrequirement. The pension fund in Switzerland has a minimum funding requirementwith economic benefits from overfunding being available as a reduction offuture contributions. The application of the interpretation results in anincrease in the assets recorded on the Group’s balance sheet and acorresponding increase in the Group’s equity.

 

134

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

As required by thetransition provisions of IFRIC 14, the Group has applied the revised standardretrospectively as of the beginning of the first period presented in the firstfinancial statements to which the interpretation applies. The impact on theDecember 31, 2008, 2007 and 2006 consolidated balance sheets and the consolidatedincome statements are as follows:

 

In thousands of Euro

 
|                                                 |       | ** **   | ** ** | ** **  | ** ** | **2008**      |       |        |       |       |       | 2007          |       |        |       |       |       | 2006          |       |
|------------------------------------------------------|------------|--------------|------------|-------------|------------|---------------|------------|-------------|------------|------------|------------|---------------|------------|-------------|------------|------------|------------|---------------|------------|
|                                                 |       | ** **   | ** ** | ** **  | ** ** | ** **    |       |        |       |       |       | After         |       |        |       |       |       | After         |       |
|                                                 |       | **Before**   | ** ** | ** **  | ** ** | **IFRIC  14** |       | Before      |       |       |       | retrospective |       | Before      |       |       |       | retrospective |       |
| ** **                                           |       | **IFRIC 14** | ** ** | **Impact**  | ** ** | **adopted**   |       | IFRIC 14    |       | Impact     |       | application   |       | IFRIC 14    |       | Impact     |       | application   |       |
| **Income statement**                                 |       |         |       |        |       |          |       |        |       |       |       |          |       |        |       |       |       |          |       |
| Gross  margin                                        |       | **121,402**  | ** ** | **—**  | ** ** | **121,402**   | ** ** | 68,902      |       | —     |       | 68,902        |       | 41,078      |       | —     |       | 41,078        |       |
| Operating  expenses                                  |       | **(132,367** | **)**      | **2,676**   | ** ** | **(129,691**  | **)**      | (129,787    | )          | 3,869      |       | (125,918      | )          | (148,341    | )          | 467        |       | (147,874      | )          |
| Profit  (loss) before tax                            |       | **3,600**    | ** ** | **2,676**   | ** ** | **6,276**     | ** ** | (48,987     | )          | 3,869      |       | (45,118       | )          | (98,116     | )          | 467        |       | (97,649       | )          |
| Income  Tax                                          |       | **8,885**    | ** ** | **(575**    | **)**      | **8,310**     | ** ** | 3,040       |       | (832       | )          | 2,208         |       | 10,551      |       | (100       | )          | 10,451        |       |
| **Profit/(loss) for the year**                       | ** ** | **12,485**   | ** ** | **2,101**   | ** ** | **14,586**    | ** ** | **(45,947** | **)**      | **3,037**  | ** ** | **(42,910**   | **)**      | **(87,565** | **)**      | **367**    | ** ** | **(87,198**   | **)**      |
|                                                 |       |         |       |        |       |          |       |        |       |       |       |          |       |        |       |       |       |          |       |
| **Balance sheet**                                    | ** ** | ** **   | ** ** | ** **  | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** **    | ** ** | ** **  | ** ** | ** ** | ** ** | ** **    | ** ** |
| Pension  asset recognized                            |       | **759**      | ** ** | **7,853**   | ** ** | **8,612**     | ** ** | 2,479       |       | 4,918      |       | 7,397         |       | 2,555       |       | 746        |       | 3,301         |       |
| Deferred  tax liabilities                            |       | **(15,297**  | **)**      | **(1,688**  | **)**      | **(16,985**   | **)**      | (28,210     | )          | (1,057     | )          | (29,267       | )          | (33,586     | )          | (160       | )          | (33,746       | )          |
| Equity attributable to equity holders of the  parent |       | **(447,327** | **)**      | **(6,165)** | ** ** | **(453,492**  | **)**      | (437,242    | )          | (3,861     | )          | (441,103      | )          | (497,300    | )          | (586       | )          | (497,886      | )          |
|                                                 |       |         |       |        |       |          |       |        |       |       |       |          |       |        |       |       |       |          |       |
| **Profit (loss) per share – basic**             | ** ** | **0.21**     | ** ** | **0.01**    | ** ** | **0.22**      | ** ** | **(0.71**   | **)**      | **0.05**   | ** ** | **(0.66**     | **)**      | **(1.53**   | **)**      | **0.01**   | ** ** | **(1.52**     | **)**      |
| **Profit (loss) per share – diluted**           | ** ** | **0.21**     | ** ** | **0.01**    | ** ** | **0.22**      | ** ** | **(0.71**   | **)**      | **0.05**   | ** ** | **(0.66**     | **)**      | **(1.53**   | **)**      | **0.01**   | ** ** | **(1.52**     | **)**      |

 

The following standardwas not yet effective at December 31, 2008, but has been early adopted bythe group:

 

·                  IFRS 8, ‘Operatingsegments’ (effective from January 1, 2009). IFRS 8 replaces IAS 14 ‘Segmentreporting’ and aligns segment reporting with the requirements of the USstandard SFAS 131, ‘Disclosures about segments of an enterprise and relatedinformation’. The new standard requires a ‘management approach’, under whichsegment information is presented on the same basis as that used for internalreporting purposes. The Group applies IFRS 8 from January 1, 2007. Theimpact of the early adoption is described in note 4 ‘Segment information’.

 

**1.5.2Other new accounting pronouncements**

The following amendmentsto existing standards and interpretations were not yet effective at the balancesheet date and were not early adopted by the Group:

 

·                  IAS 23(Amendment), ‘Borrowing costs’ (effective from January 1, 2009). Theamendment requires an entity to capitalize borrowing costs directlyattributable to the acquisition, construction or production of a qualifyingasset (one that takes a substantial period of time to get ready for use orsale) as part of the cost of that asset. The option of immediately expensingthose borrowing costs will be removed. The Group will apply IAS 23 (Amended)from January 1, 2009, but adoption will have no impact on the Group’sfinancial statements as borrowing costs directly attributable to qualifyingassets are already capitalized in line with the allowed alternative treatmentof IAS 23.

·                  IAS 1 (Revised), ‘Presentationof financial statements (effective from January 1, 2009).The revisedstandard will prohibit the presentation of items of income and expenses (thatis, ‘non-owner changes in equity’) in the statement of changes in equity,requiring ‘non-owner changes in equity’ to be presented separately from ownerchanges in equity. All non-owner changes in equity will be required to be shownin a performance statement, but entities can choose whether to present oneperformance statement (the statement of comprehensive income) or two statements(the income statement and statement of comprehensive income). The Group willapply IAS 1 (Revised) from January 1, 2009.

·                  IFRS 2(Amendment), ‘Share-based payment’ (effective from January 1, 2009). Theamended standard deals with vesting conditions and cancellations. It clarifiesthat vesting conditions are service conditions and performance conditions only.Other features of a share-based

 

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paymentare not vesting conditions. These features would need to be included in thegrant date fair value for transactions with employees and others providingsimilar services; they would not impact the number of awards expected to vestor valuation thereof subsequent to grant date. All cancellations, whether by theentity or by other parties, should receive the same accounting treatment. TheGroup will apply IFRS 2 (Amendment) from January 1, 2009 and currentlyassesses the impact of the amended standard.

·                  IFRS 3 (Revised), ‘Businesscombinations’ (effective from July 1, 2009). The revised standardcontinues to apply the acquisition method to business combinations, with somesignificant changes. For example, all payments to purchase a business are to berecorded at fair value at the acquisition date, with contingent paymentsclassified as debt subsequently re-measured through the income statement. Thereis a choice on an acquisition-by-acquisition basis to measure thenon-controlling interest in the acquiree either at fair value or at thenon-controlling interest’s proportionate share of the acquiree’s net assets.All acquisition-related costs should be expensed. The Group will apply IFRS 3(Revised), ‘Business combinations’ from January 1, 2010 and currentlyassesses the impact of the amended standard.

·                  IAS 36 (Amendment),‘Impairment of assets’ (effective from January 1, 2009). The amendment ispart of the IASB’s annual improvements project published in May 2008.Where fair value less costs to sell is calculated on the basis of discountedcash flows, disclosures equivalent to those for value-in-use calculation shouldbe made. The Group will apply the IAS 36 (Amendment) and provide the requireddisclosure where applicable for impairment tests from January 1, 2009.

 

Not all amendments toexisting standards and interpretations that are not yet effective and not earlyadopted by the Group have been listed above as they may not be applicable tothe operations of the Group or are not likely to have a significant impact onthe financial statements of the Group. The Group currently assesses in detailthe impact of the amendments and interpretations.

 

**2**                 **Summary of significantaccounting policies**

 

**2.1**      **Revenue recognition**

 

**General**

In general, revenue isrecognized to the extent that it is probable that the economic benefits willflow to the Group and the amount of revenue and the costs (to be) incurred inthe transaction can be measured reliably. Revenue is measured at the fair valueof the consideration received excluding discounts, rebates, value added taxesand duties.

 

Revenues are recognizedon a gross basis when the Group acts as the principal in an arrangement, andrecognized on a net basis when the Group acts as agent.

 

Goods or services tradedfor items of a similar nature are not regarded as transactions that generate revenue.Goods or services traded for dissimilar items are regarded as transactions thatgenerate revenue.

 

**Productsales**

Revenue from productsales is recognized when:

 

·                  Significant riskand rewards of ownership of the products have passed to the buyer;

·                  The Group does notretain either managerial involvement to the degree usually associated withownership or effective control over the goods sold;

·                  The amount ofrevenue and the costs (to be) incurred in the transaction can be measuredreliably; and

·                  It is probablethat the economic benefits associated with the transaction will flow to theGroup.

 

Products could include aspecific right to return, either pursuant to the sales contract or local law.Revenue from that sale is recognized at time of sale only if all of thefollowing conditions are met in addition to the general revenue recognitionterms described above:

 

·                  The customer isobligated to pay and that obligation is not contingent on resale of theproduct;

·                  The customer’sobligation to pay will not be changed in the event of theft or physicaldestruction or damage of the product;

 

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Notes to the Consolidated Financial Statements

 

·                  The customeracquiring the product for resale has economic substance apart from thatprovided by the Group, e.g. the customer sells other products besides theproducts the Group delivers to it;

·                  The Group does nothave significant future performance obligations to directly ensure resale ofthe product by the buyer; and

·                  The amount offuture returns can be reasonably estimated.

 

Revenue and cost of salesthat are not recognized at the time of the sale because the foregoingconditions were not met are recognized on the earlier of either the substantialexpiration of the customer’s right to return the product or the subsequentsatisfaction of those conditions.

 

**Licenserevenues**

The Group recognizesinitial fees to the licensing of the technology as revenues over the period ofthe significant continuing performance obligations, if any, and upon transferof the significant risks and rewards to the buyer.

 

Under certainarrangements, the Group has no continuing performance obligations afterdelivery of the associated technology under the license agreement or any otherarrangement with the licensee. In such arrangements, initial license fees arerecognized as revenue when significant risks and rewards pass to the buyer,which is the moment the transfer of developed technology is completed. TheGroup’s arrangements provide for continuing support of its technology atstandard consulting rates. Revenues derived from consulting services that arenot essential to licensee’s ability to use the Group’s technology, arerecognized as earned during the period that the consulting services areperformed.

 

In certain arrangements,the Group collaborates with third parties to develop novel products orprocesses using its proprietary technology. These arrangements generallyinclude an initial license fee upon the delivery of the proprietary technologyand additional fees for providing ongoing research and development activities.The research and development activities performed are substantive and criticalto the licensees’ exploitation of the delivered technology. When significantrisks and rewards pass to the buyer, initial fees from these arrangements arerecognized as revenues over the period of continuing performance obligations.

 

Additional fees fromresearch and development activities are recognized as revenues earned over theperiod of the development collaboration or the manufacturing obligation. Allfees received under collaboration agreements are non-refundable.

 

Certain of the Group’slicense agreements provide for additional non-refundable fees to be paid to theGroup upon the achievement of milestones by the licensee. These milestonepayments may be included in license agreements regardless of whether the Grouphas continuing performance obligations under a particular agreement.

 

For license agreementswhere there are no continuing performance obligations, milestone revenue isrecognized when those amounts become due and payable upon achievement of themilestone. The licensee has to confirm the achievement of a milestone inwriting before the revenue is recognized.

 

The Group also haslicense agreements with continuing performance obligations. License revenuesfrom the achievement of these research and development milestones, if deemedsubstantive (as described below), are recognized as revenue when the milestonesare achieved, and the milestone payments are due and collectible under theterms of the agreement.

 

Milestones are considered‘substantive’ if all of the following conditions are met:

 

·                  The milestonepayments are non-refundable under the terms of the agreement;

·                  Achievement of themilestone involved a degree of risk and was not reasonably assured at theinception of the arrangement;

·                  Substantial effortis involved in achieving the milestone;

·                  The amount of themilestone payment is reasonable in relation to the effort expended or the riskassociated with achievement of the milestone; and

·                  A reasonableamount of time passed between the upfront license payment and the firstmilestone payment as well as between each subsequent milestone payment.

 

If any of these conditionsare not met, the Group would recognize the proportionate amount of themilestone payment upon receipt as revenue that

 

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Notes to the ConsolidatedFinancial Statements

 

corresponds with thepercentage of work already completed. The remaining portion of the milestonepayment would be deferred and recognized as revenue as performance obligationsare completed.

 

In addition to theinitial fee, the Group’s arrangements generally provide that the licensee makessemi-annual or annual payments (called ‘license maintenance fees’) to maintainthe license for a subsequent term. Generally, licensees may terminate thelicense and related maintenance fees upon 30 to 90 days’ notice. Licensemaintenance fees are recognized as revenues when the amounts become fixed andpayable. The aggregate of license maintenance fees paid are generallydeductible from any earned royalty payments which may be due on future productsales of the licensee, if any, under the license agreement. Royalties arerecognized as revenue when they become fixed and payable.

 

**Servicefees**

As part of variouscollaboration agreements, the Group receives service fees for work performedunder such agreements. The Group does not retain the residual interest onproducts developed under the agreements and will normally not have ownership ofintellectual property rights on these products. Revenues and related costsassociated with completing performance services are recognized when the serviceis completed and the collectibility of the receivable is deemed probable.Revenues associated with time and material performance contracts are recognizedwhen the costs incurred and the costs to complete the transaction can bemeasured reliably.

 

**2.2Cost of product sales and cost of service fees**

 

Cost of product sales andcost of service fees both comprise direct labor, materials and overhead costs,incurred in performing work under various collaboration agreements thatdirectly relate to revenues earned.

 

**2.3Other operating income**

 

**Governmentgrants**

The Group receivescertain government grants that support research efforts in defined projects.These grants generally provide for reimbursement of approved costs incurred asdefined in various grants. Income associated with these grants is recognizedwhen costs under each grant are incurred in accordance with the terms andconditions of the grant and the collectibility of the receivable is deemedprobable and there is reasonable assurance that attaching conditions will beachieved. Where the grant relates to an expense item, it is recognized asincome over the period necessary to match the grant on a systematic basis tothe costs that it is intended to compensate.

 

**Otherincome**

Other income mainlyconsists of the reimbursement of development costs and funding bynon-governmental agencies, but also includes non-core business transactionssuch as the sale of property, plant and equipment and income generated fromtraining courses.

 

**2.4Research and Development expenses**

 

Expenditure on researchactivities is recognized as an expense in the period in which it is incurred.Internally generated intangible assets arising from the Group’s developmentactivities are recognized if all of the recognition criteria for internallygenerated intangible assets are met, including:

 

·                  An asset iscreated that can be identified;

·                  It is probablethat the asset created will generate future economic benefits; and

·                  The developmentcost of the asset can be measured reliably.

 

Product registration feeswill, in principle, meet these recognition requirements. Where no internallygenerated intangible asset can be recognized, development expenditure isrecognized as an expense in the period in which it is incurred. Research anddevelopment expenses consist of personnel expenses, laboratory expenses,technology purchases, patent related fees, technology license fees,depreciation and amortization of tangible and intangible assets related toresearch and development, and lease expenses for lab space and equipmentleases. Research and development expenses also include fees paid to thirdparties who conduct research on behalf of the Group.

 

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Notes to the Consolidated Financial Statements

** **

**2.5Taxes**

 

**Currenttax**

Current tax assets andliabilities for the current and prior periods are measured at the amountexpected to be recovered from or paid to the tax authorities. The tax rates andtax laws used to compute the amount are those that are enacted, orsubstantially enacted, at the balance sheet date. Current income tax relatingto items recognized directly in equity is recognized in equity and not in theincome statement. Current tax assets and current tax liabilities are offset, ifa legally enforceable right exists to offset the recognized amounts and theGroup intends either to settle on a net basis, or to realize the asset andsettle the liability simultaneously.

 

**Deferredtax**

Deferred income tax iscalculated using the asset and liability method on temporary differences at thebalance sheet date between the tax bases of assets and liabilities and theircarrying amounts under IFRS. Deferred tax liabilities are recognized for alltaxable temporary differences, except:

 

·                  Where the deferredtax liability arises from the initial recognition of goodwill or of an asset orliability in a transaction that is not a business combination and, at the timeof the transaction, affects neither the accounting profit nor taxable profit orloss; and

·                  In respect oftaxable temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, where the timing of the reversal ofthe temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future.

 

Deferred income taxassets are recognized for all deductible temporary differences andcarry-forwards of unused tax credits and unused tax losses, to the extent thatit is probable that taxable profit will be available against which thedeductible temporary differences, and the carry-forwards of unused tax creditsand unused tax losses, can be utilized.

 

The unrecognized deferredincome tax assets are reassessed at each balance sheet date and are recognizedto the extent that it has become probable that future taxable profit will allowthe deferred tax asset to be recovered. Deferred income tax assets andliabilities are measured at the tax rates that are expected to apply to theyear when the asset is realized or the liability is settled, based on tax rates(and tax laws) that have been enacted at the balance sheet date.

 

Income tax relating toitems recognized directly in equity is recognized in equity and not in theincome statement. Deferred tax assets and deferred tax liabilities are offset,if a legally enforceable right exists to set off current tax assets againstcurrent tax liabilities and the deferred taxes relate to the same taxable entityand the same taxation authority.

 

**2.6Profit/ (loss) per share**

 

Basic net profit/ (loss)per share is computed based on the weighted average number of ordinary sharesoutstanding during the period. Diluted net profit/ (loss) per share is computedbased on the weighted average number of ordinary shares outstanding, includingthe dilutive effect of stock options, if any.

 

**2.7Cash and cash equivalents**

 

Cash and cash equivalentsinclude cash in hand and all highly liquid investments with maturities of threemonths or less that are convertible to a known amount of cash and bear aninsignificant risk of change in value.

 

**2.8Financial assets**

 

The Group classifies itsfinancial assets in the following categories: at fair value through profit orloss, loans and receivables, and available for sale. The Group has noheld-to-maturity investments. The classification depends on the purpose forwhich the financial assets were acquired. Management determines theclassification of its financial assets at initial recognition.

 

**Financialassets at fair value through profit or loss**

Financial assets at fairvalue through profit or loss are financial assets held for trading. A financialasset is classified in this category if acquired principally for the purpose ofselling in the short-term. Derivatives are also categorized as held for tradingunless they are designated as formal hedges. Assets in this category areclassified as current assets.

 

**Loansand receivables**

Loans and receivables arenon-derivative financial assets with fixed or determinable payments that

 

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**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

are not quoted in anactive market. They are included in current assets, except for maturitiesgreater than 12 months after the balance sheet date. These are classified asnon-current assets. The Group’s loans and receivables comprise cash and cashequivalents, trade accounts receivable, other financial assets and othercurrent assets in the balance sheet.

 

**Tradeaccounts receivable, other current assets and other financial assets**

Trade accountsreceivable, other current assets and other financial assets are recognizedinitially at fair value and subsequently measured at amortized cost using theeffective interest method, less provision for impairment. A provision forimpairment of trade receivables is established when there is objective evidencethat the group will not be able to collect all amounts due according to theoriginal terms of the receivables.

 

**Available-for-salefinancial assets**

Available-for-saleinvestments are those non-derivative financial assets that are designated asavailable-for-sale. After initial measurement, available-for-sale financialassets are measured at fair value with unrealized gains or losses beingrecognized directly in equity in the net unrealized gains reserve. When theinvestment is disposed of, the cumulative gain or loss previously recorded inequity is recognized in the income statement. Available-for-sale investmentsare included in non-current assets unless management intends to dispose of theinvestment within 12 months of the balance sheet date.

 

**Derecognitionof financial assets**

A financial asset isderecognized when:

 

·                  The rights toreceive cash flows from the asset have expired;

·                  The Group retainsthe right to receive cash flows from the asset, but has assumed an obligationto pay them in full without material delay to a third party under a ‘passthrough’ arrangement; or

·                  The Group hastransferred its rights to receive cash flows from the asset and either hastransferred substantially all the risks and rewards of the asset, or hasneither transferred nor retained substantially all the risks and rewards of theasset, but has transferred control of the asset.

 

**2.9Derivative financial instruments and hedging**

 

Derivative financialinstruments are initially recognized at fair value on the date a derivativecontract is entered into and are subsequently remeasured at fair value. Thefair value is based on the market prices of the instruments. Derivatives arecarried as assets when the fair value is positive and as liabilities when thefair value is negative. To the extent that no formal hedge accounting isapplied, any gains and losses arising from changes in the fair value of theinstruments are recognized in the income statement during the period in whichthey arise.

 

The Group applies formalhedge accounting for specific forward derivative instruments that aredesignated as cash flow hedges. At the inception of derivative instruments, therelationship between the derivative and the underlying financial instrument, aswell as the objective of the risk management and the strategy for undertakingtransactions are documented. In the documentation it is also stated whether thehedge relationship is expected to be highly effective (prospective andretrospective) and how the effectiveness is tested.

 

Changes in the fair valueof a highly effective derivative, that is designated and qualifies as a cashflow hedge, are recorded in equity for the effective part, until the profit orloss is affected by the variability in cash flows of the designated hedgeditem. The ineffective part of the cash flow hedge is recognized in the incomestatement.

 

**2.10Inventories**

 

Inventories are stated atthe lower of cost or net realizable value. The cost of inventories includesexpenditures for materials acquired, directly attributable costs and relatedproduction overhead expenses. Net realizable value is determined using theestimated selling price in the ordinary course of business, less estimatedcosts of completion and the estimated costs necessary to make the sale.Allowances are made for obsolete inventory.

 

**2.12Property, plant and equipment**

 

Property, plant andequipment is stated at cost, excluding the costs of day-to-day servicing, lessaccumulated depreciation and accumulated impairment in value. The cost ofreplacing a part of a plant or equipment is capitalized if the

 

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**Financial Statements**

Notes to the Consolidated Financial Statements

 

recognition criteria aremet. Where an item of property, plant and equipment comprises major componentshaving different useful lives, they are accounted for as separate items ofproperty, plant and equipment. Depreciation is charged to the income statementon a straight-line basis over the estimated useful life of the assets:

 

·                  Freehold land isnot depreciated; 

·                  Buildings: 20 to50 years;

·                  Computerequipment: three years;

·                  Furniture and laboratoryequipment: five years; and

·                  Leaseholdimprovements: the shorter of the lease term and ten years.

 

An item of property,plant and equipment is derecognized upon disposal or when no future economicbenefits are expected from its use. Any gain or loss arising on derecognitionof the asset is included in the income statement. The asset’s residual values,useful lives and methods are reviewed, and adjusted if appropriate, at eachfinancial year-end.

 

**Borrowingcosts**

Borrowing costs directlyattributable to the acquisition, construction or production of qualifyingassets are added to the cost of these assets until they are substantially readyfor their intended use. Qualifying assets are those assets that necessarilytake a substantial period of time to be completed for their intended use. Allother borrowing costs are recognized as an expense in the income statement whenincurred.

 

**2.13Intangible assets**

 

Intangible assetsacquired are measured at cost on initial recognition. The cost of intangibleassets acquired in a business combination is the fair value at the date ofacquisition. Following initial recognition, intangible assets are carried atcost less any accumulated amortization and accumulated impairment losses.Internally generated intangible assets are not capitalized if the recognitionrequirements are not met, in which case the expenses associated with generatingthe intangible asset are recognized in the income statement. The useful livesof intangible assets are assessed to be either finite or indefinite. Intangibleassets with finite lives are amortized over their useful lives. Theamortization period and the amortization method are reviewed at least at eachfinancial year-end. Changes in the expected useful life or the expected patternof consumption of future economic benefits embodied in the asset are accountedfor by changing the amortization period or method, and treated as changes inaccounting estimates. The amortization expense on intangible assets with finitelives is recognized in the income statement consistent with the function of theintangible asset.

 

The estimated useful lifeof the assets is as follows:

 

·                  Patents andlicenses: one year to 20 years;

·                  Customer lists:three years;

·                  Developedtechnology: five years to 20 years; and

·                  In-process R&Dis not depreciated until completion of the asset.

 

**2.14Goodwill and business combinations**

 

Business combinations areaccounted for using the purchase method. This involves recognizing identifiableassets (including previously unrecognized intangible assets) and liabilities(including contingent liabilities, but excluding future restructuring) of theacquired business at fair value. Goodwill acquired in a business combination isinitially measured at cost, which is the excess of the cost of the businesscombination over the Group’s interest in the net fair value of the acquiree’sidentifiable assets, liabilities and contingent liabilities. Following initialrecognition, goodwill is measured at cost less accumulated impairment losses.

 

Goodwill includesintangible assets that were identified in a business combination, but notvalued separately because the assets were either not separable or could not bemeasured reliably. Assets identified and included as part of goodwill can bespecific customer relationships or supply contracts not meeting therequirements for separate recognition and the workforce acquired.

 

Assigning fair values tothe assets and liabilities acquired in a business combination inherentlyrequires the use of estimates. Under IFRS 3 Business Combinations, these fairvalues can be adjusted up to one year after the acquisition date, which canaffect the amount recognized as goodwill.

 

Goodwill acquired in abusiness combination is allocated from the acquisition date to each of theGroup’s cash-generating units that are expected to benefit from the synergiesof the combination, irrespective of whether other assets or liabilities of theGroup are assigned to those units or groups of units.

 

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Notes to the ConsolidatedFinancial Statements

 

Goodwill and fair valueadjustments arising on the acquisition of a foreign operation are treated asassets and liabilities of the foreign operation and, if necessary, translatedinto Euro at the rate of exchange ruling at the balance sheet date.

 

**2.15Impairment of non-financial assets**

 

The Group assessesnon-financial assets at each reporting date to determine whether there is anindication that an asset may be impaired. If any such indication exists, orwhen annual impairment testing for an asset is required, the Group estimatesthe asset’s recoverable amount. An asset’s recoverable amount is the higher ofthe asset’s fair value less costs to sell and its value in use. The recoverableamount is determined for an individual asset, unless the asset does notgenerate cash inflows that are largely independent of those from other assetsor groups of assets. Where the carrying amount of an asset exceeds itsrecoverable amount, the asset is considered impaired and is written down to itsrecoverable amount.

 

An impairment lossrecognized in prior periods for an asset other than goodwill shall be reversedif, and only if, there has been a change in the estimates used to determine theasset’s recoverable amount since the last impairment loss was recognized. Ifthis is the case, the carrying amount of the asset shall be increased to itsrecoverable amount, but so that the increased carrying amount does exceed thecarrying amount that would have been determined had no impairment loss beenrecognized for the asset in prior years.

 

Goodwill is reviewed forimpairment annually or more frequently if events or changes in circumstancesindicate that the carrying value may be impaired. Impairment is determined forgoodwill by assessing the recoverable amount of the cash-generating unit towhich the goodwill has been allocated. Where the recoverable amount of thecash-generating unit is less than the carrying amount of the cash-generatingunit to which goodwill has been allocated, an impairment loss is recognized.Impairment losses relating to goodwill cannot be reversed in future periods.

