**As filed withthe Securities and Exchange Commission on May 7, 2008**

** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

----

 

**FORM 20F**

 

**Annual Reportpursuant to Section 13 or 15(d) of the Securities Exchange Act of1934**

**For the fiscal year ended December 31, 2007**

** **

**CommissionFile Number: 0-30962**

** **

----

 

**Crucell N.V.**

(Exact name of Registrant as Specified in its Charter)

 

**Crucell N.V.**

(Translation of Registrant’s Name into English)

 

**The Netherlands**

(Jurisdiction of Incorporation or Organization)

 

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

(Address of Principal Executive Offices)

 

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

 

| Title of each  class                       | ** ** | **Name of each exchange on which registered** |
|--------------------------------------------|------------|-----------------------------------------------|
| **American  Depositary Shares,**           | ** ** | **Nasdaq  Global Market**                     |
| **each  representing one ordinary share,** | ** ** | ** **                                    |
| **par  value € 0.24**                 | ** ** | ** **                                    |

 

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

**None**

(Title of Class)

 

(Title of Class)

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

**None**

(Title of Class)

 

----

 

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

**65,348,796 Ordinary Shares**

** **

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

 

If this reportis an annual or transition report, indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or 15(d) of theSecurities Exchange Act of 1934.  oYes  x No

 

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

 

Indicate bycheck mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.  xYes  o No

 

Indicate by checkmark which basis of accounting theregistrant has used to prepare the financial statements included in thisfiling:

 

oU.S. GAAP    x International Financial Reporting Standards as issued bythe International Accounting Standards Board  o Other

 

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

 
| Large  accelerated filer x |   | Accelerated filer  o |   | Non-accelerated filer o |
|---------------------------------|--------|---------------------------|--------|------------------------------|

 

Indicate bycheck mark which financial statement item the registrant has elected to follow.  x Item17  o Item 18

* *

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

 

 

**Crucell2007Combating infectious diseases**

** **

**AnnualReport and Form 20-F**www.crucell.com

 

 

 

**Mission: Combating infectious diseases**

 

Crucell’smission is to develop, produce and market vaccines and antibodies that preventor treat infectious diseases.

 

 

Forfurther information visit

**www.crucell.com**

 

**ShareholdersInformation**

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

 

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

 

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

 

**2007 key highlights**

 

·  Strongproduct sales growth

·  Positivecash flow

·  Solidprogress in pipeline

·  Key partnerships

·  Fast-trackstatus granted by FDA for rabies monoclonal antibody cocktail

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

 

 

**Total revenue and other operating income in 2007**

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

 

 

**Gross margin in 2007**

Significantimprovement from 31% in 2006 to 34% in 2007.

 

 

**Operatingnet cash flow in 2007**

Turnaroundfrom negative €54.0m in 2006 to €22.2m in 2007.

 

CrucellAnnual Report and Form 20-F 2007

 

 

Content

** **

**Overview**

 
| Crucell  at a glance            |   | 02 |   |
|---------------------------------|--------|----|--------|
| Crucell: a global perspective   |   | 04 |   |
| Performance  highlights         |   | 06 |   |
| Message  from our CEO           |   | 10 |   |
| Management  Committee           |   | 12 |   |
| Report of the Supervisory Board |   | 14 |   |

 

**Our Business**

 
| Our Products and Research & Development Pipeline |   | 16 |   |
|------------------------------------------------------|--------|----|--------|
| Products                                             |   | 18 |   |
| Research and Development Pipeline                    |   | 22 |   |
| Technologies                                         |   | 28 |   |

 

**OperationalExcellence**

 
| Healthy  Ambition |   | 32 |   |
|-------------------|--------|----|--------|

 

**Management Report**

 
| Report of the Management Board                               |   | 38      |   |
|--------------------------------------------------------------|--------|---------|--------|
| Information  on the Company                                  |   | 41      |   |
| Risk  Factors                                                |   | 72      |   |
| Operating and Financial Review and Prospects                 |   | 85      |   |
| Corporate Social Responsibility                              |   | 103     |   |
| Corporate  Governance                                        |   | 106     |   |
| Articles of Association and Share Capital                    |   | 122     |   |
|                                                         |   |    |   |
| **Report of  Independent Registered Public Accounting Firm** |   | **130** |   |

 

**Financial Statements**

 
| Consolidated Income Statements                 |   | 132 |   |
|------------------------------------------------|--------|-----|--------|
| Consolidated Balance Sheets                    |   | 133 |   |
| Consolidated Statements of Changes in Equity   |   | 134 |   |
| Consolidated Cash flow Statements              |   | 135 |   |
| Notes to the Consolidated Financial Statements |   | 136 |   |
| Company Financial Statements                   |   | 174 |   |
| Notes to the Company Financial Statements      |   | 175 |   |

 

**Other Information**

 
| Other  Information                             |   | 177        |   |
|------------------------------------------------|--------|------------|--------|
|                                           |   |       |   |
| **Information for Shareholders and Investors** |   | **179**    |   |
| ** **                                     |   | ** ** |   |
| **Cross-reference  to Form 20-F**         |   | **189**    |   |
| ** **                                     |   | ** ** |   |
| **Exhibits**                                   |   | **191**    |   |

 

01

 

**Overview**

Crucell at aglance

 

**Crucell at a glance**

 

**Who weare**

 

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

 

**Strategy**

 

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

 

We are afully-integrated biopharmaceutical company, focusing on developing, producingand marketing products that combat infectious diseases.

 

 

02

 

**Overview**

Crucell at aglance

 

**Keypartnerships**

 

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

 

·  DSM Biologics

·  Novartis

·  MedImmune

·  Merck

·  sanofi pasteur

·  Wyeth

 

**Whyinfectious diseases?**

 

Infectiousdiseases currently account for a significant number of human deaths worldwide.The number of infectious outbreaks is increasing for many reasons: higherpopulation density raises potential for exposure to infectious agents; anageing population is more susceptible to infection; and the volume of globaltravel boosts the potential for spreading diseases internationally.

 

 

 

**Cash and cash equivalents at year-end 2007**

Strongcash position to invest in growth.

 

 

**Revenuegrowth in 2007**

Over 50%growth in revenue and other operating income.

 

 

Inaddition to our own research and development activities, we have formedstrategic partnerships with leading companies within the pharmaceutical andbiotechnology industry.

 

 

**Cashflow in 2007**

Generatedpositive cash flow.

 

03

 

**Overview**

Crucell: aglobal perspective

 

**Crucell: a global perspective**

 

**Globalfacilities**

** **
| **Technology** | ** ** | **Research** | ** ** | **Development** | ** ** | **Manufacturing** | ** ** | **Sales & Marketing** |
|----------------|------------|--------------|------------|-----------------|------------|-------------------|------------|--------------------------------|
| Netherlands HQ |       | Netherlands  |       | Netherlands     |       | Netherlands       |       | Netherlands (Benelux)          |
| Switzerland    |       | Switzerland  |       | Switzerland     |       | Switzerland       |       | Switzerland                    |
| U.S.*          |       | U.S.*        |       | Sweden          |       | Korea             |       | Korea                          |
|           |       |         |       |            |       | Sweden            |       | Sweden (Nordic)                |
|           |       |         |       |            |       | Spain             |       | Spain                          |
|                |       |         |       |            |       |              |       | Argentina                      |
|           |       |         |       |            |       |              |       | China                          |
|                |       |         |       |            |       |              |       | Indonesia                      |
|           |       |         |       |            |       |              |       | Italy                          |
|           |       |         |       |            |       |              |       | Vietnam                        |
|           |       |         |       |            |       |              |       | Canada                         |
|           |       |         |       |            |       |              |       | U.S.                           |

* PERCIVIA, a Joint Venture with DSM Biologics

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

 

 

 

We  license proprietary technologies to the biopharma market. |
|---------------------------------------------------------------------------------------------------------|--|--------|-----------------------------------------------------------------------------------------------|

 

04

 

**Overview**

Crucell: aglobal perspective

 

**Products**

 

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

 

**Pipeline**

 

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

 

**Technologies**

 

We have five core technologies; of which PER.C6® technologyis Crucell’s core proprietary technology. With over 60 commercial licensesissued on PER.C6® technology, Crucell has set new industry standardsfor the development and industrial-scale manufacturing of vaccines, recombinantproteins including monoclonal antibodies, and gene therapy products.

 
| **Products**                                                                                                                                                                                                                                                                                      | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            | ** **            |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|-----------------------|
| ** **                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            | ** **            |
| **Paediatric**

 

**QuinvaxemTM******a vaccine against five important childhood diseases.

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

**Hepavax-Gene®** a vaccine against hepatitis B.

**MoRu-Viraten®** a vaccine against measles and rubella. | ** ** | **Travel  and endemic**

 

**Epaxal®** the only aluminum- free hepatitis A vaccine.

**Vivotif®** the only oral

typhoid  vaccine.

**Dukoral®** the only oral

cholera  vaccine.                                | ** ** | **Respiratory**

 

**Inflexal®V** an 

influenza  vaccine.                 | Details  on:

**p18** |
| ** **                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            |                  |
| **Research &  Development Pipeline**                                                                                                                                                                                                                                                     | ** ** | ** **                                                                                                                                                                                                                            |       |
| ** **                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            |                  |
| **·****  Influenza vaccines,**

for both seasonal and pandemic  flu.

**·****  Tuberculosis vaccine**

**·****  Rabies monoclonal  antibody cocktail**

**·****  Malaria vaccine**                                                                        | ** ** | ·**  Ebola  vaccine**

**·****  HIV vaccine**

**·****  Yellow fever vaccine**                                                                                                                          | ** ** | Details  on:

**p22**                                                                 |                  |
| ** **                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            |                  |
| **Technologies**                                                                                                                                                                                                                                                                                  | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            |                  |
| ** **                                                                                                                                                                                                                                                                                        | ** ** | ** **                                                                                                                                                                                                                            | ** ** | ** **                                                                            |                  |
| **PER.C6®** human designer cell line for the development and  large-scale manufacturing of biopharma products. 

**AdVac®**used in combination with PER.C6®,  to develop recombinant vaccines.                                                                                     | ** ** | **MAbstract®** applied for discovery of novel drug targets and  identification of human antibodies.

**STAR®** designed to enhance production yields of recombinant  human antibodies and proteins on mammalian cell lines. |       | **Virosome** a vehicle enabling the use of virus antigens in the  making of vaccines. | Details  on:

**p28** |

 

05

 

**Overview**

Performancehighlights

 

**Performance highlights**

 

**Financials**

 

Totalrevenues and other operating income

(€million)

 

 

Net cash flowfrom operating activities

(€ million)

 

 

Loss forthe period

(€ million)

 

 

Cash andcash equivalents at 31 December

(€million)

 

 

06

 

**Overview**

Performancehighlights

 

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

 

**Revenueand other operating income**

 

Revenueand other operating income(€ millon)

 

 

2007Product sales(€178 million)

 

 

**Outlookfor 2008**

 
| Total  revenue and other operating income |   | 20% growth |
|-------------------------------------------|--------|------------|
| Margins                                   |   | Higher     |
| Cash  flow from operating activities      |   | Positive   |

 

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

 

07

 

**Overview**

Performancehighlights

 

**Performance highlights continued**

 

**Selected financial data**

 

Ourconsolidated financial statements and company financial statements (hereinafterreferred to as the ‘financial statements’), and the notes thereto, as of andfor the years ended December 31, 2007, 2006 and 2005 have been prepared inaccordance with International Financial Reporting Standards (‘IFRS’) asendorsed by the European Union (‘EU’) and as issued by the InternationalAccounting Standards Board (‘IASB’). No differences resulted in our financialstatements as a result of the preparation in accordance with IFRS as endorsedby the EU and IFRS as issued by IASB as applied to Crucell.

 

For the years prior to 2006, we prepared our financial statements, asincluded in form 20-F, in accordance with accounting principles generallyaccepted in the U.S. (‘US GAAP’), which differs in certain significant respectsfrom, and is not comparable with, IFRS. On December 21, 2007 the SECapproved rule amendments under which Form 20-F as prepared by ForeignPrivate Issuers (FPIs) will no longer require reconciliation to US GAAP if thefinancial statements are prepared in accordance with IFRS as issued by theIASB. This rule is applicable for the 2007 financial year. As a result, wedo not provide reconciliation to US GAAP.

 

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

 

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

 

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

 

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

 

08

 

**Overview**

Performance highlights

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

 

**IFRS selected financial data**

 
| **Year ended December 31,**  (In thousands of Euro, except share data) |   | **2007**     |       | 2006        |       | 2005        |       | 2004        |       |
|---------------------------------------------------------------------------------------------------------------------|--------|--------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Consolidated income statement  data:  Revenues:                                                                     |   |         |       |        |       |        |       |        |       |
| Product  sales                                                                                                      |   | **177,569**  | ** ** | 103,918     |       | —      |       | —      |       |
| License  fees                                                                                                       |   | **12,211**   | ** ** | 16,955      |       | 20,848      |       | 12,429      |       |
| Service  fees                                                                                                       |   | **14,006**   | ** ** | 10,694      |       | 11,881      |       | 5,712       |       |
| **Total  revenues**                                                                                                 |   | **203,786**  | ** ** | **131,567** | ** ** | **32,729**  | ** ** | **18,141**  | ** ** |
|                                                                                                                |   | ** **   | ** ** |        |       |        |       |        |       |
| Cost of  goods sold                                                                                                 |   | **(134,884** | **)**      | (90,489     | )          | (7,156      | )          | (5,644      | )          |
| Other  operating income                                                                                             |   | **9,330**    | ** ** | 9,356       |       | 4,840       |       | 4,481       |       |
| Operating  expenses:                                                                                                |   | ** **   | ** ** |        |       |        |       |        |       |
| Research  and development                                                                                           |   | **(63,995**  | **)**      | (67,606     | )          | (34,048     | )          | (23,676     | )          |
| Selling,  general and administrative                                                                                |   | **(65,621**  | **)**      | (47,199     | )          | (13,689     | )          | (16,819     | )          |
| Restructuring                                                                                                       |   | **—**   | ** ** | (3,120      | )          | —      |       | —      |       |
| Impairment                                                                                                          |   | **(171**     | **)**      | (30,416     | )          | —      |       | —      |       |
| Total  operating expenses                                                                                           |   | **(129,787** | **)**      | (148,341    | )          | (47,737     | )          | (40,495     | )          |
| Operating  loss                                                                                                     |   | **(51,555**  | **)**      | (97,907     | )          | (17,324     | )          | (23,517     | )          |
| Financial  income                                                                                                   |   | **13,190**   | ** ** | 13,453      |       | 2,332       |       | 1,789       |       |
| Financial  expenses                                                                                                 |   | **(11,812**  | **)**      | (11,706     | )          | (131        | )          | (394        | )          |
| Result  investments associates and joint ventures                                                                   |   | **(996**     | **)**      | (1,956      | )          | (455        | )          | (704        | )          |
| Gain on  disposal of non-consolidated companies                                                                     |   | **2,186**    | ** ** | —      |       | —      |       | —      |       |
| Loss  before tax                                                                                                    |   | **(48,987**  | **)**      | (98,116     | )          | (15,578     | )          | (22,826     | )          |
| Income  tax                                                                                                         |   | **3,040**    | ** ** | 10,551      |       | —      |       | —      |       |
| **Loss  for the year**                                                                                              |   | **(45,947**  | **)**      | **(87,565** | **)**      | **(15,578** | **)**      | **(22,826** | **)**      |
|                                                                                                                |   | ** **   | ** ** |        |       |        |       |        |       |
| Net loss  per share – basic and diluted                                                                        |   | **(0.71**    | **)**      | (1,53       | )          | (0.39       | )          | (0.63       | )          |
| Weighted average shares  outstanding – basic and diluted (in thousands)                                        |   | **65,103**   | ** ** | 57,064      |       | 39,852      |       | 36,383      |       |
|                                                                                                                |   | ** **   | ** ** |        |       |        |       |        |       |
| Consolidated balance sheet data:  Assets:                                                                           |   | ** **   | ** ** |        |       |        |       |        |       |
| Cash and  cash equivalents                                                                                          |   | **163,248**  | ** ** | 157,837     |       | 111,734     |       | 76,711      |       |
| Total  current assets                                                                                               |   | **303,262**  | ** ** | 317,071     |       | 131,038     |       | 84,155      |       |
| Total  assets                                                                                                       |   | **624,920**  | ** ** | 653,215     |       | 169,737     |       | 101,015     |       |
| Liabilities  and shareholders’ equity:                                                                         |   | ** **   | ** ** |        |       |        |       |        |       |
| Total  shareholders’ equity                                                                                    |   | **437,242**  | ** ** | 497,300     |       | 137,609     |       | 80,659      |       |
| Total  non-current liabilities                                                                                      |   | **72,936**   | ** ** | 65,663      |       | 9,380       |       | 5,583       |       |
| Total  current liabilities                                                                                          |   | **114,742**  | ** ** | 90,252      |       | 22,748      |       | 14,773      |       |
| Total  liabilities and shareholders’ equity                                                                    |   | **624,920**  | ** ** | 653,215     |       | 169,737     |       | 101,015     |       |
| Number  of employees                                                                                                |   | **1,126**    | ** ** | 1,073       |       | 282         |       | 210         |       |

 

1    Gross margin =total revenues less cost of goods sold

2    Gross margin % isnot comparable prior to 2006, as the company focused on early stage vaccineresearch, whereas now the company is a fully-integrated biopharmaceuticalcompany with significant produce sales

 

09

 

**Overview**

Message fromour CEO

 

 

**Message from our CEO**

 

**Dear fellow shareholder,**

Crucell is a rapidly growing biopharmaceutical company with ambitiousgoals. We aim to create shareholder value by following a clear and convincingstrategy for growth.

 

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

 

Our strong autonomous growth in 2007 was driven by the successfulroll-out of QuinvaxemTM in the fourth quarter of 2006, the onlyfully-liquid pentavalent vaccine that protects against five potentially deadlychildhood diseases in one shot. The product makes a significant contribution tochildren’s vaccination programs in the developing world and is Crucell’s bestselling product. QuinvaxemTM has enabled the company to become amajor supplier to paediatric vaccination programs worldwide. The significantgrowth QuinvaxemTM showed in 2007 is expected to continue in 2008.

 

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

 

Thescalability of our PER.C6® technology had already demonstratedlevels of upto 20,000 liters per bio fermentation unit.

 

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

 

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

 

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

 

10

 

 
| **Overview**         |
|----------------------|
| Message from our CEO |

 

 

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

 

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

 

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

 

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

 

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

 

****

 

**Ronald H.P. Brus**

Presidentand Chief Executive Officer

Leiden, theNetherlands, May 1, 2008

 

11

 
| **Overview**          |
|-----------------------|
| Management  Committee |

 
|        |   |        |   |                                                                                                                                                                                                                                  |
|--------|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |        |   |        | **1 Ronald Brus**

President  and Chief  Executive Officer

** **

**2 Leonard Kruimer**

Chief  Financial Officer

 

**3 Cees de Jong**

Chief  Operating Officer

 

**4 Jaap Goudsmit**

Chief  Scientific Officer |

 

**ManagementCommittee**

 

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

 

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

 

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

 

**Dr Ronald Brus (44)*****President andChief Executive Officer**

 

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

 

Dr Brus is Chairman of the Management Board.

 

**Leonard Kruimer (49)*Chief Financial Officer**

 

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

 

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

 

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

 

12

 
| **Overview**          |
|-----------------------|
| Management  Committee |

 
|        |   |        |                                                                                                                                                                                                                |
|--------|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |        |   | **5 René Beukema**

General Counsel and  Corporate Secretary

 

**6 Arthur Lahr**

Chief Strategy Officer and  EVP Business Development

 

**7 Björn Sjöstrand**

Chief Business Officer |

 

**Dr Jaap Goudsmit (56)*Chief Scientific Officer**

 

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

 

**René Beukema (44)**

**General Counsel and Corporate Secretary**

 

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

 

**Arthur Lahr (39)**

**Chief Strategy Officer and Executive Vice President Business Development**

 

Mr. ArthurLahr is Crucell’s Chief Strategy Officer and Executive Vice President BusinessDevelopment. He joined Crucell in April 2001 as Executive DirectorBusiness Development and became a member of the Management Committee in January 2004,Executive Vice President in January 2006 and assumed responsibility forEuropean marketing & sales and company strategy in 2006. From 1994 to 2001he was a consultant with McKinsey & Co. in the Netherlands and NewYork. Prior to that, he worked at Unilever. He holds a Masters in BusinessAdministration from INSEAD and a Masters in Science in, Applied Physics fromthe University of Delft, the Netherlands.

 

**Björn Sjöstrand (40)Chief Business Officer**

 

Mr. BjörnSjöstrand is Chief Business Officer and a member of Crucell’s ManagementCommittee. He was Chief Executive Officer at SBL Vaccines before it wasacquired by Crucell in November 2006. He headed the Crucell-SBLintegration committee and directed the travel franchise and the Nordic salesforce for the Crucell Group. Prior to that, he worked as Vice PresidentOperations & IT at Active Biotech and was a member of the SeniorManagement Team. He completed a Bachelor of Science degree in Economics andBusiness Administration at the University of Örebro, Sweden.

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

 

   Fulldetails of the Management Committee can be found on page 114*.*

 

*       Member of the ManagementBoard.

**      Proposal at 2008 AGM tojoin the Management Board.

 

13

 
| **Overview**                    |
|---------------------------------|
| Report of the Supervisory Board |

 
|                                                                                                                         |        |   |        |
|------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|
| **1 Jan Pieter Oosterveld**

   Chairman

 

**2 Arnold Hoevenaars**

** **

**3 Dominic Koechlin** |   |        |   |

 

**Report of the Supervisory Board**

 

**Dearshareholder,**

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

 

TheSupervisory Board held seven meetings with the Management Board in 2007, threein the form of conference calls. The meetings were arranged in such a way thaton several occasions, the Supervisory Board could meet immediately after thedeparture of the Management Board. There have also been a number of moreinformal contacts between Supervisory Directors and the Management Board.

 

TheSupervisory Board was closely involved in all developments affecting theCompany in terms of strategy, tactics and operations in financial year 2007.The Board’s meeting schedule not only reflects its commitment to the Company’saffairs, but also to the dynamic way in which the Company is rapidlyconsolidating its position in the biotech industry. Thanks to thewell-documented information provided by and to the frequent discussions withthe Management Board, the Supervisory Board was able to acquire a comprehensiveperspective on all aspects of the Company’s strategy. Where Supervisory Boardapproval of proposals was required, it was able to arrive at decisions based onsolid facts and coherent arguments.

 

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

 

TheSupervisory Board also discussed its own performance, reviewing its functionand its individual members; and the performance of the Management Board and itsindividual members.

 

**SupervisoryBoard Committees**

 

In orderto make decisions, the Supervisory Board has established an Audit Committee, aRemuneration Committee, a Nomination Committee and a Scientific Committee. Fordetailed information on the composition and activities of these committeesplease see ‘Corporate Governance – Supervisory Board’.

 

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

 

14

 
| **Overview**                     |
|----------------------------------|
| Report of  the Supervisory Board |

 
|                                                                                           |        |   |        |
|------------------------------------------------------------------------------------------------|--------|--------|--------|
| **4 Seán  Lance**

** **

**5  Phillip Satow**

** **

**6  Claes Wilhelmsson** |   |        |   |

 

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

 

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

 

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

 

The Remuneration Committee met four times to set collective milestonesand objectives for 2007; to approve and ratify option grants and to discuss theremuneration policy for second and third tiers of management. The RemunerationCommittee and the Supervisory Board operate within the framework of theremuneration policy for the Management Board, which was adopted by the AnnualGeneral Meeting of Shareholders in June 2006 and remains unchanged. 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 the Supervisory Board complies withalmost all aspects of the provisions of the Dutch Corporate Governance Code.The exceptions are where it conforms more closely with customary practice inthe biotechnology industry worldwide. These exemptions are disclosed in thesection ‘Corporate Governance – Exceptions to Compliance with the Code’.

 

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

 

The remuneration of the Supervisory Board is further detailed in note5.23 in our financial statements. The remuneration policy can be found onCrucell’s website (www.crucell.com), which is not incorporated by referenceherein.

 

Due to the resignations of Claude Thomann and Juerg Witmer in 2007, twovacancies have arisen in the Supervisory Board. The Nomination Committeeinitiated a global search to fill these vacancies. As a result, and aftercareful consideration, the Supervisory Board is pleased to nominate Steve Davisto the Supervisory Board and proposes to have him appointed during the Company’sAnnual General Meeting of Shareholders on May 30, 2008.

 

**External auditors**

 

Deloitte Accountants B.V. have been Crucell’s external auditors since2006. The performance of Deloitte will be evaluated by the Audit Committee,which will present its findings to the full Board.

 

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

 

Finally we would like to thank our shareholders for their continuedsupport.

 

 

 

**Jan P. Oosterveld**

Chairman of the Supervisory BoardLeiden, the Netherlands, May 1, 2008

 

15

 
| **Our Business**                                           |
|------------------------------------------------------------|
| Our  Products and Research & Development Pipeline |

 

**Our Products and Research &Development Pipeline**

 

 

16

 
| **Our Business**                                           |
|------------------------------------------------------------|
| Our  Products and Research & Development Pipeline |

 

 
| **Products and R&D Pipeline** |   | **Development stage** |
|-----------------------------------|--------|-----------------------|
|                              |   | Pre-clinic            |   | Phase 1 |   | Phase 2 |   | Phase 3 |   | Marketed |
| QuinvaxemTM                   |   |                       |   |  |   |  |   |  |   |  |
| Hepavax-Gene®                |   |                       |   |  |   |  |   |  |   |  |
| MoRu-Viraten®                |   |                       |   |  |   |  |   |  |   |  |
| Epaxal® Junior               |   |                       |   |  |   |  |   |  |   |  |
| Epaxal®                      |   |                       |   |  |   |  |   |  |   |  |
| Vivotif®                     |   |                       |   |  |   |  |   |  |   |  |
| Dukoral®                     |   |                       |   |  |   |  |   |  |   |  |
| Inflexal®V                   |   |                       |   |  |   |  |   |  |   |  |
| Flavimum®                    |   |                       |   |  |   |  |   |  |   |   |
| Influenza seasonal                |   |                       |   |  |   |  |   |   |   |   |
| H9N2*                             |   |                       |   |  |   |  |   |   |   |   |
| Rabies antibody cocktail          |   |                       |   |  |   |  |   |   |   |   |
| Malaria                           |   |                       |   |  |   |   |   |   |   |   |
| Tuberculosis                      |   |                       |   |  |   |   |   |   |   |   |
| Ebola                             |   |                       |   |  |   |   |   |   |   |   |
| H7N1/Flupan*                      |   |                       |   |  |   |   |   |   |   |   |
| Factor VL/C                       |   |                       |   |   |   |   |   |   |   |   |
| HIV                               |   |                       |   |   |   |   |   |   |   |   |
| H5N1 Avian antibodies*            |   |                       |   |   |   |   |   |   |   |   |

 

* pandemicinfluenza

 

17

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

 

**Products**

 

We focus on developing and marketing vaccines and antibodies against arange of infectious diseases. Vaccines play a vital role in protecting againstthese diseases and have contributed significantly to the improvement of globalpublic health in the twentieth century. In this section you will findinformation about our key marketed products.

 

 

18

** **

**Our Business**

Products

 

 

19

 

**Our Business**

Products

 

 
| **Market area** |   | **Product**              |   | **Comment**                                                          |
|----------------------|--------|--------------------------|--------|----------------------------------------------------------------------|
| Paediatric           |   | QuinvaxemTM          |   | Fully  liquid vaccine for protection against five childhood diseases |
|                 |   | Epaxal® Junior |   | Low dosage unique aluminum-free  hepatitis A vaccine (0.25ml)        |
|                 |   | Hepavax-Gene®       |   | Recombinant  hepatitis B vaccine                                     |
|                 |   | MoRu-Viraten®       |   | Vaccine  for protection against measles and rubella (all age groups) |
| Travel and endemic   |   | Epaxal®             |   | Unique  aluminum-free hepatitis A vaccine                            |
|                 |   | Vivotif®            |   | Unique  oral typhoid vaccine                                         |
|                 |   | Dukoral®            |   | Internationally  licensed oral vaccine against cholera (and ETEC)    |
| Respiratory          |   | Inflexal® V    |   | Virosomal adjuvanted influenza  (all age groups)                     |

 

**Products**

 

**Ourthree market areas:**

 

Prior to2006, our main focus was the development of technology to support the research,development and manufacture of biotech products. The acquisitions of BernaBiotech, Berna Product Corporation and SBL Vaccines in 2006 expanded ourcapabilities, creating a fully-integrated biopharma company. Berna Biotech,Berna Product Corporation and SBL Vaccines were selling approximately 30products worldwide. We divested and rationalized the portfolio focusing onthose with higher margins and growth potential. As a result, we now have aproduct portfolio with three distinct focus areas:

 

·  Paediatric

·  Travel andendemic

·  Respiratory

 

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

 

**Lifecycle management**

 

Prolongsales through life-cycle management. For example, we are seeking to add anotherantigen to our pentavalent vaccine, QuinvaxemTM, to create a novel vaccine andcombine our travel vaccines.

 

**Untappedmarkets**

 

While wesell in about 60 countries, most of our prime sellers are, for example, notsold in the U.S. For selected products we will go after untapped markets.

 

**Segmentation**

 

Segmentthe products, focusing on those with higher margins. As noted above, we arealready segmenting our products on a geographical basis. However, we alsosegment our products by creating variations of a vaccine that target aparticular market, as we did with Epaxal® by introducing Epaxal®Junior aimed at the paediatric market.

 

**Salesand Marketing**

 

In orderto increase penetration, we are also focusing on sales and marketing. Ourefforts relating to increasing the penetration of Dukoral® are anexample of this type of activity.

 

20

** **

**Our Business**

Products

 

Growth of QuinvaxemTM

Tremendous endemic reach

 

**Quinvaxem****TM****vaccines sold**

(Doses in million units) 

 

 

**QuinvaxemTM**

 

One of theWorld Health Organization’s (WHO) prime goals is the reduction of childmortality. The contribution of immunization towards meeting this goal is indisputable,and Crucell’s QuinvaxemTM is the only fully liquid pentavalent vaccine that hasbeen approved by the WHO (as shown above).

 

QuinvaxemTM,first launched in 2006, combines antigens for protection against five importantchildhood diseases: diphtheria, tetanus, pertussis (whooping cough), hepatitisB and Haemophilus influenzae type b – one of the leading causes of bacterialmeningitis in children.

 

Initialindications are that the majority of markets prefer a fully liquid vaccine dueto the ease of use. QuinvaxemTM gives them that option. Sales for 2008 areexpected to far exceed 2007 levels (the chart, left, shows the number of dosessold in 2006 and 2007).

 

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

 

**Epaxal®**

 

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

 

**Dukoral®**

 

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

 

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

 

21

 

**Our Business**

Research &Development Pipeline

 

**Research & Development Pipeline**

 

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.

 

 

22

** **

**Our Business**

Research &Development Pipeline

 

 

23

 

**Our Business**

Research &Development Pipeline

 

 

**Product pipeline          Developmentstage**

| Product                   |   | Pre-clinic |   | Phase 1 |   | Phase 2 |   | Phase 3 |   | Comment                                                                           |
|---------------------------|--------|------------|--------|--------------|--------|--------------|--------|--------------|--------|-----------------------------------------------------------------------------------|
| Flavimum®            |   |            |   |              |   |              |   |              |   | Yellow Fever  vaccine                                                             |
| Influenza seasonal        |   |            |   |              |   |              |   |         |   | Developed by  sanofi pasteur using PER.C6®; planned submission in 2010       |
| H9N2*                     |   |            |   |              |   |              |   |         |   | Trial completed;  findings expected first half 2008                               |
| Rabies antibody  cocktail |   |            |   |              |   |              |   |         |   | Partnered with  sanofi pasteur; Phase II U.S. trial to started 1H 2008            |
| Malaria                   |   |            |   |              |   |         |   |         |   | Phase I trial in  U.S. on two sites; initial findings expected in 2008            |
| Tuberculosis              |   |            |   |              |   |         |   |         |   | Partnered with  Aeras; well tolerated, high response to TB antigens               |
| Ebola                     |   |            |   |              |   |         |   |         |   | Partnered with  VRC; initial indication suggests safety & immunogenicity |
| H7N1/Flupan*              |   |            |   |              |   |         |   |         |   | Developed by  sanofi pasteur using PER.C6®                                   |
| Factor VL/C               |   |            |   |         |   |         |   |         |   | Blood coagulation  Factor V                                                       |
| HIV                       |   |            |   |         |   |         |   |         |   | Partnered with  Harvard; Phase I trial started in Q1 2008                         |
| H5N1 Avian  antibodies*   |   |            |   |         |   |         |   |         |   | Results  demonstrating potential pandemic preparedness                            |

 

*pandemic influenza

 

**Multipleproducts in a focused pipeline**

 

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

 

Our discovery programs include anumber of potential products that are in an early stage of development. Thedecision to pursue development of these products and add them to our productpipeline is dependent on stringent evaluation and selection.

 

**Key developments relating to ourpipeline over the year:**

 

·  The seasonal flu vaccine being developed with sanofipasteur using our PER.C6® technology entered into Phase II clinicaltrials.

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

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

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

·  We signed an exclusive license and researchcollaboration agreement with MedImmune in the field of hospital acquiredbacterial infections.

 

24

 

**Our Business**

Research &Development Pipeline

 

 

**Influenza(seasonal)**

 

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

 

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

 

**H5N1 Avian antibodies (pandemic influenza)**

 

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

 

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

 

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

 

25

 

**Our Business**

Research & Development Pipeline

 

 

**Tuberculosis**

 

Tuberculosis isthe world’s second deadliest infectious disease, withover 9 million new cases diagnosed in 2006. Accordingto the World Health Organization (WHO), an estimated 1.7 millionpeople died from tuberculosis in 2006. Thecurrent tuberculosis vaccine, developedover 85 years ago, reduces the risk of sever forms of tuberculosis in early childhood, but is not very effective inpreventing pulmonary tuberculosis inadolescents and adults – the population with the highest rates oftuberculosis disease. In addition, extensivelydrug- resistant tuberculosis (XDR-TB) ishampering treatment and control efforts (see map above).

 

In collaborationwith the Aeras Global Tuberculosis VaccineFoundation, we are developing a recombinant tuberculosisvaccine based on our AdVac® vaccine technology and our PER.C6® manufacturing technology. Currently a series of three Phase Itrials are taking place, with thefirst two studies indicating very promising results.

 

“Preliminarydata show highest CD8 immune responses ever in a tuberculosis vaccinestudy.”

 

26

** **

**Our Business**

Research & Development Pipeline

 

 

**Rabies Monoclonal Antibody Cocktail**

 

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

 

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

 

During the year wesigned an exclusive collaboration commercialization agreement with sanofi pasteurfor the development of the rabies monoclonal antibody cocktail. Due topromising Phase I results, the FDA Department of Health and Human Services hasgranted a Fast Track designation, which paves the way for faster developmentand regulatory review of the candidate product.

 

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

 

27

 

**Our Business**

Technologies

 

**Technologies**

 

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

 

 

28

 
| **Our  Business** |
|-------------------|
| Technologies      |

 

 

29

 

**Our Business**

Technologies

 

**Whatis PER.C6®?**

 

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

 

**PER.C6®:adaptable**

 

Any manufacture ofbiopharmaceuticals 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 to meet these demands.

 
| **Our other core  technologies:** |
|-----------------------------------|
| AdVac®                       |   | Technology, used in combination  with PER.C6®, to develop recombinant vaccines |
| MAbstract®                   |   | Applied for discovery of novel  drug targets and identification of human antibodies |
| STAR®                        |   | Designed to enhance production  yields of recombinant human antibodies and proteins on mammalian cell lines |
| Virosome                          |   | A vehicle enabling the use of  virus antigens in the making of vaccinations |

 

 

30

 
| **Our Business** |
|------------------|
| Technologies     |

 

**PER.C6****®****: well protected**

 

Our PER.C6®technology is protected by numerous patents. In addition, in order to benefitfrom our proprietary technology, potential customers not only need ourknow-how, but also our PER.C6® cells, which are only available fromus under agreement. These agreements put certain restrictions on furtherdissemination and use of the PER.C6® cells. This combination ofprotections – patented know-how and the need to have access to the actualPER.C6® cells results in the PER.C6® technology being thebest protected human cell technology in the world.

 

**PER.C6® for proteinand antibody production**

 

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

 

Working alongside DSMBiologics on the PER.C6® manufacturing platform, we believe thatthere is further potential to reduce the production costs of monoclonalantibodies, whilst increasing yield resulting in more affordable treatments forpatients.

 

In March 2008, wejointly announced that we had achieved a record level titer of **15 grams per liter** at harvest for an antibody product usingPER.C6® at our PERCIVIA joint venture development center inMassachusetts, U.S.

 

 

 

31

 
| **Operational  Excellence** |
|-----------------------------|
| Healthy Ambition            |

 

**Healthy Ambition**

 

We have transformed our company from onefocused on research and licensing to being a fully integrated vaccine business.That is already delivering results: gross margins improved from 31% to 34% in2007. Our next challenge is to improve operational excellence. Starting in2008, our Healthy Ambition program will do exactly that by setting a target of15% cost savings (excluding research and development costs), further improvinggross margins.

 

 

32

 
| **Operational  Excellence** |
|-----------------------------|
| Healthy Ambition            |

 

 

33

 
| **Operational  Excellence** |
|-----------------------------|
| Healthy Ambition            |

 

 

**HealthyAmbition**

 

As a result of theacquisitions of Berna Biotech, Berna Products Corporation and SBL Vaccines in2006, our operations expanded considerably. Our workforce grew from just under300 to well over 1,000 employees and the number of worldwide locations where weoperate increased five-fold – an increase in the scale, scope and complexity ofthe company.

 

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

 

**Three triggers for operationalexcellence**

 

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

 

·   Capturing synergies relating to both costs andresources.

·   Reducing costs to create a competitive costposition.

·   Funding growth, by creating cash to fund ourbiotech pipeline.

 

**Phases of the program**

 

Healthy Ambition started in January 2008,and consists of three initial phases prior to being rolled out in the secondhalf of our 2008 financial year. Accordingly, while there will be some savingscoming through during the second half of 2008, the bulk of the savings will notbe realized until 2009.

 

34

 
| **Operational Excellence** |
|----------------------------|
| Healthy Ambition           |

 

 

**Healthy Ambition: preliminary findings**

 

·         A detailed analysisof our procurement processes and spending found that our spendbase isfragmented and therefore under-leveraged. As a result, there is significant potentialfor cost reduction.

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

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

 

“Targeting annual savings of 15% (excluding R&D) by the end of2009.”

 

35

 

 

Forward-LookingStatements/Trademarks

 

**Forward-looking statements**

 

ThisAnnual Report contains forward-looking statements. All statements regarding ourfuture financial condition, results of operations and business strategy, plansand objectives 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 orprospective changes in regulation; and trends in results, operations andoverall market trends.

 

Theseforward-looking statements involve risks, uncertainties and other factors, someof which are beyond our control, that may cause our results, performance orachievements or conditions in the markets in which we operate to differ fromthose expressed or implied in these forward-looking statements. We describecertain of these risks and uncertainties in the section ‘Risk factors’. Wecaution not to place undue reliance on these forward-looking statements, whichreflect our Management’s view only as of the date of this document.

 

**Trademarks**

 

Newtrademarks for our products are registered on a worldwide basis. Distributionand agency agreements normally include a clause specifying that, at thetermination of the agreement, trademark and product registration rights returnto us. We are the owner of over 150 registered trademarks. The most importantof these are: CRUCELL®, BERNA®, SBL®, theBerna, SBL and Crucell logos, ChromaGenics®, EPAXAL®,INFLEXAL®, VIVOTIF®, FLAVIMUN®, DUKORAL®,H EPAVAX-GENE®, MoRu-Viraten®, PER.C6®,PER.C6® logo, AdVac®, MAbstract® and STAR®.In addition we hold rights to use certain trademarks that are owned by ourpartners, such as QuinvaxemTM from Novartis (formerly Chiron). Allother trademarks, service marks, trade names and registered marks used in thisreport are trademarks, trade names or registered marks of their respectiveowners. Crucell N.V. and its subsidiaries own a number of additionaltrademarks, including registered trademarks that are not referenced in thisreport.

 

36

 

**Contents**

 
| **Management Report**                                                   |       |       |
|-------------------------------------------------------------------------|------------|------------|
|                                                                    |       |       |
| **Report of the Management Board**                                      | ** ** | **38**     |
|                                                                    | ** ** | ** ** |
| **Information on the Company**                                          | ** ** | **41**     |
| Business  Drivers                                                       |       | 41         |
| Products                                                                |       | 42         |
| Research and Development Pipeline                                       |       | 45         |
| Technologies                                                            |       | 50         |
| Partners, Agreements, Investments and Other Collaborations              |       | 55         |
| Intellectual  Property                                                  |       | 60         |
| Industry and Scientific Overview                                        |       | 64         |
| Competition in Product and Technology Development                       |       | 65         |
| Additional Information on the Company                                   |       | 69         |
|                                                                    |       |       |
| **Risks Factors**                                                       | ** ** | **72**     |
|                                                                    |       |       |
| **Operating and Financial Review and Prospects**                        | ** ** | **85**     |
| Critical Accounting Policies and Estimates                              |       | 87         |
| Results  of Operations                                                  |       | 93         |
|                                                                    |       |       |
| **Corporate Social Responsibility**                                     | ** ** | **103**    |
|                                                                    |       |       |
| **Corporate Governance**                                                | ** ** | **106**    |
| Corporate Governance at Crucell                                         |       | 106        |
| Directors, Senior Management and Board Practices                        |       | 109        |
| Remuneration Policy for Management Board and Supervisory Board          |       | 116        |
| Controls  and Procedures                                                |       | 118        |
| Attestation Report of the Independent Registered Public Accounting Firm |       | 121        |
|                                                                    |       |       |
| **Articles of  Association and Share Capital**                          | ** ** | **122**    |

 

37

 

**Management Report**

Report ofthe Management Board

 

**Report of the Management Board**

 

**Summary of the full year financial results**

 

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

 

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

 

**Geared up for rapid expansion**

 

The2007 financial year was a pivotal year for our company in which we were cashflow positive for the first time in the history of Crucell. We completed thetransformation of a start-up company, geared exclusively towards developingtechnologies and biotech products, into a fully integrated biopharmaceuticalcompany. Our global organization now covers the entire range from laboratory tosales, from product and process development to production and distribution, andfrom vaccines to antibodies.