 

**2.16Employee benefits**

 

**Pensions**

The Group operates bothdefined benefit plans and defined contribution plans. For defined contributionplans, obligations for contributions are recognized as an expense when they aredue. The Group has no obligation to pay further contributions into a definedcontribution plan if the fund does not hold sufficient assets to pay all planbenefits.

 

Under defined benefitplans, the pension entitlements are calculated using the projected unit creditactuarial method. The pension liability recognized in the balance sheet is thepresent value of the defined benefit obligation at the balance sheet date, lessthe fair value of the plan assets after adding or subtracting unrecognizedactuarial gains or losses and past-service costs.

 

The defined benefitobligation is calculated separately for each plan by estimating the amount offuture benefit that employees have earned in return for their service in thecurrent and prior periods. That benefit is discounted to determine its presentvalue and any unrecognized past-service costs and the fair value of any planassets are deducted. For each plan the recognized assets are limited to the nettotal of any cumulative unrecognized net actuarial losses and past-servicecosts and the present value of any future refunds from the plan or reductionsin future contributions to the plan (the ‘asset ceiling’). The economic benefitavailable as a reduction in future contributions is determined as the presentvalue of the estimated future service cost in each year less the estimatedminimum funding contributions required in respect of the future accrual ofbenefits in that year. Actuarial gains and losses in excess of a threshold ofthe higher of 10% of the pension liabilities and 10% of the fair value of theplan assets are charged or credited to the income statement over the employees’expected average remaining working lives.

 

**Share-basedpayment transactions**

**Stockoption plans**

The Group operates anumber of equity-settled, share-based compensation plans, under which the Groupreceives services from employees as consideration for equity instruments(options) of the Group. The cost of equity-settled transactions with employeesis measured by reference to the fair value at the date on which the options aregranted.

 

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Notes to the Consolidated Financial Statements

 

The maximum amount to beexpensed is determined by reference to the fair value of the options granted,excluding the impact of any non-market service and performance vestingconditions. The impact of market conditions on the fair value of options underthese plans is estimated on the date of grant using a lattice-based optionvaluation model. The model calculates the likelihood of achievement of themarket-based measures at various levels.

 

Non-market vestingconditions are included in assumptions about the number of options that areexpected to vest. The cost of equity-settled transactions is recognized,together with a corresponding increase in equity, over the period in which theperformance and/or service conditions are fulfilled, ending on the date onwhich the relevant employees become fully entitled to the award (‘the vestingdate’). The cumulative expense recognized for equity-settled transactions ateach reporting date until the vesting date reflects the extent to which thevesting period has expired and the Group’s best estimate of the number ofequity instruments that will ultimately vest. The income statement charge orcredit for a period represents the movement in cumulative expense recognized asat the beginning and end of that period with the offsetting entry recorded inshare premium in equity. Every option that is exercised results in the issuanceof one ordinary share.

 

At each balance sheetdate, the estimates of the number of options that are expected to vest based onthe non-marketing vesting conditions are revised. The Group recognizes theimpact of the revision to original estimates, if any, in the income statement,with a corresponding adjustment to equity.

 

**Sharebased incentive plans**

The fair value of sharegrants is estimated on the date of grant by multiplying the number of sharesavailable to be granted by the fair value of the Company’s shares on the grantdate. Management assumes any performance goals required by the incentive planwill be achieved and the award will vest in full.

 

**Optionsgranted to non-employees**

The cost of optionsgranted to non-employees is recognized at the fair value of the goods orservices received, together with a corresponding increase in equity, unlessthat fair value of the goods or services received cannot be estimated reliably,in which case the fair value is measured by reference to the fair value of theequity instruments granted.

 

**2.17Interest-bearing loans and borrowings**

 

Short-term financialliabilities consist of all liabilities with maturities up to one year.Long-term financial liabilities are liabilities with maturities over one year.All loans and borrowings are initially recognized at the fair value of theconsideration received less directly attributable transaction costs. Afterinitial recognition, interest-bearing loans and borrowings are subsequentlymeasured at amortized cost using the effective interest method. Gains andlosses are recognized in the income statement when the liabilities arederecognized as well as through the amortization process. A financial liabilityis derecognized when the obligation underlying the liability is discharged,cancelled or expired.

 

**2.18Provisions**

 

Provisions are recognizedwhen there is a present obligation (legal or constructive) as a result of apast event, it is probable that an outflow of resources embodying economicbenefits will be required to settle the obligation and a reliable estimate ofthe obligation can be made. The expense relating to any provision is presentedin the income statement net of any reimbursement. If the effect of the timevalue of money is significant, provisions are discounted. Where discounting isused, the increase in the provision due to the passage of time is recognized asa financial expense.

 

**2.19Leases**

 

Leases of property, plantand equipment where the Group assumes substantially all the risks and rewardsof ownership of the leased asset are classified as finance leases. Financeleases are capitalized at the inception of the lease at the fair value of theleased property or, if lower, at the present value of the minimum leasepayments. Lease payments are apportioned between the finance charges andreduction of the lease liability to achieve a constant rate of interest on theremaining balance of the liability. Finance charges are charged directlyagainst income. Capitalized leased assets are depreciated over the shorter ofthe estimated useful life of the asset or, over the lease term, if there is noreasonable certainty that the Group will own the leased property by the end ofthe lease term.

 

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**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

Leases where the Groupdoes not assume substantially all the risks and rewards of ownership areclassified as operating leases, and are recognized as an expense in the incomestatement on a straight-line basis over the lease term.

 

The determination ofwhether an arrangement is, or contains, a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfilment of thearrangement is dependent on the use of a specific asset or assets and thearrangement conveys a right to use the asset.

 

**3**                 **Financial risk management**

 

**3.1**      **Risk management policies**

** **

**Financialrisk management**

The Group’s activitiesexpose it to a variety of financial risks: market risk (including currencyrisk, interest rate risk and security price risk), credit risk and liquidityrisk. The Group’s overall financial risk management seeks to minimize potentialadverse effects resulting from the unpredictability of financial markets on theGroup’s financial performance.

 

The Group has policies inplace that describe the goals of the Group’s financial risk management. Theadherence to these policies is monitored by corporate treasury. The goals ofthe Group’s corporate treasury function are to reduce the currency exposures inthe income statement, optimize return on investments in cash deposits, providefinancing services to the business and monitor the financial risks relating tothe Group’s operations.

 

The Group has specificoperating procedures that prescribe the working practice on relevant specificfinancial risk management topics such as use of derivative financialinstruments, investment of excess liquidity, centralization of cash, balancesheet position forecast procedures and authorization levels.

 

The Group uses derivativefinancial instruments to hedge certain foreign currency risk exposures.Corporate Treasury is responsible for using derivatives to mitigate foreignexchange risk arising from anticipated transactions and recognized monetarypositions. Corporate treasury does this in close co-operation with the Group’ssubsidiaries. During the year 2008, the Group adopted a more proactive approachin hedging foreign currency exposures on monetary positions and forecastedtransactions. In 2008, the Group applied for the first time formal hedgeaccounting to address specific economic exposures.

 

**Capitalrisk management**

The Group manages itscapital to ensure that it will be able to continue as a going concern. TheGroup does not have a target debt-to-equity ratio. Although the Group enteredinto new finance leases and a new loan, the Group is committed to funding themajority of its operations with equity. The Group may choose to renew any loanthat becomes payable.

 

As part of its overallworking capital management efforts, the Group agreed with Novartis to extendpayment terms on the supply of Quinvaxem antigens. These transactions aresecured by identified assets of the Company. In specific cases, the Group makesuse of factoring  arrangements to managethe cash flow on outstanding trade accounts receivable.

 

The capital structure ofthe Group consists of financial liabilities, cash and cash equivalents andequity attributable to equity holders of the parent, comprising issued capital,reserves and retained earnings.

 

**Significantaccounting policies**

Details of thesignificant accounting policies and methods adopted, including the criteria forrecognition, the basis of measurement and the basis on which income andexpenses are recognized, in respect of each class of financial asset, financialliability and equity instrument are disclosed in note 2.

 

**3.2Foreign currency risk**

 

The Group divides theforeign currency risk into categories of transaction exposure, economicexposure and translation exposure.

 

The Group definestransaction exposure as the foreign currency exposure arising on monetarypositions and forecasted transactions in the coming month that are denominatedin a currency other than the functional currency of the group company. TheGroup has significant transactional currency exposures as the majority of theGroup’s sales are denominated in currencies other than the functional currencyof the reporting subsidiaries.

 

144

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

Specifically, movementsin the US Dollar/ Euro exchange rate affect the results of operations because asignificant portion of sales are denominated in US Dollars. The Group’soperating procedures require group companies to manage the foreign exchangerisks against their functional currency. The target is to minimize foreigncurrency results on balance sheet items. Corporate treasury may hedge anyremaining foreign exchange risk exposure on balance sheet positions.

 

The Group defineseconomic exposure as the foreign currency exposure to which the Group committeditself. This is the exposure associated with the time delay between enteringinto a contract, budget or forecast and the realization thereof. It is not theGroup’s policy to actively manage these exposures, but rather to hedge economicexposure on a selective basis by management’s decision. The Group may applyformal hedge accounting in mitigating these risks.

 

The translation exposureis the exposure that arises on the translation of the financial statements ofsubsidiaries with different functional currencies into Euro. The Group hasoperations in Switzerland, Korea, Sweden and the US, which all have a differentfunctional currency than the Euro. Consequently, movements in the currencies ofthese countries against the Euro will affect the results of operations becausethe balance sheet and the income statement of these subsidiaries are translatedinto Euro. The Group does not actively hedge its translation exposure.

 

**Foreigncurrency risk sensitivity analysis**

The Group is mainlyexposed to US Dollar, Swiss Franc, Korean Won, Swedish Crown and AustralianDollar. The following table details the Group’s sensitivity to a 10%strengthening of these currencies. The sensitivity analysis includesoutstanding foreign currency denominated monetary items and adjusts theirtranslation as at December 31, 2008 for a 10% change in foreign currencyrates. A positive amount indicates an increase in income before income tax andequity.

 

For a 10% weakening ofthe foreign currencies against the Euro, there would be approximately an equaland opposite effect on the income before income tax and equity.

 

The sensitivitiesdisclosed above are representative for the second half of 2008 as the Groupapplied in that period a more proactive approach on hedging of transactionexposures and also applied formal hedge accounting.

 

The revaluation effectsof investments in foreign entities are recognized in equity. As we havesignificant operations denominated in other currencies than the Euro, themovements of currency exchange rates show a significant effect on equity. It isthe Group’s policy to limit the currency effects through the income statement.The Group does not proactively manage the currency exposure on the Group’sequity.

 

**3.3Interest rate risk**

 

The Group is exposed tointerest rate risks as a result of changes in the market interest ratescompared to loans with fixed rates. The Group has several loans with fixedinterest rates, which total € 39,896 (2007: € 45,795). The Group has financialliabilities of € 20,855 with a variable interest rate as at December 31,2008. Details on the interest rates and maturity of these loans are provided innote 5.19. 

 

The Group has cashbalances of € 183,865 of which €12,896 is restricted. (2007: € 177,644 of which€14,396 is restricted.) There are no other receivables that generate interest.The cash balances, including restricted cash, are either variable or fixed fora maximum period of 3 months.

 
|              |   |      |       | 2008       |   |      |   | 2007      |   | 2006      |   |
|-------------------|--------|-----------|------------|------------|--------|-----------|--------|-----------|--------|-----------|--------|
|              |   | Impact on |       |       |   | Impact on |   |      |   | Impact on |   |
|              |   | income    |       | Impact on  |   | income    |   | Impact on |   | income    |   |
|              |   | statement |       | equity     |   | statement |   | equity    |   | statement |   |
| US Dollar         |   | **229**   | ** ** | **482**    |   | 1,876     |   | 517       |   | 321       |   |
| Swiss Franc       |   | **(373**  | **)**      | **17,980** |   | (4,950    | )      | 19,706    |   | (1,180    | )      |
| Korean Won        |   | **(133**  | **)**      | **8,414**  |   | 860       |   | 8,055     |   | 1,113     |   |
| Swedish Crown     |   | **(538**  | **)**      | **2,924**  |   | (486      | )      | 3,825     |   | (33       | )      |
| Australian dollar |   | **5**     | ** ** | **808**    |   | 882       |   | —    |   | —    |   |

 

145

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

**Interestrate risk sensitivity analysis**

The sensitivity analysishas been determined based on the exposure to interest rates at the balancesheet date and the stipulated change taking place at the beginning of thefinancial year and held constant throughout the reporting period. The effect ofa 1% increase in interest rates on the Group’s profit/ (loss) before tax wouldbe a positive result of € 947 (2007: € 1,100; 2006: € 1,152). For a 1% decreasein interest rates there would be approximately an equal and opposite effect onthe profit/ (loss) before tax. A change in the interest rate does not have animpact on the equity of the Group.

 

The positive effect of a1% increase of interest on profit/ (loss) before tax is mainly attributable tothe Group’s interest income generating assets, which are higher than itsinterest bearing liabilities.

 

**3.4Credit risk**

 

Credit risk representsthe risk of financial loss caused by default of the counterparty. The Group’sprincipal financial assets are cash and cash equivalents, short-term depositsand trade and other receivables. These represent the Group’s maximum exposureto credit risk in relation to financial assets.

 

The Group’s credit riskis primarily attributable to its trade accounts receivable and otherreceivables. The Group normally trades only with recognized, credit-worthythird parties. It is the Group’s policy that all customers who wish to trade oncredit terms are subject to credit verification procedures. Where consideredappropriate, the Group requires issuance of letters of credit to mitigatecredit risk.

 

Receivable balances aremonitored on an ongoing basis and the Group tracks the payment history of itscustomers to identify any payment issues that have to be resolved beforeentering into any new transactions. Allowances are recognized for receivablebalances deemed uncollectible upon identification. In determining therecoverability of a trade receivable, the Group considers changes in the creditquality of the trade receivable from the date credit was initially granted upto the reporting date. The customer base consists mainly of well-respectedcompanies in the field of medicine and non-governmental organizations. In 2008,the Group has not encountered significant adverse events as a result of theweak global economy.

 

While the Group does haveconcentrations of trade accounts receivable outstanding to supranationalorganizations, management has determined the risk of default by theseorganizations to be limited and therefore considers the credit risk to bewithin acceptable boundaries. Management believes that no further credit provisionis required in excess of the allowance for doubtful debts.

 

The credit risk on cashand cash equivalents, and short-term deposits is diversed as the counterpartiesare numerous major financial institutions. Furthermore the Group currently onlyinvests in liquid securities and money market transactions. Management does notexpect any counterparty to fail to meet its obligations.

 

The carrying value ofthese financial assets represents the Group’s maximum exposure to credit risk.The maximum exposure at December 31, 2008 amounted to € 242,206 (2007: €248,850).

 

**3.5Security price risk**

 

The Group’s securityprice risk is limited to its investment in Galapagos valued at € 4,922 (2007: €10,009), which is classified as an available-for-sale investment. The fairvalue is based on the market quotation of Galapagos. The Group does notactively trade in available-for-sale investments.

 

**Securityprice risk sensitivity analysis**

The sensitivity analysisbelow has been determined based on the exposure to the security price risks atthe reporting date. If the Galapagos share price had been 10% higher/lower:

 

·                  The profit for theyear ended 31 December 2008 would have been unaffected as the investmentsare classified as available-for-sale and no investments were disposed of orimpaired; and

·                  Net unrealizedgains reserve would increase/ decrease by € 492 (2007: increase/decrease by €1,001) for the Group as a result of the changes in the fair value of theavailable-for-sale investment.

 

The Group’s sensitivityto security prices did not change significantly from the prior year.

 

146

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**3.6Liquidity risk**

 

Liquidity risk representsthe risk that an entity will encounter difficulty in meeting obligationsassociated with its financial liabilities. Prudent liquidity risk managementimplies ensuring sufficient availability of cash resources for funding of theoperations. The Group aims to maintain a solid cash base.

 

The current liquidityrisk is considered to be limited because the Group has sufficient funding tomeet its obligations in the foreseeable future. Reference is made to note 5.19 ‘Shortand long-term financial liabilities’ for an analysis of the most significantfinancial liabilities. The Group has a total cash balance of € 170,969 as atDecember 31, 2008 (2007: € 163,248).

 

**3.7Financial instruments by category**

 

**Financial assets**

Inthousands of Euro

 
|                              |       | 2008  Financial  assets at  fair value  through  profit and  loss |       |  

Loans and

receivables |       |  

Available-

for-sale  financial  assets |       | 2008  Total |       | 2007  Financial  assets at  fair value  through  profit  and loss |       | Loans and   receivables |       | Available-  for-sale  financial  assets |       | 2007  Total |
|-----------------------------------|------------|-------------------------------------------------------------------|------------|--------------------------------|------------|-------------------------------------------------|------------|-------------|------------|-------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------------------|------------|-------------|
| Derivative  financial instruments |       | **1,761**                                                         | ** ** | **—**                     | ** ** | **—**                                      |       | **1,761**   |       | 29                                                                |       | —                  |       | —                                  |       | 29          |
| Investment  Galapagos             |       | **—**                                                        | ** ** | **—**                     | ** ** | **4,922**                                       |       | **4,922**   |       | —                                                            |       | —                  |       | 10,009                                  |       | 10,009      |
| Other  financial assets           |       | **—**                                                        | ** ** | **14,920**                     | ** ** | **—**                                      |       | **14,920**  |       | —                                                            |       | 16,153                  |       | —                                  |       | 16,153      |
| Cash  and cash equivalents        |       | **—**                                                        | ** ** | **170,969**                    | ** ** | **—**                                      |       | **170,969** |       | —                                                            |       | 163,248                 |       | —                                  |       | 163,248     |
| Trade  accounts receivable        |       | **—**                                                        | ** ** | **40,108**                     | ** ** | **—**                                      |       | **40,108**  |       | —                                                            |       | 47,563                  |       | —                                  |       | 47,563      |
| Other  current assets             |       | **—**                                                        | ** ** | **9,526**                      | ** ** | **—**                                      |       | **9,526**   |       | —                                                            |       | 11,848                  |       | —                                  |       | 11,848      |
| **Total**                         | ** ** | **1,761**                                                         | ** ** | **235,523**                    | ** ** | **4,922**                                       | ** ** | **242,206** | ** ** | **29**                                                            | ** ** | **238,812**             | ** ** | **10,009**                              | ** ** | **248,850** |

 

The carrying value of the financial assetsapproximates the fair value.

 

**Financial liabilities**

In thousands of Euro

 
|                              |       | 2008

Financial

liabilities  at

fair  value

through 

profit  and

loss |       | Designated

cash flow

hedges |       | Financial

liabilities

at  amortized

cost |       |  

2008

Total |       | 2007

Financial  liabilities at

fair  value

through   profit

and loss |       | Designated  cash flow

hedges |       | Financial

liabilities

at  amortized

cost |       | 2007  Total |
|-----------------------------------|------------|----------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------|------------|---------------------|------------|--------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------------------|------------|-------------|
| Derivative  financial instruments |       | **194**                                                                    | ** ** | **685**                       | ** ** | **—**                                  | ** ** | **879**             |       | 16                                                                       |       | —                        |       | —                                      |       | 16          |
| Financial  liabilities            |       | **—**                                                                 | ** ** | **—**                    | ** ** | **60,751**                                  | ** ** | **60,751**          |       | —                                                                   |       | —                        |       | 52,795                                      |       | 52,795      |
| Other  non-current liabilities    |       | **—**                                                                 | ** ** | **—**                    | ** ** | **591**                                     | ** ** | **591**             |       | —                                                                   |       | —                        |       | 529                                         |       | 529         |
| Accounts  payable                 |       | **—**                                                                 | ** ** | **—**                    | ** ** | **59,205**                                  | ** ** | **59,205**          |       | —                                                                   |       | —                        |       | 50,970                                      |       | 50,970      |
| Other  current liabilities        |       | **—**                                                                 | ** ** | **—**                    | ** ** | **20,523**                                  | ** ** | **20,523**          |       | —                                                                   |       | —                        |       | 29,960                                      |       | 29,960      |
| **Total**                         | ** ** | **194**                                                                    | ** ** | **685**                       | ** ** | **141,070**                                 | ** ** | **141,949**         | ** ** | **16**                                                                   | ** ** | **—**                    | ** ** | **134,254**                                 | ** ** | **134,270** |

 

The fair values of thefinancial liabilities of the Group approximate the carrying amount of the Group’sfinancial instruments.

 

The fair values of theloans have been calculated by discounting the face values with the interestrate of financial instruments with a similar risk profile and term. The fairvalues of the forward exchange contracts were calculated making use of the spotrate of the underlying exchange rates as at December 31, 2008.

 

147

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

**3.8****     ****Derivativefinancial instruments**

 

The Group uses derivative financial instruments for the management offoreign currency risks.

 
|                                    |   | **2008**       | ** ** | **2008**        | ** ** | **2008**       |       | 2007       |   | 2007        |   | 2007       |   |
|-----------------------------------------|--------|----------------|------------|-----------------|------------|----------------|------------|------------|--------|-------------|--------|------------|--------|
|                                    |   | **Fair value** | ** ** | **Fair value**  | ** ** | **Total fair** |       | Fair value |   | Fair value  |   | Total fair |   |
|                                    |   | **assets**     | ** ** | **liabilities** | ** ** | **value**      |       | assets     |   | liabilities |   | value      |   |
| Foreign exchange  contracts             |   | **1,761**      | ** ** | **(194**        | **)**      | **1,567**      | ** ** | 29         |   | (16         | )      | 13         |   |
| Cash flow hedge                         |   | **—**     | ** ** | **(685**        | **)**      | **(685**       | **)**      | —     |   | —      |   | —     |   |
| Total derivative  financial instruments |   | **1,761**      | ** ** | **(879**        | **)**      | **882**        | ** ** | 29         |   | (16         | )      | 13         |   |

 

All derivative financialinstruments mature within a year and are therefore presented as current assetsor liabilities. The fair value of forward foreign exchange contracts isdetermined using forward foreign exchange rates.

 

All foreign exchangecontracts, which are not designated as a qualifying hedge instrument, maturewithin 2 months after balance sheet date. The principal amount and fair valueof foreign currency forwards that are not designated in a cash flow hedge are €38,907 in 2008 (2007: € nil) and a positive unrealized result of € 1,567 in2008 (2007: € 13). The Group enters in these derivative transactions tomitigate its foreign currency transaction exposure.

 

**Cashflow hedging**

The Group has designatedcertain qualifying derivative financial instruments as hedge instruments forcash flow hedge accounting to manage its currency risk resulting from specificcontracts denominated in foreign currencies that differ from the functionalcurrency of the Group company that engages in the contract. The principalamount and fair value of foreign currency forwards designated in a cash flowhedge are respectively € 7,535 (2007: € nil) and a negative unrealized resultof € 685 (2007: € nil).

 

Cash flow hedges of foreigncurrency risks relate to forecasted transactions. These are expected to occurbetween 4 and 9 months after the balance sheet date. As at year-end 2008 theoutstanding cash flow hedge was estimated to be 100% effective. No amounts wereremoved or reclassed from the hedge reserve during the period to non-financialbalance sheet items or to the income statement. The Group did not engage inhedge accounting prior to 2008.

 

**3.9Off balance sheet transactions**

 

The Group has thefollowing off-balance sheet transactions, in addition to the guarantees givenon assets as described in ‘5.6 property, plant and equipment’ and ‘5.19 Shortand long-term financial liabilities’.

 

**Guarantees**

The Group has a guaranteefacility for an amount of € 10.0 million with a third-party bank.

 

As part of the overallworking capital management efforts, the Group agreed with Novartis to extendpayment terms on the supply of Quinvaxem antigens. We have provided Novartiswith collateral on our Swiss premises for an amount up to € 22,847.

 

Total guarantees issuedby the Group amount to € 3.1 million, which included a letter of credit issuedby the Group for an amount of $ 1.6 million which will expire on April 14,2013 for the benefit of the Percivia Development Center.

 

**Covenants**

 

Some of the Group’sarrangements with financial institutions are subject to covenant clauses,whereby the Group is required to maintain certain cash thresholds. The Groupdid not breach any of these covenant clauses in 2008 nor does the Group foreseeany breaches of these covenants in the foreseeable future.

 

148

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**4**                 **Segment information**

 

**4.1**      **General**

 

The Group operates in onereportable segment, which comprises the development, production and marketingof products that combat infectious diseases. The Group early adopted IFRS 8 ‘OperatingSegments’, which replaces IAS 14, ‘Segment reporting’, as of January 1,2007. The Group identified the Management Board as the ‘chief operatingdecision maker’. The Management Board reviews the consolidated operatingresults regularly to make decisions about resources and to assess overallperformance.

 

In 2007, the Group’ssegmentation was based on the two segments that were reported to our ManagementBoard:

 

·                  Vaccines:developing, producing and marketing vaccines worldwide to combat infectiousdiseases;

·                  Proteins: leverageCrucell’s novel, proprietary technologies to develop monoclonal antibodies tocombat infectious diseases.

 

In 2008, the ManagementBoard decided to integrate both business units and reduce the complexity of ourorganization. In 2008, the separate segments were no longer reported to theManagement Board.

 

**4.2****     ****Informationabout major products**

 

The breakdown of theGroup’s revenues from its product sales was as follows:

 

In thousands of Euro

 
| **Year ended December 31,** |   | **2008**    |       | 2007        |       | 2006        |       |
|--------------------------------------------|--------|-------------|------------|-------------|------------|-------------|------------|
| Paediatric vaccines                        |   | **111,039** |       | 77,371      |       | 35,933      |       |
| Respiratory vaccines                       |   | **32,474**  |       | 33,188      |       | 40,386      |       |
| Travel vaccines                            |   | **55,572**  |       | 47,282      |       | 23,072      |       |
| Other vaccines                             |   | **8,907**   |       | 10,705      |       | 2,998       |       |
| Proteins and other business                |   | **18,063**  |       | 9,023       |       | 1,529       |       |
|                                       |   | **226,055** | ** ** | **177,569** | ** ** | **103,918** | ** ** |

 

**4.3****     ****Informationabout major customers**

 

In 2008, sales to our twolargest customers, which are in the paediatric vaccines area, amounted to €85,142 or 37.6% and € 18,390 or 8.1% of net product sales. In 2007, sales tothese customers accounted for € 45,480 or 25.6% and € 23,457 or 13.2% of netproduct sales, respectively.

 

**4.4****     ****Geographicalsegments**

 

The Group operatesprincipally in three geographical areas: Europe, North America and Asia.Segment revenue is based on the geographical location of the customers, whichis the billing location of the customers. Segmentation of the assets is basedon the geographical location of the assets.

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**    |       | 2007        |       | 2006        |       |
|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Revenues**                               | ** ** | ** **  |       |        |       |        |       |
| Europe                                     |       | **209,473** |       | 144,969     |       | 94,663      |       |
| North America                              |       | **33,653**  |       | 33,346      |       | 13,868      |       |
| Asia                                       |       | **19,095**  |       | 18,589      |       | 16,506      |       |
| Other                                      |       | **4,936**   |       | 6,882       |       | 6,530       |       |
| **Total**                                  | ** ** | **267,157** | ** ** | **203,786** | ** ** | **131,567** | ** ** |

 
| ** **                                      | ** ** | **2008**   |       | 2007      |   |   |   |
|-------------------------------------------------|------------|------------|------------|-----------|--------|--------|--------|
| **Investment in associates and joint ventures** |       |       |       |      |   |   |   |
| Europe                                          |       | **—** |       | 316       |   |   |   |
| North America                                   |       | **964**    |       | 549       |   |   |   |
| Asia                                            |       | **8,275**  |       | 8,205     |   |   |   |
| **Total**                                       | ** ** | **9,239**  | ** ** | **9,070** |   |   |   |

 
| ** **       | ** ** | **2008**    |   | 2007        | ** ** | ** ** | ** ** |
|------------------|------------|-------------|--------|-------------|------------|------------|------------|
| **Total assets** |       |        |   |        |       |       |       |
| Europe           |       | **507,431** |   | 472,557     |       |       |       |
| North America    |       | **7,472**   |   | 7,421       |       |       |       |
| Asia             |       | **121,394** |   | 149,860     |       |       |       |
| **Total**        |       | **636,297** |   | **629,838** |       |       |       |

 
| ** **                                             | ** ** | **2008**   |   | 2007       |   |   |   |
|--------------------------------------------------------|------------|------------|--------|------------|--------|--------|--------|
| **Capital expenditure property, plant and  equipment** |       |       |   |       |   |   |   |
| Europe                                                 |       | **7,520**  |   | 26,472     |   |   |   |
| North America                                          |       | **14**     |   | —     |   |   |   |
| Asia                                                   |       | **8,253**  |   | 684        |   |   |   |
| **Total**                                              |       | **15,787** |   | **27,156** |   |   |   |

 

149

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

**5**                 **Notes to the specific itemsof the consolidated****financialstatements**

 

**5.1****     ****Personnelexpenses**

 

In thousands of Euro

 
| ** **                                    | ** ** | **2008**   |       | 2007       |       | 2006       |       |
|-----------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Wages and salaries                            |       | **59,634** | ** ** | 58,493     |       | 48,841     |       |
| Social security costs                         |       | **6,806**  | ** ** | 6,734      |       | 4,469      |       |
| Pension defined benefit plans                 |       | **(139**   | **)**      | (1,592     | )          | 1,712      |       |
| Pension defined contribution plans            |       | **2,408**  | ** ** | 2,436      |       | 1,770      |       |
| Expenses for employee shares and option plans |       | **4,878**  | ** ** | 7,349      |       | 4,296      |       |
| Other personnel expenses                      |       | **6,436**  | ** ** | 9,810      |       | 6,464      |       |
| ** **                                    | ** ** | **80,023** | ** ** | **83,230** | ** ** | **67,552** | ** ** |

 

As of December 31,2008, we had 1,126 employees. The average number of employees in 2008 was1,142. Personnel as at December 31, 2008 are employed in the followingcategories:

 
| ** **                 | ** ** | **2008**  |       | 2007      |       | 2006      |       |
|----------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Research and Development   |       | **303**   |       | 368       |       | 381       |       |
| General and administrative |       | **147**   |       | 134       |       | 125       |       |
| Operations                 |       | **527**   |       | 466       |       | 452       |       |
| Marketing and sales        |       | **149**   |       | 158       |       | 115       |       |
| **Total**                  | ** ** | **1,126** | ** ** | **1,126** | ** ** | **1,073** | ** ** |

 

The Group’s personnel arelocated primarily in the Netherlands, Switzerland, Spain, Italy, South Korea,Sweden, the US and China.

 

The split per geographical area is as follows:

 
| ** **    | ** ** | **2008**  |       | 2007      |       | 2006      |       |
|---------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Europe        |       | **861**   |       | 915       |       | 902       |       |
| North America |       | **19**    |       | 19        |       | 17        |       |
| Asia          |       | **246**   |       | 192       |       | 154       |       |
| **Total**     | ** ** | **1,126** | ** ** | **1,126** | ** ** | **1,073** | ** ** |

 

**5.2Financial income**

 

In thousands of Euro

 
| ** **                     | ** ** | **2008**   |       | 2007       |       | 2006       |       |
|--------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Currency gains                 |       | **1,914**  |       | 7,479      |       | 9,461      |       |
| Interest income, third parties |       | **5,021**  |       | 5,711      |       | 3,718      |       |
| Other financial income         |       | **—** |       | —     |       | 274        |       |
| ** **                     | ** ** | **6,935**  | ** ** | **13,190** | ** ** | **13,453** | ** ** |

 

**5.3 Financial expenses**

 
| ** **                                              | ** ** | **2008**   |       | 2007        |   | 2006        |   |
|---------------------------------------------------------|------------|------------|------------|-------------|--------|-------------|--------|
| Total interest expense                                  |       | **(2,973** | **)**      | (3,053      | )      | (2,481      | )      |
| Less: amounts included in the cost of qualifying assets |       | **254**    | ** ** | 772         |   | 744         |   |
|                                                    |       | **(2,719** | **)**      | **(2,281**  | **)**  | **(1,737**  | **)**  |
| Currency losses                                         |       | **(5,840** | **)**      | (8,785      | )      | (9,625      | )      |
| Other financial expenses                                |       | **(1,038** | **)**      | (746        | )      | (344        | )      |
|                                                    |       | **(9,597** | **)**      | **(11,812** | **)**  | **(11,706** | **)**  |

 

**5.4 Income tax**

 

In thousands of Euro

 
| **Year ended December 31,**                 |       | **2008**   |       | 2007      |       | 2006       |       |
|--------------------------------------------------|------------|------------|------------|-----------|------------|------------|------------|
| Current income tax                               |       | **(3,200** | **)**      | (811      | )          | (258       | )          |
| Adjustments current income tax of previous years |       | **7**      |       | (5        | )          | (213       | )          |
| Deferred taxation                                |       | **11,503** |       | 3,024     |       | 10,922     |       |
| **Income tax**                                   | ** ** | **8,310**  | ** ** | **2,208** | ** ** | **10,451** | ** ** |

 

150

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

The reconciliationbetween the profit/ (loss) for the year multiplied by the applicable tax rateand the actual taxation is as follows:

 

In thousands of Euro

 
| **Year ended December 31,**                         |   | **2008**    |       | 2007    |   | 2006    |   |
|--------------------------------------------------------------------|--------|-------------|------------|---------|--------|---------|--------|
| Profit/(loss) for the year before income tax                       |   | **6,276**   | ** ** | (45,118 | )      | (97,649 | )      |
| At gross weighted average income tax rate                          |   | **820**     | ** ** | 12,197  |   | 21,337  |   |
| Adjustments in respect of current income tax of previous years     |   | **7**       | ** ** | (5      | )      | (213    | )      |
| Deferred tax assets not recognized                                 |   | **(6,301**  | **)**      | (380    | )      | —  |   |
| Recognition tax loss carry forwards                                |   | **9,284**   | ** ** | 4,072   |   | —  |   |
| Effect of tax rate changes                                         |   | **3,527**   | ** ** | (197    | )      | 3,894   |   |
| Research and development tax credit                                |   | **2,916**   | ** ** | —  |   | —  |   |
| Other permanent differences                                        |   | **(1,741**  | **)**      | (3,488  | )      | 1,271   |   |
| Effect of current tax losses not recognized as deferred tax assets |   | **(202**    | **)**      | (9,991  | )      | (15,838 | )      |
| Income tax                                                         |   | **8,310**   | ** ** | 2,208   |   | 10,451  |   |
| Effective income tax rate                                          |   | **(132.4%** | **)**      | 4.9%    |   | 10.7%   |   |

 

The changes in deferredincome tax assets and liabilities on a net basis were as follows in 2008 and2007:

 

In thousands of Euro

 
| ** **                            | ** ** | **2008**    |       | 2007    |   |
|---------------------------------------|------------|-------------|------------|---------|--------|
| January 1,                       |       | **(29,267** | **)**      | (33,438 | )      |
| Deferred tax through income statement |       | **11,503**  | ** ** | 3,024   |   |
| Deferred tax through goodwill         |       | **—**  | ** ** | (697    | )      |
| Effect of movements in exchange rates |       | **779**     | ** ** | 1,844   |   |
| December 31,                     |       | **(16,985** | **)**      | (29,267 | )      |

 

In 2007, a deferred taxasset of € 580 was recognized against goodwill as an adjustment to theprovisional purchase price allocation on the acquisition of SBL. A deferred taxliability of € 1,277 was recognized against goodwill as an adjustment to theprovisional purchase price allocation on the acquisition of Berna ProductsCorp.

 

The composition of thetemporary differences and tax loss carry forwards in the balance sheet is asfollows:

 

In thousands of Euro

 
| **Year ended December 31,**                     | ** ** | **2008**    |       | 2007    |   |
|----------------------------------------------------------------|------------|-------------|------------|---------|--------|
| **Deferred income tax liabilities**                            |       |        |       |    |   |
| Valuation differences attributable to: Inventories             |       | **(2,171**  | **)**      | (1,641  | )      |
| Other assets                                                   |       | **(1,614**  | **)**      | (521    | )      |
| Net pension assets                                             |       | **(1,852**  | **)**      | (1,590  | )      |
| Property, plant and equipment                                  |       | **(7,316**  | **)**      | (9,782  | )      |
| Intangible assets                                              |       | **(14,580** | **)**      | (21,269 | )      |
| Liabilities                                                    |       | **(1,649**  | **)**      | (105    | )      |
|                                                           |       | **(29,182** | **)**      | (34,908 | )      |
| **Deferred income tax assets**                                 |       | ** **  | ** ** |    |   |
| Losses available for offset against future taxable income      |       | **9,060**   | ** ** | 678     |   |
| Valuation differences attributable to: Inventories             |       | **469**     | ** ** | 2,119   |   |
| Other assets                                                   |       | **1,273**   | ** ** | 595     |   |
| Property, plant and equipment                                  |       | **1,202**   | ** ** | 1,910   |   |
| Liabilities                                                    |       | **193**     | ** ** | 339     |   |
|                                                           |       | **12,197**  | ** ** | 5,641   |   |
| Offset of deferred tax balances                                |       | **12,197**  | ** ** | 5,641   |   |
| Reflected in the balance sheet as follows: Deferred tax assets |       | **—**  | ** ** | —  |   |
| Deferred tax liability                                         |       | **(29,182** | **)**      | (34,908 | )      |
| Deferred tax liabilities, net                                  |       | **(16,985** | **)**      | (29,267 | )      |

 

The Group has evaluatedevidence impacting the recoverability of its deferred tax assets, which consistprincipally of tax loss carry forwards. In 2008, a deferred tax asset of €8,585 was recognized for carry forward losses of Berna Biotech AG, which werepreviously unrecognized due to lack of evidence of future taxable income. Atthe end of the year the total deferred tax assets for carry forward lossesamounted to € 9,060.

 

151

** **

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

The Group hasunrecognized tax carry forward losses of € 172,732 (2007: € 254,511; 2006: €222,238) that are available, with certain restrictions in time, for offsetagainst future taxable profits of the companies in which the losses arose.

 

The Group reached anagreement with the Dutch tax authorities to retroactively change the valuationof our intellectual property, to avoid the evaporation of unrecognized taxcarry forward losses. This agreement allows the Group to recognize € 72,000 ofour intellectual property as assets for tax purposes.

 

In the Netherlandsanti-abuse laws may limit our ability to realize certain tax carry forwardlosses for an amount up to € 26,170.

 

The unrecognized carryforward losses expire as follows:

 
| 2011       |   | 17,502  |   |
|------------|--------|---------|--------|
| 2012       |   | 21,164  |   |
| 2013       |   | 19,153  |   |
| After 2013 |   | 113,966 |   |
| Unlimited  |   | 947     |   |
| Total      |   | 172,732 |   |

 

**Taxrate changes**

In Korea, the tax holidaygranted by the government is decreasing over time. In financial years 2008 and2009, the applicable tax rate is 16.5%. As of 2010 the tax rate will be theregular statutory income tax rate of 22.0%. As of the year 2012 we will benefitfrom a tax holiday related to our investment in the Incheon, Free Economic Zone,which will significantly reduce the effective Korean income tax rate for aperiod of 5 years. The reduced expected realization rate for our deferred taxliabilities in Korea resulted in a taxation gain of € 3,384.

 

The Swedish domesticstatutory corporate income tax rate amounted to 28.0% in 2008 and will decreaseto 26.3% in 2009.

 

The Spanish domesticstatutory corporate income tax rate amounted to 32.5% in 2007 and was decreasedto 28.0% in 2008. The rate will also be 28.0% in 2009 and thereafter.

 

**5.5Profit/ (loss) per share**

 

In thousands of Euro

 
| ** **                                                                              | ** ** | **2008**       |   | 2007       |   | 2006       |   |
|-----------------------------------------------------------------------------------------|------------|----------------|--------|------------|--------|------------|--------|
| Net profit/ (loss) attributable to ordinary shareholders                                |       | **14,586**     |   | (42,910    | )      | (86,946    | )      |
| Weighted average number of ordinary shares for the year                                 |       | **65,593,374** |   | 65,102,801 |   | 57,064,034 |   |
| Dilutive effect share options                                                           |       | **721,682**    |   | —     |   | —     |   |
| Weighted average number of ordinary shares  for diluted net profit/ (loss) for the year |       | **66,315,056** |   | 65,102,801 |   | 57,064,034 |   |
| Net profit/ (loss) per share — basic                                               |       | **0.22**       |   | (0.66      | )      | (1.52      | )      |
| Net profit/(loss) per share – diluted                                              |       | **0.22**       |   | (0.66      | )      | (1.52      | )      |

 

152

 

**FinancialStatements**

Notes to the Consolidated Financial Statements

 

**5.6Property, plant and equipment**

 

Amounts in thousands ofEuro

 
|                                  |       | Freehold    |       |        |       | Assets       |       |        |       |
|---------------------------------------|------------|-------------|------------|-------------|------------|--------------|------------|-------------|------------|
|                                  |       | Land and    |       | Plant and   |       | under        |       |        |       |
| Cost                                  |       | buildings   |       | equipment   |       | construction |       | Total       |       |
| **At  January 1, 2007**          | ** ** | **69,747**  | ** ** | **75,090**  | ** ** | **34,298**   | ** ** | **179,135** | ** ** |
| Additions                             |       | 245         |       | 5,913       |       | 20,998       |       | 27,156      |       |
| Disposals                             |       | (147        | )          | (995        | )          | —       |       | (1,142      | )          |
| Effect of movements in exchange rates |       | (4,238      | )          | (5,299      | )          | (412         | )          | (9,949      | )          |
| **At  December 31, 2007**        | ** ** | **65,607**  | ** ** | **74,709**  | ** ** | **54,884**   | ** ** | **195,200** | ** ** |
| Additions                             |       | 66          |       | 7,917       |       | 7,804        |       | 15,787      |       |
| Disposals                             |       | —      |       | (1,620      | )          | —       |       | (1,620      | )          |
| Transfer assets under construction    |       | 66          |       | 35,204      |       | (35,270      | )          | —      |       |
| Effect of movements in exchange rates |       | 5,456       |       | 2,450       |       | 1,886        |       | 9,792       |       |
| **At  December 31, 2008**        | ** ** | **71,195**  | ** ** | **118,660** | ** ** | **29,304**   | ** ** | **219,159** | ** ** |
| ** **                            | ** ** | ** **  | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Depreciation  and impairment**      |       |        |       |        |       |         |       |        |       |
|                                  |       |        |       |        |       |         |       |        |       |
| **At  January 1, 2007**          | ** ** | **(12,366** | **)**      | **(28,751** | **)**      | **—**   | ** ** | **(41,117** | **)**      |
| Depreciation charge for the year      |       | (4,490      | )          | (9,963      | )          | —       |       | (14,453     | )          |
| Impairment                            |       | (171        | )          | —      |       | —       |       | (171        | )          |
| Disposals                             |       | 144         |       | 935         |       | —       |       | 1,079       |       |
| Effect of movements in exchange rates |       | 2,105       |       | 2,882       |       | —       |       | 4,987       |       |
| **At  December 31, 2007**        | ** ** | **(14,778** | **)**      | **(34,897** | **)**      | **—**   | ** ** | **(49,675** | **)**      |
| Depreciation charge for the year      |       | (6,715      | )          | (9,914      | )          | —       |       | (16,629     | )          |
| Impairment                            |       | (266        | )          | (65         | )          | —       |       | (331        | )          |
| Reversal of impairment                |       | 5,219       |       | —      |       | —       |       | 5,219       |       |
| Disposals                             |       | —      |       | 1,498       |       | —       |       | 1,498       |       |
| Effect of movements in exchange rates |       | (3,526      | )          | (4,509      | )          | —       |       | (8,035      | )          |
| **At  December 31, 2008**        | ** ** | **(20,066** | **)**      | **(47,887** | **)**      | **—**   | ** ** | **(67,953** | **)**      |
| ** **                            | ** ** | ** **  | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Net book  value**                   |       |        |       |        |       |         |       |        |       |
| ** **                            |       |        |       |        |       |         |       |        |       |
| **At  December 31, 2008**        | ** ** | **51,129**  | ** ** | **70,773**  | ** ** | **29,304**   | ** ** | **151,206** | ** ** |
| **At  December 31, 2007**        | ** ** | **50,829**  | ** ** | **39,812**  | ** ** | **54,884**   | ** ** | **145,525** | ** ** |

 

Depreciation is includedin the cost of goods sold for an amount of € 10,026 in 2008 (2007: € 11,176,2006: € 8,995), research and development costs of € 4,157 in 2008 (2007: €2,353, 2006: € 4,448) and selling, general and administrative costs of € 2,446in 2008 (2007: € 924, 2006: 832).

 

**Impairment**

See ‘1 Generalinformation – 1.4 Use of estimates and judgments’ in the financial statementsfor further details on any impairments or reversal thereof.

 

**Leaseand borrowing costs**

At December 31, 2008and 2007, the Group held equipment under finance leases with a cost of €23,505, and €11,137, respectively and a net book value of € 21,936 and €11,137. The equipment under finance leases includes the new Spanish fillingline and laboratory equipment in Leiden, the Netherlands. These leases aresecured by the value of the underlying assets.

 

At December 31, 2008an amount of € 254 of borrowing costs related to the construction of a newproduction facility in Leiden, the Netherlands, has been capitalized (2007: €772). The borrowing costs are capitalized at a capitalization rate of 4.55%,

 

**Commitments**

The remaining contractualcommitments amount to € 20,380 (2007: € 4,696, 2006: € 11,693) for purchases ofproperty, plant and equipment, mainly related to the new Korean productionfacility in the Incheon, Free Economic Zone, Korea.

 

153

** **

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

**5.7****Intangible assets**

 

In thousands of Euro 

 
|                                  |       | Customer   |       | Brands        |       | Developed    |       | In  process |       |        |       |
|---------------------------------------|------------|------------|------------|---------------|------------|--------------|------------|-------------|------------|-------------|------------|
| Cost                                  |       | lists      |       | and  licenses |       | technologies |       | R&D     |       | Total       |       |
| **At  January 1, 2007**          | ** ** | **11,209** | ** ** | **23,142**    | ** ** | **87,214**   | ** ** | **6,962**   | ** ** | **128,527** | ** ** |
| Effect of movements in exchange rates |       | (339       | )          | (828          | )          | (6,378       | )          | (205        | )          | (7,750      | )          |
| **At  December 31, 2007**        | ** ** | **10,870** | ** ** | **22,314**    | ** ** | **80,836**   | ** ** | **6,757**   | ** ** | **120,777** | ** ** |
| Effect of movements in exchange rates |       | 1,172      |       | 2,480         |       | (6,384       | )          | 770         |       | (1,962      | )          |
| **At  December 31, 2008**        | ** ** | **12,042** | ** ** | **24,794**    | ** ** | **74,452**   | ** ** | **7,527**   | ** ** | **118,815** | ** ** |
|                                  |       |       |       |          |       |         |       |        |       |        |       |
| **Amortization  and impairment**      |       |       |       |          |       |         |       |        |       |        |       |
| **At  January 1, 2007**          | ** ** | **(979**   | **)**      | **(3,254**    | **)**      | **(11,217**  | **)**      | **—**  | ** ** | **(15,450** | **)**      |
| Amortization                          |       | (3,032     | )          | (3,655        | )          | (5,207       | )          | —      |       | (11,894     | )          |
| Effect of movements in exchange rates |       | 54         |       | 226           |       | 332          |       | —      |       | 612         |       |
| **At  December 31, 2007**        | ** ** | **(3,957** | **)**      | **(6,683**    | **)**      | **(16,092**  | **)**      | **—**  | ** ** | **(26,732** | **)**      |
| Amortization                          |       | (3,141     | )          | (3,706        | )          | (4,827       | )          | —      |       | (11,674     | )          |
| Effect of movements in exchange rates |       | (640       | )          | (1,299        | )          | 534          |       | —      |       | (1,405      | )          |
| **At  December 31, 2008**        | ** ** | **(7,738** | **)**      | **(11,688**   | **)**      | **(20,385**  | **)**      | **—**  | ** ** | **(39,811** | **)**      |
| ** **                            | ** ** | ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Net book  value**                   |       |       |       |          |       |         |       |        |       |        |       |
| **At  December 31, 2008**        | ** ** | **4,304**  | ** ** | **13,106**    | ** ** | **54,067**   | ** ** | **7,527**   | ** ** | **79,004**  | ** ** |
| **At  December 31, 2007**        | ** ** | **6,913**  | ** ** | **15,631**    | ** ** | **64,744**   | ** ** | **6,757**   | ** ** | **94,045**  | ** ** |

 

Amortization ofintangible assets is included in the cost of goods sold for an amount of € 127in 2008 (2007: € 131, 2006: 0), research and development costs of € 8,635 in2008 (2007: € 8,939, 2006: € 6,858) and selling, general and administrativecosts of € 2,912 in 2008 (2007: € 2,824, 2006: 702).

 

**Impairment**

See ‘1 Generalinformation - 1.4 Use of estimates and judgments’ in the financial statementsfor further details on impairments.

 

**Materialintangible assets**

The following individualintangible assets are considered material to Crucell’s financial statements:

 

In thousands of Euro

 
|                           |   |                        |   | **Carrying**          |   | Carrying          |   |
|--------------------------------|--------|-----------------------------|--------|-----------------------|--------|-------------------|--------|
|                           |   | Remaining  amortization     |   | **value**             |   | value             |   |
|                           |   | at  December 31,  |   | **December 31,** |   | December 31, |   |
|                           |   | 2008 (in  years)            |   | **2008**              |   | 2007              |   |
| Developed technology Quinvaxem |   | 17.7                        |   | **25,519**            |   | 34,778            |   |
| Developed technology Epaxal    |   | 17.2                        |   | **10,959**            |   | 10,410            |   |
| Manufacturing contract         |   | 2.2                         |   | **7,920**             |   | 10,391            |   |
| Developed technology Inflexal  |   | 9.2                         |   | **7,084**             |   | 7,052             |   |
| In-process R&D Flavimun    |   | —                      |   | **7,526**             |   | 6,756             |   |
| Developed Technology Vivotif   |   | 17.2                        |   | **5,595**             |   | 5,315             |   |
| Brand name Berna Biotech       |   | 17.2                        |   | **4,153**             |   | 3,945             |   |

 

154

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**5.8 Goodwill**

 

In thousands of Euro

 
|                                       |       | Goodwill   |       |
|--------------------------------------------|------------|------------|------------|
| **Cost**                                   |       |       |       |
| **At  January 1, 2007**               | ** ** | **47,419** | ** ** |
| Additions                                  |       | —     |       |
| Adjustments to provisional values          |       | 697        |       |
| Effect of movements in exchange rates      |       | (3,739     | )          |
| **At  December 31, 2007**             | ** ** | **44,377** | ** ** |
|                                       |       |       |       |
| Additions                                  |       | —     |       |
| Adjustment to cost of business combination |       | 237        |       |
| Effect of movements in exchange rates      |       | 1,462      |       |
| **At  December 31, 2008**             | ** ** | **46,076** |       |
|                                       |       |       |       |
| **Net book  value**                        | ** ** | ** ** | ** ** |
| **At  December 31, 2008**             | ** ** | **46,076** | ** ** |
| **At  December 31, 2007**             | ** ** | **44,377** | ** ** |

 

The goodwill wasrecognized on the following business combinations:

 

·                  InFebruary 2006, the Company acquired approximately 97% of the outstandingcommon shares of Berna Biotech AG (‘Berna Biotech’) for € 348,852, excludingacquisition costs. During 2006 the remaining outstanding shares were alsoacquired. Berna Biotech was a fully integrated biotechnology company thatmarketed numerous vaccines on a global scale.

·                  InOctober 2006, the Company purchased, via its subsidiary Crucell VaccinesInc. the assets and liabilities of the Florida-based Berna Products Corp. (‘BPC’)from Acambis plc for € 13,806. BPC was originally established in 1990 by BernaBiotech to market Vivotif, Berna’s oral typhoid fever vaccine, in the US andCanada and was acquired by Acambis plc in 2003.

·                  InNovember 2006, the Group acquired the shares of Stockholm-based SBL VaccinHolding AB (SBL) from 3i and SEB for a total consideration of € 39,341 in cash.SBL is a fully integrated independent Swedish biotechnology company employing120 people. SBL’s main product was Dukoral. In addition, SBL has a sales anddistribution organization for vaccines in Scandinavia.

 

The selling shareholdersof SBL Vaccin acquisition Holding AB are contractually entitled to earn-outpayments based on contingent future events. In 2008, additional considerationresulting from the earn-out agreement with the former shareholders was treatedas an adjustment to the cost of the business combination for an amount of €237. This contingent consideration was not recognized in the prior year becausethe amount could not be measured reliably.

 

**Goodwillallocation to cash-generating units**

Goodwill acquired throughbusiness combinations has been allocated as follows:

 

In thousands of Euro

 
| **December 31,**      |       | **2008**   | ** ** | 2007       |       |
|----------------------------|------------|------------|------------|------------|------------|
| Vaccines segment           |       | **—** | ** ** | 44,377     |       |
| 2006 business acquisitions |       | **46,076** | ** ** | —     |       |
| **Total  goodwill**        | ** ** | **46,076** | ** ** | **44,377** | ** ** |

 

In 2008, the Groupreorganized its reporting structure in a way that changed the composition ofone or more cash-generating units to which goodwill has been allocated, as theVaccines and the Proteins business units were integrated. In 2007, all goodwillwas allocated to the Vaccines Unit. As a result of the change in composition ofthe reporting structure, all goodwill was allocated to the businesses acquiredin 2006 on a combined basis.

 

Calculations of therecoverable amount show that there is no impairment as the recoverable amountof the 2006 business acquisitions exceeds the carrying amount by € 189 million.

 

**Sensitivitiesto changes in assumptions**

Management believes thatany reasonable possible change in the key assumptions would not decrease thevalue in use to the extent that the related goodwill would exceed therecoverable amount. Several sensitivity analyses on key assumptions wereperformed and the outcome indicated that the carrying amount would not exceedthe recoverable amount. Reference is made to the key assumptions below as thesehave a significant impact on the calculated recoverable amount:

 

·                  The recoverablegoodwill amount was determined on the basis of a pre-tax weighted average costof capital (‘WACC’) of 15.2%. A higher WACC percentage would reduce therecoverable amount;

·                  In the valuationmodel, future investments for enhancements/ improvements for which preparationsare ongoing, have been included in the analysis; and’

 

155

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

·                  The valuation isbased on a discounted future cash flow model with a 5-year window and aterminal value after the last planning year in 2013. The terminal value hasbeen set at 50%.The 50% reduction in the terminal value is to reflect thatthere are no new products available without significant investments forbiotechnology companies.

 

**5.9****Investmentsin associates and joint ventures**

 

**5.9.1****Associatedcompanies**

**ADImmuneCorp., Taiwan**

The Group has an 11.8%stake in the share capital of Taiwan-based ADImmune Corp., (ADImmune) a companythat develops, manufactures and distributes vaccines and other biologicalproducts. During 2008, our ownership of ADImmune Corp. was diluted from 20% to11.8%. ADImmune will use Crucell’s virosome technology to produce a virosomaladjuvanted influenza vaccine for the following specified markets: Taiwan, Japanand Macau. Additionally, ADImmune will produce influenza antigen in the future,which we may purchase to produce our influenza vaccine product, Inflexal V.