 

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

 

Anintegral part of Crucell’s strategy to accelerate growth, is a clear focus onachieving operational excellence. A rigorous review of Crucell’s businessprocesses worldwide is being conducted and, excluding R&D, savings ofapproximately 15% on the 2007 cost base are being targeted.

 

Rationalizationis one other aspect of Crucell’s ‘Healthy Ambition’ program, which isimplemented throughout the global organization in order to further strengthenthe overall competitiveness of the company. Cash generated by streamliningbusiness processes and making full use of synergies within the integrated organizationwill fuel further R&D in targeted areas, thereby enhancing Crucell’sability to significantly improve human health.

 

In2007 strong revenue and margin growth was achieved in the company’s existingvaccines business. Due to the successful roll-out of Quinvaxem in the fourthquarter of 2006, the Company’s pentavalent paediatric vaccine, the sales ofthis product grew from 6.3 million units in 2006 to 21.3 million units in 2007.For 2008 the Quinvaxem sales are expected to be significantly higher than in2007.

 

Significantgrowth in sales of Crucell’s marketed products comes from substantialopportunities for launching its portfolio of current vaccines in new marketsand growing sales in existing markets.

 

Atthe same time Crucell enjoys a pipeline of multiple products tailored toaddress major threats to health and well-being worldwide as well as strongpartnerships in vaccine and antibody research. Crucell’s portfolio of uniquetechnologies generates licensing income and is used in Crucell’s in-house R&Dand manufacturing.

 

Crucell’sgrowth strategy 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 respiratory illnesses. High-priorityprograms showing promising results in clinical trials include vaccines againstmalaria and tuberculosis, and a monoclonal antibody cocktail against rabies.Furthermore Crucell’s scientists discovered a set of human monoclonalantibodies that provides immediate protection and neutralizes the broadestrange of H5N1 strains of avian flu in pre-clinical models.

 

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** **

**Management Report**

Report of theManagement Board

 

**Paediatric vaccines**

 

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

 

BesidesQuinvaxem, Crucell’s sales growth will be driven by the further roll-out ofEpaxal Junior. Epaxal Junior is the only aluminium-free Hepatitis A paediatricvaccine available in the market at this moment, showing superior immunogenicityand better local tolerability. Launch in South America will commence in 2008.

 

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

 

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

 

**Travellers’ vaccines and other programs**

 

Crucellbegan Phase II studies on our PER.C6 technology based rabies antibody cocktailin March 2008. The U.S. Food and Drug Administration (FDA) has grantedthis monoclonal antibody cocktail Fast Track status following successfulcompletion of the Phase I clinical trials, which 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.

 

TheCrucell-Aeras TB vaccine program is focusing on improvement of the onlycurrently available vaccine, Bacillus Calmette-Guérin (BCG), using our PER.C6and AdVac technologies. We began Phase 1 clinical trials of the AdVac-basedtuberculosis vaccine in the fourth quarter of 2006. The Phase I clinical trial,funded and managed by Aeras and conducted in the U.S., indicated that thevaccine candidate is safe in healthy adults. In December 2007 Aeras andCrucell announced the start of a tuberculosis vaccine clinical trial in theU.S. Another trial to examine the immunogenicity and safety will start in 2008.

 

Theresearch program into the recombinant antibody Factor VL/C has proven to bemore challenging than previously anticipated and pre-clinical research providedmixed results and insufficient evidence of the protective benefit of theproduct as a standalone therapy. Consequently, the research and developmentexpenditure previously earmarked for this program will now be largelyre-allocated.

 

Thecommercial and market opportunities for the West Nile Virus have proven to beless than originally anticipated. The Phase I trial for a vaccine wascompleted, demonstrating safety and tolerability. However, the commercial andmarket opportunities for the West Nile Virus have proven to be less thenoriginally anticipated. Consequently, we have decided to discontinue theprogram.

 

**Respiratory**

 

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

 

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

 

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**Management Report**

Report of theManagement Board

 

**Unique technologies for licensing business**

 

In 2007,Crucell secured licensing agreements with Biotecnol SA, Abbott Park, PfizerAnimal Health, ADImmune Corporation, Taiwanese Development Center forBiotechnology, MedImmune, Sartorius Biotech GmbH, Masterclone, LFBBiotechnologies, Invitrogen Corporation, Patrys, Recepta Biopharma S.A.,Daiichi Sankyo Ltd., Acambis, Transgene SA, ProFibrix, ISU ABXIS, and MedarexInc. The company entered into a co-exclusive PER.C6 and AdVac technologylicense agreement with Wyeth Pharmaceuticals, a division of Wyeth, in July 2007.

 

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

 

MedImmuneand Crucell entered into an exclusive license and research collaboration inOctober, to further develop and commercialize bacterial antibodies discoveredby Crucell primarily for the treatment and prevention of hospital-acquiredbacterial infection.

 

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

 

For furtherdetails on licenses and licensees please see ‘Information on the Company – Overviewof Licensees and Partners’ in this Annual Report.

 

**Outlook**

 

With ourcurrent portfolio of existing products we are well positioned to benefit fromthe increasingly strong global demand for vaccines. As a consequence, we expectstrong sales growth for our existing vaccine products.

 

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

 

Ourdevelopment programs like malaria and tuberculosis will require continuedinvestments in R&D. This investment will progress our development programsin the clinical trials. Furthermore we will continue to invest in discoveryprograms to progress these into the clinical trial phase.

 

We focus onoverall effectiveness of our global sales network to increase our product salesand sell more third-party products through our sales channels to gainadditional revenue.

 

In thecourse of 2008, we expect to make further decisions that may impact our incomestatement, such as setting priorities in our discovery and developmentprograms, and seeking partnerships to accelerate the market introduction ofpipeline products with solid market potential. We are not in a position tocomment on expected 2008 results other than in global terms:

 

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

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

·        As we rollout our operational excellence program in 2008 we expect to further improvemargins.

 

We expectrevenues and operating income to be phased throughout 2008 like in 2007. Cashflow and working capital are expected to deteriorate in the first half of 2008due to the seasonality of our business. We build inventory in the first half ofthe year to sell our products in the second half of the year. We expect thenegative cash flow in the first half year to reverse in the final quarter of2008, to end the year with an overall positive cash flow for the year.

 

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

 

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**Management Report**

Informationon the Company

 

**Information on the Company**

 

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

 

**Business drivers**

 

Ourbusiness strategy is based on the following business drivers:

 

**Products**

 

Leveragingpresence of our marketed vaccines in public and private markets. We produce andsell established paediatric, respiratory and travel vaccines. We intend toenhance our position in these markets by highlighting the unique features ofthese products and by providing outstanding customer service in terms ofdelivery, reliability and quality and by leveraging our worldwide presence inboth public and private markets.

 

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

 

**Research and Development (R&D) product pipeline with competitiveadvantage**

 

We believethat each of our selected products either targets unmet medical needs, improvescurrent medications, or is perceived as a marketable product due to predictivestudy models and/or perceived favourable regulatory conditions. These productsare predominantly based on our PER.C6 technology.

 

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

 

Besides ourportfolio of well known vaccines, we have a pipeline of new potential vaccinesand antibodies. Product pipeline programs include vaccines against yellowfever, influenza, ebola, HIV, malaria, tuberculosis, human monoclonalantibodies against rabies, H5N1 antibodies, pandemic influenza virus. OurR&D activities are concentrated in our headquarters in the Netherlands.Product development is concentrated in our Swiss operations in Bern. OurR&D facilities are located in the Netherlands, Switzerland, Korea andSweden.

 

**Technologies – ongoing technology licensing program**

 

We have abroad base of excellent technologies with applicability to vaccines,antibodies, other recombinant proteins and gene therapy. Our licensing programprovides a source of revenue as well as the potential for future, additionalrevenue in the form of royalties from products developed by our licensees. Inareas where we are not developing our own products, we offer our technologiesto the biopharmaceutical industry for the development and production of diversebiopharmaceutical products.

 

We havedeveloped various proprietary technologies such as PER.C6, AdVac, MAbstract,STAR, our virosomal technology, rCTB as well as our Hansenula polymorphaexpression system. We believe our proprietary PER.C6 technology is well suitedfor the development and large-scale manufacturing of a wide range ofbiopharmaceuticals including vaccines, monoclonal antibodies, therapeuticproteins and gene therapy products. AdVac is used to develop noveladenoviral-based products. MAbstract can be used to develop human antibodies.Our STAR technology is useful for increasing production output of recombinantantibodies and therapeutic proteins on mammalian cell lines and we haveindications that the technology is complementary to our PER.C6 technology.

 

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**Management Report**

Informationon the Company

 

**Products**

 

**Overview**

 

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

 

**Vaccine markets**

Our coreproduct portfolio currently consists of six marketed vaccines in three leadingsegments of the vaccine market: paediatric vaccines, travel vaccines andrespiratory vaccines.

 

**Paediatric vaccines**

Our corepaediatric vaccines are Quinvaxem and Hepavax-Gene.

 

**Quinvaxem**

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

 

In December 2006we were awarded contracts totalling over $ 230 million for our Quinvaxem andHepavax-Gene paediatric vaccines by supranational organizations. The contractsprovide for the supply of these vaccines through 2009, with the awarded amountgrowing over those three years. In addition, a Latin American supranationalorganization ordered 7 million doses of Quinvaxem, which we will deliver in2008.

 

**Hepavax-Gene**

Hepavax-Geneis a Hansenula polymorpha-based recombinant hepatitis B vaccine. Since itslaunch in 1996, more than 590 million doses of Hepavax-Gene have beencommercially distributed in more than 90 countries, making it the third mostused hepatitis B vaccine in the world. A key competitive advantage forHepavax-Gene is our stable and efficient production system. The vaccine isproduced in Korea.

 

Hepatitis B(‘HBV’) is a viral infection of the liver that causes various complications ifleft untreated and may even ultimately cause death. Transmission of HBV occursas a result of the exchange of blood, the exchange of fluids during sexualintercourse, and the exchange of body fluids between an infected mother and anew-born baby during birth.

 

Marketresearcher Datamonitor assesses the HBV drugs market at $ 431 million in 2006across seven major markets and expects the market to nearly triple in size by2016. Data monitor predicts rapid growth until 2011 that will slow down in the followingyears as a result of the introduction of generics and the impact of routine HBVvaccination.

 

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

 

**Travel and endemic vaccines**

 

Our coretravel vaccines are Epaxal, Vivotif and Dukoral.

 

Travelvaccines include all vaccine products that protect against diseases which arenot native to the region travellers are from but are present in the regionsthey travel to. Generally, the target population groups for these vaccineproducts are individuals travelling to endemic and epidemic regions. Ourvaccines for hepatitis A, typhoid and cholera are classified as travelvaccines.

 

Our travelvaccines are also increasingly used in expanded immunization programs. Vaccinesused in countries with medium to high endimicity could also be characterized asroutine or paediatric vaccination. Furthermore, even in some European countrieswhere endemicity is low, childhood vaccination against Hepatitis A isrecommended. Use of vaccines in this manner represents a large potential upsidefor vaccine manufacturers as these vaccines are not restricted to travelvaccination,

 

42

 

**Management Report**

Informationon the Company

 

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

 

**Epaxal**

Epaxal is the onlyvirosome-adjuvanted vaccine for hepatitis A (HAV). The vaccine has a superiortolerability thanks to the virosomal technology replacing aluminium. Thevirosome has a unique mechanism of action and mimics the natural process. Noaluminium or thiomersal has to be added, resulting in the only bio-degradableHAV vaccine in the world. The vaccine is highly effective, offering protectiveimmunity within a few days following the first dose and, following the second(booster) dose, providing immunity for up to 20 years. The product is currentlylicensed in more than 40 countries world-wide under the brand names Epaxal andHAVpur and in most of these countries is licensed for adults and children overthe age of one year. We currently market Epaxal for HAV in Europe, LatinAmerica and Asia.

 

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

 

HAV is a highly contagious infectionthat causes acute inflammation of the liver. HAV is generally contracted orallythrough and is considered the least dangerous form of hepatitis because it doesnot lead to chronic inflammation of the liver. HAV commonly spreads throughimproper handling of food, contact with household members, sharing toys atday-care centres, and eating raw shellfish taken from polluted waters.

 

The key participants in the HAVmarket are GSK, Merck and sanofi pasteur. In addition, GSK markets Twinrix, acombination vaccine for HAV and HBV, while sanofi pasteur and GSK haveintroduced combination vaccines for HAV and typhoid fever.

 

**Vivotif**

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

 

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

 

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

 

The key participants in the typhoidmarket are sanofi pasteur and GSK, with their injected vaccine productsTyphimVi and Typherix respectively.

 

**Dukoral**

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

 

Cholera is an acute, diarrhoealillness caused by infection of the intestine with the bacterium vibriocholerae. The infection is often mild or without symptoms, but sometimes it canbe severe. Approximately 10% of infected persons have a severe case,characterized by profuse watery diarrhoea, leg cramps and vomiting, resultingin rapid loss of body fluids leading to shock and dehydration. Withouttreatment, death can occur within hours.

 

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

 

There is no other cholera and ETECcombination vaccine in the world except for Dukoral. Regarding the choleraindication there is no competition in the developed world. There are somecholera vaccines produced locally in the developing world.

 

**Respiratoryvaccines**

 

Our core respiratory vaccine isInflexal V.

 

**Inflexal V**

Inflexal V is a virosome-adjuvantedinfluenza vaccine administered by injection. Due to our virosome technology,the vaccine has a high tolerability. In addition, it has a good immunogenicityprofile, making it particularly effective with high-risk patients, such as theelderly, in whom the immune response is generally weaker. Inflexal V wasoriginally introduced in 1997 and was successfully registered through theMutual Recognition procedure in most European markets in October 2001. Thevaccine is currently registered in 43 countries.

 

Influenza, commonly known as ‘flu’,affects large sections of the world’s population each year. The disease ischaracterized 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 through airborneparticles and, following infection, the incubation period ranges from one tothree days.

 

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

 

Several factors contribute to therapid growth of the influenza vaccine market. We expect that the threat of apandemic of avian flu, the ageing of the population in numerous developedcountries, national government-sponsored vaccination programs in manycountries, higher awareness of the value of a flu vaccination among the public atlarge, as well as specific production contracts for vaccines that combatstrains of pandemic flu and ongoing activities to increase the preparedness fora flu pandemic will lead to further growth in the seasonal flu vaccine markets.

 

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

 

**Complementaryvaccines**

 

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

 

**Protein products**

 

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

 

**Prolastin**

Since April 2007, we act as theexclusive distributor of Talecris’ Prolastin in nine Western Europeancountries. Prolastin is a therapeutic protein, indicated for chronicaugmentation therapy of individuals having hereditary deficiency of alpha-1proteinase inhibitor. Proteinase inhibitor treatments are currently sold acrossEurope and North America.

 

**Cofact**

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

 

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right of first refusal for China,Korea and a number of Eastern European countries. Cofact is a market leadingproduct in the Netherlands and Belgium with approximately € 10 million in salesannually in these countries alone. Cofact is aimed at promoting blood-clottingfor patients treated with anti-coagulants that have bleeding as a result oftrauma or urgent surgery, or for prophylacticly treating patients with FactorII, VII and X deficiencies.

 

**Research and Development pipeline**

 

**Overview**

 

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

 

**Overview of ourlate-stage pipeline**

 

**Yellow fevervaccine**

Yellow fever is an infectiousdisease transmitted by mosquitoes, prevalent in tropical regions of Africa andSouth and Central America. Approximately 200,000 cases and 30,000 fatalitiesoccur each year. Endemic areas have increased over the past 20 years. Alsothere is a worldwide shortage in the supply of yellow fever vaccines. Since1963, one of the most reliable vaccines against yellow fever has been producedby the Robert Koch Institute in Berlin. Over 2.5 million doses of the vaccinehave been distributed. The vaccine is safe, highly immunogenic and welltolerated. Protection starts from ten days after a single dose and persists forten years. In 1999 we acquired the rights and know-how for this vaccine fromthe Robert Koch Institute. Given the successful sales of the MoRu-Viratenvaccine for measles/rubella, to avoid capacity constraints in the production ofMoRu-Viraten, we decided to postpone the registration submission of the yellowfever vaccine in Switzerland.

 

**Overview of ourearly-stage pipeline based on proprietary technologies**

 

Our PER.C6 technology, complementedby our AdVac and MAbstract technologies, drives the development of our productpipeline. We continue to develop our technologies while selecting product leadsfor further development based on careful product selection criteria thatsupport our long term business objectives. We have in the past and may in thefuture enter into collaborative and/or strategic alliance arrangements withthird parties to co-develop and market products that we may develop.

 

Our primary focus is the developmentof a range of novel vaccine and antibody products in the area of infectiousdiseases. We currently have a number of core potential products we aredeveloping using our core technologies:

 

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·              PER.C6 – Aninfluenza vaccine, in collaboration with sanofi pasteur is being developedusing our PER.C6 technology.

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

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

 

Of the potential products we haveunder development, only our yellow fever vaccine does not use our coretechnologies.

 

A short description of our mainpotential products in the early-stage pipeline, and the diseases those productstarget, follows:

 

**Influenza**

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

 

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

 

*Sanofi pasteur*

In December 2003, we enteredinto 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 GMP master cell bank already completed.Currently, we are working to develop a pandemic flu vaccine as well as aninterpandemic, or seasonal, flu vaccine under this contract. A Phase II testingof the cell culture-based seasonal influenza vaccine was initiated in the U.S.and started in the fourth quarter of 2007. The Phase II trials, which involvehealthy adult volunteers, will focus further on the safety profile and immunogenicityof the cell-based vaccine. Submission is planned for 2010.

 

*H7N1/FLUPAN*

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

 

*H9N2*

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

 

**Tuberculosis**

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

 

TB is spread when people who havethe active form of the disease cough or sneeze and people nearby breathe inthese bacteria and become infected. Only 5-10% of infected but otherwisehealthy people develop an active TB disease. Most people who carry the bacteriasuffer no obvious symptoms and cannot pass on the disease to others during thislatent phase of the infection. But if the immune system is weakened, active TBdisease can occur. This occurs most in people infected with HIV/AIDS, whichseverely weakens the immune system.

 

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

 

In March 2004 weannounced a new collaboration with the Aeras Global TB Vaccine Foundation onthe pre-clinical and clinical development of candidate TB vaccines, calledAERAS-402. The Crucell-Aeras TB vaccine program is focusing on improvement ofBCG, using our PER.C6 and AdVac technologies. We began Phase 1 clinical trialsof the AdVac-based tuberculosis vaccine in the fourth quarter of 2006. Thetrial is an open-label study that is testing the vaccine in a dose-escalationtrial involving 32 healthy volunteers. The trial is funded and managed byAeras. The main parameters under examination are safety, tolerability andimmunogenicity. The Phase I clinical trial indicated that the vaccine candidateis safe in healthy adults. A second study in progress in healthy adults inSouth Africa appears to be showing safety, tolerability and immunogenicity ofAERAS-402.

 

In December 2007 Aerasand Crucell announced the start of a tuberculosis vaccine clinical trial in theU.S. Crucell will receive up to $ 5 million from Aeras to support the advanceddevelopment of the candidate AdVac- and PER.C6 technology based tuberculosisvaccine. Crucell and Aeras also announced the launch of a new Phase I BCG-Ad35prime boost clinical trial of the AdVac-based tuberculosis vaccine. This trialwill be conducted in St. Louis, Missouri, U.S.. The main parameters underexamination in the trial will be the immunogenicity and safety of BCG primefollowed by two AERAS-402 boost doses administered at three to six monthintervals after BCG in healthy adults. The trial will be conducted asdouble-blind, randomized, placebo- controlled study in 32 healthy adultvolunteers.