 

Summary financialinformation of ADImmune for the years ended December 31, 2008 and 2007,not adjusted for the percentage of ownership held by the Group is as follows:

 

In thousands of Euro

 
|                                 |       | **2008**    | ** ** | 2007       | ** ** |
|--------------------------------------|------------|-------------|------------|------------|------------|
| **Associate’s balance sheet**   |       | ** **  | ** ** |       |       |
| **(ADImmune)**                       | ** ** | ** **  | ** ** | ** ** | ** ** |
| Current assets                       |       | **21,781**  | ** ** | 6,621      |       |
| Non-current assets                   |       | **70,737**  | ** ** | 38,447     |       |
| Current liabilities                  |       | **(6,259**  | **)**      | (4,918     | )          |
| Non-current liabilities              |       | **(16,821** | **)**      | (209       | )          |
| **Net  assets**                      |       | **69,438**  | ** ** | **39,941** |       |
|                                 |       | ** **  | ** ** |       |       |
| **Associate  revenues and expenses** |       | ** **  | ** ** |       |       |
| Revenues and other income            |       | **5,844**   | ** ** | 5,056      |       |
| Expenses                             |       | **(6,548**  | **)**      | (6,108     | )          |
| Profit/ (loss) for the period        |       | **(704**    | **)**      | (1,052     | )          |

 

**KentaBiotech AG, Switzerland**

On July 3, 2008, theGroup sold all of the 2,625,000 shares it owned in Kenta Biotech AG to IngroFinanz AG. Prior to this sale, our ownership interest had already been dilutedfrom 37% in 2006 to 22% by the end of 2007. We realized an accounting gain of €1,570 on the sale.

 

**PevionBiotech AG, Switzerland**

Pevion Biotech AGdevelops vaccines based on its proprietary technology platforms. InNovember 2007, the Group sold all 2.9 million shares it owned in PevionBiotech AG for € 6,081 to the other Pevion Biotech shareholders. The Grouprealized an accounting gain of € 2,186 on the sale.

 

**5.9.2Joint ventures**

**PerciviaLLC, United States**

In August 2006, DSMPharmaceutical Products Inc, and the Group established a joint venture,Percivia LLC (Percivia) to operate the PERCIVIA PER.C6 Development Center inCambridge, MA, US. Each company holds 50% of the shares. The intialcontribution amounts to $ 500. The joint venture further develops the PER.C6cell line and provides a unique solution for the production of pharmaceuticalproteins to licensees utilizing the PER.C6 human cell line in the biotechindustry. Percivia recharges the costs incurred to the venturers. No additionalfundings are planned.

 

Summary financialinformation of this joint venture, not adjusted for the percentage ownershipheld by the Group is as follows:

 

In thousands of Euro

 
|                                            |       | **2008**   | ** ** | 2007   |       |
|-------------------------------------------------|------------|------------|------------|--------|------------|
| **Joint Venture’s balance sheet**          |       | ** ** | ** ** |   |       |
| **(Percivia)**                                  |       | ** ** | ** ** |   |       |
| **Current  assets**                             | ** ** | **2,060**  | ** ** | 1,131  | ** ** |
| Non-current assets                              |       | **1,360**  | ** ** | 981    |       |
| Current liabilities                             |       | **(1,440** | **)**      | (965   | )          |
| Non-current liabilities                         |       | **—** | ** ** | — |       |
| Net assets                                      |       | **1,980**  | ** ** | 1,147  |       |
|                                            |       | ** ** | ** ** |   |       |
| **Joint  Venture’s revenues and expenses** |       | ** ** | ** ** |   |       |
| Revenues                                        |       | **8,721**  | ** ** | 8,081  |       |
| Expenses                                        |       | **(7,972** | **)**      | (7,348 | )          |
| Profit/ (loss) for the period                   |       | **749**    | ** ** | 733    |       |

 

The tax charge forPERCIVIA PER.C6 Development Center is accounted for in the financial statementsof the venturers. The tax charge recognized in the financial statementsrelating to the percentage owned by the Group amounts to € 151 in 2008 (2007: €146).

 

156

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

**5.10Retirement benefit obligations**

 

The Group providesemployee benefit plans to most of its employees by means of various pensionplans. These plans comply with local regulations and practices in the countriesin which they operate and differ based on legal requirements, tax legislation,local customs and economic conditions in those countries. While the nature ofthe plans varies by country, in general, the benefits provided depend onremuneration and years of service. Most of these benefits are administrated byinsurance companies or pension funds.

 

The Group adopted IFRIC14, ‘IAS 19 – The limit on a defined benefit asset, minimum fundingrequirements and their interactions’ in 2008. The interpretation providesguidance on assessing the limit of the surplus in a defined benefit pensionplan that can be recognized as an asset. It also explains how the pension assetor liability may be affected by a statutory or contractual minimum fundingrequirement. The pension fund in Switzerland has a minimum funding requirementand the application of the interpretation resulted in an increase in the assetsrecorded on the Group’s balance sheet of € 7,853 (2007: € 4,918, 2006: € 746)and a corresponding increase in the Group’s equity of € 6,165 (2007: € 3,861,2006: € 586), which includes a net tax effect of € 1,688 (2007: € 1,057, 2006:€ 160). The result for the year increased by € 2,101 (2007: € 3,037, 2006: €367) as a result of the application of IFRIC 14. As required by IFRS, allcomparative figures were adjusted retrospectively as if the interpretation hadalways been applied. Also see ‘1.5 Changes in accounting policies’.

 

Recognition of pensionexpenses in the income statement and balance sheet:

 

In thousands of Euro

 
| **Year ended December 31** |       | **2008**   | ** ** | 2007    |       | 2006      |       |
|---------------------------------|------------|------------|------------|---------|------------|-----------|------------|
| **Income  statement**           |       | ** ** | ** ** |    |       |      |       |
| Defined benefit plans           |       | **(139**   | **)**      | (1,592  | )          | 1,712     |       |
| Defined contribution plans      |       | **2,408**  | ** ** | 2,436   |       | 1,770     |       |
| **Total**                       | ** ** | **2,269**  | ** ** | **844** | ** ** | **3,482** | ** ** |

 
| **Year ended December 31** |   |   |   | **2008**   |   | 2007   |   |
|---------------------------------|--------|--------|--------|------------|--------|--------|--------|
| **Balance  sheet**              |   |   |   | ** ** |   |   |   |
| Defined benefit plans           |   |   |   | ** ** |   |   |   |
| Pension assets                  |   |   |   | **8,612**  |   | 7,397  |   |
| Pension liability               |   |   |   | **(2,710** | **)**  | (3,466 | )      |
| Net pension asset               |   |   |   | **5,902**  |   | 3,931  |   |

 

Prior to the acquisitionof Berna Biotech and SBL, the Group did not operate any defined benefit plans.After the acquisitions in 2006, the Group operates defined benefit plans inSwitzerland, Korea and Sweden. The pension asset of **€**8,612 (2007: € 7,397) relates to the Swiss pension fund while the pensionliability of € 2,710 (2008: € 3,466) relates to the Swedish and the Koreanpension funds. In total, 97% (2007: 96%) of the plan assets and 91% (2007: 90%)of the defined benefit obligation relate to the Swiss pension fund.

 

The weighted average ofthe principal assumptions used in determining the employee benefit obligationsfor the defined benefit plans of the Group are shown below:

 

In percent

 
|                           |   | **2008**  |   | 2007  |   | 2006  |   |
|--------------------------------|--------|-----------|--------|-------|--------|-------|--------|
| Discount rate                  |   | **3.37%** |   | 3.40% |   | 3.32% |   |
| Expected return on plan assets |   | **4.53%** |   | 4.53% |   | 4.55% |   |
| Future salary increases        |   | **1.19%** |   | 1.22% |   | 1.19% |   |
| Future pension increases       |   | **0.71%** |   | 0.78% |   | 0.66% |   |

 

Changes in these keyassumptions can have a significant impact on the defined benefit obligations,funding requirements and periodic costs incurred. The Group consults at leastannually with external actuaries regarding these assumptions.

 

Changes in the presentvalue of the defined benefit obligation are as follows:

 

In thousands of Euro

 
| **Year ended December 31,**                         |       |       |       | **2008**    | ** ** | 2007        |   |
|----------------------------------------------------------|------------|------------|------------|-------------|------------|-------------|--------|
| **Opening  defined benefit obligation, January 1,** | ** ** | ** ** | ** ** | **(74,506** | **)**      | (72,679     | )      |
| Interest cost                                            |       |       |       | **(2,165**  | **)**      | (2,363      | )      |
| Current service cost                                     |       |       |       | **(3,748**  | **)**      | (3,369      | )      |
| Benefits paid                                            |       |       |       | **4,418**   | ** ** | 2,450       |   |
| Actuarial gains/(losses)                                 |       |       |       | **(3,038**  | **)**      | (934        | )      |
| Exchange differences                                     |       |       |       | **(6,446**  | **)**      | 2,389       |   |
| **Closing  defined benefit obligation**                  | ** ** | ** ** | ** ** | **(85,485** | **)**      | **(74,506** | **)**  |

 

157

 

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

Changes in the fairvalue of plan assets are as follows:

 

In thousands of Euro

 
|                                            |       | **2008**    | ** ** | 2007       |       |
|-------------------------------------------------|------------|-------------|------------|------------|------------|
| **Opening fair value of plan assets**           | ** ** | **99,032**  | ** ** | 102,306    | ** ** |
| Expected return on  plan assets                 |       | **4,606**   | ** ** | 4,528      |       |
| Contributions by  employer                      |       | **597**     | ** ** | 2,338      |       |
| Contributions by  participants                  |       | **1,053**   | ** ** | 984        |       |
| Benefits paid                                   |       | **(4,062**  | **)**      | (2,208     | )          |
| Actuarial  gains/(losses)                       |       | **(9,213**  | **)**      | (5,727     | )          |
| Exchange  differences                           |       | **9,555**   | ** ** | (3,189     | )          |
| **Fair value of plan assets, December 31** | ** ** | **101,568** | ** ** | **99,032** | ** ** |

 

In 2009, the Groupexpects to contribute an amount similar to the amount contributed in 2007 toits defined benefit pension plans. The amount in 2008 was lower due to partialusage of an employer contribution reserve in Switzerland. The actual return onplan assets for the year ended December 31, 2008 amounted to a loss of €4,639 (2007: loss of € 1,199).

 

The costs for definedbenefit plans are as follows:

 

In thousands of Euro

 
| **Year ended December 31,**      | ** ** | **2008**    | ** ** | 2007       |   | 2006      | ** ** |
|-------------------------------------------------|------------|-------------|------------|------------|--------|-----------|------------|
| Current service  cost                           |       | **3,748**   | ** ** | 3,369      |   | 3,105     |       |
| Interest cost                                   |       | **2,166**   | ** ** | 2,363      |   | 2,012     |       |
| Expected return on  plan assets                 |       | **(4,606**  | **)**      | (4,528     | )      | (3,758    | )          |
| Actuarial gains and  losses                     |       | **11,014**  | ** ** | 6,651      |   | (862      | )          |
| The effect of  changes due to the asset ceiling |       | **(11,408** | **)**      | (8,463     | )      | 2,260     |       |
| Employee  contributions                         |       | **(1,053**  | **)**      | (984       | )      | (981      | )          |
| Other                                           |       | **—**  | ** ** | —     |   | (64       | )          |
|                                            |       | **(139**    | **)**      | **(1,592** | **)**  | **1,712** |       |

 

The amounts in thebalance sheet are determined as follows:

 

In thousands of Euro

 
| **Year ended December 31,**           | ** ** | **2008**    | ** ** | 2007       | ** ** |
|------------------------------------------------------|------------|-------------|------------|------------|------------|
| Defined benefit  obligation                          |       | **(85,485** | **)**      | (74,506    | )          |
| Fair value of plan  assets                           |       | **101,568** | ** ** | 99,032     |       |
| Funded status                                        |       | **16,083**  | ** ** | **24,526** |       |
| Unrecognized net  actuarial losses                   |       | **1,261**   | ** ** | 233        |       |
| Amount not  recognized as asset due to asset ceiling |       | **(11,442** | **)**      | (20,828    | )          |
| Net pension asset                                    |       | **5,902**   | ** ** | **3,931**  |       |

 

In thousands of Euro

 
| **Year ended December 31,**              | ** ** | **2008**    | ** ** | 2007    |   | 2006    | ** ** |
|---------------------------------------------------------|------------|-------------|------------|---------|--------|---------|------------|
| Defined benefit obligation                              |       | **(85,485** | **)**      | (74,506 | )      | (72,679 | )          |
| Plan assets                                             |       | **101,568** | ** ** | 99,032  |   | 102,306 |       |
| Surplus                                                 |       | **16,083**  | ** ** | 24,526  |   | 29,627  |       |
| Experience  adjustments on plan liabilities – loss |       | **(3,038**  | **)**      | (934    | )      | 834     |       |
| Experience  adjustments on plan assets – loss      |       | **(9,213**  | **)**      | (5,727  | )      | (211    | )          |

 

The major categoriesof plan assets as a percentage of the fair value of total plan assets are asfollows:

 
| ** ** | ** ** | **2008**   | ** ** | 2007   | ** ** |
|------------|------------|------------|------------|--------|------------|
| Bonds      |       | **44.9%**  | ** ** | 41.7%  |       |
| Equity     |       | **22.0%**  | ** ** | 26.1%  |       |
| Property   |       | **28.4%**  | ** ** | 28.6%  |       |
| Other      |       | **4.7%**   | ** ** | 3.6%   |       |
|       |       | **100.0%** | ** ** | 100.0% |       |

 

Theoverall expected rate of return on assets is determined based on the marketprices expected to be applicable to the period over which the obligation is tobe settled and the relative weight of the separate categories of plan assets.

 

**5.11 Other financial assets (non-current)**

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007       | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| Long-term  restricted cash                 |       | **12,896** |       | 14,396     |       |
| Long-term deposits  and guarantees         |       | **1,645**  |       | 1,388      |       |
| Other long-term  receivables               |       | **379**    |       | 369        |       |
|                                       |       | **14,920** |       | **16,153** |       |

 

158

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

**5.12 Cash and cash equivalents**

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**    | ** ** | 2007        | ** ** |
|--------------------------------------------|------------|-------------|------------|-------------|------------|
| Cash at banks and  in hand                 |       | **91,853**  |       | 108,273     |       |
| Call deposits                              |       | **79,116**  |       | 54,975      |       |
|                                       |       | **170,969** |       | **163,248** |       |

 

Cash and cashequivalents are denominated in the following currencies (translated intoEuros):

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**    | ** ** | 2007        | ** ** |
|--------------------------------------------|------------|-------------|------------|-------------|------------|
| Euro (€)                              |       | **111,909** |       | 99,304      |       |
| US Dollar ($)                              |       | **37,975**  |       | 41,954      |       |
| Swiss Franc (CHF)                          |       | **4,144**   |       | 8,426       |       |
| Swedish Crown (SEK)                        |       | **7,746**   |       | 9,997       |       |
| Korean Won (KRW)                           |       | **7,360**   |       | 2,331       |       |
| Other currencies                           |       | **1,835**   |       | 1,236       |       |
|                                       |       | **170,969** |       | **163,248** |       |

 

**5.13 Trade accounts receivable**

 

In thousands of Euro

 
| **Year ended December 31,**            | ** ** | **2008**   | ** ** | 2007       | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
| Trade receivables  from third-party customers         |       | **39,343** |       | 47,553     |       |
| Trade receivables  from associates and joint ventures |       | **765**    |       | 10         |       |
|                                                  |       | **40,108** |       | **47,563** |       |

 

At December 31,2008, trade receivables are shown net of an allowance for doubtful debts for anamount of € 2,289 (2007: € 2,763). The Group’s normal credit period is 30 days,although in some jurisdictions, including Italy, Korea and Spain, a creditperiod of 60 days is maintained in line with local customs. Receivables aredenominated in several currencies and can be specified as follows:

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007       | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| Euro (€)                              |       | **20,569** |       | 28,343     |       |
| US Dollar ($)                              |       | **8,985**  |       | 6,056      |       |
| Swiss Franc (CHF)                          |       | **5,058**  |       | 4,077      |       |
| Swedish Crown (SEK)                        |       | **2,810**  |       | 7,264      |       |
| Korean Won (KRW)                           |       | **1,334**  |       | 985        |       |
| Other currencies                           |       | **1,352**  |       | 838        |       |
|                                       |       | **40,108** |       | **47,563** |       |

 

**Aging of past due but not impaired**

Included in theGroup’s trade receivables balance are debtors with a carrying amount of €11,678 (2007: € 9,051) which are past due at the reporting date for which the Grouphas not provided because there has not been a significant change in creditquality and the amounts are considered recoverable. The Group does not hold anycollateral over these balances.

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007      | ** ** |
|--------------------------------------------|------------|------------|------------|-----------|------------|
| 0-60 days                                  |       | **7,810**  |       | 5,083     |       |
| 60-90 days                                 |       | **1,407**  |       | 479       |       |
| 90-120 days                                |       | **340**    |       | 1,411     |       |
| Over 120 days                              |       | **2,121**  |       | 2,078     |       |
|                                       |       | **11,678** |       | **9,051** |       |

 

Movement in theallowance for doubtful debts:

 

In thousands of Euro

 
| ** **                             | ** ** | **2008**   | ** ** | 2007      | ** ** |
|----------------------------------------|------------|------------|------------|-----------|------------|
| Balance at  beginning of the year      |       | **2,763**  | ** ** | 4,069     |       |
| Additions to  provisions               |       | **1,429**  | ** ** | 535       |       |
| Amounts written off  as uncollectible  |       | **(1,379** | **)**      | (968      | )          |
| Unused amounts  reversed               |       | **(289**   | **)**      | (601      | )          |
| Effect of movements  in exchange rates |       | **(235**   | **)**      | (272      | )          |
|                                   |       | **2,289**  | ** ** | **2,763** |       |

 

The amount writtenoff in 2008 as uncollectible relates to customers of our Korean subsidiary andwas already provided for in the purchase price allocation of the Berna BiotechGroup.

 

The amount writtenoff in 2007 as uncollectible relates to customers of our Swedish subsidiary andwas already provided for in the purchase price allocation of SBL Vaccin HoldingAB.

 

**5.14 Inventories**

 

In thousands of Euro

 
| ** **                     | ** ** | **2008**   | ** ** | 2007       | ** ** |
|--------------------------------|------------|------------|------------|------------|------------|
| Raw materials and  consumables |       | **13,286** |       | 15,162     |       |
| Work in progress               |       | **61,980** |       | 46,157     |       |
| Finished products              |       | **16,581** |       | 5,914      |       |
|                           |       | **91,847** |       | **67,233** |       |

 

In order to be ableto meet the demand from the market (e. g. in case of outbreak of a disease) theGroup stocks certain inventories to a level such that they may not be utilizedin one year. Provisions are recognized for obsolete inventory. The amount ofwrite-down of inventories recognized as an expense is € 3,218 (2007: € 6,428).

 

159

 

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

The amount ofinventories recognized as an expense in cost of product sales is € 128,632(2007: € 113,250, 2006: € 74,523).

 

**5.15 Other current assets**

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007       | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| Accrued income                             |       | **4,495**  |       | 10,164     |       |
| Prepaid expenses                           |       | **3,612**  |       | 3,177      |       |
| Other short-term  receivables              |       | **6,658**  |       | 10,826     |       |
| Director’s loan                       |       | **134**    |       | 134        |       |
| Income tax  receivables                    |       | **2,734**  |       | 888        |       |
| Derivative  financial instruments          |       | **1,761**  |       | 29         |       |
|                                       |       | **19,394** |       | **25,218** |       |

 

**5.16 Issued share capital and reserves**

 

Crucell’s authorizedshare capital amounts to 85,000,000 ordinary shares and 85,000,000 preferenceshares, each with a par value of € 0.24. As of December 31, 2008, therewere 65,833,242 ordinary shares issued and outstanding (2007: 65,348,796). Nopreference shares are issued and outstanding as of December 31, 2008.

 

On October 25,2000, the Company established a foundation called Stichting Preferente AandelenCrucell, also referred to as the Preferred Foundation. The PreferredFoundation’s object is to safeguard the interests of Crucell, its business andparties connected therewith by blocking any influences that may threaten theseinterests, which interests may include the continuity, independence or identityof Crucell, its business and parties connected therewith. The PreferredFoundation can safeguard these interests through acquiring and managing thepreference shares and by exercising the rights attaching to these shares, inparticular, the voting rights.

 

The agreement betweenthe Company and the Preferred Foundation grants an option to the PreferredFoundation to acquire preference shares up to 100% of the number of ouroutstanding shares as necessary to match the total number of statutory votes onall of the ordinary shares outstanding at the time of an acquisition. ThePreferred Foundation must pay at least 25% of the nominal value of thepreference shares it acquires from the Company. If the Company has previouslyacquired any preference shares, they may be cancelled.

 

A board of governorsof up to five persons directs the Preferred Foundation. Mr. J. P.Oosterveld, in his capacity as chairman of our Supervisory Board, and Mr. P.Bouw, Mr. M. W. den Boogert, Mr. S. van Wijnbergen and Mr. G. P.Krans, have been appointed to the board of governors. A majority of thesemembers may not be members or former members of the Management or SupervisoryBoard of the Company, or an employee of any of our advisers, any of our banksor us. The board of governors appoints these independent members. TheSupervisory Board appoints the non-independent members after consultation withthe Management Board.

 
| ** **                                                                            | ** ** |       |       | Issued          | ** ** |
|---------------------------------------------------------------------------------------|------------|------------|------------|-----------------|------------|
| ** **                                                                            | ** ** | Shares     |       | capital         | ** ** |
| **Ordinary shares issued and fully paid**                    | ** ** | 000        |       | € 000 | ** ** |
| **At January 1, 2006**                                                           |       | **41,441** | ** ** | **9,946**       |       |
| Issued in  February 2006 in exchange for issued share capital of Berna Biotech   |       | 16,931     |       | 4,064           |       |
| Shares issued in  relating to private placement and acquisition of minority interests |       | 5,022      |       | 1,205           |       |
| Shares issued  relating to share-based payments                                       |       | 1,408      |       | 338             |       |
| **At December 31, 2006**                                                         |       | **64,802** | ** ** | **15,553**      | ** ** |
| Shares issued  relating to share-based payments                                       |       | 547        |       | 132             |       |
| **At December 31, 2007**                                                         |       | **65,349** | ** ** | **15,685**      | ** ** |
| Shares issued  relating to share-based payments                                       |       | 484        |       | 115             |       |
| **At December 31, 2008**                                                         | ** ** | **65,833** | ** ** | **15,800**      | ** ** |

 

**5.17 Share-based payment plans**

 

**Stock-based compensation**

**Employee stock option plans**

The Group maintainsstock option plans whereby the Remuneration committee of the Supervisory Boardmay grant options to employees, directors and members of the Supervisory Board.The compensation expenses included in operating expenses for those plans were €5,053, € 6,524 and € 4,000 in 2008, 2007 and 2006, respectively.

 

In December 2004,the Supervisory Board approved a new option plan (the ‘2005 Plan’) providingfor the grant of stock options to non-Management Committee members. Optionsgranted under this stock option plan are exercisable once vested. Grantedoptions vest straight line over a period of four years. Compensation costs arerecognized in accordance with the accelerated method.

 

160

** **

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

The options expirefive years after date of grant. Upon termination of employment with Crucell,options must be exercised within 90 days. Options granted under the stockoption plan are granted at exercise prices, which equal the fair value of theordinary shares of the Company at the date of grant.

 

All options grantedunder previous stock option plans (the ‘Prior Plans’) are exercisableimmediately upon grant. The options expire four to eight years from the date ofgrant, or earlier upon termination of employment with the Group. Upontermination of employment, options must be exercised within 90 days. No furthergrants are to be made under the Prior Plans.

 

At the annual GeneralMeeting of Shareholders in 2008, the shareholders of the Company approved therevised long-term incentive (LTI) plan for the Management Board. Under theterms of the LTI plan, options are conditionally granted and vest at the end ofa four-year performance period. The conditionally granted options include amarket condition that is taken into account when estimating the fair value ofthe equity instruments granted. The number of LTI options that vest are basedon the fulfilment of the LTI performance condition. On the vesting date,Crucell’s Total Shareholder Return (‘TSR’) performance is measured against theperformance of the NASDAQ Biotechnology Index during the performance period.The positive difference in percentages, if any, between Crucell’s TSR comparedto the performance of the NASDAQ Biotechnology Index, determines the number ofLTI options that vest on the vesting date. Depending on the level ofachievement of these market measures, at the end of three years, the number ofshares vesting could be 0%-200% of the number of options originally granted.The new LTI plan will impact the Group’s results for the first time in 2009.

 

At the annual GeneralMeeting of Shareholders in 2008, the shareholders of the Company approved anadditional option grant to the Management Board of 800.000 options. The optionsare conditionally granted and vest at the end of a three-year performanceperiod starting June 2, 2008. The conditionally granted options include amarket condition that is taken into account when estimating the fair value ofthe equity instruments granted. The market condition is an absolute totalshareholder return of plus 50% share value measured three years after thegrant.The Group accounts for its employee stock options under the fair valuemethod. The fair value of options is estimated at the date of grant using theBlack-Scholes option-pricing model, with the following weighted average assumptions:

 

In percent

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007   |   | 2006   | ** ** |
|--------------------------------------------|------------|------------|------------|--------|--------|--------|------------|
| Risk-free interest  rate                   |       | **4.3%**   | ** ** | 4.1%   |   | 3.6%   |       |
| Expected dividend  yield                   |       | **—** | ** ** | — |   | — |       |
| Expected volatility                        |       | **36.7%**  | ** ** | 33.3%  |   | 41.8%  |       |
| Expected life  (years)                     |       | **4.76**   | ** ** | 4.25   |   | 4.25   |       |

 

The risk-free interestrate is based on Dutch treasury securities in effect at the time of grant. Indetermining the expected volatility, we take into account the historicalvolatility of the Company’s stock over a period commensurate with the expectedterm of the employee stock options. When establishing the expected life, wetake into account the contractual term of the options and historical employeeexercise behaviour. The weighted average fair value of options granted duringthe years ended December 31, 2008, 2007 and 2006 was € 4.03, € 5.34 and €6.96, respectively.

 

A summary of thestock option activity for the outstanding plans is as follows:

 
| ** **                            | ** ** |           |       | Weighted  | ** ** |
|---------------------------------------|------------|----------------|------------|-----------|------------|
| ** **                            | ** ** |           |       | average   | ** ** |
| ** **                            | ** ** | Number of |       | exercise  | ** ** |
| ** **                            | ** ** | options        |       | price     | ** ** |
| **Balance at January 1, 2006**   |       | **4,029,504**  | ** ** | **6.43**  |       |
| Granted                               |       | 953,466        |       | 18.76     |       |
| Exercised                             |       | (1,284,655     | )          | 4.16      |       |
| Forfeited                             |       | (12,875        | )          | 19.40     |       |
| **Balance at December 31, 2006** |       | **3,685,440**  | ** ** | **10.36** | ** ** |
| Granted                               |       | 1,514,165      |       | 16.97     |       |
| Exercised                             |       | (301,475       | )          | 6.45      |       |
| Forfeited                             |       | (237,447       | )          | 19.15     |       |
| **Balance at December 31, 2007** |       | **4,660,683**  | ** ** | **12.31** |       |
| Granted                               |       | 2,639,640      |       | 11.59     |       |
| Exercised                             |       | (420,270       | )          | 7.58      |       |
| Forfeited                             |       | (592,175       | )          | 16.55     |       |
| **Balance at December 31, 2008** |       | **6,287,878**  | ** ** | **11.92** |       |

 

Included in theoptions outstanding as of December 31, 2008 are also options to acquireordinary shares held by certain former employees and consultants. Theseindividuals have been permitted to continue vesting in these options forservices rendered.

 

161

 

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

The following tablesummarizes information about the company’s stock options outstanding at December 31,2008:

 
| ** **                      | ** ** |              |       |      |       | Weighted          |       |          |       | Weighted             | ** ** |
|---------------------------------|------------|-------------------|------------|-----------|------------|-------------------|------------|---------------|------------|----------------------|------------|
| ** **                      | ** ** | Outstanding       |       | Weighted  |       | average           |       |          |       | average              | ** ** |
| ** **                      | ** ** | options at   |       | average   |       | remaining         |       |          |       | exercise price- | ** ** |
| ** **                      | ** ** | December 31, |       | exercise  |       | contractual       |       | Excercisable  |       | exercisable          | ** ** |
| Exercise price             |       | 2008              |       | price     |       | life (years) |       | options       |       | options              | ** ** |
| €2.35 – € 5.00   |       | 516,125           |       | 3.34      |       | 2.12              |       | 516,125       |       | 3.34                 |       |
| €5.00 – € 9.99   |       | 1,689,724         |       | 8.19      |       | 2.22              |       | 1,223,104     |       | 7.74                 |       |
| €10.00 – € 14.99 |       | 2,677,125         |       | 12.45     |       | 4.34              |       | 247,625       |       | 12.74                |       |
| €15.00 – € 19.99 |       | 1,193,031         |       | 18.20     |       | 2.92              |       | 452,483       |       | 17.91                |       |
| €20.00 – € 22.22 |       | 211,873           |       | 20.42     |       | 2.19              |       | 113,970       |       | 20.50                |       |
| **Total**                       | ** ** | **6,287,878**     | ** ** | **11.92** | ** ** | **3.24**          | ** ** | **2,553,307** | ** ** | **9.71**             | ** ** |

 

As of December 31,2008, a total of 9,874,986 ordinary shares, representing 15% (2007: 15%) of theissued share capital, has been reserved for issuance under the option plan, ofwhich 6,287,878 (2007: 4,660,683) were subject to outstanding options.

 

**Share-based incentive plans**

In addition to theemployee stock option plans for executives as described in the previousparagraph, the Company operated incentive plans for executives up to 2008 thatinvolved the issuance of share awards.

 

Up to 2008, the Groupoperated the 2005 Short-term Incentive Plan (the ‘STI Plan’). Crucell grantedexecutives share awards with vesting contingent upon meeting variouscompany-wide, departmental and individual performance goals. The employeesgranted shares under the STI Plan were allowed to elect to receive either cash(at a 25% discount from the total award) or shares if certain performancecriteria were met.

 

Grants under the STIPlan were accounted for as liabilities and included in accrued compensation andrelated benefits in the accompanying balance sheets. In 2007, executives wereentitled to a total of 15,544 STI Plan shares, after deduction of income tax.Shares granted under the STI Plan were issued to the executives in the firstquarter of 2008. No more issuances under this STI plan can take place. At theannual General Meeting of Shareholders in 2008, the shareholders approved the2008, STI cash-based payment plan and this supersedes the 2005 STI share-basedpayment plan.

 

Up to 2008, the Groupoperated the 2005 Long-term Incentive Plan (the ‘LTI Plan’), which allowed forthe issuance of up to 36,842 shares of common stock to be granted to executiveswith vesting contingent upon meeting various performance conditions. Dependingon the level of achievement of these market measures, at the end of threeyears, the number of shares vesting could be 0%-200% of the number of sharesoriginally allowed for issuance. In 2008, a total of 20,104 shares was grantedunder the terms of the 2005 LTI plan. No more issuances under this LTI plan cantake place. At the annual General Meeting of Shareholders in 2008, theshareholders approved the 2008 LTI option-based payment plan as described aboveand this supersedes the 2005 LTI share-based payment plan.

 

**Stock option grants to non-employees**

Crucell has a totalnumber of 67,604 (2007: 67,604) stock options to various non-employeesoutstanding in connection with consulting agreements over the years. The exerciseprices range from € 5.38 to € 18.22 per share and the stock options expire ondates ranging from May 2010 through August 2012. During 2008, theCompany issued no stock options to non-employees.

 

The Company recordedcompensation expense associated with these stock options of € 24, € 11 and €295 for the years ended December 31, 2008, 2007 and 2006, respectively.

 

Stock option grantsto non-employees are made pursuant to approved stock option plans and activityrelated thereto is included in the tables above with the employee grants of theapproved plans.

 

162

 

** **

**Financial Statements**

Notesto the Consolidated Financial Statements

 

**5.18 Provisions, commitments andcontingencies**

 

In thousands of Euro

 
| ** **                          | ** ** |          |       |       |       | Employee  |       |      |       |      | ** ** |
|-------------------------------------|------------|---------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                          | ** ** | Restructuring |       | Litigation |       | benefits  |       | Other     |       | Total     | ** ** |
| **At January 1, 2007**         |       | **1,646**     | ** ** | **1,000**  | ** ** | **3,919** | ** ** | **1,441** | ** ** | **8,006** |       |
| Arising during the  year            |       | —        |       | —     |       | —    |       | 657       |       | 657       |       |
| Utilized                            |       | (1,364        | )          | (77        | )          | —    |       | (752      | )          | (2,193    | )          |
| Unused amounts  reversed            |       | (276          | )          | (50        | )          | —    |       | (290      | )          | (616      | )          |
| Movement defined  benefit liability |       | —        |       | —     |       | (267      | )          | —    |       | (267      | )          |
| Exchange adjustment                 |       | (6            | )          | (18        | )          | (186      | )          | (43       | )          | (253      | )          |
| **At December 31, 2007**       |       | **—**    | ** ** | **855**    | ** ** | **3,466** | ** ** | **1,013** | ** ** | **5,334** |       |
| Current 2007                        |       | —        |       | —     |       | —    |       | 761       |       | 761       |       |
| Non-current 2007                    |       | —        |       | 855        |       | 3,466     |       | 252       |       | 4,573     |       |
|                                |       |          |       |       |       |      |       |      |       |      |       |
| **At January 1, 2008**         |       | **—**    | ** ** | **855**    | ** ** | **3,466** | ** ** | **1,013** | ** ** | **5,334** |       |
| Arising during the  year            |       | 684           |       | 705        |       | —    |       | 626       |       | 2,015     |       |
| Utilized                            |       | (74           | )          | (2         | )          | —    |       | (491      | )          | (567      | )          |
| Unused amounts  reversed            |       | —        |       | —     |       | —    |       | (33       | )          | (33       | )          |
| Movement defined  benefit liability |       | —        |       | —     |       | (204      | )          | —    |       | (204      | )          |
| Exchange adjustment                 |       | —        |       | 90         |       | (552      | )          | 75        |       | (387      | )          |
|                                |       |          |       |       |       |      |       |      |       |      |       |
| **At December 31, 2008**       |       | **610**       | ** ** | **1,648**  | ** ** | **2,710** | ** ** | **1,190** | ** ** | **6,158** |       |
| Current 2008                        |       | 610           |       | —     |       | —    |       | 971       |       | 1,581     |       |
| Non-current 2008                    |       | —        |       | 1,648      |       | 2,710     |       | 219       |       | 4,577     |       |

 

**Provisions**

**Restructuring**

In 2008, a restructuring program in our Italian subsidiaryBerna Biotech Italia Srl. was executed. A total provision of € 684 wasrecognized of which € 610 was outstanding as per year-end 2008.

 

In 2006, a restructuring charge was recognized in relationto centralization of R&D functions in Leiden and phasing out R&D projectsin Switzerland. The decision to concentrate R&D in Leiden was made toincrease efficiency in R&D spending and resulted in a reduction in thenumber of staff employed, which was effectuated in the first quarter of 2007.

 

**Legal proceedings**

The Group is subject to certain lawsuits and other legalproceedings. The current status of any pending proceedings has been reviewedwith legal counsel. Upon consideration of known relevant facts andcircumstances, provisions are recognized for losses that are considered to beprobable and that can be reasonably estimated at balance sheet date.

 

**Complaint filed by Korean landlord**

At the end of 2007, our Korean landlord advised us it wouldstop providing utilities to us in the near future and also filed a complaint againstus seeking the removal of two additional buildings at the Korean facility anddelivery to the landlord of the land on which those buildings are located. InOctober 2008, we reached an agreement to relocate our Korean productionfacility from the Shingal site in Yongin City to the Incheon, Free EconomicZone. All parties involved, including our current landlord, have agreed on thetime line and conditions of this relocation, enabling a smooth transition tothe new production facility. All litigation surrounding our existing Koreanproduction facility has been settled.

 

**Deductibility of research anddevelopment costs**

In Italy, Berna Biotech Italia Srl. was subject to a taxaudit for fiscal years 2001 and 2002. For the year 2001, a settlement wasreached with the Italian tax authorities in 2007. For the year 2002, nosettlement has been reached. The tax authorities issued an assessment thatdeviates from the amount that was filed in the tax return. We have challengedthis assessment in court. We made a provision for the costs of additionaltaxes, penalties

 

163

 

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

and interest, as well as lawyers’ fees, which we expect wewould have to pay as a result. One of the items in dispute is the deductibilityof the research and development costs we make in Italy. The Group won theinitial court case with respect to the deductibility of the research anddevelopment costs. The Italian tax authorities appealed this decision.

 

In 2008, the Italian tax authorities also challenged thedeductibility of research and development costs for the year 2003 and issued anassessment. We will challenge this assessment in court. The Italian taxauthorities may also challenge the deductibility of research and developmentcosts for the years 2004 to 2008. As the Group considers it more likely thannot that the research and development cost will be tax deductible, noadditional provision was recognized for the deductibility of research anddevelopment costs.

 

**Complaint against government grantawarded**

In 2008, a competitor of Crucell filed a protest against theaward of a government grant to Crucell for the development and manufacture of avaccine against the Ebola and Marburg virus. The complaint was filed againstthe US. Government but Crucell voluntarily joined the proceedings to defend theaward. Following a dismissal of the protest by the US Government AccountabilityOffice (GAO), the competitor filed an appeal which is currently pending beforethe Court of Appeal of the Federal Circuit (CAFC).

 

**Employee benefits**

Further reference is made to retirement benefit obligations.See note 5.10.

 

**Other**

Other provisions mainly relate to asset retirementobligations and warranties.

 

**Commitments and contingencies**

**Contingent liability STAR technology**

The Group acquired STAR technology in 2004 through thepurchase of ChromaGenics B.V., a privately held biotechnology company based inAmsterdam. In connection with the purchase, we also entered in a contingentpayment agreement that could result in additional payments of up to € 7.0million to former ChromaGenics shareholders upon receipt of revenues androyalties generated from the STAR technology. In connection with thisagreement, we paid € 2.0 million in 2007. The expense was recognized in thecost of goods sold. No payments were made in 2008.

 

**5.19 Short and long-term financialliabilities**

 

This note provides information about the contractual termsof the Group’s loans and borrowings. For more information about the Group’sexposure to financial market risks, see note 3.

 

Debt repayment schedule at December 31, 2008:

 

In thousands of Euro

 
| ** **                                            | ** ** | Total      |   |       |       |      |       |      |       |      |       |      |       | More than |       | Total      | ** ** |
|-------------------------------------------------------|------------|------------|--------|------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|----------------|------------|------------|------------|
| ** **                                            | ** ** | 2008       |   | 2009       |       | 2010      |       | 2011      |       | 2012      |       | 2013      |       | 5 years   |       | 2007       | ** ** |
| Mortgage loan*                                        |       | **16,461** |   | 367        |       | 384       |       | 401       |       | 420       |       | 441       |       | 14,448         |       | 16,811     |       |
| Equipment lease                                       |       | **20,526** |   | 2,777      |       | 3,010     |       | 3,371     |       | 6,135     |       | 1,776     |       | 3,457          |       | 10,080     |       |
| Comprehensive  credit limit Berna Biotech Korea Corp. |       | **20,855** |   | 20,855     |       | —    |       | —    |       | —    |       | —    |       | —         |       | —     |       |
| Privately  placed bond Korea Corp.                    |       | **—** |   | —     |       | —    |       | —    |       | —    |       | —    |       | —         |       | 14,540     |       |
| Loan Berna Biotech  Korea Corp.                       |       | **2,909**  |   | 1,455      |       | 1,454     |       | —    |       | —    |       | —    |       | —         |       | 4,364      |       |
| Factoring  liabilities                                |       | **—** |   | —     |       | —    |       | —    |       | —    |       | —    |       | —         |       | 5,653      |       |
| Other short-term  bank loans                          |       | **—** |   | —     |       | —    |       | —    |       | —    |       | —    |       | —         |       | 1,347      |       |
|                                                  |       | **60,751** |   | **25,454** | ** ** | **4,848** | ** ** | **3,772** | ** ** | **6,555** | ** ** | **2,217** | ** ** | **17,905**     | ** ** | **52,795** |       |

 

* Calculatedat the interest rate applicable until December 31, 2010.

 

164

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

**Mortgage loan**

In December 2005, the Group entered into a Euromortgage loan of up to € 17,091 and as of December 31, 2006 the Group hasdrawn the maximum amount. In 2006, interest was accrued to the loan and nopayments of principal or interest were required. Beginning January 1,2007, the loan is being repaid through monthly payments over 15 years. Aballoon repayment of € 10,000 will be made at the end of the 15 years. The loanmatures on December 31, 2021. The loan bears interest at 4.55% for thefirst five years. After this period the rates will be renegotiated. The land,building, part of the equipment and a compensating cash balance arrangementwith a bank in the amount of € 10,000 secure the loan. The carrying amount ofthe underlying secured assets was at the year-end € 24,015 (2007: € 26,946).

 

**Finance lease liabilities**

Finance leases mainly relate to equipment for the newproduction facility in Leiden. The vast majority of the finance leaseliabilities are denominated in Euro. All leases are on a fixed repayment basisand interest rates are fixed at the contract date. For further information seenote 5.22.

 

**Comprehensive credit limit BernaBiotech Korea Corp.**

On June 12, 2008 Berna Biotech Korea Corp. entered intoa comprehensive credit limit transaction agreement. Under the terms of theagreement Berna Biotech Korea Corp. may freely borrow and repay money for anamount of KRW 30 billion during the period ending on May 31, 2009. InDecember 2008, Berna Biotech Korea Corp. agreed on an additional facilityfor KRW 10 billion. The loan has a variable interest rate that is based on aKorean interest index plus a mark-up. As per year-end the interest percentagewas 6.79% and an amount of KRW 37 billion (€ 20,855) was drawn under the agreement.

 

**Loan Berna Biotech Korea Corp.**

Berna Biotech Korea Corp. had an unsecured Euro loan thatbears interest at 5.45% which is outstanding as per December 31, 2008. Theoriginal maturity date of the loan was August 1, 2010, but the loan wasrepaid in full on February 2, 2009.

 

**Privately placed bond Berna BiotechKorea Corp.**

Berna Biotech Korea Corp (‘Berna Biotech Korea’) issued aKorean Won denominated bond with an interest rate of 6.73%. The privatelyplaced bond by Berna Biotech Korea Corp. was repaid on June 13, 2008.

 

**Factoring liabilities**

In December 2007, the Group factored trade accountsreceivable for a total amount of € 5,653 with an external party in Italy. TheGroup did not transfer substantially all the risks and rewards associated withownership of the transferred trade accounts receivable, specifically the creditrisk, and consequently the cash payments received are accounted for as afinancial liability. No interest is charged on the factoring liabilities.

 

**5.20 Other liabilities and deferred income – current and non-current**

 

In thousands of Euro

 
|                                       |   | ** **  | ** ** | ** **      | ** ** | **2008**   |   |       |       |        |       | 2007       |   |
|--------------------------------------------|--------|-------------|------------|-----------------|------------|------------|--------|------------|------------|-------------|------------|------------|--------|
|                                       |   | **Current** | ** ** | **Non-current** | ** ** | **Total**  |   | Current    |       | Non-current |       | Total      |   |
| Deferred  income                           |   | **7,882**   | ** ** | **7,054**       | ** ** | **14,936** |   | 7,921      |       | 11,594      |       | 19,515     |   |
| Accrued  salary expenses and payroll taxes |   | **9,817**   | ** ** | **—**      | ** ** | **9,817**  |   | 10,318     |       | —      |       | 10,318     |   |
| Accrued  expenses                          |   | **8,540**   | ** ** | **—**      | ** ** | **8,540**  |   | 14,684     |       | —      |       | 14,684     |   |
| Derivative  financial instruments          |   | **879**     | ** ** | **—**      | ** ** | **879**    |   | 16         |       | —      |       | 16         |   |
| Other  liabilities                         |   | **2,166**   | ** ** | **591**         | ** ** | **2,757**  |   | 4,958      |       | 529         |       | 5,487      |   |
|                                       |   | **29,284**  | ** ** | **7,645**       | ** ** | **36,929** |   | **37,897** | ** ** | **12,123**  | ** ** | **50,020** |   |

 

165

 

**Financial Statements**

Notes to the Consolidated FinancialStatements

 

**5.21****Trade accounts payables**

 

In thousands ofEuro

 
| **Year ended December 31,** | ** ** | **2008**   | ** ** | 2007       | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| Trade accounts  payables to third parties  |       | **58,182** |       | 50,638     |       |
| Trade accounts  payables to joint ventures |       | **1,023**  |       | 332        |       |
|                                       |       | **59,205** |       | **50,970** |       |

 

Trade accounts payables are generally paid under the paymentterms, which vary by company and region. The Group’s general payment terms aretypically 30 days.

 

**5.22 Operating and finance leases**

** **

**Operating lease commitments**

The Group leases certain research and corporate facilities,motor vehicles and items of machinery and equipment. No restrictions are placedupon the lessee by entering into these leases. Future minimum lease paymentsunder operating leases as at December 31, 2008 and 2007 are as follows:

 

In thousands ofEuro

 
| **Year ended December 31,**   | ** ** | **2008**   | ** ** | 2007       | ** ** |
|----------------------------------------------|------------|------------|------------|------------|------------|
| Within one year                              |       | **3,830**  |       | 4,798      |       |
| After one year but  not more than five years |       | **10,073** |       | 15,308     |       |
| More than five  years                        |       | **10,759** |       | 14,155     |       |
|                                         |       | **24,662** |       | **34,261** |       |

 

Most operating leases are increased by a general price indexon an annual basis.

 

**Finance lease commitments**

Certain of the Group’s fixtures and equipment are subjectto finance leases. These leases mainly relate to equipment for the newproduction facility in Leiden. Interest rates are fixed at the contract date.All leases are on a fixed repayment basis and no arrangements have been enteredinto for contingent rental payments. The fair value of the Group’s leaseobligations approximates their carrying amount. The Group’s obligations under finance leasesare secured by the value of the underlying assets. The average term of financeleases entered into is 5.5 years.

 

Future minimum lease payments under finance leases as atDecember 31, 2008 and 2007 are as follows:

 

In thousandsof Euro

 
|                                         |   | ** **   | ** ** | **2008**          |   |       |       | 2007          | ** ** |
|----------------------------------------------|--------|--------------|------------|-------------------|--------|------------|------------|---------------|------------|
|                                         |   | ** **   | ** ** | **Present**       |   |       |       | Present       | ** ** |
|                                         |   | ** **   | ** ** | **value of** |   |       |       | value of | ** ** |
|                                         |   | **Minimum**  | ** ** | **minimum**       |   | Minimum    |       | minimum       | ** ** |
|                                         |   | **payments** | ** ** | **payments**      |   | payments   |       | payments      | ** ** |
| Within one year                              |   | **4,134**    | ** ** | **2,777**         |   | 2,038      |       | 1,420         |       |
| After one year but  not more than five years |   | **17,284**   | ** ** | **14,292**        |   | 10,937     |       | 8,660         |       |
| More than five  years                        |   | **3,580**    | ** ** | **3,457**         |   | —     |       | —        |       |
|                                         |   | **24,998**   | ** ** | **20,526**        |   | **12,975** | ** ** | **10,080**    |       |

 

166

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

**5.23 Related parties**

 

**Related party transactions withinthe group**

The Group has related party transactions and balances withjoint venture partners, associates and directors and executive officers. Alltransactions with related parties were carried out under normal marketconditions (arm’s lengthprinciple). There are no related party transactions outside the normal courseof business.

 

The following table provides the total value of transactionswhich have been entered into with related parties, excluding directors andexecutive officers, for the relevant financial year.

 

In thousands of Euro

 
|                         |   | Income and expenses for          |       | Balance outstanding          |   |
|------------------------------|--------|-------------------------------------------------|------------|-----------------------------------|--------|
|                         |   | the year ended December 31, |       | as at December 31, |   |
| Related party                |   | **2008**                                        |       | 2007                              |   | 2006 |   | 2008 |   | 2007 |   |
| Sales of goods and  services |   |                                            |       |                              |   |   |   |   |   |   |   |
| Pevion Biotech AG            |   | **—**                                      | ** ** | 364                               |   | 251 |   | **—** | ** ** | — |   |
| Kenta Biotech AG             |   | **130**                                         | ** ** | 223                               |   | 168 |   | **—** | ** ** | — |   |
| ADImmune Corp.               |   | **3,262**                                       | ** ** | 2,271                             |   | — |   | **4,495** | ** ** | 6,724 |   |
|                         |   | ** **                                      | ** ** |                              |   |   |   | ** ** | ** ** |   |   |
| **Expenses**                 |   | ** **                                      | ** ** |                              |   |   |   | ** ** | ** ** |   |   |
| Percivia                     |   | **(4,081**                                      | **)**      | (4,247                            | )      | (1,227 | ) | **(1,023** | **)** | (332 | ) |
| Avv Falaguerra               |   | **(34**                                         | **)**      | (17                               | )      | (12 | ) | **(43** | **)** | (6 | ) |
| Kenta Biotech AG             |   | **—**                                      | ** ** | —                            |   | (60 | ) | **—** | ** ** | — |   |

 

Mr. Falaguerra, the chairman of the Board of Directors ofthe Italian subsidiary, is related to Avv. Falaguerra, an Italian firm thatprovides taxation services to the Italian subsidiary.

 

**Terms and conditions of transactionswith related parties**

The sales to and purchases from related parties are made atnormal market prices. Outstanding balances at the year-end are unsecured,interest free and settlement occurs in cash. There have been no guaranteesprovided by the Group or received in respect of any related party receivablesor payables. For the year ended December 31, 2008, the Group has not madeany provision for doubtful debts relating to amounts owed by related parties(2007: nil). This assessment is undertaken each financial year throughexamining the financial position of the related party and the market in whichthe related party operates.

 

Transactions between the Company and its subsidiaries, whichare related parties, have been eliminated on consolidation and are notdisclosed in this note.

 

**Management Board**

 

The total remuneration and related costs (excludingshare-based payments – see information below on stock options and performancestock) of the members of the Management Board over the past three years, is asfollows:

 

In thousandsof Euro

 
| ** **    | ** ** | **2008**  | ** ** | 2007      |       | 2006      | ** ** |
|---------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Salaries      |       | **1,259** |       | 1,035     |       | 1,005     |       |
| Bonuses       |       | **782**   |       | 647       |       | 893       |       |
| Pension costs |       | **260**   |       | 202       |       | 205       |       |
| Other         |       | **39**    |       | 37        |       | 37        |       |
|          |       | **2,340** |       | **1,921** | ** ** | **2,140** |       |

 

167

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

The remuneration of theindividual members of our Management Board during 2008, excluding stockoptions, was as follows:

 
|                                    |       |      |       |       |       | Pension  |       | Other    |       |      |       |
|-----------------------------------------|------------|-----------|------------|------------|------------|----------|------------|----------|------------|-----------|------------|
| Name                                    |       | Salaries  |       | Bonuses(1) |       | costs(2) |       | costs(3) |       | Total     |       |
| R. H.P. Brus                            |       | 433       |       | 373        |       | 77       |       | —   |       | 883       |       |
| L. Kruimer                              |       | 292       |       | 168        |       | 62       |       | 13       |       | 535       |       |
| C. de Jong (as of May 31, 2008)(4) |       | 184       |       | 119        |       | 27       |       | 7        |       | 337       |       |
| J. Goudsmit                             |       | 350       |       | 122        |       | 94       |       | 19       |       | 585       |       |
| **Totals**                              | ** ** | **1,259** | ** ** | **782**    | ** ** | **260**  | ** ** | **39**   | ** ** | **2,340** | ** ** |

 

(1)Bonus expenseincludes the incentive plans to which the Management Board is entitled as atDecember 31, 2008. The bonus expense excludes option exercises.

(2) ‘Pension Costs’include pensions, social security costs and disability insurance.

(3) ‘Other costs’ includecompany cars.

(4) Ceesde Jong’s remunerationfor the year 2008 is included pro rata as of May 31, 2008.

 

 

Pension, retirement andsimilar arrangements for our Management Board members consist of the definedcontribution plan, and we do not have further pension obligations beyond theannual premium contribution.

 

The Company’s ManagementBoard members held the following options for the period ended December 31,2008:

 
|                     |       | Options           |       |         |       |       |       |        |       |         |   |       |       | **Options**           |       |
|--------------------------|------------|-------------------|------------|--------------|------------|------------|------------|-------------|------------|--------------|--------|------------|------------|-----------------------|------------|
|                     |       | held at      |       |         |       |       |       |        |       |         |   |       |       | **held at**      |       |
|                     |       | December 31, |       | Year of |       | Exercise   |       | Granted     |       | Exercised    |   | Forfeited  |       | **December 31,** |       |
| Name of Holder |       | 2007(1)           |       | expiration   |       | Price      |       | 2008        |       | 2008         |   | 2008       |       | **2008**              |       |
| R.H.P Brus               |       | 250,000           |       | 2009         |       | 9.40       |       | —      |       | —       |   | —     |       | **250,000**           |       |
|                     |       | 200,000           |       | 2011         |       | 3.49       |       | —      |       | —       |   | —     |       | **200,000**           |       |
|                     |       | 90,000            |       | 2011         |       | 2.64       |       | —      |       | —       |   | —     |       | **90,000**            |       |
|                     |       | 125,000           |       | 2011         |       | 5.94       |       | —      |       | —       |   | —     |       | **125,000**           |       |
|                     |       | —            |       | 2013         |       | 12.23      |       | 300,000     |       | —       |   | —     |       | **300,000**           |       |
| L. Kruimer               |       | 85,000            |       | 2009         |       | 9.40       |       | —      |       | (85,000      | )      | —     |       | **—**            |       |
|                     |       | 30,000            |       | 2011         |       | 3.49       |       | —      |       | —       |   | —     |       | **30,000**            |       |
|                     |       | 125,000           |       | 2011         |       | 5.94       |       | —      |       | —       |   | —     |       | **125,000**           |       |
|                     |       | —            |       | 2013         |       | 12.23      |       | 150,000     |       | —       |   | —     |       | **150,000**           |       |
| C. de Jong               |       | 185,000           |       | 2012         |       | 14.58      |       | —      |       | —       |   | —     |       | **185,000**           |       |
|                     |       | —            |       | 2013         |       | 12.23      |       | 200,000     |       | —       |   | —     |       | **200,000**           |       |
| J. Goudsmit              |       | 85,000            |       | 2009         |       | 9.40       |       | —      |       | —       |   | —     |       | **85,000**            |       |
|                     |       | 60,000            |       | 2011         |       | 2.64       |       | —      |       | (60,000      | )      | —     |       | **—**            |       |
|                     |       | 125,000           |       | 2011         |       | 5.94       |       | —      |       | —       |   | —     |       | **125,000**           |       |
|                     |       | —            |       | 2013         |       | 12.23      |       | 150,000     |       | —       |   |       |       | **150,000**           |       |
| **Totals**               | ** ** | **1,360,000**     | ** ** | ** **   | ** ** | ** ** | ** ** | **800,000** | ** ** | **(145,000** | **)**  | **—** | ** ** | **2,015,000**         | ** ** |

 

(1)    The optionsheld at December 31, 2007 include 185,000 options of Cees de Jong who wasnot a member of the Management Board until May 30, 2008.

 

In April 2008, JaapGoudsmit exercised 60,000 options with an exercise price of € 2.64 and a totalvalue of € 431. In May 2008, Leon Kruimer exercised 85,000 options with anexercise price of € 9.40 and a total value of € 258.