 

**Ebola**

Ebola fever is one of themost lethal viral diseases, with a mortality ranging from 50% to 90% accordingto the World Health Organization. Ebola outbreaks occur regularly in tropicalAfrica, affecting both human and great ape populations. To date, approximately2,000 cases have been reported since the virus was first discovered in 1976.The ebola virus belongs to the group of ‘hemorrhagic fever viruses’, which alsoincludes the highly pathogenic Marburg and Lassa viruses. Ebola virus causes adisease characterized by high fever and massive internal bleeding. Because novaccine or therapy is presently available, ebola virus is on the Centers forDisease Control (CDC), National Institutes of Allergy and Infectious Diseases(NIAID), and U.S. Department of Defense Category ‘A’ list of bioterror agents.In 2003 the U.S. government announced that once available, an ebola vaccine maybe stockpiled as part of its preparedness for bio-terror attacks under ProjectBioShield, a comprehensive effort to develop and make available modern,effective drugs and vaccines to protect against attack by biological and chemicalweapons.

 

In May 2002 we enteredinto a Collaborative Research and Development Agreement (CRADA) with the VRC todevelop jointly, test and manufacture an adenovirus-based ebola vaccine. Underthe terms of the agreement, we have an option for exclusive worldwidecommercialization rights to the ebola vaccine resulting from thiscollaboration. In August 2002, the CRADA was extended to cover vaccinesagainst Marburg and Lassa infections. The recombinant vaccine will encompassthe glycoproteins and the nucleoprotein of ebola virus, but cannot replicate inhumans. This method thus provides a very important safety advantage, whileensuring that a strong humoral and cellular immune response is elicited againstthe ebola virus.

 

In March 2005 weextended the CRADA with the U.S. National Institutes of Health (NIH) andcontinue to develop this vaccine and will use the ebola vaccine results in thedevelopment of Marburg and Lassa vaccines. In addition, we obtained anexclusive license to certain NIH patents to develop and commercializerecombinant vaccines against ebola.

 

In experiments conducted bythe VRC together with the U.S. Army Medical Research Institute of InfectiousDiseases (U.S.MRIID) 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. All pre-clinical material was produced at ourFDA-compliant production facilities in Leiden.

 

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Phase I clinical testingcommenced in the third quarter of 2006. In the randomized, double-blind,placebo-controlled study in 48 healthy volunteers the single-shot vaccine isbeing tested in a dose-escalation trial. The start of the trial follows thesuccessful completion of the Investigational New Drug (IND) application processrequired by the Food and Drug Administration (FDA). The Phase I study is beingcarried out by the VRC at the NIH Clinical Center in Bethesda, Maryland and wasongoing at year-end 2007.

 

**Malaria**

Malaria is a life-threateninginfectious disease caused by the plasmodium parasite and transmitted fromperson-to-person through the bite of a female Anopheles mosquito. It is one oftoday’s top three killers among communicable diseases. The disease currentlyrepresents one of the most prevalent infections in tropical and subtropicalareas causing severe illness in 300 to 500 million individuals worldwideaccording to the World Health Organization and causing one to three 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 of morbidityand mortality associated with malaria occur in the developing world, thisdisease also affects travellers.

 

Currently there is nocommercially available vaccine to protect against malaria. Our candidatemalaria vaccine is based on our AdVac technology and produced using our PER.C6technology. The efficacy of our malaria vaccine candidate was tested inpre-clinical models. The study showed that a single administration of aprototype AdVac vaccine, provided protection against the specific parasite. SinceMarch 2004 we have a collaboration with the National Institute of Allergyand Infectious Diseases (NIAID), part of NIH for the support of the developmentof our candidate malaria vaccine. In September 2006, we extended thecollaboration with the NIAID by signing a clinical trial agreement. Theclinical trial started in January 2007 and is a randomized, double-blind,placebo-controlled study that will test the vaccine in a dose-escalation trialinvolving 96 healthy volunteers. The Phase I trial is funded by NIAID andconducted by researchers at Vanderbilt University, one of NIAID’s Vaccine andTreatment Evaluation Units.

 

**HIV**

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

 

**West Nilevirus vaccine development terminated**

In June 2003, weannounced our decision to develop a vaccine against the West Nile virus basedon our PER.C6 technology. We completed the Phase I safety study with our wholeinactivated West Nile vaccine manufactured using PER.C6 technology in January 2007.The Phase I trial demonstrated safety and tolerability. However, in January 2008,we terminated the West Nile Virus Vaccine program as well as our development ofhuman monoclonal antibodies for therapeutic use against West Nile. Thecommercial and market opportunities for the West Nile Virus have proven to beless then originally anticipated, making the commercial and marketopportunities for potential West Nile products not as attractive as otherproducts in our pipeline.

 

**Proteins**

 

**Rabiesmonoclonal antibody cocktail**

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

 

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Post-exposuretreatment for rabies, when given timely, is 100% effective and involves the useof a vaccine plus antibodies. Neither vaccine nor antibodies are effectiveindependent of one another.

 

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

 

We havedeveloped a human monoclonal antibody in collaboration with the ThomasJefferson University (TJU) based in Philadelphia and the U.S. CDC in Atlanta,using MAbstract and PER.C6 technology. The product is a combination of twomonoclonal antibodies for the post-exposure prophylaxis of rabies, producedusing our MAbstract and PER.C6 technology. Our candidate vaccine demonstratedprotection at least equivalent to HRIG in pre-clinical trials. In the fourthquarter of 2006, we began a Phase I clinical study in the U.S., followed by asecond Phase I study in India, selected because it is a rabies endemic country.

 

The Phase I clinical trialsdemonstrated that the antibody product is well tolerated, provides the expectedimmediate passive neutralizing activity and that it can be safely administeredin combination with a rabies vaccine without interfering with the vaccine’sability to induce an active immunity. The program has been granted a Fast Trackdesignation by the U.S. FDA. Phase II clinical trials began in the U.S. in March 2008.

 

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

 

**H5N1 avianinfluenza antibodies**

The Companydiscovered a set of human monoclonal antibodies that protect against avianinfluenza (H5N1). These were found to be able to neutralize a broad range ofH5N1 viruses of avian influenza that have emerged between 1997 and 2004, whichcurrently presents a global threat. These antibodies may therefore provide apowerful tool in pandemic preparedness.

 

The set of monoclonalantibodies, which Crucell researchers discovered using MAbstract phage display,showed the potential to neutralize distinct H5N1 viruses. The most potentneutralizing antibody was tested in pre-clinical models for the ability toprotect against infection from the highly pathogenic A/Hong Kong/97 H5N1 virusand was also tested for its ability to stop the development of the diseasecaused by this virus. When the monoclonal antibody was given in a pre-clinicalmodel, one day prior to infection with the H5N1 virus, it resulted in fullprotection against infection. Treatment with the antibody up to three daysafter infection resultedin100% survival and cure of the disease.

 

**Recombinantantibody Factor VL/C**

Our researchprogram into the recombinant antibody Factor VL/C, as a potential therapy tostop or prevent serious bleeding, has proven to be more challenging thanpreviously anticipated and pre-clinical research provided mixed results andinsufficient evidence of the protective benefit of Factor VL/C as a stand-alonetherapeutic product. We do no expect to bring the program into clinicaltrials in the foreseeable future and theresearch and development expenditure previously earmarked for this program hasnow largely been allocated to the research and development of monoclonalantibodies in other disease areas.

 

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**Technologies**

 

**Proprietarytechnologies**

Our productportfolio is supported through a range of proprietary technology platforms. Ourcore proprietary technologies are classified as follows:

 

PER.C6technology: our core proprietary technology. With over 40 licenses issued, thePER.C6 technology is used widely for the development and manufacturing ofvaccines, recombinant proteins including monoclonal antibodies, and genetherapy products.

 

Vaccinetechnology: we employ a number of proprietary technologies to develop vaccinesagainst viruses, parasites and bacteria.

 

Protein technology: we employa number of other proprietary technologies to develop or manufacture monoclonalantibody products, such as MAbstract and STAR.

 

**Licensingour technologies to the market**

We generatea portion of our revenues and other operating income from licensing ourproprietary technologies to pharmaceutical and biotechnology companies, fromgrants and government subsidies obtained to support the development of ourtechnologies and potential products, and from service fees earned underdevelopment contracts with our partners. We intend to increase our revenues inthe future from initial license fees, license maintenance fees and milestoneand royalty payments from products that our licensees develop using ourtechnologies.

 

As atyear-end 2007 we employ 11 (2006: 13) people in our business developmentoperations in the Netherlands and an additional 3 (2006: 2) in the U.S. Ourbusiness development strategy has historically involved contacting prospectivelicensees and partners, assessing their interest in our technologies andproducts. If the prospective licensee or partner indicates interest wenegotiate a license and/or collaboration agreement pursuant to which we deliverthe applicable technology to, or collaborate with, the licensee or partner. Forsome of the contracts we provide services, for which we are paid at differentrates.

 

**PER.C6technology**

 

**Overview**

Our PER.C6technology provides a manufacturing system that consists of a human cell linethat can be used to produce a variety of biopharmaceutical products. Wedeveloped the PER.C6 technology from a single source of healthy human retinacells. To obtain the PER.C6 cell line, we inserted an exactly defined fragmentof the E1 region of the genome of the adenovirus type 5 into the human retinacell so that the cell can propagate indefinitely. The technology has beensuccessfully adapted to grow without the need for serum components or materialsthat allow cell attachment (microcarriers) and demonstrates excellent celldensities in bioreactors. These features are important because they allow us toproduce safe biopharmaceutical products in sufficient quantities.

 

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

 

**Vaccineproduction**

PER.C6technology can be used as a production system for developing and manufacturingboth classical and recombinant vaccines.

 
| · | For classical vaccine  production, PER.C6 cells are infected with the virus against which the  vaccine is meant to protect. The virus is subsequently multiplied on PER.C6  cells to high virus titer, yielding a potent starting material that can be  processed and purified to produce a final formulation of a whole-killed,  split or subunit vaccine.                                                                                                                             |
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| · | For recombinant vaccine  production, the PER.C6 technology produces delivery agents called adenoviral  vectors. These vectors have been made replication incompetent and thus are  only capable of delivering into the human body a portion of DNA encoding for  a protein from the pathogen against which the vaccine is meant to protect.  The DNA inserted into the vector can be derived from a virus, a parasite or  even bacteria, providing a versatile vaccine vector platform. |

 

**Proteinproduction**

PER.C6technology can be used as a production system for developing and manufacturingboth antibodies and other proteins. DNA encoding for a particular protein ofinterest is inserted into PER.C6 cells. These modified PER.C6 cells willsecrete the desired antibody or other protein.

 

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We are further developing the application of PER.C6for protein production at PERCIVIA, which is the PER.C6Development Center joint venture between us and DSM. PERCIVIA islocated in Cambridge, Massachusetts, U.S..

 

**Gene therapy**

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

 

**Functional genomics**

Our PER.C6 technology can be used to produce libraries of adenovirusesinto which individual human genes are inserted to study gene function. Theadenovirus libraries carry many genes with unknown functions, which can be usedto determine the role of individual genes in a disease process. We believe thatour PER.C6 technology, therefore, represents a key analytical tool in thediscovery of new genes and their role in biological pathways and human disease.

 

**Key features and advantages**

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

 

**High yields**

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

 

**Scalability in serum-free conditions**

PER.C6 cells can be cultured in a serum-free medium, withoutmicro-carriers, using a variety of scaling systems, including bioreactors. Thissimplifies the expansion from laboratory- to industrial-scale production, whichmay lead to the production of cost-efficient biopharmaceuticals in large quantities.The use of a serum-free medium also offers the potential to significantlyimprove the purification of biopharmaceuticals produced using the PER.C6technology and may facilitate regulatory approval.

 

**Biologics Master File at the FDA**

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

 

**Broad industry endorsement**

ThePER.C6 technology can now claim to have achieved a broad endorsement within theindustry. For a total overview of all licensees reference is made to the ‘OverviewLicensees and Partners’ in this section.

 

**Human-based**

Webelieve that antibody and other protein products based on the human basedPER.C6 technology may demonstrate enhanced biological properties, renderingthem potentially more efficacious. In addition, PER.C6 technology efficientlysupports the growth of certain human viruses for vaccine development.

 

**Vaccine technologies**

 

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

 

Crucell’s vaccine technologies include: 

 

**AdVac technology**

 

**Overview**

Crucell has been a key player in the development ofadenoviral-based vaccines for more than five years, resultingin the availability of proprietary AdVac vectors. Crucell hasgenerated a wide variety of research and GMP clinicalbatches based on AdVac technology for diverse infectious diseases.

 

AdVac technology is based on adenovirus vectors thatdo not regularly occur in the human population, such as Ad35. Thetechnology supports the practice of inserting DNA coding forpathogen-derived proteins into a vector. AdVac technology may also beused to develop gene therapy products. AdVac vectors are used in combinationwith our PER.C6 technology. Currently AdVac technology is used

 

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

 

Crucell hasgenerated a series of adenoviruses includingAd35 and derivatives thereof as well asmanufacturing platforms for these vectors. The AdVac vectors can beproduced to carry genetic informationderived from viruses, parasites and bacteria,and thereby have the potential to allow immunization against life-threatening diseases.

 

Crucell haslaboratories to develop purification methodsclosely resembling an end-stage manufacturingprocess. With this facility we can manufacture Ad35 vaccine vectors for comprehensive pre-clinical programs. These productscan be manufactured using PER.C6 technologyunder serum-free conditions.

 

**Key features and advantages**

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

 

·   Vectors used with AdVac technology share theadvantages of the commonly used adenoviral vectors such as: scalableproduction, high yields and the ability to mediate a strong T-cell immuneresponse.

·   The AdVac technology cancircumvent pre-existing immunity offering accurate dose control of thevaccines.

·   AdVac vectors can be engineeredto contain small genetic fragments of different viruses, parasites andbacteria. This makes possible the development of a wide variety of novelvaccines against a broad range of dangerous human pathogens.

 

**Virosomal technology**

 

**Overview**

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

 

**Key features and advantages**

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

 

·   Virosome technology provides a broadly applicabledelivery system for antigens or DNA/RNA encoding specific immune stimulatoryproteins.

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

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

·   Virosomes are completelybiodegradable and can exert an immune response via different routes ofadministration.

·   Virosometechnology is used in the manufacture of several of Crucel l’sregistered products and as such has anexcellent safety record and manufacturingknow-how.

 

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**Hansenulapolymorpha**

 

**Overview**

The yeast expression technology Hansenula polymorpha provides us with ahighly efficient production technology for protein, which can be used as abasis for developing and manufacturing new vaccines. The yeast Hansenulapolymorpha production system provides superior characteristics for a wide rangeof industrial applications. In particular its lack of pyrogens, pathogens orviral inclusions, its ease of genetic manipulation and its robustness inindustrial scale fermentations add to its attractiveness for the synthesis ofpharmaceutical compounds. Our registered HBV vaccine Hepavax-Gene is based onrecombinant production in this yeast.

 

**Key features and advantages**

We believe our Hansenula polymorpha technology has the following key advantagesover 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.

·   Hansenulapolymorpha is easy with regard to genetic manipulation and robust in industrialscale fermentations.

 

**Recombinant Cholera Toxin Bsubunit technology**

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

 

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

 

**Protein technologies**

 

We have two main technologies for proteins production: MAbstract andSTAR.

 

**MAbstract technology**

 

**Overview**

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

 

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

 

We use our MAbstract technology to identify antibodies reactive withwhole pathogens, or antibodies against protein elements from pathogens, orantibodies directed against targets already known to be associated withdisease. In additionMAbstract can be used to identify targets or epitopes on disease-causing agentsthat were previously unknown and may make suitable candidates forantibody-based diagnosis, prevention or therapy of the associated disease.

 

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**Key features and advantages**

MAbstract employs a human-based antibody-display technology. We believethat MAbstract allows for the discovery of therapeutic antibodies with severalpotential advantages over current technologies. These advantages include thefollowing:

 

**Subtraction method of selection**

MAbstracttechnology selects antibodies for possible therapeutic use and discovers noveldrug targets using whole cells, tissues or infectious agents.

 

**No inherent limitation on antibodyspecificity**

MAbstract technology does not have the inherent limitation on antibodyspecificity.

 

**Production using PER.C6 technology**

MAbstract technology has been used to isolate antibodies for numerousdisease applications. Selected antibody specificities can be directlyreformatted into antibodies for production using PER.C6 technology.

 

**STAR technology**

 

**Overview**

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

 

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

 

**Key features and advantages**

We believe our STAR technology has the following key advantages overother 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.

·   The STAR technology typically yields stable mammalian cell clones that produce five- to 10- fold more antibody or other therapeutic proteinsas compared to cell clones generatedwithout STAR.

 

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**Partners, agreements, investments and othercollaborations**

 

**Strategic partners**

 

In additionto our own research and development activities, Crucell collaborates withseveral leading companies. Through these agreements, our technologies areplaying a vital role in the development of a number of vaccine and antibodyproducts.

 

**Merck**

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

 

In June 2003,Merck and Crucell expanded a Cooperation Agreement and agreed to work closelyon matters relevant to maintenance of the PER.C6 Cell Substrate BiologicsMaster File. We further expanded the relationship in December 2006, whenwe signed a cross-licensing agreement for vaccine production technology. Theagreement allows Merck to use our technology on an exclusive basis inadditional undisclosed vaccine fields. In return, we receive access to Merck’slarge scale manufacturing technology for our AdVac-based vaccines underdevelopment. In September 2007, Merck exercised an option for theexclusive use of our PER.C6 technology and to access to our AdVac vaccinetechnology in two infectious disease areas.

 

**DSM Biologics**

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

 

**Sanofi pasteur**

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

 

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

 

**Novartis**

Our largestselling vaccine is Quinvaxem. The vaccine is produced by Crucell in Korea andwas co-developed with Novartis (formerly Chiron), which provides four of thefive vaccine components as bulk. We have a profit sharing agreement withNovartis for this product.

 

**MedImmune**

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

 

**Other collaborations and agreements**

 

**Wyeth**

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

 

**Manufacturing service arrangements**

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

 

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We havereceived and may receive in the future initial fees upon signing and subsequentpayments upon delivery of the batches we produce in accordance with thespecifications of the agreement.