 

The Company’s ManagementBoard members held the following shares in the Company at December 31,2008:

 
|                     |   | ** **                                 |   | % of total |   |
|--------------------------|--------|--------------------------------------------|--------|----------------------|--------|
|                     |   | **Ordinary shares held at** |   | ordinary             |   |
| Name of holder |   | **December 31, 2008**            |   | shares               |   |
| R.H.P Brus               |   | **154,202**                                |   | 0.23%                |   |
| L. Kruimer               |   | **28,195**                                 |   | 0.04%                |   |
| C. de Jong               |   | **2,406**                                  |   | 0.01%                |   |
| J. Goudsmit              |   | **159,276**                                |   | 0.24%                |   |
|                     |   | **344,079**                                |   | **0.52%**            |   |

 

168

 

**Financial Statements**

Notes to the Consolidated Financial Statements

 

The following tabledescribes loans granted to the members of Crucell’s Management Board and seniormanagement since January 1, 2001. Crucell has not granted any loans to anySupervisory Board members. The Company sets interest rates on these loans inrelation to Dutch income tax law. The loans were granted to the persons listedbelow in connection with options granted to them on Crucell’s ordinary shares.These loans become payable at the time shares received on exercise of therelated options are sold or immediately in case the employee ceases to work forCrucell before this time. Crucell funds payments due under the loans prior toJuly 30, 2002, the date legislation was passed in the US prohibiting thegranting of additional loans to company officers.

 
|            |   | Largest                   |   | **Amount**            | ** ** | ** **              |   |
|-----------------|--------|---------------------------|--------|-----------------------|------------|-------------------------|--------|
|            |   | amount                    |   | **of loan**      | ** ** | ** **              |   |
|            |   | of loan              |   | **outstanding**       | ** ** | ** **              |   |
|            |   | outstanding               |   | **at**                | ** ** | **2008**                |   |
|            |   | since                     |   | **December 31,** | ** ** | **interest**            |   |
| Name            |   | January 1, 2001 |   | **2008**              | ** ** | **rate in %** |   |
| R.H.P Brus      |   | 132                       |   | **87**                | ** ** | **3.5%**                |   |
| J. Goudsmit     |   | 25                        |   | **—**            | ** ** | **3.5%**                |   |
| Other personnel |   | 61                        |   | **47**                | ** ** | **3.5%**                |   |
|            |   |                      |   | **134**               | ** ** | ** **              |   |

 

The Group is not a partyto any material transactions, or proposed transactions, in which any director,any executive officer, any spouse or relative of any of the foregoing, or anyrelative of any such spouse had, or was to have, a direct or indirect materialinterest other than those transactions disclosed in these financial statements.

 

**SupervisoryBoard**

Due to the fact thatCrucell operates on a global scale with many of its supervisory directors usedto the international arena, Crucell offers compensation to its supervisorydirectors in accordance with customary practice in the biotechnology sector.

 

From 2008 and onwards,compensation for all Supervisory Board members consists of a fixed fee in cashand an annual share grant. The fixed fee in cash ranges from € 34 to € 44 perSupervisory Board member. In addition, the chairman of the Supervisory Board isawarded annually a net allowance of € 5 that is grossed up for taxationpurposes. The annual share grant awarded to each member of the SupervisoryBoard shall equal 2,500 ordinary shares. The amounts will be revised on atriennial basis. The shares should be held for as long as an individual is amember of the Supervisory Board. Instead of the share grant, a SupervisoryBoard member may also choose to receive a cash amount equalling the value of2,500 shares at the date of grant minus 25%.

 

During 2008, 2007 and2006, the individual members of the Supervisory Board were entitled to receivethe following remuneration (excluding share-based payments – see informationbelow on stock options and performance stock):

 
| **Year ended December 31,** |       | **2008**   |       | 2007      |       | 2006      |       |
|--------------------------------------------|------------|------------|------------|-----------|------------|-----------|------------|
| P. Strijkert (1)                           |       | **—** |       | —    |       | 16.7      |       |
| J.P. Oosterveld (2)                        |       | **54.2**   |       | 60.8      |       | 38.7      |       |
| A. Hoevenaars                              |       | **35.0**   |       | 25        |       | 25        |       |
| S.P. Lance                                 |       | **34.0**   |       | 25        |       | 25        |       |
| P.M. Satow                                 |       | **35.0**   |       | 25        |       | 25        |       |
| C.E. Wilhelmsson                           |       | **35.0**   |       | 25        |       | 25        |       |
| S. Davis                                   |       | **34.0**   |       | —    |       | —    |       |
| D.S. Koechlin 3                            |       | **12.5**   |       | 25        |       | 25        |       |
| J. Witmer 4                                |       | **—** |       | 10.4      |       | 25        |       |
| C.E. Thomann 4                             |       | **—** |       | 10.4      |       | 25        |       |
| **Totals**                                 | ** ** | **239.7**  | ** ** | **206.6** | ** ** | **230.4** | ** ** |

 

(1)   Mr. P. Strijkertresigned from the Supervisory Board on June 2, 2006.

(2)   Mr. J.P. Oosterveld wasappointed Chairman on June 2, 2006.

(3)   Mr. D.S. Koechlin wasappointed member of the Supervisory Board on June 2, 2006, but hasattended meetings since January 2006. Mr. D.S. Koechlin resigned fromthe Supervisory Board on May 30, 2008.

(4)   Mr. J. Witmer andMr. C. E. Thomann were appointed member of the Supervisory Board onJune 2, 2006, but have attended meetings since January 2006.Mr. J. Witmer and Mr. C.E. Thomann resigned from the SupervisoryBoard on June 1, 2007.

 

169

 

**FinancialStatements**

Notes to the ConsolidatedFinancial Statements

 

The Company’s SupervisoryBoard members held the following options for the period ended December 31,2008:

 
| ** **               | ** ** | **Options**           |   |         |   |              |   |    |   |      |   |      |   | **Options**           | ** ** |
|--------------------------|------------|-----------------------|--------|--------------|--------|-------------------|--------|---------|--------|-----------|--------|-----------|--------|-----------------------|------------|
| ** **               | ** ** | **held per**     |   |         |   |              |   |    |   |      |   |      |   | **held per**     | ** ** |
| ** **               | ** ** | **December 31,** |   | Year of |   | Exercise          |   | Granted |   | Exercised |   | Forfeited |   | **December 31,** | ** ** |
| Name of Holder | ** ** | **2007**              |   | expiration   |   | price € |   | 2008    |   | 2008      |   | 2008      |   | **2008**              | ** ** |
| J.P. Oosterveld          |       | **10,000**            |   | 2009         |   | 8.81              |   | —  |   | —    |   | —    |   | **10,000**            |       |
|                     |       | **10,000**            |   | 2009         |   | 11.55             |   | —  |   | —    |   | —    |   | **10,000**            |       |
| S.P. Lance               |       | **10,000**            |   | 2011         |   | 7.86              |   | —  |   | —    |   | —    |   | **10,000**            |       |
|                     |       | **10,000**            |   | 2009         |   | 11.55             |   | —  |   | —    |   | —    |   | **10,000**            |       |
| P.M. Satow               |       | **10,000**            |   | 2009         |   | 11.55             |   | —  |   | —    |   | —    |   | **10,000**            |       |
|                     |       | **22,000**            |   | 2011         |   | 3.49              |   | —  |   | —    |   | —    |   | **22,000**            |       |
|                     |       | **10,000**            |   | 2011         |   | 6.48              |   | —  |   | —    |   | —    |   | **10,000**            |       |
| C.E. Wilhelmsson         |       | **10,000**            |   | 2009         |   | 11.55             |   | —  |   | —    |   | —    |   | **10,000**            |       |
|                     |       | **10,000**            |   | 2011         |   | 6.48              |   | —  |   | —    |   | —    |   | **10,000**            |       |
| A. Hoevenaars            |       | **5,000**             |   | 2009         |   | 8.81              |   | —  |   | —    |   | —    |   | **5,000**             |       |
|                     |       | **10,000**            |   | 2009         |   | 11.55             |   | —  |   | —    |   | —    |   | **10,000**            |       |
| **Totals**               |       | **117,000**           |   |         |   |              |   | —  |   | —    |   | —    |   | **117,000**           |       |

 

Crucell’s Supervisory Board members held the following shares in theCompany per December 31, 2008:

 
| Name of holder   |   | **Ordinary shares  held per  December 31,****2008** |   | % of total  ordinary  shares |   |
|------------------|--------|--------------------------------------------------------------------|--------|----------------------------------------|--------|
| J.P. Oosterveld  |   | **9,500**                                                          |   | 0.01%                                  |   |
| A. Hoevenaars    |   | **7,500**                                                          |   | 0.01%                                  |   |
| S.P. Lance       |   | **—**                                                         |   | —%                                |   |
| P.M. Satow       |   | **63,800**                                                         |   | 0.10%                                  |   |
| C.E. Wilhelmsson |   | **7,500**                                                          |   | 0.01%                                  |   |
| S. Davis         |   | **—**                                                         |   | —%                                |   |
|             |   | **88,300**                                                         |   | **0.13%**                              |   |

 

Pursuant to Dutch law,each member of Crucell’s Supervisory Board and Management Board is responsibleto the Company for the proper performance of his or her assigned duties.Theyare also responsible for taking measures to prevent the consequences of anyimproper performance of duties by another member of Crucell’s Supervisory Boardor Crucell’s Management Board. The Company’s articles of association providethat Crucell’s Management Board members and Crucell’s Supervisory Board membersare discharged from liability for their actions as board members, if Crucell’sGeneral Meeting of Shareholders adopts a resolution to that effect.

 

This discharge extendsonly to actions or omissions disclosed in or apparent from the adopted annualaccounts or otherwise communicated to the Company’s General Meeting ofShareholders.

 

Mandatory provisions ofDutch law may limit this discharge of liability, for example in the case ofbankruptcy. Under Dutch law, the Company’s Supervisory Board members andmembers of the Company’s Management Board generally cannot be held personallyliable for decisions made exercising their reasonable business judgment.

 

The Company’s articles ofassociation provide that the Company shall generally indemnify any person whois or was a member of the Company’s Supervisory Board or of the Company’sManagement Board or one of the Company’s employees, officers or agents, andsuffers any loss as a result of any action in connection with their service tothe Company, provided they acted in good faith in carrying out their duties.

 

This indemnificationgenerally will not be available if the person seeking indemnification actedwith gross negligence or wilful misconduct in the performance of his or herduties to the Company. A court in which an action is brought, may howeverdetermine that indemnification is appropriate nonetheless.

 

170

 

**Financial Statements**

Company Financial Statements

 

**Company FinancialStatements**

 

**6Balance sheet (After appropriation of result)**

 

(Amounts in thousands ofEuro)

 
| ** **                                          | ** ** | Notes  |   | **2008**     |   | 2007        | ** ** |
|-----------------------------------------------------|------------|--------|--------|--------------|--------|-------------|------------|
| **Assets**                                          |       |   |   | ** **   |   |        |       |
| Non-current assets                                  |       |   |   | ** **   |   |        |       |
| Investments in subsidiaries                         |       | 9.1    |   | **305,572**  |   | 307,355     |       |
| Other long-term receivables                         |       | 9.2    |   | **49,272**   |   | 87,680      |       |
|                                                |       |   |   | **354,844**  |   | **395,035** |       |
| Current assets                                      |       |   |   | ** **   |   |        |       |
| Short-term receivables                              |       |   |   | **1,015**    |   | 2,175       |       |
| Cash and cash equivalents                           |       |   |   | **79,295**   |   | 54,997      |       |
| Short term receivables related parties              |       |   |   | **18,614**   |   | —      |       |
|                                                |       |   |   | **98,924**   |   | 57,172      |       |
|                                                |       |   |   | ** **   |   |        |       |
| **Total assets**                                    |       |   |   | **453,768**  |   | **452,207** |       |
|                                                |       |   |   | ** **   |   | ** **  |       |
| **Liabilities and shareholders’ equity**       |       |   |   | ** **   |   |        |       |
| Shareholders’ equity                           |       |   |   | ** **   |   |        |       |
| Issued capital                                      |       |   |   | **15,800**   |   | 15,685      |       |
| Share premium                                       |       |   |   | **743,746**  |   | 735,578     |       |
| Translation reserve (legal reserve)                 |       |   |   | **(33,026**  | )      | (28,317     | )          |
| Hedge reserve                                       |       |   |   | **(685**     | )      | —      |       |
| Available-for-sale reserve                          |       |   |   | **3,254**    |   | 8,340       |       |
| Accumulated deficit                                 |       |   |   | **(275,597** | )      | (290,183    | )          |
|                                                |       | 9.3    |   | **453,492**  |   | **441,103** |       |
| Non-current liabilities                             |       |   |   | ** **   |   |        |       |
| Liabilities to related parties                      |       |   |   | **149**      |   | 142         |       |
|                                                |       |   |   | **149**      |   | **142**     |       |
| Current liabilities                                 |       |   |   | ** **   |   |        |       |
| Accrued compensation and related benefits           |       |   |   | **122**      |   | 927         |       |
| Liability to related parties                        |       |   |   | **5**        |   | 10,035      |       |
|                                                |       |   |   | **127**      |   | **10,962**  |       |
| **Total liabilities and shareholders’ equity** |       |   |   | **453,768**  |   | **452,207** |       |

 

**7Income statement**

 

Inthousands of Euro

 
| For the year ended December 31, |       | **2008**   |       | 2007        |   | 2006        |   |
|----------------------------------------------------------|------------|------------|------------|-------------|--------|-------------|--------|
| Result from subsidiaries                                 |       | **4,019**  |       | (46,944     | )      | (89,598     | )      |
| Other income                                             |       | **10,567** |       | 4,034       |   | 2,652       |   |
| **Profit/(loss) for the year**                           | ** ** | **14,586** | ** ** | **(42,910** | **)**  | **(86,946** | **)**  |

 

171

 

**FinancialStatements**

Notes to the CompanyFinancial Statements

 

**Notes to the CompanyFinancial Statements**

 

**8General**

 

The description of theGroup’s activities and the Group structure as included in the notes to theconsolidated financial statements also apply to the Company financialstatements (see note 1.1).

 

In accordance witharticle 2:362 section 8 of Book 2 Title 9 of the Dutch Civil Code, theaccounting policies used in the preparation of the Company financial statementsare the same as those used in the preparation of the consolidated financialstatements. Investments in subsidiaries are stated at net asset value as theCompany effectively exercises significant influence over the operational andfinancial activities of these investments. The net asset value is determined onthe basis of the IFRS accounting principles applied by the Group in itsconsolidated financial statements.

 

In accordance witharticle 402, Book 2 Title 9 of the Dutch Civil Code, the Company incomestatement is presented in abbreviated form.

 

**9Notes to the Company financial statements**

 

**9.1Investments in subsidiaries**

 

Investments in subsidiarycompanies are stated at net asset value as the Company effectively exercisessignificant influence over the operational and financial activities of theseinvestments.

 

In thousands of Euro

 
| ** **                                          | ** ** | **2008**    |       | 2007        | ** ** |
|-----------------------------------------------------|------------|-------------|------------|-------------|------------|
| **Book value as of January 1,**                |       | **307,355** | ** ** | **318,979** |       |
| Share in result of subsidiaries                     |       | 4,019       |       | (46,944     | )          |
| Net unrealized result on available-for-sale reserve |       | (5,086      | )          | (2,330      | )          |
| Effect of movements in exchange rates               |       | (4,709      | )          | (20,384     | )          |
| Dividends received from Berna Biotech AG            |       | (43,069     | )          | (80,907     | )          |
| Acquisition shares Berna Rhein B.V.                 |       | —      |       | 80,907      |       |
| Provisions reversed during the year                 |       | —      |       | (1,341      | )          |
| Offset of receivables                               |       | 47,062      |       | 59,375      |       |
| **Book value at December 31,**                 |       | **305,572** | ** ** | **307,355** |       |

 

On June 12, 2008Berna Biotech AG distributed a dividend equivalent to € 43,069 to the Company.

 

Beginning 2007, Crucellowned 7.3% of the shares of Berna Rhein B.V., the remaining 92.7% of the shareswere owned by Crucell’s subsidiary Berna Biotech AG. On November 3, 2007Crucell acquired the remaining 92.7% shares for € 80,907. Berna Biotech AGsubsequently distributed a dividend equivalent to € 80,907 to the Company.

 

**9.2 Other long-term receivables**

 

In thousands of Euro

 
| ** **                               | ** ** | **2008**   | ** ** | 2007       | ** ** |
|------------------------------------------|------------|------------|------------|------------|------------|
| Long-term receivables on related parties |       | **36,376** |       | 73,284     |       |
| Other long-term receivables              |       | **12,896** |       | 14,396     |       |
|                                     |       | **49,272** |       | **87,680** |       |

 

**9.3 Shareholders’ equity**

 

Reference is made to theConsolidated Statement of Changes in Equity and to note 5.16 ‘Issued sharecapital and reserves’ of the notes to the consolidated financial statements asof, and for the year ended December 31, 2008.

 

**9.4Taxes**

 

The Company constitutes afiscal unity with the Dutch wholly owned subsidiaries Crucell Holland B.V., U-BiSysB.V. and ChromaGenics B.V. and is for that reason jointly and severally liablefor the tax liabilities of the whole fiscal unity. As of the financial year2008, Berna Rhein B.V. was included in that fiscal unity.

 

**9.5Employee information**

 

The Company had no employeesin 2008 and 2007.

 

172

 

**Financial Statements**

Notes to the Company Financial Statements

 

**9.6Auditor’s fees**

 
| ** **                                                            | ** ** | **2008**        | ** ** | 2007            | ** ** |
|-----------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                            | ** ** | ** **      | ** ** | **Network**     | ** ** | ** ** | ** ** |   |   | Network |   |   | ** ** |
| ** **                                                            | ** ** | **Deloitte**    | ** ** | **Deloitte**    | ** ** | ** ** | ** ** | Deloitte |   | Deloitte |   |   | ** ** |
| ** **                                                            | ** ** | **Accountants** | ** ** | **Accountants** | ** ** | ** ** | ** ** | Accountants |   | Accountants |   |   | ** ** |
| ** **                                                            | ** ** | **B.V.**        | ** ** | **B.V.**        | ** ** | **Total** | ** ** | B.V. |   | B.V. |   | Total | ** ** |
| Audit fees                                                            |       | **481**         | ** ** | **359**         | ** ** | **840** |   | 491 |   | 413 |   | 904 |   |
| Audit related fees                                                    |       | **75**          | ** ** | **—**      | ** ** | **75** |   | 54 |   | 10 |   | 64 |   |
| Tax fees for services provided related to consultation on tax matters |       | **—**      | ** ** | **—**      | ** ** | **—** |   | — |   | — |   | — |   |
| **Total fees**                                                        |       | **556**         | ** ** | **359**         | ** ** | **915** |   | **545** | ** ** | **423** | ** ** | **968** |   |

 

**9.7Joint and several liability**

 

In accordance withSection 403 of Book 2 Title 9 or the Netherlands Civil Code, the Companyhas assumed joint and several liability for all legal transactions carried outby the following subsidiaries:

 

Crucell Holland B.V.,Leiden 

U-BiSys B.V., Utrecht 

ChromaGenics B.V.,Amsterdam

 

173

 

**FinancialStatements**

Notes to the CompanyFinancial Statements

 

**Signingof the financial statements**

 

The financial statementswere approved by the Management Board and Supervisory Board and authorized forissue on April 17, 2009.

 

**Management Board**

R.H.P. Brus

L.Kruimer

C.deJong

J.Goudsmit

 

**Supervisory Board**

J.P.Oosterveld

A.Hoevenaars

S.P.Lance

P.M.Satow

C.E.Wilhelmsson

S.Davis

 

174

 

**Other Information**

 

**Other information**

 

**Appropriationof result**

 

Annual dividends may onlybe paid out of profits as shown in the adopted annual financial statements. Wemay not make distributions if the distribution would reduce our shareholders’equity below certain reserves required by Dutch law or our articles ofassociation. The profits must first be used to set up and maintain reservesrequired by Dutch law and must then be set off against certain financiallosses. The preference shares will be paid their dividends first, which will bea certain percentage of their nominal value. With Supervisory Board approval,our Management Board then decides whether and how much of the remaining profitwill be reserved. Any profits remaining shall be paid as a dividend on theordinary shares. If the retained earnings are negative or are to be used toform a statutory reserve no dividend will be paid out. The profit for the year2008 was added to the accumulated deficit.

 

**Preferenceshares**

 

On October 25, 2000,the Company established a foundation called Stichting Preferente AandelenCrucell, also referred to as the Preferred Foundation. The PreferredFoundation’s object is to safeguard the interests of Crucell, its business andparties connected therewith by blocking any influences that may threaten theseinterests, which interests may include the continuity, independence or identityof Crucell, its business and parties connected therewith. The PreferredFoundation can safeguard the interests through acquiring and managing thepreference shares and by exercising the rights attaching to these shares, inparticular, the voting rights.

 

The Preferred Foundationhas an option to acquire preference shares up to 100% of the number of ouroutstanding shares, necessary to match the total number of statutory votes onall of the ordinary shares outstanding at the time of an acquisition. ThePreferred Foundation must pay at least 25% ofthe nominal value of thepreference shares it acquires from us. If we acquire any preference shares,they may be cancelled.

 

A board of governors ofup to five persons directs the Preferred Foundation. Mr. J.P. Oosterveld,in his capacity as chairman of our Supervisory Board, and Mr. P. Bouw,Mr. M.W. den Boogert, Mr. S. van Wijnbergen and Mr. G.P. Krans,have been appointed to the board of governors. A majority of these members maynot be members or former members of our Management or Supervisory Board, or anemployee of any of our advisers, any of our banks or us. The board of governorsappoints these independent members. Our Supervisory Board appoints thenon-independent members after consultation with our Management Board.

 

175

** **

**Other Information**

Auditor’s Report

 

**Auditor’s Report**

 

**Tothe Supervisory Board and Shareholders of Crucell N.V., Leiden, The Netherlands**

 

**Reporton the financial statements**

 

We have audited theaccompanying financial statements 2008 as set out on pages 125 to 174 ofCrucell N.V., Leiden. The financial statements consist of the consolidatedfinancial statements and the company financial statements. The consolidatedfinancial statements comprise the consolidated balance sheet as atDecember 31, 2008, profit and loss account, statement of changes in equityand cash flow statement for the year then ended, and a summary of significantaccounting policies and other explanatory notes. The company financialstatements comprise the company balance sheet as at December 31, 2008, thecompany profit and loss account for the year then ended and the explanatorynotes.

 

**Management’sresponsibility**

 

Management is responsiblefor the preparation and fair presentation of the financial statements inaccordance with International Financial Reporting Standards as adopted by theEuropean Union and with Part 9 of Book 2 of the Netherlands Civil Code,and for the preparation of the management board report in accordance withPart 9 of Book 2 of the Netherlands Civil Code. This responsibilityincludes: designing, implementing and maintaining internal control relevant tothe preparation and fair presentation of the financial statements that are freefrom material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates thatare reasonable in the circumstances.

 

**Auditor’sresponsibility**

 

Our responsibility is toexpress an opinion on the financial statements based on our audit. We conductedour audit in accordance with Dutch law. This law requires that we comply withethical requirements and plan and perform the audit to obtain reasonableassurance whether the financial statements are free from material misstatement.

 

An audit involvesperforming procedures to obtain audit evidence about the amounts anddisclosures in the financial statements. The procedures selected depend on theauditor’s judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the financial statementsin order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overallpresentation of the financial statements.

 

We believe that the auditevidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

 

**Opinionwith respect to the consolidated financial statements**

 

In our opinion, theconsolidated financial statements give a true and fair view of the financialposition of Crucell N.V. as at December 31, 2008, and of its result andits cash flow for the year then ended in accordance with InternationalFinancial Reporting Standards as adopted by the European Union and withPart 9 of Book 2 of the Netherlands Civil Code.

 

**Opinionwith respect to the company financial statements**

 

In our opinion, thecompany financial statements give a true and fair view of the financial positionof Crucell N.V. as at December 31, 2008 and of its result for the yearthen ended in accordance with Part 9 of Book 2 of the Netherlands CivilCode.

 

**Reporton other legal and regulatory requirements**

 

Pursuant to the legalrequirement under 2:393 sub 5 part f of the Netherlands Civil Code, we report,to the extent of our competence, that the management board report is consistentwith the financial statements as required by 2:391 sub 4 of the NetherlandsCivil Code.

 

Signed by:

 

**DeloitteAccountants B.V.**

P.J.M.A van de Goor 

Amsterdam, theNetherlands 

April 21, 2009

 

176

 

**Information for shareholders and investors**

 

**Information forShareholders and Investors**

 

**Investorrelations approach**

 

Crucell maintains anactive and transparent approach to relations with shareholders and investors.We inform the financial markets regularly about the Company’s strategy anddevelopments. Quarterly results releases, presentations and press releases onimportant business developments are disseminated on a regular basis andreinforced with briefings by phone and in person. Since August 2007, wehave strengthened our Investor Relations activities with the addition of twodedicated Investor Relations Officers whose mission it is to ensure theinvestor community understands clearly the Company’s prospects and performance.This reflects our ambition to widen our investor base as well as to deepenexisting investors’ understanding of Crucell.

 

Activities in 2008 forshareholders and investors comprised:

 

·                  A fullpresentation of quarterly results to financial journalists and analysts at eachquarter, consisting of an online slide show and audio commentary, question andanswer sessions and archiving for subsequent retrieval;

·                  An investor andanalyst day in London in March 2008 with presentations on our strategy,business and pipeline. This event was supported by online slide shows and wasvideo webcasted via our website with question and answer sessions and archivingfor subsequent retrieval;

·                  Various additionaltelephone conference calls with management for analysts and investors;

·                  Regular road showmeetings with potential and existing shareholders and sell-side analysts whocover the Company;

·                  Timely updates inthe Investor Relations section of the website www.crucell.com;

·                  Periodic websiteupdates of more comprehensive financial Company data, including filings withthe United States Securities and Exchange Commission; and

·                  Online publicationof relevant scientific company presentations.

 

**CrucellShares**

 

·                  Crucell’s ordinaryshares are listed on:

·                  NYSE EuronextAmsterdam N.V. (symbol: CRXL) since 2000;

·                  NASDAQ in the US(symbol: CRXL) in the form of ADS’s since 2000;

·                  SWX Swiss Exchangein Zurich (symbol: CRXL) since 2005;

·                  The Company’sprimary listing is Amsterdam where trading turnover reached € 1.24 billion in2008; Crucell’s shares are included in the AMX mid-cap index (since 2005);

 

**Share data**

 
|                                                         |   | **2008**   |   | 2007   |   |
|--------------------------------------------------------------|--------|------------|--------|--------|--------|
| Earnings per share                                           |   | **0.22**   |   | (0.66  | )      |
| Shares outstanding (million) at year-end                     |   | **65.8**   |   | 65.3   |   |
| Dividend                                                     |   | **—** |   | — |   |
| Highest price                                                |   | **14.10**  |   | 22.45  |   |
| Lowest price                                                 |   | **7.40**   |   | 10.26  |   |
| Price at December 31,                                   |   | **10.89**  |   | 11.40  |   |
| Average daily trading volume on Euronext  Amsterdam (X 1000) |   | **465**    |   | 470    |   |

 

**Shareholderswith holdings of Crucell shares exceeding 5%**

Percentage of beneficialownership is based on an aggregate of 66,544,577 ordinary shares outstanding atApril 17, 2009 except as otherwise noted:

 
|                                                   |   | Ordinary  Shares        |   |
|--------------------------------------------------------|--------|-------------------------|--------|
|                                                   |   | Beneficially  Owned (1) |   |
|                                                   |   | Number of               |   | Holding |   |
| Beneficial  Owner                                      |   | Ordinary Shares    |   | (%) |   |
| A. van Herk B.V.                                       |   | 6,697,411               |   | 10.06 | (2) |
| Aviva plc                                              |   | 3,514,230               |   | 5.28 | (3) |
| Ordinary shares held by our Management  Board members  |   | 439,079                 |   | 0.66 |   |
| Ordinary shares held by our Supervisory  Board members |   | 115,800                 |   | 0.17 |   |

 

(1)       Under Rule 13d3 of the Exchange Act, more thanone person may be deemed to beneficially own certain ordinary shares (if, forexample, persons share the power to vote or the power to dispose of theordinary shares). In addition, a person is deemed to beneficially own ordinaryshares if the person has the right to acquire the ordinary shares (for example,upon exercise of an option) within 60 days of the date as of which theinformation is provided. As a result, the percentage of outstanding ordinaryshares of any person as shown in this table does not necessarily reflect theperson’s actual ownership or voting power with respect to the number ofordinary shares actually outstanding. In addition, filings with the NetherlandsAuthority for the Financial Markets (Autoriteit Financiële Markten or AFM) withrespect to shareholdings in public companies do not specify the number ofshares held by the filing party.