 

**University collaborations**

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

 

**Overview licensees and partners**

Peryear-end 2007 we have the following licensees and partners:

 

**Vaccines**

 
| Partner/licensee                              |   | Starting date |   | Technology       |   | Disease  target                                          |   | Developmentstage   |
|-----------------------------------------------|--------|--------------------|--------|------------------|--------|----------------------------------------------------------|--------|--------------------|
| Acambis                                       |   | Nov. 2007     |   | PER.C6           |   | HSV                                                      |   | Pre-clinical       |
| ADImmune  Corp.                               |   | Oct. 2006     |   | PER.C6           |   | Japanese   Encephalitis                                  |   | Pre-clinical       |
| Aeras  Global TB Vaccine Foundation           |   | Mar. 2004     |   | PER.C6 and AdVac |   | Tuberculosis                                             |   | Phase 1            |
| Bestewil  Holding BV                          |   | Jan. 2006     |   | Co-micelles      |   | Influenza                                                |   | Pre-clinical       |
| Harvard  School of Medicine                   |   | Dec. 2003     |   | AdVac + Ad5HVR48 |   | HIV                                                      |   | Pre-clinical       |
| International  AIDS Vaccine Initiative (IAVI) |   | Sep. 2004     |   | AdVac            |   | HIV                                                      |   | Phase 1            |
| Kimron  Veterinary Institute                  |   | Jul. 2003     |   | PER.C6           |   | West Nile virus  —Veterinary   vaccine (avian) |   | Marketed in Israel |
| Merck &  Co. Inc.                    |   | Oct. 2005     |   | PER.C6           |   | Hepatitis C                                              |   | Pre-clinical       |
| Merck &  Co Inc.                     |   | Dec 2006           |   | Ad5HVR48         |   | HIV                                                      |   | Pre-clinical       |
| National  Institutes of Health (NIH)          |   | Mar. 2002     |   | PER.C6 and AdVac |   | Ebola, Lassa   and Marburg                               |   | Phase 1            |
| National  Institutes of Health (NIH)          |   | Mar. 2004     |   | PER.C6 and AdVac |   | Malaria                                                  |   | Phase 1            |
| Neotropix                                     |   | Mar. 2004     |   | PER.C6           |   | Oncology                                                 |   | Phase 1            |
| Novartis                                      |   | Dec. 2004     |   | PER.C6           |   | Alphavirus                                               |   | Pre-clinical       |
| Pfizer  animal health                         |   | Mar. 2007     |   | PER.C6           |   | Veterinary                                               |   | Pre-clinical       |
| Sanofi  pasteur                               |   | Dec. 2003     |   | PER.C6           |   | Influenza                                                |   | Phase 2            |
| Singvax                                       |   | Mar. 2005     |   | PER.C6           |   | Japanese Encephalitis                                    |   | Pre-clinical       |
| Tibotec  Pharmaceuticals Limited              |   | Nov. 2005     |   | PER.C6           |   | Undisclosed vaccine                                      |   | Pre-clinical       |
| Transgene  SA                                 |   | Dec. 2007     |   | PER.C6           |   | Undisclosed vaccine                                      |   | Pre-clinical       |
| Vaxin, Inc.                              |   | Sep. 2004     |   | PER.C6           |   | Respiratory viruses                                      |   | Phase 1            |
| Wyeth  Pharmaceuticals                        |   | Jul. 2007     |   | AdVac            |   | Non-disclosed                                            |   | Pre-clinical       |

 

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**Proteins**

 
| Partner/licensee                                |   | Starting date |   | Technology          |   | Disease  target               |   | Developmentstage |
|-------------------------------------------------|--------|--------------------|--------|---------------------|--------|-------------------------------|--------|------------------|
| Abbott                                          |   | Jan. 2007     |   | STAR                |   | Portfolio antibodies          |   | Pre-clinical     |
| Biotecnol  SA                                   |   | Jan. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Daiichi  Sankyo Ltd.                            |   | Nov. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Ferring  International Research Center SA       |   | May 2005      |   | PER.C6              |   | Women’s healthcare       |   | Pre-clinical     |
| Ferring  International Research Center SA       |   | Dec. 2005     |   | PER.C6              |   | Women’s healthcare       |   | Pre-clinical     |
| Genentech                                       |   | Feb. 2004     |   | STAR                |   | —                        |   | —           |
| Genzyme  Corporation                            |   | Dec. 2005     |   | STAR                |   | Portfolio proteins            |   | Pre-clinical     |
| Invitrogen  Corp.                               |   | Sep. 2007     |   | STAR                |   | Monoclonal antibodies         |   | Pre-clinical     |
| ISU ABXIS                                       |   | Jan. 2008     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| IQ  Corporation                                 |   | Oct. 2005     |   | PER.C6              |   | Anti-anthrax antibody         |   | Pre-clinical     |
| LFB  Biotechnologies                            |   | Jul. 2007     |   | PER.C6              |   | Undisclosed antibodies        |   | Pre-clinical     |
| Masterclone                                     |   | Jul 2007           |   | PER.C6              |   | Undisclosed antibodies        |   | Pre-clinical     |
| Medarex  Inc.                                   |   | May 2005      |   | STAR                |   | Portfolio antibodies          |   | Pre-clinical     |
| Medarex  Inc.                                   |   | Dec. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| MedImmune                                       |   | Oct. 2007     |   | PER.C6and MAbstract |   | Anti-bacterial   antibodies   |   | Pre-clinical     |
| Merck &  Co., Inc.                |   | May 2003      |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Merus  B.V.                                     |   | Jun. 2004     |   | PER.C6              |   | Portfolio oligoclonics        |   | Pre-clinical     |
| Micromet  AG                                    |   | Nov. 2004     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| MorphoSys  AG                                   |   | Sep. 2004     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Novartis                                        |   | Sep. 2006     |   | STAR                |   | Portfolio antibodies,Proteins |   | Pre-clinical     |
| Novartis                                        |   | Aug. 2004     |   | PER.C6              |   | HCV protein                   |   | Pre-clinical     |
| Patrys                                          |   | Feb. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| ProFibrix                                       |   | Dec. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| PR&D  Biotech SA (Recepta Biopharma SA)     |   | Nov. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Sartorius  Biotech GmbH                         |   | Jun. 2007     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Synergenics/Synco  Biopartners Investments B.V. |   | Aug. 2004     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| Taiwanese  Development Center for Biotechnology |   | Mar. 2007     |   | PER.C6              |   | Undisclosed proteins          |   | Pre-clinical     |
| UCB S.A.                                        |   | Mar. 2006     |   | PER.C6              |   | Portfolio antibodies          |   | Pre-clinical     |
| UCB  Celltech                                   |   | Sep. 2006     |   | STAR                |   | Portfolio antibodies          |   | Pre-clinical     |
| UMN  Pharma                                     |   | Mar. 2006     |   | PER.C6              |   | Undisclosed protein           |   | Pre-clinical     |
| XOMA Ltd                                        |   | Jan. 2006     |   | STAR                |   | Portfolio antibodies,Proteins |   | Pre-clinical     |

 

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Overview licensees and partners (continued)

 

**Gene therapy**

 
| Partner/licensee                 |   | Starting  date |   | Technology |   | Disease   target |   | Development    stage |
|----------------------------------|--------|----------------|--------|------------|--------|------------------|--------|----------------------|
| Ark  Therapeutics                |   | Jan. 2006 |   | PER.C6     |   | Portfolio        |   | Phase II             |
| GeneMax  Corp. / TAP-Immune      |   | Aug. 2003 |   | PER.C6     |   | Portfolio        |   | Pre-clinical         |
| GenVec  Inc.                     |   | Jul. 2002 |   | PER.C6     |   | Cardiovascular   |   | Phase II             |
| Merck &  Co., Inc. |   | Nov. 1998 |   | PER.C6     |   | Portfolio        |   | Pre-clinical         |
| Merial  Ltd.                     |   | Dec. 2005 |   | PER.C6     |   | Veterinary       |   | Pre-clinical         |
| NeoTropix                        |   | Mar. 2004 |   | PER.C6     |   | Oncology         |   | Pre-clinical         |
| Transgene  SA                    |   | Apr. 2001 |   | PER.C6     |   | Portfolio        |   | Phase I/II           |
| Vascular  Biogenics Ltd          |   | Mar. 2005 |   | PER.C6     |   | Portfolio        |   | Pre-clinical         |

 

 

**Alliances with contract managers forproduction**

 
| Partner/licensee                           |   | Starting  date |   | Technology |   | Area                                                     |
|--------------------------------------------|--------|----------------|--------|------------|--------|----------------------------------------------------------|
| Cambrex                                    |   | Aug. 2004 |   | PER.C6     |   | Medium development                                       |
| DSM  Biologics                             |   | Dec. 2002 |   | PER.C6     |   | Therapeutic proteins  (including antibodies)             |
| Gene  Medicine Japan, Inc.            |   | Oct. 2003 |   | PER.C6     |   | Recombinant vaccines  & gene therapy products (Asia) |
| Hyclone, Inc.                         |   | Dec. 2003 |   | PER.C6     |   | Medium development                                       |
| Invitrogen  Corp.                          |   | Jun. 2003 |   | PER.C6     |   | Medium development                                       |
| JRH  Biosciences Inc.                      |   | May 2004  |   | PER.C6     |   | Medium development                                       |
| Molecular  Medicine BioServices, Inc. |   | Dec. 2001 |   | PER.C6     |   | Recombinant vaccines  & gene therapy products (U.S.) |
| Sigma-Aldrich  Corp.                       |   | Dec. 2003 |   | PER.C6     |   | Medium development                                       |

 

**Functional Genomics**

 
| Partner/licensee         |   | Starting  date |   | Technology |   | Area     |
|--------------------------|--------|----------------|--------|------------|--------|----------|
| Galapagos  Genomics N.V. |   | Jun. 1999 |   | PER.C6     |   | Genomics |

 

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**Subsidiaries and other equity investments**

 

**Pevion Biotech AG**

In 2002Pevion Biotech was founded as joint venture by Berna Biotech and Bachem AG. Thecompany was dedicated to creating novel virosomal formulated vaccines andbringing them from research into clinical development. On November 5,2007, Crucell sold all of the 2.9 million shares it owned in Pevion Biotech for€ 6.1 million to other Pevion Biotech shareholders. Prior to this sale, ourownership interest had already been diluted from 50% in 2006 to 36% in early2007. We realized a gain of € 2.2 million on the sale.

 

**Kenta Biotech AG**

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

 

**ADImmune Corp.**

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

 

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

 

**Galapagos N.V.**

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

 

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

 

**Marketing and sales partners**

 

We have ourown sales and marketing infrastructure in our markets in the Netherlands,Switzerland, U.S., Korea, the Nordic region, Italy, Canada, Spain, China,Argentina, Indonesia and Vietnam. This sales and marketing infrastructureincludes a dedicated sales force for supranational organizations, to ensurebroader market access for our products and we have established a strong networkof partnerships to commercialize our products. We also distribute and marketother companies’ products. Through these measures, we have established a globalposition in both public and private markets.

 

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

·         Sanofipasteur – MSD. We act as marketing, sales and distribution partner for part ofthe SPMSD portfolio in Sweden.

·         NovartisVaccines and Diagnostics. We act as marketing, sales and distribution partnerfor part of the Novartis vaccine portfolio in Sweden.

·         StatensSerum Institute Denmark. We act as marketing, sales and distribution partnerfor a number of SSI products in Spain and Sweden.

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

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

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

 

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We havedeveloped a network of companies that market and sell our products. The mostsignificant collaborations in terms of current sales value are:

 

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

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

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

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

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

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

·        Kedrion – Amarketing, sales and distribution partner for our flu vaccine in Italy.

 

**Intellectual property**

 

Our successand ability to compete depends in large part on our ability to protect ourproprietary technology and information, and to operate without infringing 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 U.S. and Europe, as well as in other jurisdictionsas appropriate.

 

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

 

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

 

**2007Patent filings**

 
|          |       | Pending |       | Granted |       | Total  Active |       |
|---------------|------------|---------|------------|---------|------------|---------------|------------|
| Vaccines(2)   |       | 300     |       | 502     |       | 802           |       |
| Antibodies(3) |       | 145     |       | 54      |       | 199           |       |
| Technology(4) |       | 210     |       | 226     |       | 436           |       |
| Gene  Therapy |       | 46      |       | 71      |       | 117           |       |
| **Total**     | ** ** | **701** | ** ** | **853** | ** ** | **1,554**     | ** ** |

 
| (2) |   | Vaccines patent filings relate to  AdVac-based, live viral vector vaccines based on our proprietary measles  technology, our virosomal technology and classical whole inactivated virus,  split and sub-unit vaccines.     |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (3) |   | Antibodies patent filings relate to  antibodies and/or drug targets, excluding the enabling technologies that are  classified as technology.                                                                               |
| (4) |   | Technology patent filings primarily  relate to cell-based production technology, adenoviral vector technology,  STAR-technology and related technology, functional genomics and target and  antibody discovery technology. |

 

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**Patent filings**

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

 

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

 

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

 
| (1) |   | EU refers to filings made under the  European patent convention. The EU figures do not include European patent  applications designated in Patent Cooperation Treaty (PCT) applications while  still in the international phase.                                                                         |
|-----|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | U.S. figures do not include U.S.  patent applications designated in PCT applications while still in the  international phase.                                                                                                                                                                            |
| (3) |   | Figures reflect PCT applications  still in the international phase. Our PCT applications routinely designate  all territories and contracting states that are party to the Patent  Cooperation Treaty per the international filing date.                                                                 |
| (4) |   | Rest of world consists of  Australia, Brazil, Canada, China, India, Israel, Japan, Hong Kong, Mexico,  New Zealand, Norway, Russia, Singapore, South Africa and South Korea. Rest of  world figures do not include PCT applications designating these countries  while still in the international phase. |

 

**Patents**

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

 

Thefollowing is a summary of the intellectual property rights related to our majorproducts and product developments.

 

**Epaxal and Inflexal V.**

Epaxal andInflexal V are the two virosomal products which are protected by the patentfamily ‘Immunostimulating and immunopotentiating reconstituted influenzavirosomes and vaccines containing them’, which will expire in 2012. Inaddition, the hepatitis A strain used to produce Epaxal is claimed in a patentfamily which will expire in 2012.

 

**Hepavax-Gene**

The activesubstance of this monovalent recombinant hepatitis B vaccine is HbsAg which isno longer protected by patent in Europe and most countries in the rest of theworld. The Supplementary Protection Certificates with respect to Hepavax-Geneare still valid in Sweden, Italy, and France. However, we are not currentlyconsidering Western European countries for product registration and marketing.The production technology is based on our proprietary Hansenula polymorphaexpression technology.

 

**Quinvaxem**

We have nopatent protection for the active substances of Quinvaxem.

 

**Vivotif**

We have nopatent protection for the active substances of Vivotif.

 

**Dukoral**

We have nopatent protection for the active substances in Dukoral, but certain aspects ofmanufacturing are subject to patent.

 

We seekpatent protection, 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

 

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consequentlyour intellectual property activities concentrate on protecting thesetechnologies and any improvements thereof in the main worldwide vaccine marketsof Europe, the U.S., Canada, Japan and Australia. However, because some vaccinemarkets are outside these countries, we have also sought protection in othercountries, such as Korea, India and China. The IP portfolio is constantlyreviewed to decide on maintenance of individual patents or patent familiesconsidering parameters such as actual product performance, product development,patent term, options for commercialization or out-licensing of non-core IP. OurIP tasks are coordinated, patents are filed on a worldwide basis by specializedpatent attorneys.

 

Ourpatent-related activities do not afford complete protection to our intellectualproperty rights. Patents in the biotechnology and biopharmaceutical fieldsinvolve complex factual and legal questions. Patents may not be issued inrespect of our pending applications or in respect of future applications thatwe file. In addition, a patent that is issued to us may be narrower than ourapplication or found to be invalid. Others may make attempts to copy, reverseengineer or design around aspects of our technology, or to obtain and useinformation that we regard as proprietary. Our patent filings may be subject tochallenges.

 

**Patent enforcement and proceedings**

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

 

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

 

CellGenesys has filed opposition against our European patent related to our AdVactechnology. The opposition is still pending before the opposition division.

 

In 2005 welodged opposition against a European patent held by Chiron related to certainaspects of the production of influenza viruses in cell culture; the oppositionis still pending.

 

Oursubsidiary Berna Biotech Korea Corporation (formerly Green Cross VaccineCorporation) and our partner Novartis (formerly Chiron) lodged oppositionsagainst a patent of GlaxoSmithKline (GSK) in Korea. The patent relates tomultivalent vaccine formulations, such as our pentavalent vaccine Quinvaxem. Inresponse to the opposition, the patent was revoked by the Korean IntellectualProperty Office in December 2004 on the grounds that the subject-matterclaimed in the patent lacks novelty. GSK appealed that decision to the KoreanPatent Court. After a hearing which took place in April, 2006, the KoreanPatent court dismissed the appeal in June, 2006. GSK has appealed thisdecision. If the Korean Supreme Court were to reverse the decision of thePatent Court and if GSK were to enforce its patent, Berna Biotech Korea Corp.could be found to have infringed the patent. In this case, we may be forced todelay or even cancel our commercial activities with this vaccine. As aconsequence, we would lose revenue and our business would be adverselyaffected.

 

Inaddition, production of Quinvaxem requires a particular vaccine component thatmay become the subject of a patent dispute between either GSK and us or GSK andour supplier of that component. The patent on that particular component, heldby GSK, is currently under opposition before the patent office and a definitiveoutcome on the validity of the patent is expected to take a number of years. Anegative outcome of this opposition proceeding could lead to infringementproceedings between GSK and us or GSK and our supplier, although we believethat neither we nor our supplier would be held to have infringed or beinfringing that patent. The outcome of legal disputes is invariably difficultto predict with accuracy, but in the event GSK were to prevail in infringementproceedings against us, this would adversely affect our business.

 

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In additionto protecting our intellectual property rights, our commercial success alsodepends on our ability to operate without infringing the intellectual propertyrights of others. We monitor patent applications to the extent available,patents issued and publications of discoveries in scientific or patentliterature to keep abreast of the activities of others in our field and, withthe assistance of our internal and external patent counsel and other externaladvisors, assess whether our activities or products infringe the patents orproprietary rights of third parties. A number of third parties have beengranted patents that cover technologies related to ours and similar patents maybe granted in the future. We believe that our current activities do notinfringe any valid claims of patents or any other proprietary rights of thirdparties. We will consider the intellectual property rights of others as wecontinue to identify and develop potential products and may have to enter intolicensing or other agreements or use alternative technologies.

 

Researchhas been conducted for many years in the fields of biotechnology andbiopharmaceuticals. This has resulted in a substantial number of issued patentsand an even larger number of patent applications. The U.S. Patent Officemaintains patent applications that are filed only in the U.S. in secrecy untilpatents issue, and publication of patent applications elsewhere and ofdiscoveries in the scientific or patent literature frequently occurssubstantially later than the date of the underlying discoveries. Moreover,patents that appear not to affect our activities may be construed broadly. Assuch, we or our licensees may be found to infringe the patents or violate otherproprietary rights of third parties and may be enjoined from pursuing research,development or commercialization of our or their products or be required to paydamages. In these circumstances, licensing or other arrangements for addressingthese infringements or violations may not be available, or may not be availableon commercially acceptable terms.

 

**Technology licenses from third parties**

 

We licensednumerous technology and patents for specific use as part of our technologyplatforms from a number of third parties.

 

We enteredinto a technology license agreement with Xoma in the field of bacterialexpression technology. This license allows us to develop diagnostic andtherapeutic antibodies in the field of infectious disease using phage-displaytechnology. The agreement provides us with options to expand the license tocover additional 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 alsohold a license under the phage antibody display patent portfolio owned orcontrolled by MedImmune (formerly Cambridge Antibody Technology) and MRC, across-license with Transgene S.A. under which we granted to Transgene anon-exclusive PER.C6 license for the manufacture and sale of certain types ofvectors for use in gene therapy, and a license to phage antibody-displaytechnology and part human, or chimeric, binding proteins and molecules fromEnzon Corporation’s subsidiary, SCA Ventures, Inc.

 

In thefield of vaccines, we have concluded an agreement with the RockefellerUniversity in New York. According to the agreement, we have the exclusiverights to use and exploit the Rockefeller patents related to ex vivo and invivo targeting of dendritic cells with the use of viral vectors.

 

The Companyhas licensed adjuvation technology called ISCOMS from Isconova AB for thedevelopment, manufacture and commercialisation of improved influenza vaccines.

 

Whenlicensing our technology to third parties we seek to obtain access to anyimprovement patents via so-called grant-back provisions to reduce the risk ofbeing exempted from using such improvements for our own benefit, or that of ourlicensees.

 

**Technology licenses to third parties**

 

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

 

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**Industry and scientific overview**

 

**Manufacturing systems for biopharmaceutical products**

 

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

 

**Vaccines**

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

 

**Scientific progress in vaccines**

Vaccineshave contributed significantly to the improvement of global public health inthe twentieth century. Smallpox was eradicated through the use of vaccines, andpolio is well on its way to eradication. Significant developments include theintroduction of combination vaccines and the development of new vaccinetechnologies that may advance vaccine development. Today, research is underwayto develop efficacious and safe vaccines against among others

 

·   Viruses such as HIV;

·   Parasites such as those that cause malaria;

·   Bacteria such as those that cause tuberculosis; and

·   Inherited or acquired diseases such as cancer.

 

**Vaccine formats**

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

 

**Vaccine technology development**

A largevariety of vaccine technologies are under development in an attempt to improvesafety and overall vaccine efficacy. The key objectives of current vaccinetechnology research and development are to make safer vaccines withoutcompromising efficacy, to generate new vaccines with stronger and broaderimmunogenicity, to make vaccines using more efficient manufacturing processesand to make vaccines easier to administer.

 

**Antibodies**

 

Antibodiesare proteins made naturally by cells of the body’s immune system. They functionas one of the body’s principal defence 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. Because of theirbinding characteristics, antibodies can distinguish subtle cell differencesbetween healthy and diseased cells. Antibodies are used to develop therapeuticproducts that can

 

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

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

·   Block infectious agents.

 

Antibodiesmay also be used to bind and neutralize toxic products, to develop diagnosticproducts to detect viruses or bacteria and as tools in scientific research suchas genomics and proteomics.

 

**Scientific progress in antibodies**

Methods forgenerating monoclonal antibodies have evolved considerably over the last 25years. The technology originally involved immunizing mice with a targetmolecule and isolating relevant antibody-producing cells from the mice. Becausemonoclonal antibodies of rodent origin are recognized as foreign proteins andare rapidly eliminated when applied in humans, methods were developed toproduce therapeutic antibodies that are of human origin. These antibodies can bedeveloped either using transgenic mice or by means of phage antibody-displaytechnology. Transgenic mice are genetically engineered mice that carry humanantibody genes. This allows the immune systems of mice to generate humanantibodies in response to any administered antigenic material. Phageantibody-display technology allows human antibody genes to be cloned intobacteriophages, which are viruses that only infect bacteria. Phages displayingantibody fragments that attach to specific molecules can be selected, enablingisolation of antibodies against targets and/or

 

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enablingthe identification of target molecules. Phage antibody-display libraries arelarge collections of antibody-phages for use in identifying the targets andrelated antibodies.

 

**Therapeutic proteins**

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

 

**Scientific progress in recombinant therapeutic proteins**

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

 

Mammaliancell-based protein production systems mostly use non-human cell lines such asCHO, BHK and others. The type of post-translational modifications carried outby the platform is often determined by the cell-type used. Current thoughtholds that recombinant proteins should be produced by cell lines in culturemedia that are completely devoid of human serum components.

 

**Competition in product and technologydevelopment**

 

Thebiotechnology field is one of rapid change and innovation. We expect that thisindustry will continue to experience significant technological and otherchanges in the years ahead. We operate in highly competitive markets and we mayexperience competition from companies that have similar or other technologies,and other products or forms of treatment for the diseases we are targeting. Wealso may experience competition from companies that have acquired or mayacquire technology 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 for alternativetechnologies or commercial products earlier than we or its licensees do. Othercompanies are developing products to address the same diseases and conditionsthat we and our licensees target and may have or develop products that are moreeffective than those based on our technologies. We also compete with ourlicensees in developing new products.

 

**Vaccines**

 

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

 

Withrespect to vaccines, other companies use alternative non-human expressionplatform technologies. We are aware of licensed vaccines that are produced incell substrates such as MDCK (Madin Darby Canine Kidney cells) and VERO as wellas on production platforms based on embryonated chicken eggs. There are alsomouse brain-derived inactivated vaccines that are produced in several Asian countries.We are also aware of other human expression technologies such as WI 38 and MRC5 for licensed and marketed vaccines, as well as human cell lines supportingproducts in development such as (HEK) 293.

 

In the areaof influenza, we are aware that Solvay has obtained registration in theNetherlands for a vaccine based on MDCK cells. We are aware of otherbiotechnology and pharmaceutical companies that currently are developinginfluenza vaccines based

 

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

 

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

 

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

 

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

 

**Adenoviral vector technology and other recombinant vectors**

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

 

**Antibodies**

Otherbiotechnology companies, including Celltech Group plc and Protein DesignLaboratories, Inc., currently generate humanized antibodies, and Medarex, Inc.,GenMab AG, and Regeneron produce fully-human antibodies from transgenic mice.MedImmune (formerly Cambridge Antibody Technology), MorphoSys AG and 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 areaof infectious disease antibodies, potential competitors include serum antibodycompanies such as CSL and Baxter, and monoclonal antibody companies likeMedImmune. For rabies specifically, our antibody product may offer analternative to the existing rabies immune globulin products, both Human (HRIG)and Equine (HRIG), that are currently paired with rabies vaccine for effectivepost-exposure treatment.

 

**Production of recombinant proteins and monoclonal antibodies**

Monoclonalantibodies and recombinant proteins are produced by other companies on avariety of platforms. Simple proteins that do not demand extensivepost-translational modifications are produced in bacterial systems (E. coli).For example, the human recombinant insulin is produced entirely on E. coli.

 

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Monoclonal antibodies and complexrecombinant proteins are produced mainly on mammalian cell lines, which areused for commercial production of monoclonal antibodies and other recombinant proteinsby companies including Genentech, Biogen, Centocor, Amgen, Lonza and BoehringerIngelheim. We are aware of a human cell line expression platform used forproduction of recombinant proteins, the 293 human cell line, which shares someof the advantages of the PER.C6 technology. The 293 human cell line is utilizedby Eli Lilly & Company to produce a protein for the treatment of adultsevere sepsis. The FDA and the EMEA have approved this product and it iscurrently available for use. We are aware that scientists have publishedresearch describing human cell culture systems that appear to have similaritiesto our PER.C6 technology.

 

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

 

**Regulationsapplicable to the biopharmaceutical industry**

 

We operate in a highly regulatedindustry. Our products require approval of government health authorities beforethey can be sold, and require significant pre-clinical testing before approvalwill be granted. Our research and development and production activities involvethe use of hazardous materials, including chemicals and radioactive andbiological 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.

 

Our ability and that of ourlicensees to commercially distribute biopharmaceuticals depends in part on theextent to which governmental health administration authorities, healthinsurance companies, government health policies, health maintenanceorganizations, or HMOs, and other organizations are willing to pay for thecosts of these products. The willingness of governments and HMOs to pay for thecosts of newly developed health care products is uncertain. There are effortsby governmental payers and HMOs to contain or reduce the costs of health careand we expect that there will continue to be a number of legislative proposalsto do so.

 

Obtaining product approval is acostly and time- consuming process. All of our potential products, and those ofour licensees, are either in research or development. Any products ourlicensees or we develop will require regulatory clearances prior to clinicaltrials and additional regulatory clearances prior to being produced anddistributed commercially. These regulatory processes are generally stringentand time consuming. We expect the European Medicines Agency (EMEA) in theEuropean Union, the FDA in the U.S., the College ter Beoordeling vanGeneesmiddelen (CBG) in the Netherlands and comparable agencies in othercountries to subject new biopharmaceutical products to extensive regulation.These regulatory requirements with which we and our licensees will have tocomply will evolve over time due to the novelty of the biopharmaceuticalproducts and therapies currently under development. Fortunately, theharmonization of these requirements is promoted at an international level(International Conferences on Harmonization (ICH)) to avoid unnecessaryrepetition of studies when seeking approval in various countries. Under thecurrent definitions, we believe that products developed using our technologieswill be regulated either as biological 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

 

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

 

Clinical trials are normally done inthree phases:

 

·       **Phase I:** First clinical trial of a newcompound, generally performed in a small number of healthy human volunteers, toassess clinical safety, tolerability as well as metabolic and pharmacologicproperties.

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

·        **Phase III:** Large-scale clinical studies withseveral hundred or several thousand patients to establish safety andeffectiveness for regulatory approval for indicated uses and to evaluate theoverall benefit/risk relationship.

 

Our research and development andproduction activities are undertaken in a number of countries around the world.These activities are subject to strict regulatory requirements of national andsupranational authorities in the countries in which they are undertaken such asrequirements governing the testing, manufacturing and marketing ofpharmaceutical products. In most countries, it is necessary to obtain anapproval to market a pharmaceutical or medical product. The grant of such anapproval is subject to a detailed evaluation of data submitted by the applicantrelated to the quality, safety and efficacy of the product. Many countries,including member states of the EU and the U.S., impose extensive testing anddata submission requirements and conduct rigorous technical appraisals ofproduct 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 very lengthy and costly process.

 

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

 

**Prequalificationapplicable to the biopharmaceutical industry**

National and regional governmentsrely on the prequalification granted to biopharmaceutical products by evaluativebodies such as the WHO and, in some cases, simply elect not to purchaseproducts which have not been granted prequalification of approval.

 

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

 

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

 

Any manufacturer wishing theirmedicines to be included in the prequalified products list are invited toapply. Each manufacturer must present extensive information on the product (orproducts) submitted to allow qualified assessment teams to evaluate itsquality, safety and efficacy. The manufacturer must also open its manufacturingsites to an inspection team which assesses working procedures for compliancewith WHO Good Manufacturing Practices (GMP).

 

The Prequalification project doesnot intend to replace national regulatory authorities or national authorizationsystems for importation of medicines.

 

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**Additional information on the Company**

 

**Legal proceedings**

 

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

 

**Deductibility ofresearch and development costs**

In Italy, Berna Biotech Italia Srl.was subject to a tax audit for fiscal years 2001 and 2002. For the year 2001, asettlement was reached with the Italian tax authorities in 2007. For the year2002, no settlement is reached. The tax authorities issued an assessment thatdeviates from the assessment in the tax return filed. We are challenging thisassessment in court. We made a provision for the costs of additional taxes,penalties and interest, as well as lawyers’ fees, which we expect we will haveto pay as a result. One of the items in dispute is the deductibility of theresearch and development costs we make in Italy. In the event that we lose thecourt case on this subject, the Italian tax authorities may challenge the deductibilityof research and development costs for the years 2003 up until 2007. We considerit more likely than not that the research and development cost will be taxdeductible.

 

**Complaint filed byKorean landlord**

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

 

Our landlord plans to surrender aportion of the land on which our Korean facility sits, to the local andregional authorities due to construction of a light railway and a subway lineextension along with the potential urban development associated therewith. In2007, we demolished a warehouse that was directly in the path of theconstruction of the subway line. Currently, none of our property is in the wayof the construction projects. Our landlord has advised us it will stopproviding utilities to us in early 2009. Furthermore, our landlord filed acomplaint against us in November 2007, seeking the demolition of two moreof our buildings at the Korean facility and delivery to them of the land onwhich those buildings are located. The suit alleges that there is an impliedlease agreement for those buildings and the land on which they sit, whichautomatically terminated upon commencement of the subway line extensionproject. In January 2008, we submitted our answer to the Court, denyingthe landlord’s allegations on the grounds that there was no new (whetherimplied or express) agreement to demolish the buildings and deliver therelevant land. Such an agreement would be inconsistent with the long-term leaseagreement which we and the landlord executed in April 2000. We expect thiscourt case to last several years.

 

An unfavourable outcome of the courtcase may have a material adverse effect on our business, financial conditionand results of operations.

 

**Property, plant andequipment**

 

Our corporate offices and researchactivities are located in facilities of approximately 8.700 square meters inLeiden, the Netherlands. The section of this building that we use in Leidenincludes 3.500 square meters of laboratories, with BioSafety Level (BSL) 1, BSL2 and BSL 3 labs. The remainder of the main building is divided into 2,800square meters of office space and 2,400 square meters for storage, technicalareas, washrooms, waste destruction and sterilization.

 

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

 

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

 

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The new centre is named afterCrucell co-founder Dinko Valerio, and is known as PTC Valerio Building. The PTCValerio Building will give us the in-house capability to support vaccine,protein and monoclonal antibody process design and development, minimizingrequirements for outsourcing. Bioreactors of 2, 10, 30 and 100-liter capacitieshave already been constructed off-site and are installed. There is also roomfor expansion, with multiple 100-liter wave-bags, disposable stirred tankbioreactors, and large scale down stream processing equipment and scale-up offill and finish capacity.

 

When fully operational, the ValerioBuilding will meet the highest environmental and safety standards recommendedfor the laboratory activities to be conducted there. The facility must receiveapproval from the Dutch government to produce material for use in humans.Extensive precautions will be taken to ensure safety and continuity ofoperations. Product quality will be strictly monitored, maintained andadministered in-house. The facility is currently scheduled to becomeoperational in the first half of 2008.

 

Since our 2006 acquisitions, we alsohave office space, laboratories, production facilities, pre-clinical facilitiesand storage space in Switzerland, Spain, Germany, Sweden and Korea.

 

The following table sets outinformation regarding our main facilities outside the Netherlands:

 
| Location          |   | Use                                      |
|-------------------|--------|------------------------------------------|
| Bern, Switzerland |   | Research  and development                |
| (two locations)   |   | (including  pre-clinical facilities)     |
|              |   | 8,618 m2 and  production facilities |
|              |   | (12,427 m2); office  space               |
|              |   | (5,635 m2) and  storage                  |
|              |   | buildings  (15,988 m2) (owned)           |
| Madrid, Spain     |   | Production  facilities                   |
|              |   | (1600 m2), storage  buildings            |
|              |   | (2400 m2) and  office space/labs         |
|              |   | (1409 m2) (owned)                        |
| Seoul, Korea      |   | Development  and                         |
|              |   | production  facilities                   |
|              |   | (2,201 m2),  pre-clinical facilities     |
|              |   | (999 m2), storage  facilities            |
|              |   | (1,305 m2), office  space                |
|              |   | (1,819 m2) (leased  until 2010)          |
| Stockholm, Sweden |   | Development  and                         |
|              |   | production  facilities                   |
|              |   | (4,866 m2),  pre-clinical facilities     |
|              |   | (1606 m2), storage  facilities           |
|              |   | (5,990 m2), office  space                |
|              |   | (2,662 m2) (leased  until 2020)          |

 

Our manufacturing facilities inSwitzerland are FDA/EMEA-approved and are used primarily for the production ofInflexal V, Vivotif, Epaxal and mammalian cell culture-basedproducts. One of our facilities also includes facilities for lyophilization anda Center of Mammalian Cell Culture, which is currently not in use.

 

Our manufacturing facilities inKorea are World Health Organization-approved and are used primarily for theproduction of Quinvaxem and Hepavax-Gene and for formulating and filling vials.The manufacturing process used at our Korean facilities are based on thepatented Hansenula polymorpha yeast expression technology.

 

In Spain, the center of our Europeanfilling and packaging operations, we operate a filling line for syringes.

 

In Sweden, our manufacturingfacilities are EMEA/WHO-approved and are used for the production of Dukoral andthe recombinant protein rCTB.

 

In 2007 € 27,156 was invested inproperty, plant and equipment compared to € 20,337 in 2006. The investments in2007 mainly related to our new GMP production facility in Leiden, theNetherlands and investments in our facilities in Bern, Switzerland that willimprove current production processes and allow in-house production of materialscurrently acquired from third parties.

 

In 2006 € 20,337 was invested inproperty, plant and equipment compared to € 17,137 in 2005. Investments weremainly related to building and equipping our new GMP production facility inLeiden, the Netherlands.

 

**Insurance**

 

We have in place general third partypublic and product liability insurance. Our policy has a limit of liability andhas certain additional conditions to coverage and deductibles. We do not insureour phage antibody display library or PER.C6 master cell bank, though identicalcopies of the same cell bank are stored in multiple locations in Europe. Wecarry insurance relating to theft, fire and damage to the moveable assetswithin our facilities and other customary insurance coverage for most of ouractivities, including liability insurance coverage for the members of theManagement Board, Management Committee and the Supervisory Board.

 

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**Employees**

For abreak-down of the employees by function and geography reference is made to note5.1 ‘personnel expenses’ in the Financial Statements.

 

**Material contracts**

 

As of thedate of this Annual Report, we are not party to any contracts (not entered intoin the ordinary course of business) that are considered material to ourresults, financial condition or operations.

 

**Dividends and dividend policy**

 

CrucellN.V. has not paid any dividends in 2007. We do not intend to pay dividends onour ordinary shares for the coming years, and thereafter only on the conditionthat our financial performance is adequate and it is in the shareholders’interest to pay dividends instead of investing the proceeds into the company.Any payment of future dividends and the amounts thereof will depend uponearnings, statutory and financial requirements and other factors deemedrelevant by our management board, and will be subject to withholding tax in theNetherlands. In the event that we pay dividends in the future, holders of ourADSs will be entitled to receive payments in U.S. dollars in respect ofdividends on the underlying ordinary shares in accordance with a depositagreement dated October 26, 2000, between The Bank of New York and us.

 

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**Risk Factors**

 

You shouldcarefully consider all the information in this Annual Report, including thesematerial risk factors. The risks we face are not limited to the risks listedhere. Some risks are not yet known to us and some of the risks that wecurrently do not believe to be material to our operations could prove to bematerial at a later date. All of these risks can materially affect ourbusiness, financial condition and results of operations.

 

**Risks related to our company**

 

**We have a history of net losses and we may not achieve or maintainprofitability.**

We haveincurred net losses since our incorporation. At December 31, 2007, we hadan accumulated deficit of € 293.8 million (2006: 247.9 million). Wemay have net losses and net cash outflows in the future. Achievingprofitability will depend, in part, on:

 

·         the rate ofgrowth, if any, in our product sales and licensing revenues;

·         ourability, in the longer term, to obtain approval for current pipeline productsand to develop potential products either on our own or through partnerships,collaborations or strategic alliances; and

·         the levelof our expenses.

 

We maynever generate sufficient revenues to achieve profitability. Growth of ourrevenues is dependent on expanding current product sales, obtaining approval ofthe products in our pipeline, the success of our technologies – in particular,PER.C6 – and on our success and that of our licensees in developingcommercially successful products based on our technologies. Revenue growthrelated to our existing products may be dependent on factors beyond our controlas discussed below under ‘– Our products may fail at any stage of developmentor after market introduction due to factors beyond our control.’ Further, we donot have control over the ability of our licensees to develop commerciallysuccessful products based on our technologies. We expect to continue to investin research and development to enhance our technologies and develop potentialproducts. Even if we do achieve profitability, we may not be able to sustain orincrease profitability on a quarterly or annual basis.

 

**We have used substantial capital in our business in the past, and we mayneed to raise additional capital in the future. If we do not raise thisadditional capital, we may be unable to acquire other companies or assets wewould like to or may have to scale back certain research and developmentactivities.**

In thepast, we have had to raise additional funds to acquire other companies andassets and continue the research and development of our technologies andpotential products. For example, to fund our research and development, weraised net proceeds of € 50.1 million in a private offering of our ordinaryshares in 2005, to accelerate our product development, especially in the fieldof antibodies and therapeutic proteins. To make acquisitions, we have raisedadditional capital and issued new shares. In February 2006, we issued 16.7million ordinary shares in connection with our acquisition of Berna Biotech andin November 2006, we raised gross proceeds of € 80 million in a privateoffering of our ordinary shares to fund the acquisition of SBL and BPC andrepay outstanding mortgage loans previously incurred by Berna Biotech.

 

We expectthat our future capital requirements will continue to be substantial. Changesmay occur that would consume available capital resources significantly soonerthan we currently expect. We may seek additional funding through public orprivate financing (including debt or equity financing), strategic alliances orother arrangements. We may not have access to additional financing and, if wedo, it may not be on favourable terms. If we fail to raise sufficient funds, wemay have to forego acquisitions, reduce our capital expenditures, scale backour potential product development, reduce our workforce and license potentialproducts or technologies to others that we otherwise would seek tocommercialize ourselves.

 

**Our results fluctuate as a result of seasonality in our business,particularly with respect to our flu vaccine product.**

Ourinfluenza vaccine, Inflexal V, accounts for a significant proportion of netsales from our vaccines business. The market for flu vaccines is extremelyseasonal. There is a narrow window of time for production, regulatory approvaland marketing of flu vaccines. Possible delays in stock availability ormarketing of the Inflexal V vaccine could have a significant negative effect onus, since a majority of the distribution and sales occurs during only a fewweeks in the third and/or fourth quarter

 

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of everyyear. Potential delays in any step of the regulatory approval, production andmarketing process could result in a significant sales reduction for us. Inaddition, the antigen necessary to produce influenza vaccine is in limitedsupply, and we generally rely on a single source for our supply of thisantigen. Any interruption or delay in our antigen supply could have amaterially adverse effect on our sales of Inflexal V and negatively impact ourearnings and financial position.

 

**We may be unable to make desirable acquisitions or to integratesuccessfully any business we acquire.**

Our futuresuccess may depend in part on the acquisition of business or technologiesintended to complement, enhance or expand our current business or products orthat might otherwise offer us growth opportunities. Our ability to completesuch transactions may be hindered by a number of factors, including potentialdifficulties in obtaining financing or in issuing our own securities as paymentin acquisitions. We expect any acquisitions we undertake would be expected toresult in future growth benefits, cost savings and other benefits. However, ourability to successfully realize these benefits and the timing of theirrealization may be affected by a variety of factors, including:

 

·         thechallenges of integrating the businesses, management teams and workforce of thetwo companies;

·         unexpected events including major changes in the vaccineindustry; and

·         aligning new priorities.

 

Given theseand other risks related to the combination of Crucell and any business weacquire, there can be no assurance that the benefits we expect from anycombination will be realized. If the expected benefits of any combination weundertake are not or only partially realized, our business, financial conditionand results of operations may be materially and adversely affected.

 

**Our products may fail at any stage of development or after market introductiondue to factors beyond our control.**

There areinherent risks in the business of biotechnological development and productionin connection with the development of biological products. Pre-clinicaltesting, clinical research and regulatory approval of a pharmaceutical ormedical product is a very lengthy and costly process, and there is asignificant risk of failure at each stage of the process, should issues arisewith respect to the efficacy or safety of a product. In particular,pre-clinical and early clinical studies cannot ensure efficacy for humans, andhuman studies are thus required for vaccine development. Such studies may,however, fail to prove the efficacy of the product candidates and are atconstant risk of suspension for posing unreasonable health risks. There can beno assurance that any product candidate in our pipeline will either reach orsuccessfully complete the clinical research process. Although a product reachesa later stage of development and offers a reasonably high probability ofsuccess relative to products in earlier stages of development, the chances offailure remain significant. We have had products fail at later stages ofdevelopment in the past. Any or all of our current later-stage products couldfail to be proved sufficiently safe or effective to be brought to market orcould fail to receive necessary regulatory approvals. Such failures could havea material adverse effect on our business and prospects.

 

Even if theproducts currently in later-stage development are introduced, there can be noassurance that a market for such products will develop or be sustained. If amarket does develop, there can be no assurance that our existing facilities andresources will be sufficient to meet demand. Accordingly, there can be no assurancethat we will realize any potential benefits that may be associated with ourlater-stage development product portfolio.

 

**If we or our licensees or our partners do not develop commerciallysuccessful products, we may fail to realize significant sales and royaltyrevenues in future years.**

Very littledata exists regarding the safety and effectiveness of the type of potentialproducts that we, our licensees and our partners are developing. All of ourpotential products, and those of our licensees and partners, including thosebased on our PER.C6 technology, are either in research or in pre-clinical orclinical development. We and our licensees may not succeed in developingcommercial products that are safe and effective, meet applicable regulatorystandards, are capable of being manufactured at reasonable cost, or can bemarketed successfully.

 

Developmentof products requires significant investment, including pre-clinical andclinical testing, to demonstrate their effectiveness prior

 

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to theircommercial distribution. To a certain extent, we are dependent on the researchand performance of third parties to bring potential products to market. We andour licensees and partners must conduct a substantial amount of additionalresearch and development before any regulatory authority will approve any ofour or their potential products. Our research and development or that of ourlicensees and/or partners may not establish that our technologies or our ortheir potential products are safe and effective, in which case regulatoryauthorities may not approve them. Further, our government and universitylicensees and collaborators may have goals, such as academic publication ordata collection, that are not solely focused on producing marketable products.Problems frequently encountered in connection with the development and use ofnew and unproven technologies and the competitive environment in which we andour licensees and partners operate may further limit our and their ability todevelop commercially successful products.