 

177

 

**Informationfor Shareholders and Investors**

 

(2) Percentage holding is derived from a filing made by A. van Herk B.V.with the Netherlands AFM.

(3) Percentage holding is derived from a filing made by Aviva plc. with theNetherlands AFM.

 

As of April 17, 2009there were 13,045,583 ADSs, each representing one ordinary share, all of whichwere held of record by nine registered holders in the US (including TheDepository Trust Company). The number of ADSs at April 17, 2009 represent 19.6%of our ordinary shares that were issued and outstanding on that date.

 

To the best of ourknowledge, we are not directly or indirectly owned or controlled by any othercorporation, foreign government or other person or entity.

 

**Shareinformation**

Crucell shares areincluded in the NYSE Euronext Amsterdam Dutch mid-cap index (AMX), and in theNASDAQ Composite Index. They are also included in the FTSE NASDAQ Small Cap indexsince 2005 and in the NYSE Euronext NEXT Biotech Index as of April 2008.

 
|                                                         |   | **2008**    |   | 2007    |   |
|--------------------------------------------------------------|--------|-------------|--------|---------|--------|
| Market Capitalization at December 31,  (€ million) |   | **716.6**   |   | 744.4   |   |
| Market Capitalization at December 31,  ($ million) |   | **1,000.2** |   | 1,080.1 |   |
| Closing share price at December 31,  (€)           |   | **10.89**   |   | 11.40   |   |
| Closing share price at December 31,  ($)                |   | **15.20**   |   | 16.54   |   |
| Shares outstanding at December 31,  (million)           |   | **65.8**    |   | 65.3    |   |

 

**Shareholder information**

 

At December 31,2008, institutional investors held 42% of the outstanding shares in Crucell,private investors held 57% of shares and holdings of affiliates wereapproximately 1%.

 

Geographical spreads ofshareholders in approximate percentages on December 31, 2008, compared tothe previous year are as follows:

 
|            |   | **2008** |   | 2007 |   |
|-----------------|--------|----------|--------|------|--------|
| The Netherlands |   | **68%**  |   | 66%  |   |
| United States   |   | **22%**  |   | 22%  |   |
| Germany         |   | **4%**   |   | 8%   |   |
| United Kingdom  |   | **3%**   |   | 1%   |   |
| Scandinavia     |   | **2%**   |   | 1%   |   |
| Other           |   | **1%**   |   | 2%   |   |
| Total           |   | **100%** |   | 100% |   |

 

**Outlookfor 2009**

 

In constant currencies;weighted average €/$ rate of 1.35 in 2008:

 
| Total revenue & other   operating income |   | 20%  growth                                                                       |
|---------------------------------------------------|--------|-----------------------------------------------------------------------------------|
| Operating profit                                  |   | Significant improvement                                                           |
|                                              |   | compared to 2008                                                                  |
| Cash flow                                         |   | Solid, despite significant

investments in the new facility

being built in Korea |

** **

**Generalinformation**

** **

**Auditors**

Deloitte Accountants B.V.

 

**LegalCounsel**

Allen & OveryLLP

Cleary GottliebSteen & Hamilton LLP

 

**TaxAdvisors**

Ernst & Young

 

**ADSDepository**

Bank of New York Mellon

 

**InvestorRelations**

Oya Yavuz, Director ofCorporate Communications and Investor Relations 

Frauke Groenevelt,Coordinator Investor Relations 

Tel: +31 71 5197064 

Email: ir@crucell.com

 

178

 

**Information for shareholders and investors**

 

**Ourordinary shares and ADSs**

 

Our ordinary shares aretraded in the US solely in the form of ADSs, each ADS representing one ordinaryshare. Each ADS is evidenced by an American Depositary Receipt issued by TheBank of New York Mellon acting as depositary in respect thereof.

 

The following table setsforth the range of high and low closing prices, in US dollars, for our ADSs onthe NASDAQ National Market for the periods indicated.

 
|                                                    |   |   |   | ADSs   |   |
|---------------------------------------------------------|--------|--------|--------|--------|--------|
|                                                    |   | High   |   | Low    |   |
| **Annual  information for the past five years**         |   |   |   |   |   |
| 2004                                                    |   | 13.77  |   | 6.38   |   |
| 2005                                                    |   | 29.95  |   | 12.30  |   |
| 2006                                                    |   | 28.82  |   | 17.27  |   |
| 2007                                                    |   | 28.96  |   | 16.08  |   |
| 2008                                                    |   | 19.88  |   | 9.60   |   |
| **Quarterly  information for the past two years**       |   |   |   |   |   |
| **2007**                                                |   |   |   |   |   |
| First Quarter                                           |   | 28.96  |   | 23.85  |   |
| Second Quarter                                          |   | 26.01  |   | 21.48  |   |
| Third Quarter                                           |   | 23.81  |   | 19.11  |   |
| Fourth Quarter                                          |   | 20.85  |   | 16.08  |   |
| **2008**                                                |   |   |   |   |   |
| First Quarter                                           |   | 19.39  |   | 13.15  |   |
| Second Quarter                                          |   | 19.88  |   | 15.47  |   |
| Third Quarter                                           |   | 18.18  |   | 13.27  |   |
| Fourth Quarter                                          |   | 15.86  |   | 9.60   |   |
| **2009**                                                |   |   |   |   |   |
| First Quarter                                           |   | 23.29  |   | 15.65  |   |
| **Monthly  information for the most recent six months** |   |   |   |   |   |
| November 2008                                      |   | 14.69  |   | 11.60  |   |
| December 2008                                      |   | 15.86  |   | 12.42  |   |
| January 2009                                       |   | 23.29  |   | 15.65  |   |
| February 2009                                      |   | 21.01  |   | 18.66  |   |
| March 2009                                         |   | 20.78  |   | 17.58  |   |
| April 2009 (Until April 17, 2009)             |   | 21.12  |   | 19.06  |   |

 

Our ordinary shares tradeon Eurolist by NYSE Euronext Amsterdam N.V. through the book-entry facilitiesof NEGICEF, Euroclear and Clearstream Luxembourg. For the ordinary shares theInternational Securities Identification Number (ISIN) code is NL 0000358562,the Amsterdam Security Number is 35856 and the Common Code is 11907164.

 

The following table setsforth the range of high and low closing prices, in Euro, for our ordinaryshares in the Netherlands for the periods indicated.

 
|                                                    |   | Ordinary shares |   |
|---------------------------------------------------------|--------|-----------------|--------|
|                                                    |   | High            |   | Low |   |
| **Annual  information for the past five years**         |   |            |   |   |   |
| 2004                                                    |   | 10.10           |   | 4.83 |   |
| 2005                                                    |   | 24.77           |   | 9.50 |   |
| 2006                                                    |   | 23.49           |   | 14.04 |   |
| 2007                                                    |   | 22.27           |   | 10.96 |   |
| 2008                                                    |   | 13.26           |   | 7.77 |   |
| **Quarterly  information for the past two years**       |   |            |   |   |   |
| **2007**                                                |   |            |   |   |   |
| First Quarter                                           |   | 22.27           |   | 18.30 |   |
| Second Quarter                                          |   | 19.35           |   | 14.29 |   |
| Third Quarter                                           |   | 17.33           |   | 13.53 |   |
| Fourth Quarter                                          |   | 14.96           |   | 10.96 |   |
| **2008**                                                |   |            |   |   |   |
| First Quarter                                           |   | 13.26           |   | 8.55 |   |
| Second Quarter                                          |   | 12.85           |   | 9.86 |   |
| Third Quarter                                           |   | 12.10           |   | 9.15 |   |
| Fourth Quarter                                          |   | 11.35           |   | 7.77 |   |
| **2009**                                                |   |            |   |   |   |
| First Quarter                                           |   | 17.15           |   | 11.33 |   |
| **Monthly  information for the most recent six months** |   |            |   |   |   |
| November 2008                                      |   | 11.20           |   | 9.31 |   |
| December 2008                                      |   | 11.35           |   | 10.05 |   |
| January 2009                                       |   | 17.15           |   | 11.33 |   |
| February 2009                                      |   | 16.40           |   | 14.65 |   |
| March 2009                                         |   | 15.71           |   | 14.17 |   |
| April 2009 (Until April 17, 2009)             |   | 15.80           |   | 14.48 |   |

 

179

 

**Information for Shareholders and Investors**

 

**Exchangerate information**

The following table setsforth, for the years indicated, the high, low, average and year-end noon buyingrates in New York City for cable transfers as certified for customs purposes bythe Federal Reserve Bank of New York (‘Noon Buying Rates’) expressed in Europer USD 1.00.

 

In Euro

 
|                         |   |   |   |   |   |       |   | End of |   |
|------------------------------|--------|--------|--------|--------|--------|------------|--------|--------|--------|
| Year ended December 31, |   | High   |   | Low    |   | Average(1) |   | period |   |
| 2004                         |   | 0.85   |   | 0.73   |   | 0.81       |   | 0.73   |   |
| 2005                         |   | 0.86   |   | 0.73   |   | 0.80       |   | 0.84   |   |
| 2006                         |   | 0.84   |   | 0.75   |   | 0.80       |   | 0.76   |   |
| 2007                         |   | 0.77   |   | 0.67   |   | 0.73       |   | 0.68   |   |
| 2008                         |   | 0.80   |   | 0.62   |   | 0.68       |   | 0.72   |   |

 

(1) The average of theNoon Buying Rates on the last business day of each month during the periodindicated.

 

The following table setsforth, for the previous six months, the high and low Noon Buying Ratesexpressed in Euro per USD 1.00.

 
|                                        |   | High   |   | Low    |   |
|---------------------------------------------|--------|--------|--------|--------|--------|
|                                        |   | € |   | € |   |
| November 2008                          |   | 0.80   |   | 0.77   |   |
| December 2008                          |   | 0.79   |   | 0.70   |   |
| January 2009                           |   | 0.78   |   | 0.72   |   |
| February 2009                          |   | 0.80   |   | 0.77   |   |
| March 2009                             |   | 0.80   |   | 0.73   |   |
| April 2009 (Until April 17, 2009) |   | 0.77   |   | 0.74   |   |

 

On April 17, 2009the Noon Buying Rate was $ 1.00 = 0.77. These rates may differ from the actualrates used in the preparation of our financial statements and other financialinformation appearing in this Annual Report.

 

**Taxation**

The following is asummary of the material Dutch and US tax consequences of an investment inordinary shares or ADSs. This summary does not discuss every aspect of taxationthat may be relevant to a particular investor who is subject to specialtreatment under any applicable law, and is not intended to be applicable in allrespects to all categories of investors. This summary also assumes that ourbusiness will be conducted in the manner outlined in this document. Changes inour organizational structure or the manner in which we conduct our business mayinvalidate this summary. The laws upon which this summary is based are subjectto change, perhaps with retroactive effect. A change to these laws mayinvalidate the contents of this summary, which will not be updated to reflectchanges in the laws. Prospective investors should consult their professionaltax advisors regarding their particular personal tax consequences of acquiring,owning and disposing of our ordinary shares or ADSs.

 

**CertainDutch tax consequences for holders of ordinary shares or ADSs**

This summary describesthe principal tax consequences that will generally apply in the case of aninvestment in the ordinary shares or ADSs under Dutch tax laws in force and ineffect as of the date hereof, and is subject to changes in Dutch law, includingchanges that could have retroactive effect. Not every potential tax consequenceof such investment under the laws of the Netherlands will be addressed.

 

**Dutchtaxation of resident shareholders**

 

The summary of certainDutch taxes set out in this section ‘Dutch Taxation of Resident Shareholders’is only intended for the following investors:

 

·                  Individuals whoare resident or deemed to be resident or who have opted to be resident in theNetherlands for purposes of Dutch taxation and who invest in the ordinaryshares or ADSs, excluding individuals who invest in the ordinary shares or ADSsthat form part of a substantial interest (as described below) or deemedsubstantial interest in us and excluding individuals who are our employees orwho are deemed to be our employees or employees of any entity related to us(the ‘Dutch Individuals’); and

·                  Corporate entities(including associations which are taxable as corporate entities) that areresident or deemed to be resident in the Netherlands for purposes of Dutchtaxation and who invest in the ordinary shares or ADSs, excluding:

·                  Corporate entitiesthat are not subject to Dutch corporate income tax;

·                  Pension funds(pensioenfondsen) and other entities that are wholly or partly exempt fromDutch corporate income tax;

 

180

 

**Information for shareholders and investors**

 

·                  Corporate entitiesthat hold ordinary shares or ADSs that qualify for application of theparticipation exemption (as laid down in the Dutch Corporate Income Tax Act1969); and

·                  Investmentinstitutions (beleggingsinstellingen) and tax exempt investment institutions(vrijgestelde beleggingsinstellingen) as defined in the Dutch Corporate IncomeTax Act 1969; (the ‘Dutch Corporate Entities’).

 

Generally, a holder ofordinary shares or ADSs will not have a substantial interest if he, his spouse,certain other relatives (including foster children) or certain persons sharinghis household, do not hold, alone or together, whether directly or indirectly,the ownership of, or certain other rights over, ordinary shares representing 5%or more of our total issued and outstanding capital (or the issued andoutstanding capital of any class of shares), or rights to acquire ordinaryshares, whether or not already issued, that represent at any time 5% or more ofour total issued and outstanding capital (or the issued and outstanding capitalof any class of shares) or the ownership of certain profit participatingcertificates that relate to 5% or more of our annual profit and/or to 5% ormore of our liquidation proceeds.

 

**Individualand corporate income tax**

For Dutch Individuals notengaged or deemed to be engaged in an enterprise and Dutch individuals for whomthe benefits derived from the ordinary shares or ADSs are not treated as ‘resultfrom other activities’, the following applies:

 

The taxable benefit froma Dutch Individual’s ‘savings and investments’ (sparen en beleggen) is setannually at 4% of the average of the so-called ‘yield basis’(rendementsgrondslag) at the beginning and at the end of a year, insofar as theaverage exceeds the ‘exempt net asset amount’ (heffingvrij vermogen). Suchtaxable benefit is reduced by such portion of the personal allowance as has notbeen taken into account in respect of certain other types of income. Thisbenefit is taxed at the rate of 30%. For Dutch Individuals who invest in theordinary shares or ADSs, the ordinary shares or ADSs will form part of theyield basis. The ordinary shares or ADSs will be taken into account in theyield basis at their fair market value. The actual benefits from the ordinaryshares or ADSs do not influence the taxable benefit, even if they exceed, orare lower than, 4% of the yield basis.

 

For Dutch Individualsengaged or deemed to be engaged in an enterprise, Dutch Individuals for whomthe benefits derived from the ordinary shares or ADSs are treated as resultfrom other activities, and Dutch Corporate Entities, the following applies:

 

Any benefits derived ordeemed to be derived from the ordinary shares or ADSs (including any capitalgains realized on the disposal thereof) that are attributable to an enterprisecarried on in the Netherlands by a Dutch Individual or to an enterpriseeffectively managed in the Netherlands in which he has an interest, aregenerally subject to income tax charged at progressive rates. The same appliesto a Dutch Individual for whom the benefits derived from the ordinary shares orADSs are treated as result from other activities. Any benefits derived ordeemed to be derived from the ordinary shares or ADSs (including any capitalgains realized on the disposal thereof) that are held by a Dutch CorporateEntity are generally subject to corporate income tax.

 

**Withholdingtax**

Dividends we distributeare generally subject to a withholding tax imposed by the Netherlands at a rateof 15%. The concept ‘dividends we distribute’ used in this section includes,but is not limited to:

 

·                  Distributions incash or in kind, deemed and constructive distributions and repayments ofpaid-in capital not recognized for Dutch dividend withholding tax purposes;

·                  Liquidationproceeds, proceeds of redemption of the ordinary shares or ADSs or, as a rule,consideration for the repurchase of the ordinary shares or ADSs by us in excessof the average paid-in capital recognized for Dutch dividend withholding taxpurposes;

·                  The par value ofthe ordinary shares or ADSs issued to a holder of the ordinary shares or ADSsor an increase of the par value of the ordinary shares or ADSs, as the case maybe, to the extent that it does not appear that a contribution, recognized forDutch dividend withholding tax purposes, has been made or will be made; and

·                  Partial repaymentof paid-in capital, recognized for Dutch dividend withholding tax purposes, ifand to the extent that there are net profits (zuivere winst), unless:

 

-                    The general meeting of our shareholders hasresolved in advance to make such repayment; and

-                    The par value of the ordinary shares or ADSsconcerned has been reduced by an equal amount by way of an amendment of thearticles of association.

 

181

 

**Informationfor Shareholders and Investors**

 

·                  Dutch Individualsand Dutch Corporate Entities generally can credit the dividend withholding taxagainst their income tax or corporate income tax liability and will be entitledto a refund of dividend withholding tax insofar as such tax, together with anyother creditable domestic and/or foreign taxes, exceeds their aggregate incometax or corporate income tax liability. A condition to avoid ‘dividend stripping’is that the recipient of proceeds from the ordinary shares or ADSs qualifies asthe beneficial owner thereof. A recipient of proceeds from the ordinary sharesor ADSs is not considered to be the beneficial owner thereof if the amount ofdividend, following a set of transactions, is ultimately wholly or partlyreceived by another person, if this other person also retains, directly orindirectly, an interest in the ordinary shares or ADSs and the recipient isentitled to a (partial) refund or exemption to which the other person is notentitled.

 

**Giftand inheritance taxes**

A gift tax liability willarise in the Netherlands with respect to an acquisition of the ordinary sharesor ADSs by way of a gift made by a Dutch individual or a Dutch corporateentity. An inheritance tax liability will arise in the Netherlands with respectto an acquisition or deemed acquisition of the ordinary shares or ADSs on thedeath of a Dutch individual.

 

For purposes of Dutchgift and inheritance taxes, an individual of Dutch nationality will be deemedto be resident in the Netherlands if he has been resident in the Netherlands atany time during the ten years preceding the date of the gift or his death. Forpurposes of the Dutch gift tax, an individual not holding Dutch nationalitywill be deemed to be resident in the Netherlands if he has been resident in theNetherlands at any time during the 12 months preceding the date of the gift.

 

**Taxationof US investors**

 

The following is asummary of the material US federal income tax considerations regarding thepurchase, ownership and disposition of ordinary shares or ADSs to you if youare an “eligible US holder” (as defined below) but it does not purport to be acomprehensive description of all of the tax considerations that may be relevantto you or your situation, including tax considerations that arise fromrules of general application to all taxpayers or to certain classes ofinvestors or that are generally assumed to be known by you. In particular, thesummary does not address considerations that may be applicable to you if youwill not hold ordinary shares or ADSs as capital assets, if you are not aneligible US holder, or if you are a taxpayer subject to special tax rules, suchas a bank, tax-exempt entity, insurance company, a regulated investmentcompany, a pension fund, a real estate investment trust, a dealer in securitiesor currencies, a person that holds ordinary shares or ADSs as part of anintegrated investment (including a ‘straddle’) comprised of ordinary shares orADSs and one or more other positions, a person that holds ordinary shares orADSs as a position in a synthetic security, hedging transaction or conversiontransaction, a person liable for the alternative minimum tax and a person whoowns or is deemed to own 10% or more of any class of our stock. The summary isbased on laws, treaties and regulatory interpretations in effect on the date ofthis document, all of which are subject to change.

 

*Youshould consult your own advisers regarding the tax consequences of aninvestment in the ordinary shares or ADSs in light of your particularcircumstances, including the US tax considerations discussed below and theeffect of any state, local or other national laws.*

 

You are an eligible USholder if you are a resident of the US for purposes of the tax treaty betweenthe Netherlands and the US (the ‘tax treaty’) and are fully eligible forbenefits under the tax treaty. You generally will be entitled to the benefitsof the tax treaty if you are:

 

·                  The beneficialowner of ordinary shares or ADSs (and of the dividends paid with respect tosuch ordinary shares or ADSs);

·                  A “US person” (i.e., an individual resident of the US, a US corporation, or a partnership,estate or trust to the extent your income is subject to taxation in the US asthe income of a resident, in your hands or in the hands of your partners orbeneficiaries);

·                  Not resident inthe Netherlands for Dutch tax purposes; and

·                  Not subject to ananti-treaty shopping rule.

 

You generally will not beeligible for the benefits of the tax treaty, and therefore will not be aneligible US holder, if you hold ordinary shares or ADSs in connection with theconduct of business through a permanent establishment, or the performance of

 

182

 

**Information for shareholders and investors**

 

services through a fixedbase in the Netherlands, or you are not resident in the US for US tax purposes.

 

If a partnership (orother entity treated as a partnership for US tax purposes) holds ordinaryshares or ADSs, the tax treatment of a partner generally will depend upon thestatus of the partner and the activities of the partnership. If you are apartner in a partnership (or other entity treated as a partnership for US taxpurposes) that holds ordinary shares or ADSs, you should consult your own taxadvisor regarding the specific tax consequences of owning and disposing ofordinary shares or ADSs.

 

Based on our auditedfinancial statements and relevant market data, we believe that we were nottreated as a ‘passive foreign investment company’ or ‘PFIC’ for US federalincome tax purposes with respect to the year 2008. In addition, based on ourcurrent expectations regarding the value and nature of our assets, the sourcesand nature of our income, and relevant market data, we do not anticipatebecoming a PFIC in the year 2009 or thereafter. We believe, however, that wewere or may have been a PFIC for US federal income tax purposes with respect tothe years before 2005. See ‘Passive Foreign Investment Company Rules’, below. *US holders that held our ordinary shares or ADSs atany time before 2005 should consult their own tax advisors regarding thepossible application of the PFIC rules to their ordinary shares or ADSs.*

 

For US federal income taxpurposes beneficial owners of ADSs will be treated as the owners of theunderlying ordinary shares represented by those ADSs.

 

**Taxationof dividends**

The gross amount ofdistributions paid by us (including amounts withheld in respect of Dutchwithholding tax) generally will be subject to US federal income taxation asforeign source ordinary dividend income to the extent paid or deemed paid outof our current or accumulated earnings and profits (as determined under USfederal income tax principles), and will not be eligible for the dividendsreceived deduction allowed to corporations. Distributions in excess of currentand accumulated earnings and profits will be treated as a non-taxable return ofcapital to the extent of your basis in our ordinary shares or ADSs andthereafter as capital gain. However, we do not maintain calculations ofearnings and profits and you should therefore assume that any distribution wemake with respect to our ordinary shares and ADSs will constitute ordinarydividend income.

 

Subject to certainexceptions for positions that are hedged or held for less than 60 days, anindividual US holder generally will be subject to US taxation at a maximum rateof 15% in respect of dividends received before January 1, 2011, unless wewere in the year prior to the year in which the dividend was paid, and are, inthe year in which the dividend is paid, a PFIC. As described above, we believethat we were not a PFIC for US tax purposes with respect to the year 2008, andalso do not anticipate becoming a PFIC with respect to the year 2009.

 

Dividends paid in Eurowill be included in income in a US dollar amount calculated by reference to theexchange rate in effect on the date of receipt by you (or by the depositary inthe case of ADSs). If such dividends are converted into US dollar on the dateof receipt, you generally should not be required to recognize foreign currencygain or loss in respect of the dividend income. If you receive a refund ofDutch withholding tax under the tax treaty between the Netherlands and the US,you may be required to recognize foreign currency gain or loss to the extentthe amount of the tax treaty refund (in dollars) received by you differs fromthe US dollar equivalent of the refund amount on the date the dividends werereceived.

 

You may claim the benefitof the reduced withholding rate of 15% that is available under the tax treatybetween the Netherlands and the US by submitting a duly completed Form IB92 (USA) (available at **www.belastingdienst.nl**)that has been certified by a financial institution (typically the entity thatholds the ordinary shares or ADSs as custodian for the holder). If we receivethe required documentation prior to the relevant dividend payment date, we mayapply the reduced withholding rate at source. If you fail to satisfy theserequirements prior to the payment of a dividend, you may claim a refund of theexcess of the amount withheld over the tax treaty rate by filing Form IB92 (USA) together with a supplemental statement with the Dutch tax authorities.Pension funds and tax-exempt organizations qualifying for a complete exemptionfrom tax are not entitled to claim tax treaty benefits at source, and insteadmust file claims for refund by filing Form IB 95 (USA) (also available at **www.belastingdienst.nl**).

 

183

 

**Informationfor Shareholders and Investors**

 

Subject to applicablelimitations and to the special considerations discussed below, Dutchwithholding tax at the 15% tax treaty rate will be treated as a foreign incometax that is eligible for credit against your US federal income tax liabilityor, at your election, may be deducted in computing taxable income. Foreign taxcredits will not be allowed for withholding taxes imposed in respect of certainshort-term or hedged positions and may not be allowed in respect ofarrangements in which your expected economic profit, after non-US taxes, isinsubstantial. You should consult your own advisers concerning the implicationsof these rules in light of your particular circumstances.

 

**Taxationof capital gains**

Subject to the discussionbelow under ‘Passive Foreign Investment Company Rules’, gain or loss realizedby you on the sale or other disposition of ordinary shares or ADSs will becapital gain or loss in an amount equal to the difference between your basis inthe ordinary shares or ADSs and the dollar-value of the amount realized on thedisposition. (If the amount realized is denominated in a foreign currency, suchamount shall be determined at the spot rate on the date of disposition, or, atthe spot rate on the settlement date if the shares or ADSs are traded on anestablished securities market and you are a cash basis eligible US holder or anaccrual basis eligible US holder that so elects). The gain or loss will belong-term gain or loss if the ordinary shares or ADSs were held for more thanone year. Long-term capital gain recognized by an individual US holder beforeJanuary 1, 2011 generally is subject to taxation at a maximum rate of 15%.

 

**Passiveforeign investment company rules**

Unfavourable US taxrules (the ‘PFIC rules’) apply to companies that are considered passiveforeign investment companies (‘PFICs’). We will be classified as a PFIC in aparticular taxable year if either (a) 75% or more of our gross income istreated as passive income for purposes of the PFIC rules; or (b) theaverage percentage of the value of our assets that produce or are held for theproduction of passive income is at least 50%.

 

As explained above, webelieve that we were not a PFIC for US tax purposes with respect to the year2008, and also do not anticipate becoming a PFIC with respect to the year 2009and thereafter. We believe, however, that we were or may have been a PFIC forUS federal income tax purposes with respect to the years before 2005.

 

If we were a PFIC in thepast, US holders that held our ordinary shares or ADSs at any time during theyears when we were a PFIC and did not make certain US tax elections (a “mark-to-marketelection” or a “QEF election”) will be subject to adverse tax treatment. Forinstance, such holders will be subject to a special tax at ordinary income taxrates on certain dividends that we pay and on gains realized on the sale ofordinary shares or ADSs (‘excess distributions’) in all subsequent years, eventhough we ceased to qualify as a PFIC. The amount of this tax will be increasedby an interest charge to compensate for tax deferral, calculated as if theexcess distributions had been earned ratably over the period the US holder heldits ordinary shares or ADSs. It may be possible, in certain circumstances, fora holder to avoid the application of the PFIC rules by making a “deemedsale” election for its taxable year that includes the last day of our lasttaxable year during which we qualified as a PFIC. *The PFIC rules are extremely complex, and you should consult yourown tax advisers regarding the possible application of the PFIC rules toyour ordinary shares or ADSs and the desirability and availability of a “deemedsale election.”*

 

**USbackup withholding tax and information reporting**

Payments in respect ofthe ordinary shares or ADSs that are made in the US or by a US-relatedfinancial intermediary will be subject to information reporting and may besubject to backup withholding unless you: (a) are a corporation or otherexempt recipient; or (b) provide an IRS Form W-9 or an acceptablesubstitute form, certifying your taxpayer identification number and that noloss of exemption from backup withholding has occurred.