 

**If our licensees or partners do not continue to use our potentialproducts, PER.C6 technology or our other technologies, or if they terminatetheir agreements with us, we will earn less or no revenue from our agreementswith them.**

License,service and manufacturing revenues and government grants from our potentialproducts, PER.C6 and other technologies have accounted for a substantialportion of our revenues in the past and we expect that they will continue tocomprise a portion of our revenues for the foreseeable future. If our currentor prospective partners or licensees do not continue to use our potentialproducts or technologies, or if they terminate their relationship with us, wemay not be able to continue to realize the revenues related to those partnersor licensees. In particular, our current or prospective licensees or partnersmay use or develop alternative technologies or develop competing products orpotential products independently or in collaboration with others, including ourcompetitors. If any of our licensees or partners become involved in a businesscombination or other major corporate transaction, this could cause a strategicshift in their business focus and the technologies they use. Our agreementswith our licensees do not routinely require them to dedicate resources todeveloping and distributing commercial products based on our technologies.Furthermore, our licensees or partners may generally terminate their agreementswith us on short notice. If they do terminate their agreements with us, we maynot be able to enter into new arrangements with other parties to replace thoseagreements. During 2007, existing licenses with 18 licensees were not renewed.

 

**We are dependent on a small number of products for a majority of ourrevenues and expect this dependence to continue for the foreseeable future.**

We aredependent on a small number of products that account for the majority of ourrevenues. By the end of 2007, our core product portfolio consisted of sixvaccines, namely Quinvaxem and Hepavax-Gene (paediatric vaccines), Inflexa l V(influenza), Dukoral, Epaxal and Vivotif (travel vaccines). The aggregatedrevenues for our core product portfolio amounted to € 149,297 in 2007 andrepresent 84.1% of our total product sales. In particular, we will be dependenton sales of Quinvaxem and Inflexal V.

 

If theseproducts were to become subject to any problem such as loss of patentprotection, unexpected side effects, regulatory proceedings, publicityaffecting doctor or patient confidence or pressure from competitive products,or if new, more effective treatments should be introduced, we could experiencea significant decrease in revenues and an adverse effect on our financialresults. The general demand for our travel vaccines is driven by the number oftravellers and their travel pattern. A terrorist act, war or natural disastercould significantly negatively impact both number of travellers and travelpattern for travellers coming, which could have an adverse effect on ourfinancial results.

 

**We may have conflicts with our licensees that could make collectingpayments due to us more difficult or that could negatively affect ourrelationship with our current and potential licensees.**

We may havedisagreements with our licensees over royalty payments due to us and may havedifficulty in collecting these payments. Our existing license arrangementsgenerally entitle us to receive royalty payments for any potential productsdeveloped using our technology. We depend on our licensees to inform us whenthey develop products using our technology. If our licensees fail to inform usof their progress in these developments, we may not know of payments to whichwe would be entitled. In addition, our licensees may have difficulties makingpayments to us given the current economic climate or other factors. We may alsoincur significant expenses in collecting payments or, in some instances, we maynot succeed in collecting these payments at all.

 

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Ourlicensees may dispute the scope of the licenses that we have granted them,which could negatively affect our relationships with them and other licenseesand our ability to grant additional licenses to other companies. In addition, arecent U.S. Supreme Court decision has established that a party need not breakor terminate a license agreement before seeking a court judgment that thepatents underlying the license agreement are not valid, not enforceable or notinfringed. Some commentators in the intellectual property field have expressedthe opinion that, due to this decision, patent challenges by licensees ingeneral will increase. If, in the future, we become subject to additionalpatent challenges, it would cause us to have to expend greater resourcesdefending such challenges. Challenges decided adversely to us could cause us toforego royalty payments which could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

A number ofour license agreements provide that if more favourable royalty terms aregranted to another licensee pursuant to a license of substantially the samescope, the initial licensee will also be entitled to the more favourable terms.A licensee may claim that other license agreements contain more favourableterms and that we should extend these terms to it. This may lead to a licenseedisputing the amounts payable to us.

 

**An inability to attract and retain qualified personnel could adverselyimpact our business.**

We may notbe able to recruit and retain the qualified personnel necessary to develop ourcore technologies and potential products and execute our business plan. Thereis currently a shortage of skilled executives, scientific personnel andintellectual property and regulatory experts in our industry, particularly inthe markets in which we operate. We believe this shortage is likely tocontinue. As a result, competition for skilled personnel is intense.Competition for experienced executives, scientists, developers andmanufacturers of pharmaceutical products, and other experts from numerouscompanies and academic and other research institutions may limit our ability toattract and retain qualified personnel on acceptable terms or may significantlyincrease our labour costs. The inability to attract and retain highly skilledpersonnel on acceptable terms could have a material adverse effect on ourbusiness, financial condition, results of operations and prospects.

 

**A number of our research and product development programs depend onaccess to biological materials without which we would be unable to conductcertain research and development.**

To continueto develop our core technologies and potential products, we will need access tobiological materials, such as virus and tissue samples, which may be in limitedsupply. If we lose or do not obtain access to appropriate biological materials,or if tighter restrictions are imposed on their use or on information generatedfrom them, we could be restricted or prevented from conducting certain researchand product development. In addition, government regulations could result inrestricted access to, or use of, human and other biological material samples.

 

**We require a reliable supply of crucial materials for the production ofour products and for our serum- free medium. Some of these supplies areprovided by a limited number of third party suppliers and some of thesesupplies we produce or are planning to produce ourselves. Any interruption incertain supplies would interrupt our production and ability to conduct researchand product development.**

We and someof our licensees rely on third parties for the supply of the serum-free mediumin which we grow our PER.C6 cells. We cannot guarantee this medium will beavailable in the future on an industrial or bulk scale. If supply problemsforce us to use a new medium, we would need to spend time and resources toadapt our technology and processes to that medium, and during this period ofadaptation, our use of PER.C6 would be interrupted. Any such interruption orother failure of the serum-free medium upon which we currently rely coulddecrease the potential viability and profitability of our PER.C6 technology.

 

Inaddition, we rely on third-party suppliers including CSL and Novartis for thesupply of crucial materials for the production of some of our marketed productsor those under development, including starting materials as well as antigenspresent in the final product. This includes, but is not limited to, the supplyof A-Singapore flu antigen for the production of the currently marketedhepatitis A vaccine Epaxal, flu antigen for the production of the currentlymarketed flu vaccine Inflexal V and DiTewPHiB antigen for the currentlymarketed pentavalent vaccine Quinvaxem. Any interruption or termination ofthese supply relationships may have adverse effects on our ability to produceand supply these products as well as on our ability to launch new products indevelopment and thus on our overall results.

 

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Inaddition, our agreement with CSL for the supply of flu antigen for theproduction of our flu vaccine Inflexal V will terminate as of December 31,2009. Due to the shortage of antigen production capacity worldwide, we expectthat it may be difficult to establish a new contract for the supply of fluantigen on the terms and conditions we currently have. We have explored theavailability of alternative sources and believe sufficient antigen supplieswill be available. However, if we are unable to establish a new supplyagreement, or are only able to establish a new agreement on less favourableterms and conditions, it could increase our costs, and there is no guaranteethat we would be able to pass on these increased costs to our customers.

 

**The manufacture and distribution of our products is technically complex.Supply interruptions, product recalls or inventory losses caused by unforeseenevents, cold chain interruption and testing difficulties may reduce sales,delay the launch of new products and adversely affect our operating results andfinancial condition.**

Ourproducts are manufactured and distributed using technically complex processesrequiring specialized facilities, highly specific raw materials and otherproduction constraints. The complexity of these processes as well as strictcompany and government standards for the manufacture of our products subject usto production risks. For example, during the manufacturing process, defects inequipment or infrastructure may generate production delays. In addition,process deviations or unanticipated effects of approved process changes mayresult in these intermediate products not complying with stability requirementsor specifications. Our vaccine products in particular are subject to the riskof manufacturing stoppages or the risk of loss of inventory because of thedifficulties inherent to the aseptic processing of biological materials at thisstage. Any of those circumstances may arise in our own production facility andthose of our suppliers. Vaccine components cannot be sterilized nor canconservative agents be added to the manufactured vaccine. If our products wereto be contaminated by micro-organisms, it could result in the rejection of entirebatches of finished vaccine, which would result in lost sales and possiblyproduct recall, if contaminated vaccines have been shipped to customers.

 

Most of ourproducts must be stored and transported at temperatures within a certain range,which is known as ‘strict cold chain’ storage and transportation. If theseenvironmental conditions deviate, our products’ remaining shelf-lives could beimpaired or their efficacy and safety could even become so impaired that theyare no longer suitable for use. Further, most of our products are subject toadditional testing upon receipt, both by our customers and by governmentalagencies that regulate drugs in the markets in which we sell our products. Dueto significant lab-to-lab variability of certain type of tests, in particulartests on biological products such as ours, batches of products may not becleared by customers or these agencies, despite our having successfully testedthem at the end of the manufacturing process. Failed tests may of course leadto customers rejecting delivery of the product or government agencies notreleasing the product for marketing.

 

Theoccurrence or suspected occurrence of production, distribution and testingdifficulties can lead to lost inventories, and in some case product recalls,with consequential reputational damage and the risk of product liability. See ‘–We may have significant product liability exposure, and our product liabilityinsurance may be inadequate to cover product liability or other claims againstus’. The investigation and remediation of any identified problems can causeproduction delays, substantial expense, lost sales and the delay of new productlaunches.

 

We relyonly on one manufacturing site for each of our product. The marketing andauthorization of biologicals, in particular vaccines, is strongly linked withthe production facility and the equipment used, which are part of the regulatedmanufacturing process. With the exception of the filling process all ourproducts are produced only at one site in a dedicated building. As such we arevulnerable to any event that could interrupt our production. Transferring aproduction in a new site would take a long time which could not be overcomewith our product on stock due to the short shelf life of biologicals.

 

**We rely on our manufacturing facilities in Korea to produce all of oursupplies of Quinvaxem, and any events or disputes concerning that facility thatinterrupt, reduce or terminate production there may harm our business.**

Ourmanufacturing facility in Korea is our sole source of our supplies of ourQuinvaxem vaccine. As such, we are vulnerable to any event there thatinterrupts, reduces or slows our production of

 

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Quinvaxem.For example, we could experience natural disasters such as floods or storms orwork slow-downs or work stoppages by our employees. In addition, we leasethe property on which our factory is build from our landlord, Green CrossHoldings Corp under a lease that expires in 2010, and which can be extended foran additional five years at our election. We are the only party entitled toterminate the lease. Our landlord also provides our utilities, such as accessto water and electricity, at the site. Over a somewhat longer term, we intendto relocate our facilities to another site in Korea and preparations for aneventual move to another site are ongoing.

 

Ourlandlord plans to surrender a portion of the land on which our Korean facilitysits, to the local and regional authorities due to construction of a lightrailway and a subway line extension along with the potential urban developmentassociated therewith. In 2007, we demolished a warehouse that was directly inthe path of the construction of the subway line. Currently, none of ourproperty is in the way of the construction projects. Our landlord has advisedus it will stop providing utilities to us in early 2009. Furthermore, ourlandlord filed a complaint against us in November 2007, seeking thedemolition of two more of our buildings at the Korean facility and delivery tothem of the land on which those buildings are located. The suit alleges thatthere is an implied lease agreement for those buildings and the land on whichthey sit, which automatically terminated upon commencement of the subway lineextension project. In January 2008, we submitted our answer to the Court,denying the landlord’s allegations on the grounds that there was no new(whether implied or express) agreement to demolish the buildings and deliverthe relevant land. Such an agreement would be inconsistent with the long-termlease agreement which we and the landlord executed in April 2000. Weexpect this court case to last several years. We are currently engaged innegotiations with the local and regional authorities to determine the exactimpact of the construction projects on our facilities, as well as the exactnature of the compensation we are to receive. While we may be entitled to atleast partial compensation for any of our leasehold that the authoritiescondemn, our predecessor signed certain waivers in relation to the right toreceive such compensation, as a condition to receiving permission to build thefacilities. We may not be able to successfully challenge these waivers in courtand, in turn, may not be legally entitled to full compensation for anycondemnation by the authorities. We also prepare for utilities in our ownright. We can not guarantee that we will be successful in connecting to suchutilities, nor can we assure you that any possible compensation we receive fromauthorities or third parties will be sufficient to cover all of our expense.

 

If ourlease were terminated prior to its expiration, we were forced to demolishadditional buildings or we were otherwise forced to leave the land, we wouldhave to interrupt production of Quinvaxem, manufacture it at another of ourfacilities, build another facility to manufacture it or find a third party tomanufacture it. We would incur substantial costs if we were to have to eithermove production to a different facility or build a new facility withoutnecessarily being compensated for those expenses. Further, there is noguarantee that we could find a suitable third party to manufacture our vaccineor that if we did find one, we could enter into an agreement with them onfavourable terms or at all. If we were to suffer any interruption, including apermanent one at our Korean facility, this would reduce our sales of Quinvaxem,may increase our expenses and, in turn, have a material adverse effect on ourbusiness, financial condition and results of operations.

 

**We cannot be certain that our licensing or other agreements are not inbreach of applicable competition laws and will not be considered void.**

In thepast, we have not notified the European Commission competition authorities ofany of our licensing or other agreements or sought clearance from any othercompetition authority. We take the view that these agreements are unlikely tobe found to infringe European Union or other applicable competitionregulations. It is possible, however, that our current or future similaragreements could be found to infringe applicable competition regulations. Inthis event, among other things, we may be subject to fines, claims of damagesand our licensing or other agreements may be considered void and unenforceable.Under the 2004 Technology Transfer Block Exemption Regulation, or theRegulation, in the European Union we may be required to review and possiblyamend existing license and technology transfer agreements in the future. Forexample, if certain market share thresholds will 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

 

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ensure theagreements are in compliance with European competition law. This review processmay be costly and time consuming and may require renegotiation of certainportions of our licenses and other agreements, but we do not expect thisprocess to have a material adverse effect on our license portfolio or resultsof operations.

 

**Potential patent disputes with GlaxoSmithKline, if decided adversely tous, could cause us to lose a significant share of our future revenues.**

BernaBiotech’s subsidiary Green Cross Vaccine Corporation, currently operating underthe name Berna Biotech Korea Corp., and our partner Novartis, lodgedoppositions against a patent of GlaxoSmithKline (GSK) in Korea. The patent isconcerned with multivalent vaccine formulations, such as our pentavalentvaccine Quinvaxem which is registered in Korea. In response to the opposition,the patent was revoked by the Korean Intellectual Property Office in December 2004on the grounds that the subject-matter claimed in the patent lacks novelty. GSKappealed that decision before the Korean Patent Court. After a hearing whichtook place in April 2006, the Korean Patent Court dismissed the appeal in June 2006.GSK has appealed this decision. If the Korean Supreme Court were to reverse thedecision of the Patent Court and if GSK were to decide to enforce its patent,Berna Biotech Korea Corp. could be found to have infringed or be infringing thepatent. If we are found to be infringing, we may be forced to suspend, or evencancel, our commercial activities with this vaccine. As a consequence we wouldlose revenues and our business would be adversely affected.

 

Inaddition, production of Quinvaxem requires a particular vaccine component thatmay become the subject of a patent dispute between either GSK and us or GSK andour supplier of that component. The patent on that particular component, heldby GSK, is currently under opposition before the European patent office and adefinitive outcome on the validity of the patent is expected to take a numberof years. A negative outcome of this opposition proceeding could lead toinfringement proceedings between GSK and us or GSK and our supplier, although webelieve that neither we nor our supplier would be held to have infringed or beinfringing that patent. The outcome of legal disputes is invariably difficultto predict with accuracy, but in the event GSK were to prevail in infringementproceedings against us, this would adversely affect our business.

 

**Risks related to our industry**

 

**We face competition in discovering, commercializing and licensing newtechnologies from biotechnology firms in Europe, the U.S. and elsewhere. Thiscompetition may limit our ability to derive revenues from our technologies anddevelopment programs.**

The fieldof biotechnology is new and rapidly evolving, and we expect that it willcontinue to undergo significant and rapid technological change. We operate inhighly competitive markets and we may experience competition from companiesthat have similar or other technologies, or other products or forms oftreatment for the diseases we are targeting. We are aware of a number ofcommercial initiatives in the fields in which we operate that may result inmarketable products with which we would compete. We also may experiencecompetition from companies that have acquired or may acquire technology fromcompanies, universities and other research institutions. As these companiesdevelop their technologies, they may develop proprietary positions in the areasof our core technologies or obtain regulatory approval for alternativetechnologies or commercial products earlier than we or our licensees do. Othercompanies are developing products to address the same diseases and conditionsthat we and our licensees target and may have or develop products or potentialproducts that are more effective than those based on our technologies. We alsocompete with our licensees in developing new potential products. It is possiblethat we will not be able to effectively compete with these or other entities,and such competition could hamper our ability to bring products to market orlicense and derive revenue from our technology. Such an inability to compete couldhave a material adverse effect on our business, results of operations andability to achieve profitability.

 

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**We may have significant product liability exposure, and ourproduct liability insurance may be inadequate to cover product liability orother claims against us.**

Likeother manufacturers active in the biopharmaceutical industry, we may be exposedto product liability and other claims if third parties allege that ourtechnologies, potential products or future products have caused harm. If athird party successfully sues us for an injury caused by our products,potential products or products developed using our technologies, our liabilitycould exceed our total assets. This risk may be more pronounced in the case ofthe prophylactic vaccines and blood-derived products, which constitute ourmarketed products, than with respect to other pharmaceutical and medicinalproducts generally. Suits against us arising out of clinical trials mayincrease as more licensees utilize our technologies or potential products,thereby lessening our control over the manner of use of such technologies andpotential products. We maintain product liability insurance in respect of allmarketed products. We may seek to obtain additional product liability insurancein the future, though such additional insurance may be prohibitively expensive,or may not 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, thiscould prevent or inhibit the commercialization of products that we or ourlicensees develop. We are currently involved in a small number of productliability cases related to products that our subsidiary Berna Biotech marketedin the past. While we cannot predict the outcome of these cases, we do notbelieve that, if decided against us, any of these matters would have a materialadverse effect on our business, financial condition or results of operations.

 

**If ethical, legal and social issues related to the use ofgenetic technology, human based materials and pre-clinical and clinical testingnegatively affect regulatory approval, patentability or market acceptance ofour core technologies and of the products developed using these technologies,we would not be able to generate revenues from those products or ourtechnologies.**

Theuse of genetic technology and materials derived from human foetal tissue, suchas PER.C6 technology, raises many ethical, legal and social issues that couldhinder regulatory approval, patentability or market acceptance of itstechnologies and products developed using them. Further, public expressions ofconcern and adverse events involving new biopharmaceutical technologies orproducts (such as stem cells or genetically modified foods or organisms) couldresult in greater governmental regulation of its existing technologies andpotential regulatory delays relating to the testing or approval of our own orour licensees’ potential products. Any of these factors could generate negativepublicity or other adverse consequences regarding its business or industry, andcould reduce or eliminate the potential markets for our own or our licensees’potential products.

 

**We cannot be certain that we will be successful in publictenders to provide national governments and supranational organizations withour vaccine products.**

Forthe sale of our paediatric vaccines, we rely to a considerable extent on thepublic markets, which typically operate via a tender system. In a tendersystem, national governments or supranational organizations request proposalsfor the terms under which a vaccine manufacturer will provide a large quantityof one or more vaccines. The award of the tender is typically based on a numberof factors, including price and other non-financial attributes such as supplyreliability and quality. The tender is often for a period of one or more years,meaning that only the chosen manufacturer will be permitted to supply thesubject vaccine for that length of time. Failure to win a tender therefore, maycause us to be ineligible to supply the relevant national government orsupranational organization for one or more years, and in turn, have a materialadverse effect on our business, results of operations and financial condition.

 

**Third parties may bring claims relating to improper handling,storage or disposal of the hazardous materials we use in our business, whichmay require us to spend significant time and financial resources to defendagainst claims and to pay damages if we are found liable.**

Ourresearch and development processes involve the controlled use of hazardousmaterials, including chemicals and radioactive and biological materials. OurBioSafety Level III (BSL-III) laboratory facilities allow us to work on-sitewith hazardous materials like West Nile virus. Our operations also producehazardous waste products. Given the inherently dangerous nature of certain ofthe materials we may work with in our BSL-III laboratory facilities and otherhazardous materials incident to our work,

 

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wecannot eliminate the risk of accidental contamination or discharge and anyresultant injury from these materials. Various laws and regulations govern theuse, manufacture, storage, handling and disposal of these materials. We couldbe subject to civil damages and significant adverse publicity in the event ofan improper or unauthorized release of, or exposure of individuals to,hazardous materials. In addition, claimants may sue us for injury or contaminationthat results from our use or the use by third parties of these materials, andour liability may exceed our total assets. Compliance with environmental lawsand regulations may be expensive, and current or future environmentalregulations may make us adopt more labour intensive, time-consuming orcomplicated practices or procedures in connection with our research,development or production activities.