 

If you are not a UScitizen or a ‘US person’ (as defined in the introduction to this discussion),you generally are not subject to these rules, but may be required to providecertification of non-US status in order to establish that you are exempt.

 

**Documentson display**

 

We are subject to theinformational requirements of the Securities Exchange Act of 1934, as amended,and in accordance therewith file information with the US Securities andExchange Commission (‘SEC’).

 

184

 

**Information for Shareholders****and Investors**

 

You may read and copythis information at the following location:

 

**PublicReference Room**

**100F Street, N. E.**

**Washington,D.C. 20549**

**USA**

 

Please call the SEC at 1800SEC 0330 for further information on the public reference room. Copies of thesematerials can also be obtained by mail at prescribed rates from the PublicReference Section of the Securities and Exchange Commission, 100 F Street,N.E., Washington, D.C. 20549. Our ADSs are quoted on the NASDAQ NationalMarket, and consequently, the periodic reports and other information filed byus with the Commission can be inspected at the offices of the NASDAQ NationalMarket, 1735 K Street, N.W., Washington, D.C. 20006. The primary market for ourordinary shares is NYSE Euronext Amsterdam. We make our filings with the SEC byelectronic means. Any filings we make electronically are available to thepublic over the internet at the Commission’s website at www.sec.gov and at ourwebsite at www.crucell.com.

 

**ExchangeControls**

There are currently noDutch laws, decrees or regulations that restrict the export or import ofcapital, including, but not limited to, foreign exchange controls, or thataffect the remittance of dividends or other payments to non-Dutch residents orto US holders of our securities except as otherwise set forth in ‘Taxation’ inthis section.

 

**Significantchanges**

 

Other than as disclosedin this Annual Report, no significant change has occurred sinceDecember 31, 2008, the date of our most recent audited financialstatements.

 

**Limitationof liability and indemnification matters**

Pursuant to Dutch law,each member of our Supervisory and Management Boards is responsible to us forthe proper performance of his or her assigned duties. They are also responsiblefor taking measures to prevent the consequences of any improper performance ofduties by another member of our Supervisory Board or our Management Board. Ourarticles of association provide that our Management Board members and ourSupervisory Board members are discharged from liability for their actions asboard members if our General Meeting of Shareholders adopts a resolution tothat effect. This discharge extends only to actions or omissions disclosed inor apparent from the adopted annual accounts or otherwise communicated to ourGeneral Meeting of Shareholders.

 

This discharge ofliability may be limited by mandatory provisions of Dutch law, such as in thecase of bankruptcy. Under Dutch law, our Supervisory Board members and membersof our Management Board generally cannot be held personally liable fordecisions made exercising their reasonable business judgment.

 

Our articles ofassociation provide that we shall generally indemnify any person who is or wasa member of our Supervisory Board or our Management Board or one of ouremployees, officers or agents, and who suffers any loss as a result of anyaction in connection with their service to us, provided they acted in goodfaith in carrying out their duties.

 

This indemnificationgenerally will not be available if the person seeking indemnification actedwith gross negligence or wilful misconduct in the performance of their dutiesto us. A court in which an action is brought may, however, determine thatindemnification is appropriate nonetheless.

 

185

 

Appendixoverview licensees and partners

 

**Appendixoverview licensees and partners**

 

As of year-end2008, the Group had the following licensees and partners:

** **

**Vaccines**

 
|                                         |   |           |   |                       |   | Disease                            |   | Development  |
|----------------------------------------------|--------|----------------|--------|----------------------------|--------|------------------------------------|--------|--------------|
| Partner/licensee                             |   | Starting date  |   | Technology                 |   | target                             |   | stage        |
| Aeras Global TB Vaccine Foundation           |   | Mar. 2004 |   | PER.C6 and AdVac           |   | Tuberculosis                       |   | Phase 2      |
| Bestewil Holding B.V.                        |   | Jan. 2006 |   | Co-micelles                |   | Influenza                          |   | Pre-clinical |
| Harvard School of Medicine                   |   | Dec. 2003 |   | AdVac + Ad5HVR48 |   | HIV                                |   | Pre-clinical |
| International AIDS Vaccine Initiative (IAVI) |   | Sep. 2004 |   | AdVac                      |   | HIV                                |   | Phase 1      |
| Kimron Veterinary Institute                  |   | Jul. 2003 |   | PER.C6                     |   | West Nile virus –             |   | Marketed     |
|                                         |   |           |   |                       |   | Veterinary vaccine (avian)         |   | in Israel    |
| Merck & Co., Inc.              |   | Sep. 2007 |   | PER.C6 and AdVac           |   | 2 Infectious disease areas         |   | Pre-clinical |
| National Institutes of Health (NIH)          |   | Mar. 2002 |   | PER.C6 and AdVac           |   | Ebola, lassa and Marburg           |   | Phase 1      |
| National Institutes of Health (NIH)          |   | Mar. 2004 |   | PER.C6 and AdVac           |   | Malaria                            |   | Phase 1      |
| Novartis Vaccines and Diagnostics            |   | Dec. 2004 |   | PER.C6                     |   | Alphavirus vectors                 |   | Pre-clinical |
| Okairos Srl.                                 |   | Oct. 2005 |   | PER.C6                     |   | Hepatitis C                        |   | Pre-clinical |
| Sanofi pasteur                               |   | Dec. 2003 |   | PER.C6                     |   | Influenza                          |   | Phase 2      |
| Tibotec Pharmaceuticals Ltd.                 |   | Nov. 2005 |   | PER.C6                     |   | Undisclosed vaccine                |   | Pre-clinical |
| Transgene SA                                 |   | Dec. 2007 |   | PER.C6                     |   | Undisclosed vaccine                |   | Pre-clinical |
| Vaxin, Inc.                             |   | Sep. 2004 |   | PER.C6                     |   | Alzheimers disease                 |   | Pre-clinical |
|                                         |   |           |   |                       |   | and veterinary                     |   |         |
|                                         |   |           |   |                       |   |                               |   |         |
| **Proteins**                                 |   |           |   |                       |   |                               |   |         |
| ** **                                   |   |           |   |                       |   |                               |   |         |
|                                         |   |           |   |                       |   | Disease                            |   | Development  |
| Partner/licensee                             |   | Starting date  |   | Technology                 |   | target                             |   | stage        |
| Abraxis Bioscience, LLC.                     |   | Oct. 2008 |   | PER.C6                     |   | Protein production                 |   | Pre-clinical |
| Affitech AS                                  |   | Nov.2008       |   | PER.C6                     |   | Undisclosed Antibodies             |   | Pre-clinical |
| Arana Therapeutics, Ltd.                     |   | Oct. 2008 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Bioceros B.V.                                |   | May 2008  |   | STAR                       |   | Portfolio antibodies               |   | Pre-clinical |
| Biotecnol SA                                 |   | Jan. 2007 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Cangene Corp.                                |   | Oct. 2008 |   | PER.C6                     |   | Undisclosed Antibodies             |   | Pre-clinical |
| Celltrion, Inc.                         |   | Apr. 2008 |   | STAR                       |   | Portfolio antibodies               |   | Pre-clinical |
| Centocor, Inc.                          |   | Dec.2008       |   | STAR                       |   | Monoclonal antibodies              |   | Pre-clinical |
| CSL Ltd.                                     |   | Dec. 2008 |   | PER.C6                     |   | Undisclosed protein                |   | Pre-clinical |
| Daiichi Sankyo Co., Ltd.                     |   | Nov. 2007 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Ferring International Center SA              |   | May 2005  |   | PER.C6                     |   | Women’s healthcare            |   | Pre-clinical |
| Ferring International Center SA              |   | Dec. 2005 |   | PER.C6                     |   | Women’s healthcare            |   | Pre-clinical |
| Gedeon Richter PLC                           |   | Nov.2008       |   | PER.C6                     |   | Undisclosed biopharmaceutical |   | Pre-clinical |
| GlaxoSmithKline Biologicals SA               |   | Dec. 2008 |   | PER.C6                     |   | Recombinant protein                |   | Pre-clinical |
| Invitrogen Corp.                             |   | Sep. 2007 |   | STAR                       |   | Monoclonal antibodies              |   | Pre-clinical |
| IQ Corporation B.V.                          |   | Oct. 2005 |   | PER.C6                     |   | Anti-anthrax antibody              |   | Pre-clinical |
| LFB Biotechnologies                          |   | Jul. 2007 |   | PER.C6                     |   | Undisclosed antibodies             |   | Pre-clinical |
| JSC Masterclone                              |   | Jul 2007       |   | PER.C6                     |   | Undisclosed antibodies             |   | Pre-clinical |
| Medarex, Inc.                           |   | Dec. 2007 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Medarex, Inc.                           |   | Mar. 2008 |   | STAR                       |   | Monoclonal antibodies              |   | Pre-clinical |
| MedImmune                                    |   | Oct. 2007 |   | PER.C6                     |   | Anti-bacterial antibodies          |   | Pre-clinical |
|                                         |   |           |   | and MAbstract              |   |                               |   |         |
| Merus B. V.                                  |   | Jun. 2004 |   | PER.C6                     |   | Portfolio oligoclonics             |   | Pre-clinical |
| Micromet AG                                  |   | Nov. 2004 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| MorphoSys AG                                 |   | Mar. 2008 |   | PER.C6                     |   | Oncology                           |   | Pre-clinical |
| MorphoSys AG                                 |   | Aug. 2006 |   | PER.C6                     |   | Inflammatory diseases              |   | Phase 1      |
| MorphoSys AG                                 |   | Aug. 2004 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Novartis Vaccines and Diagnostics            |   | Jun. 2004 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |
| Patrys PTY Ltd.                              |   | Feb. 2007 |   | PER.C6                     |   | Portfolio antibodies               |   | Pre-clinical |

 

186

 

**Appendix overview licensees andpartners**

 
| ProFibrix B.V.                |   | Dec. 2007 |   | STAR   |   | Portfolio antibodies   |   | Pre-clinical |
|-------------------------------|--------|----------------|--------|--------|--------|------------------------|--------|--------------|
| ProFibrix B.V.                |   | Dec. 2008 |   | PER.C6 |   | Recombinant fibrinogen |   | Pre-clinical |
| ProFibrix B.V.                |   | Dec. 2008 |   | PER.C6 |   | Recombinant thrombin   |   | Pre-clinical |
| PR&D Biotech SA           |   | Nov. 2007 |   | PER.C6 |   | Portfolio antibodies   |   | Pre-clinical |
| (Recepta Biopharma SA)        |   |           |   |   |   |                   |   |         |
| Synthon B.V.                  |   | Nov. 2008 |   | PER.C6 |   | Biosimilar protein     |   | Pre-clinical |
| Taiwanese Development         |   | Mar. 2007 |   | PER.C6 |   | Undisclosed proteins   |   | Pre-clinical |
| Center for Biotechnology      |   |           |   |   |   |                   |   |         |
| Talecris Biotherapeutics Inc. |   | Dec. 2008 |   | PER.C6 |   | Undisclosed proteins   |   | Pre-clinical |
| Talecris Biotherapeutics Inc. |   | Sep. 2008 |   | PER.C6 |   | Undisclosed protein    |   | Pre-clinical |
| Toyobo Gene Analysis Co. Ltd. |   | Apr. 2008 |   | STAR   |   | Portfolio antibodies   |   | Pre-clinical |
| UCB Celltech                  |   | Sep. 2006 |   | STAR   |   | Portfolio antibodies   |   | Pre-clinical |
| UMN Pharma Inc.               |   | Mar. 2006 |   | PER.C6 |   | Undisclosed protein    |   | Pre-clinical |

 
| **Gene therapy** |   |   |   |   |   |   |   |   |
|------------------|--------|--------|--------|--------|--------|--------|--------|--------|

 
|                            |   |           |   |       |   | Disease                     |   | Development  |
|---------------------------------|--------|----------------|--------|------------|--------|-----------------------------|--------|--------------|
| Partner/licensee                |   | Starting date  |   | Technology |   | target                      |   | stage        |
| Ark Therapeutics Ltd.           |   | Jan. 2006 |   | PER.C6     |   | Portfolio                   |   | Phase 3      |
| Elm Biotech Pty Ltd.            |   | Dec. 2008 |   | PER.C6     |   | Adenovirus-vectored product |   | Pre-clinical |
| TAPImmune Inc.                  |   | Aug. 2003 |   | PER.C6     |   | Portfolio                   |   | Pre-clinical |
| Merck & Co., Inc. |   | Nov. 1998 |   | PER.C6     |   | Portfolio                   |   | Pre-clinical |
| NeoTropix, Inc.            |   | Mar. 2004 |   | PER.C6     |   | Oncology                    |   | Pre-clinical |
| Transgene SA                    |   | Apr. 2001 |   | PER.C6     |   | Portfolio                   |   | Phase 2      |
| Vascular Biogenics Ltd.         |   | Mar. 2005 |   | PER.C6     |   | Portfolio                   |   | Pre-clinical |

 

**Alliances with contract managers forproduction**

 
| Partner/licensee                          |   | Starting date  |   | Technology |   | Area                                        |   |   |
|-------------------------------------------|--------|----------------|--------|------------|--------|---------------------------------------------|--------|--------|
| Biochrom AG                               |   | Nov. 2008 |   | PERMEXIS   |   | Medium Development                          |   |   |
| Cambrex                                   |   | Aug. 2004 |   | PER.C6     |   | Medium development                          |   |   |
| DSM Biologics                             |   | Dec. 2002 |   | PER.C6     |   | Therapeutic proteins (including antibodies) |
| Hyclone, Inc.                        |   | Dec. 2003 |   | PER.C6     |   | Medium development                          |   |   |
| Invitrogen Corp.                          |   | Jun. 2003 |   | PER.C6     |   | Medium development                          |   |   |
| JRH Biosciences Inc.                      |   | May 2004  |   | PER.C6     |   | Medium development Recombinant vaccines     |
| Lonza                                     |   | Nov.2008       |   | PERMEXIS   |   | Medium Development                          |   |   |
| Molecular Medicine BioServices, Inc. |   | Dec. 2001 |   | PER.C6     |   | Recombinant vaccines &             |   |   |
|                                      |   |           |   |       |   | gene therapy products (US)                  |   |   |
| Sigma-Aldrich Corp.                       |   | Dec. 2003 |   | PER.C6     |   | Medium development                          |   |   |

 

**Functional Genomics**

 
| Partner/licensee        |   | Starting date  |   | Technology |   | Area     |   |   |
|-------------------------|--------|----------------|--------|------------|--------|----------|--------|--------|
| Galapagos Genomics N.V. |   | Jun. 1999 |   | PER.C6     |   | Genomics |   |   |

 

187

 

 

**Cross-reference to Form 20-F**

 

**Cross-reference to Form 20-F**

 
| **Part I** | ** ** | ** **                                               | ** ** | ** **                    |
|-----------------|------------|----------------------------------------------------------|------------|-------------------------------|
| ** **      | ** ** | ** **                                               | ** ** | ** **                    |
| 1               |       | Identity of directors, senior management and  advisers   |       | n/a                           |
|            |       |                                                     |       |                          |
| 2               |       | Offer statistics and expected timetable                  |       | n/a                           |
|            |       |                                                     |       |                          |
| 3               |       | Key information                                          |       |                          |
| 3a              |       | Selected financial data                                  |       | 8-9                           |
|            |       | Exchange rate information                                |       | 180                           |
| 3b              |       | Capitalization and indebtedness                          |       | n/a                           |
| 3c              |       | Reasons for the offer and use of proceeds                |       | n/a                           |
| 3d              |       | Risk factors                                             |       | 81-88                         |
|            |       |                                                     |       |                          |
| 4               |       | Information on the Company                               |       |                          |
| 4a              |       | History and development of the Company                   |       | 57-79                         |
| 4b              |       | Business overview                                        |       | 52-79, 149                    |
| 4c              |       | Organizational structure                                 |       | 129-130                       |
| 4d              |       | Property, plant and equipment                            |       | 78-79                         |
|            |       |                                                     |       |                          |
| 4A              |       | Unresolved staff comments                                |       | n/a                           |
|            |       |                                                     |       |                          |
| 5               |       | Operating and financial review and prospects             |       |                          |
| 5a              |       | Operating results                                        |       | 83-97,  100-102, 144-145, 148 |
| 5b              |       | Liquidity and capital resources                          |       | 70, 98-99,  164-165           |
| 5c              |       | Research and development, patents and licenses,  etc,    |       | 24-29,  53-54, 61-65, 94      |
| 5d              |       | Trend information                                        |       | 6-7,  18-33, 52-56, 131-134   |
| 5e              |       | Off-balance sheet arrangements                           |       | 102                           |
| 5f              |       | Tabular disclosure of contractual obligations            |       | 102                           |
| 5g              |       | Safe harbor                                              |       | 50                            |
|            |       |                                                     |       |                          |
| 6               |       | Directors, senior management and employees               |       |                          |
| 6a              |       | Directors and senior management                          |       | 105-111                       |
| 6b              |       | Compensation                                             |       | 111-113,  167-170             |
| 6c              |       | Board practices                                          |       | 105-111                       |
| 6d              |       | Employees                                                |       | 44-45, 150                    |
| 6e              |       | Share ownership                                          |       | 113,  160-162                 |
|            |       |                                                     |       |                          |
| 7               |       | Major shareholders and related party transactions        |       |                          |
| 7a              |       | Major shareholders                                       |       | 177                           |
| 7b              |       | Related party transactions                               |       | 167-170                       |
| 7c              |       | Interests of experts and counsel                         |       | n/a                           |
|            |       |                                                     |       |                          |
| 8               |       | Financial information                                    |       |                          |
| 8a              |       | Consolidated statements and other financial  information |       | 125-174                       |
| 8b              |       | Significant changes                                      |       | 185                           |
|            |       |                                                     |       |                          |
| 9               |       | The offer and listing                                    |       |                          |
| 9a              |       | Offer and listing details                                |       | 179                           |
| 9b              |       | Plan of distribution                                     |       | n/a                           |
| 9c              |       | Markets                                                  |       | 177                           |
| 9d              |       | Selling shareholders                                     |       | n/a                           |
| 9e              |       | Dilution                                                 |       | n/a                           |

 

188

 

**Cross-reference to Form 20-F**

 
| 9f                |   | Expenses of the issue                                                         |   | n/a          |
|-------------------|--------|-------------------------------------------------------------------------------|--------|--------------|
|              |   |                                                                          |   |         |
| 10                |   | Additional information                                                        |   |         |
| 10a               |   | Share capital                                                                 |   | 127, 160     |
| 10b               |   | Memorandum and articles of association                                        |   | 117-121      |
| 10c               |   | Material contracts                                                            |   | 80           |
| 10d               |   | Exchange controls                                                             |   | 185          |
| 10e               |   | Taxation                                                                      |   | 180-184      |
| 10f               |   | Dividends and paying agents                                                   |   | n/a          |
| 10g               |   | Statement by experts                                                          |   | n/a          |
| 10h               |   | Documents on display                                                          |   | 184-185      |
| 10i               |   | Subsidiary information                                                        |   | n/a          |
|              |   |                                                                          |   |         |
| 11                |   | Quantitative and qualitative disclosures about  market risk                   |   | 144-148      |
|              |   |                                                                          |   |         |
| 12                |   | Description of securities other than equity  securities                       |   |         |
| 12a               |   | Debt securities                                                               |   | n/a          |
| 12b               |   | Warrants and rights                                                           |   | n/a          |
| 12c               |   | Other securities                                                              |   | n/a          |
| 12d               |   | American depositary shares                                                    |   | 80,  180-181 |
|              |   |                                                                          |   |         |
| **Part II**  |   |                                                                          |   |         |
| ** **        |   |                                                                          |   |         |
| 13                |   | Defaults, dividend arrearages and delinquencies                               |   | n/a          |
|              |   |                                                                          |   |         |
| 14                |   | Material modifications to the rights of security  holders and use of proceeds |   | n/a          |
|              |   |                                                                          |   |         |
| 15                |   | Control and procedures                                                        |   |         |
|              |   |                                                                          |   |         |
| 16                |   | Reserved                                                                      |   |         |
| 16a               |   | Audit committee financial expert                                              |   | 108          |
| 16b               |   | Code of ethics                                                                |   | 42, 103      |
| 16c               |   | Principal accountant fees and services                                        |   | 113-114      |
| 16d               |   | Exemptions from the listing standards for Audit  committees                   |   | n/a          |
| 16e               |   | Purchase of equity securities by the issuer and  affiliated purchasers        |   | n/a          |
| 16f               |   | Change in registrant’s certifying accountant                             |   | n/a          |
| 16g               |   | Corporate governance                                                          |   |         |
|              |   |                                                                          |   |         |
| **Part III** |   |                                                                          |   |         |
| ** **        |   |                                                                          |   |         |
| 17                |   | Financial statements                                                          |   | 125-174      |
|              |   |                                                                          |   |         |
| 18                |   | Financial statements                                                          |   | n/a          |
|              |   |                                                                          |   |         |
| 19                |   | Exhibits (filed with the SEC)                                                 |   | 190-191      |

 

189

 

**Exhibits**

 

**Exhibits**

 
| **Exhibit** | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                                                                              |
|-------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 1.1         |       | Deed of Incorporation of the Company (incorporated  by reference as Exhibit 3.1 to Crucell N.V.’s amended Registration  Statement on Form F-1/A, as filed with the Securities and Exchange  Commission on October 24, 2000)                                                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 1.2         |       | Amended articles of association (incorporated by  reference as Exhibit 1.2 to Crucell N.V.’s annual report on  Form 20-F, as filed with the Securities and Exchange Commission on  June 13, 2007)                                                                                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.1         |       | Summary and Lease Agreement dated November 18,  1998, between IntroGene B.V. and Amboz B.V. (incorporated by reference as  Exhibit 4.1 to Crucell N.V.’s annual report on Form 20-F, as filed  with the Securities and Exchange Commission on June 28, 2001)                                                                                                                                                   |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.2         |       | Summary and Lease Agreement dated November 27,  1997, between IntroGene B.V. and CAM Implants B.V. (incorporated by reference  as Exhibit 4.2 to Crucell N.V.’s annual report on Form 20-F, as  filed with the Securities and Exchange Commission on June 28, 2001)                                                                                                                                            |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.3         |       | Lease Agreement dated July 1, 2002 between  Crucell Holland B.V. and Oppenheim Property Services B.V. (English  translation) (incorporated by reference as Exhibit 4.3 to Crucell N.V.’s  annual report on Form 20-F, as filed with the Securities and Exchange  Commission on April 18, 2003)                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.4         |       | Collaboration Agreement dated December 18,  2002 by and between Crucell N.V. and Crucell Holland B.V., and DSM Biologics  Holding, Inc., DSM Biologics Company, Inc., and DSM Biologics  Company, B.V. (English translation) (incorporated by reference as  Exhibit 4.4 to Crucell N.V.’s annual report on Form 20-F, as filed  with the Securities and Exchange Commission on April 18, 2003)† |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.5         |       | Employment Contract dated June 30, 2006  between Crucell Holland B.V. and R.H.P. Brus (incorporated by reference as  Exhibit 4.5 to Crucell N.V.’s annual report on Form 20-F, as filed  with the Securities and Exchange Commission on June 13, 2007)                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.6         |       | Employment Contract dated June 30, 2006  between Crucell Holland B.V. and Prof. Dr.J.Goudsmit (incorporated by reference  as Exhibit 4.6 to Crucell N.V.’s annual report on Form 20-F, as  filed with the Securities and Exchange Commission on June 13, 2007)                                                                                                                                                 |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.7         |       | Employment Contract dated June 30, 2006  between Crucell Holland B. V. and L. Kruimer (incorporated by reference as  Exhibit 4.7 to Crucell N.V.’s annual report on Form 20-F, as filed  with the Securities and Exchange Commission on June 13, 2007)                                                                                                                                                         |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.8         |       | Collaboration and License Agreement dated  December 31, 2003 by and between Crucell Holland B.V. and Aventis  Pasteur S.A. (now sanofi pasteur) (incorporated by reference as  Exhibit 4.6 to Crucell N.V.’s annual report on Form 20-F, as filed  with the Securities and Exchange Commission on February 27, 2004)†                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.9         |       | Transaction Agreement dated December 1, 2005  by and between Crucell N.V. and Berna Biotech AG (incorporated by reference  as Exhibit 4.9 to Crucell N.V.’s amended annual report on  Form 20-F/A, as filed with the Securities and Exchange Commission on  June 30, 2006)                                                                                                                                     |
|        |       |                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 4.10        |       | Supply Agreement dated November 12, 2001 and  the Letter of Amendment to the same Agreement, dated June 18, 2004  between CSL Limited and Berna Biotech Limited (incorporated by reference as  Exhibit 4.10 to Crucell N.V.’s amended annual report on  Form 20-F/A, as filed with the Securities and Exchange Commission on  December 7, 2007)*                                                          |

 

190

 

**Exhibits**

 
| 4.11   |   | Collaboration Agreement dated April 30, 2001  between Chiron Behring GmbH & Co. and Rhein Biotech N.V. and Green  Cross Vaccine Corporation (incorporated by reference as Exhibit 4.11 to  Crucell N.V.’s amended annual report on Form 20-F/A, as filed with the  Securities and Exchange Commission on December 7, 2007)* |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 4.12   |   | Employment contract dated September 1, 2007  between Crucell N.V. and C. De Jong                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 8.1    |   | List of subsidiaries of Crucell N.V.                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 12.1   |   | Certification of CEO pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 12.2   |   | Certification of CFO pursuant to Section 302  of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 13.1   |   | Certification of CEO and CFO pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                          |
| 99.1   |   | Crucell Code of Conduct                                                                                                                                                                                                                                                                                                                                       |

 

Confidential treatment has been granted with respect toportions of the exhibit indicated by a dagger (†). The omitted portions have beenfiled separately with the Securities and Exchange Commission.

*                    Confidentialtreatment requested as to certain portions, which portions have been filedseparately with the Securities and Exchange Commission by Crucell N.V.

 

191

 

**SIGNATURE**

** **

The registrant hereby certifies thatit meets all of the requirements for filing on Form 20-F and that it hasduly caused and authorized the undersigned to sign this annual report on itsbehalf.

 

**CRUCELL N.V.**

 

 
| By:    | /s/ RONALD H.P.  BRUS    |   | By:    | /s/ LEONARD  KRUIMER     |
|--------|--------------------------|--------|--------|--------------------------|
|   | Ronald H.P. Brus         |   |   | Leonard Kruimer          |
|   | Chief Executive  Officer |   |   | Chief Financial  Officer |

 

 

April 21, 2009

 

** **

**General information**

 

**Supervisory Board**

 

J.P. Oosterveld (Chairman)

A. Hoevenaars

S. Davis

S.P. Lance

P.M. Satow

C.E. Wilhelmsson

 

**Management Board**

 

R.H.P. Brus (President and ChiefExecutive Officer)

L. Kruimer (Chief Financial Officer)

C. De Jong (Chief Operating Officer)

J. Goudsmit (Chief ScientificOfficer)

 

Registered Office

Archimedesweg 4-6

PO Box 2048

2301 CA Leiden

 

The Netherlands

 

**FinancialCalendar 2009**

 
| Publication first quarter results 2009  | May 6, 2009      |
|-----------------------------------------|-----------------------|
| Annual General Meeting of Shareholders  | June 5, 2009     |
| Publication second quarter results 2009 | August 11, 2009  |
| Publication third quarter results 2009  | November 3, 2009 |
| Publication annual results 2009         | February 9, 2010 |