 

**We may be unable to obtain regulatory approval to manufactureand market our new products and may have regulatory approval of the manufactureand marketing of our existing products revoked.**

Regulatorybodies such as the U.S. Food and Drug Administration (FDA), the EuropeanMedicines Agency (EMEA), the European Commission and comparable authoritieselsewhere regulate the market introduction of biopharmaceutical products, whilenon-governmental bodies such as the World Health Organization (WHO) evaluatebiopharmaceutical products in order to (pre)qualify those products for purchaseby national or regional governmental bodies and large non-governmentalpurchasing organizations. To be approved for market introduction, a productcandidate must undergo extensive testing, which can take many years and requiresubstantial expenditures. The costs of pursuing and securing regulatoryapproval are increasing, necessitating additional regulatory complianceexpenditure on our part. Required testing and trials include a review of theunderlying technologies (including the cell line on which companies producebiopharmaceuticals) and are particularly rigorous with respect to vaccines.Product development involving new technologies is highly uncertain. Inaddition, different regulatory authorities may impose different conditions uponthe marketing of a given product or may refuse to grant, or require additionaldata before granting, an approval to market a product even though the productmay have been approved by another regulatory authority. Finally, national andregional governments rely on the (pre)qualification and/or approval granted tobiopharmaceutical products by evaluative bodies such as the WHO and, in somecases, simply elect not to purchase products which have not been granted (pre)qualification of approval.These evaluative bodies also require extensive information about the productand its market introduction test results prior to granting approval or(pre)qualification. There can be no assurance that regulatory approvals willultimately be obtained to manufacture andmarket any such product candidates in which we are, or may in the future be,interested. Further, there can be no assurance that evaluative body approval or(pre)qualification will be obtained. 

 

Althoughthe FDA allows PER.C6 cells to be used to produce clinical materials that arebeing used in clinical trials at this time, the FDA has in the past raisedconcerns over the history and some of the properties of PER.C6 cells. If we orour licensees are unable to satisfy regulatory authorities as to the historyand properties of PER.C6 or its appropriateness as a system from whichcompanies can produce biopharmaceuticals, new regulations could be adopted thatwould preclude use of PER.C6 cells in the future. If this were to occur, ourlicensing and other revenues from PER.C6 will suffer. Our other technologies havenot yet been used in clinical trials, and may face significant hurdles inobtaining regulatory approval if and when such trials begin.

 

Oncea product is approved, the manufacture and marketing of the product remainssubject to periodic review. Changes in applicable regulations, breaches ofregulatory requirements or the discovery of problems related to themanufacture, safety, quality, efficacy or stability of a product, as well aschanges in the characteristic of a product inherent to his biological origin,may result in the imposition of fines or restrictions upon the manufacture andsale of such product, including in the worst case withdrawal of the productfrom the market and/or the revocation of the relevant regulatory approvals. Ifthe relevant regulatory authorities do not approve products developed using ourtechnologies, or revokes approval of our existing products, we may not receiveany licensing or royalty revenues, which may have a material adverse impact onour business, financial condition, results of operations and prospects.

 

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RiskFactors

 

**Any potential health risks associated with our products orproducts produced using our technologies may lead to significant adverse regulatoryand market consequences.**

Thepossibility of product failure or adverse side effects poses a variety of risksfor manufacturers of pharmaceutical and medical products. These risks may bemore pronounced in the case of the prophylactic vaccines that constitute ourcore products than with respect to other pharmaceutical and medical productsgenerally. Because prophylactic vaccines are administered to healthy subjects,any adverse health consequences associated with such administration may beperceived as less tolerable than side effects associated with the treatment ofdisease. Accordingly, there can be no assurance that even relatively minorpotential health risks associated with our products will not give rise toadverse regulatory action, and/or negative market perception of us and ourproducts, resulting in a material adverse effect on our business, financialcondition, results of operations and prospects.

 

Inaddition, if even a few of our partners or licensees experience developmentdifficulties or failures while using our technologies, such as PER.C6, AdVac,MAbstract or STAR, other market participants, including existing or potentialpartners or licensees, could consider such difficulties or failure a result ofour technologies and cause such participants to end partnerships, terminatelicenses or never enter into either with us.

 

**Our efforts to protect our intellectual property rights or todefend ourselves against any claims of infringement may be costly and, ifunsuccessful, we may be barred from using or licensing our technologies.**

Ourcommercial success depends in part on our ability to obtain and maintainadequate protection of our intellectual property rights, including patents, inour technologies and potential products in Europe, the U.S. and elsewhere.However, the patent positions of technology-based enterprises like us aresubject to complex factual and legal issues that may give rise to uncertaintyas to the validity, scope and priority of a particular patent. There can be noassurance that we will develop products that are patentable, that patents willbe granted under pending or future applications or that patents granted to usor our collaborators will be of sufficient breadth to provide adequateprotection against competitors with similar technologies or products or willnot be successfully challenged. If we do not adequately protect ourintellectual property, competitors may be able to use our technologies and anypotential products we develop and erode our competitive advantage and/or erodethe value of our technologies.

 

Ourinability to adequately protect and/or enforce our products and technologies inemerging economies, such as India and China, may give rise to competition fromand in those territories, which would have an adverse effect on our ability tosell products and/or maintain economically healthy price levels. In addition,our ability to sell products at economically viable price levels may be subjectto imported competing products manufactured in low cost economies. We may notbe able to use our intellectual property to prevent manufacture of competingproducts to underdeveloped or developing countries, because of WTO inspiredcompulsory licensing regimes.

 

Ourcommercial success also depends in part on not infringing patents andproprietary rights of third parties. Our work is in areas of technology where alarge number of patent rights exist. As our activities in the biotechnology andbiopharmaceutical markets expand and more patents are issued, the risk that ourtechnologies and potential products may give rise to claims of allegedinfringement increases. In addition, we may in the future wish to undertakeactivities which raise patent infringement issues.

 

Weroutinely monitor the public disclosures of other companies operating in ourindustry regarding their technological development efforts to ensure that we donot undertake activities that infringe their intellectual property rights andto monitor whether those companies’ activities may infringe our intellectualproperty rights. Due to the inherent imperfections of patent searching, we cannever be certain that our monitoring will be exhaustive, and it is possiblethere may be third party intellectual property rights of which we are not yetaware. If we determine that other companies’ technological development effortsviolate our intellectual property rights, we intend to take appropriate action.We are aware of a few patents held by third parties which are potentiallyrelevant to our past, current or anticipated activities. We believe that ourcurrent activities do not infringe any valid claims of these patents. Thirdparties, however, may seek to enforce patents against us and a court may findagainst us. Enforcing intellectual property rights against others or defendingourselves against claims of

 

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infringementcan be very expensive, and any action in which we are involved could result insubstantial costs and diversion of management and technical personnel andresources.

 

Othercompanies are and may become involved in proceedings regarding patents thatcover technologies related to ours. The outcome of any intellectual propertyproceedings in which we or they are involved could effectively block ourability to further use or license our technologies or enter into co developmentarrangements. It could also impair our or our licensees’ ability to develop andcommercialize potential products or products, and could result in the award ofsubstantial damages against us. In the event of an unfavourable outcome inlitigation, we may need to obtain licenses or redesign our technologies orpotential products to avoid infringement. In the event that we must cease usinga technology, we could encounter delays in license revenue generation,milestone or royalty payments or product introductions while we attempt todevelop alternative technologies or potential products. If we do not succeed insuch attempts, we may be forced to cease operations. In addition, if litigationresults in a successful challenge to one of our patents, then competitors couldbe free to use the subject matter covered by the patent, or we may need tolicense the technology to others in settlement of such litigation.

 

Oppositionsare relatively straightforward proceedings where any third party can seek tohave a patent revoked. The proceedings typically have a stage where thepatent’s opponents and proprietor may each file observations in writing,followed by oral proceedings. The decision, which may be a dismissal of theopposition, a revocation of the patent or a maintenance of the patent in morelimited form, usually takes between two to three years from the start of theproceedings. In most jurisdictions the decision is subject to appeal by theadversely affected party or parties. If the oppositions against our PER.C6 andAdVac patents are successful we may lose some or all patent protection inEurope.

 

**If we or our licensees are unable to obtain any necessarylicenses from third parties for use of their intellectual property onacceptable terms, we or our licensees may be unable to develop or marketproducts based on our technologies.**

Beforewe can market some of our products or technologies, we may need to obtainlicenses from third parties who have patents or other intellectual propertyrights. We may be unable to earn revenues from products based on ourtechnologies or from our own potential products if a third party does not grantus or our licensees a necessary license or offers a license only onunacceptable terms. For example, in the patent context, others have filed, andin the future are likely to file, patent applications covering technologiesthat we may wish to use or products that are similar to products that may be developedusing our technologies. If these patent applications result in issued patents,we may need to obtain a license from the proprietors to use their patentedtechnology. These licenses may not be available, or may not be available onacceptable or commercially reasonable terms. Without these licenses, we may berequired to alter our technologies or potential products, or to avoid or stopcertain activities. Our licensees may face similar problems.

 

**Risks related to the securities markets and ownership of ourshares or ADSs**

 

**The protective measures included in our articles ofassociation may prevent unfriendly action that might otherwise be in the bestinterests of our shareholders.**

Ourarticles of association have, in accordance with the laws of the Netherlands,protective effects. Among other things, our articles of association providethat our Supervisory Board may make binding nominations for the election of itsboard members, and only a shareholders’ resolution approved by an absolutemajority of the votes cast, representing more than one-third of our outstandingshares, can set the nominations aside. Furthermore under Dutch law, we mayissue preference shares to a foundation, Stichting Preferente Aandelen Crucell,or the Preferred Foundation, giving it preferred dividend rights and dilutingthe voting rights held by the holders of the other classes of shares. ThePreferred Foundation has an option to acquire a number of preference sharesequal to the number of our outstanding shares. The chairman of our SupervisoryBoard, Jan Oosterveld, and four independent members comprise the board of the

 

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Risk Factors

 

PreferredFoundation. These and other provisions in our articles of association may havethe effect of delaying, deterring or preventing unfriendly action that mightotherwise be in the best interest of our shareholders or offer them theopportunity to sell their ordinary shares or ADSs at a premium over the marketprice. See ‘Other information’ and ‘Articles of Association and Share Capital’for additional information regarding the preference shares and our articles ofassociation.

 

**U.S. and other non-Dutch holders of our ordinary shares maynot be able to exercise pre-emption rights.**

Inthe event of an increase in our share capital, holders of our ordinary sharesare generally entitled to certain pre-emption rights unless these rights areexcluded by a resolution of the general meeting of shareholders or of our boardof directors, if so designated by the general meeting of shareholders orpursuant to our articles of association. However, U.S. holders of our ordinaryshares may not be able to exercise pre-emption rights unless a registrationstatement under the Securities Act is declared effective with respect to theshares issuable upon exercise of such rights or an exemption from theregistration requirements is available. No assurance can be given that anyregistration statement will be filed or, that if filed, will be declaredeffective, or that any exemption from registration would be available to enablethe exercise of a U.S. holder’s pre-emption rights.

 

**Our shareholders may have difficulty protecting their rightsas a shareholder and in enforcing civil liabilities because we are a Dutchlimited liability company.**

Dutchlaw and our articles of association govern issues regarding the legalorganization, internal constitution, corporate authority and the liability ofmembers of our Management Board and Supervisory Board. Most of our offices andassets are located outside the U.S. In addition, a majority of the members ofour Supervisory Board, all of the members of our Management Board andmanagement team are residents of, and most of their assets are located in,jurisdictions outside the U.S. As a result, it may be difficult to serveprocess on us or these persons within the U.S. It may also be difficult toenforce a U.S. court judgment against them in a U.S. court or in a Dutch courtor to enforce a Dutch court’s judgment against them in a U.S. court. This caninclude actions under the U.S. securities laws. In addition, it may bedifficult to enforce, in original actions brought in courts in jurisdictionslocated outside the U.S., liabilities under the U.S. securities laws. For amore complete discussion of potential difficulties in protecting your rights,see ‘Articles of Association and Share Capital — Enforcement of Civil Liabilities’.

 

**Our ordinary shares and ADSs may have a highly volatiletrading price. You may not be able to resell your ordinary shares or ADSs at orabove the price you pay for them, the ADSs may vary in value, and our shareprice may render us vulnerable to a takeover bid.**

Ourordinary shares are listed on NYSE Euronext Amsterdam’s Eurolist by Euronext(also called the Amsterdam Stock Exchange) and on the SWX Swiss Exchange, whileour ADSs are listed on the Nasdaq Global Select Market. An active trading marketfor our ordinary shares or ADSs may not continue to be sustained. The ADSs’ lowclosing price during 2005, 2006 and 2007 has been $ 12.30, $ 17.27 and $16.08respectively, and the closing price as of April 25, 2008 was $ 18.97.The trading prices of ordinary shares of biotechnology companies in generalhave experienced significant volatility in the past and are likely to continueto be volatile. In addition, any negative change in the public’s perception ofthe prospects of biotechnology companies could depress our ordinary share orADS price regardless of our results of operations. Other broad market andindustry factors may affect the trading price of our ordinary shares and ADSs,regardless of our performance.

 

**We believe that we were or may have been a passive foreigninvestment company before 2005, causing certain adverse U.S. tax rules toapply to U.S. holders that held our ordinary shares or ADSs before 2005.**

Althoughwe believe that we were not a ‘passive foreign investment company’ or ‘PFIC’ forU.S. tax purposes with respect to the year 2007 and also do not anticipatebecoming a PFIC with respect to the year 2008 or thereafter, we believe that wewere or may have been a PFIC with respect to the years before 2005. If we werea PFIC in the past, U.S. holders that held our ordinary shares or ADSs at anytime during the years when we were treated as a PFIC and did not make amark-to-market election or a qualified electing fund (‘QEF’) election willgenerally continue to be subject to certain adverse U.S. federal tax rules (the‘PFIC rules’), even though we later ceased to qualify as a PFIC. In order toavoid being subject to these rules in the future,

 

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affectedU.S. investors may wish to make a deemed sale election with respect to ourordinary shares or ADSs. The PFIC rules are extremely complex, and U.S.investors are urged to consult their own tax advisers regarding the potentialconsequences to them of making the deemed sale election. See ‘Information forshareholders and investors – Taxation of U.S. Investors – Passive ForeignInvestment Company Rules’.

 

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Operatingand Financial Review and Prospects

** **

**Operating and Financial Review and Prospects**

 

Youshould read the following discussion in conjunction with our financialstatements and the notes thereto included elsewhere in this Annual Report. Werefer to ‘Forward-looking statements’ as well as to ‘Risk factors’ for certainfactors that may affect our operating results. Unless otherwise mentioned allamounts in this section are in thousands of Euro, except share and option data.

 

**General**

 

Weare a fully integrated biopharmaceutical company, focused on developing,producing and marketing vaccines and antibodies against infectious diseases forprivate and public markets worldwide. We have a portfolio of well-knownvaccines and a pipeline of potential new vaccines and antibodies. We combineproprietary technologies to discover, develop and produce a variety of vaccinesand antibodies to combat infectious diseases.

 

**Summary of the full year financial results**

 

Totalrevenue and other operating income for the year ended December 31, 2007were € 213.1 million, which represents a more than 50% increase over the €140.9 million in revenues and other operating income reported in 2006. Theincrease in total revenues is mainly attributable to sales of paediatric andtravel vaccines. Total operating expenses amounted to € 129.8 million. R&Dexpenses of € 64.0 million reflect continued focus on (pre-)clinicaldevelopment. Reported loss over 2007 amounted to € 45.9 million, which includesan € 18.3 million purchase price allocation accounting charge.

 

Cashand cash equivalents at December 31, 2007 were € 163.2 million (2006: €157.8 million).

 

**Acquisitions and divestments**

 

Inearly 2006, Crucell acquired 98.4% of the Swiss biotech company Berna BiotechAG (Berna Biotech) 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 SBL VaccinHolding AB (‘SBL’), a fully integrated independent biotechnology company, fromthe private equity firm 3i and the financial group SEB. 

 

Our2006 financial results included one month of SBL’s financial results, threemonths of BPC’s financial results and ten months of Berna Biotech’s financialresults. Our 2007 results were significantly impacted by our 2006 acquisitionsas the consolidated results of the acquired companies are now included for afull year for the first time.

 

Theimpact of the 2006 acquisitions on our 2007 and 2006 financial results is asfollows:

 

inthousands of Euro

 
| ** **               | ** ** | **2007**    |       | 2006    | ** ** |
|--------------------------|------------|-------------|------------|---------|------------|
| Revenue                  |       | **184,225** | ** ** | 104,741 |       |
| Gross margin             |       | **63,589**  | ** ** | 21,223  |       |
| Other income             |       | **3,779**   | ** ** | 1,934   |       |
| Total operating expenses |       | **(65,971** | **)**      | (84,767 | )          |

** **

**Segments**

 

In2007 Crucell established two segments, a vaccines segment and a proteinssegment. The Company’s segmentation is based on our internal managementreporting:

 

·         Vaccines: developing, producing and marketingvaccines worldwide to combat infectious diseases;

·         Proteins: leverage Crucell’s novel, proprietarytechnologies to develop monoclonal antibodies to combat infectious diseases.

 

TheCompany realized total revenues of € 203,786 of which 95.8% relate to thevaccines segment and 4.2% relate to the proteins segment. The proteins segmentincludes some trade goods sales, but mainly consists of several candidateproducts in the pre-clinical phase and one product in the clinical phase(rabies). It will take several years before the first of these programs willreach the market. Therefore revenues in the proteins segment are limitedcompared to the vaccines segment.

 

Researchand development costs of € 63,995 of which 75.0% relate to the vaccines segmentand 25.0% to the proteins segment. The operating loss of € 51,555 can be splitinto an operating loss segment of € 28,714 in the vaccines segment and anoperating loss of € 22,841 in the proteins segment. 

 

Theestablishment of a vaccines segment and a proteins segment also changed thecomposition of units to which goodwill had previously been allocated. The totalgoodwill recognized of € 44,377 is now fully allocated to the vaccines segment.

 

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**Economic and industry-wide factors**

 

Variouseconomic and industry-wide factors are relevantto us and could affect our business, including the factors set forth below.

 

Ourfinancial strength and 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, the success of our licensees in developingcommercial products using our technology, and effective management of ourworking capital.

 

Ourbusiness will depend in significant part on our ability to successfully developinnovative new products. Product development, however, is highly uncertain andvery expensive, requiring significant investments in research, development andmanufacturing elements. Identifying product candidates to study in clinical trialsrequires significant investment and may take several years. In addition, theclinical trial process for product candidates is usually lengthy, expensive andsubject to high rates of failure throughout the development process. As aresult, a majority of the clinical trial programs for product candidates areterminated prior to applying for regulatory approval. Even if a productreceives FDA or other regulatory approval, such approval could be conditionedon the need to conductadditional trials, or we could be required to or voluntarily decide to suspendmarketing of a product as aresult of safety or other events.

 

Ourindustry is subject to extensive government regulation, and we must makesignificant expenditures to comply with these regulations. Governmentalrequirements regulate, among other things, the development, testing, research,manufacture, safety, efficacy, record-keeping, labeling, storage, approval,quality control, adverse event reporting, advertising, promotions, sale anddistribution of our products.

 

Ourbusiness success is dependent in significant part on our success in establishingintellectual property rights, either internally or through in-license ofthird-party intellectual property rights, and protecting our intellectualproperty rights.

Ifwe are unable to protect our intellectual property, we may not be able tocompete successfully and our sales and royalty revenues and operating resultswould be adversely affected. Our pending patent applications may not result in the issuanceof valid patents or our issued patents may not provide competitive advantagesor may be reduced in scope. Proceedings to our protect intellectual propertyrights are expensive, can, and have, continued over many years and could resultin a significant reduction in the scope or invalidation of our patents, whichcould adversely affect our operating results.

 

2007was a weaker flu season in our major markets in Europe compared to 2006, whichadversely impacted sales for our respiratory vaccines.

 

Oursales are exposed to seasonal variations, and the majority of our sales aremade in the second half of the year. This is specifically the case for ourinfluenza vaccines as vaccination programs mainly take place in the second halfof the year. Furthermore, our travel vaccines sales are subject to seasonaltravel patterns.

 

Tobe successful, we must retain qualified clinical, scientific, marketing,administrative and management personnel. We face significant competition forexperienced personnel. The number of employees increased by 53 employees from1,073 employees at December 31, 2006 to 1,126 employees at December 31,2007.

 

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Operating and Financial Review andProspects

 

**Criticalaccounting policies and estimates**

 

The methods, estimates andjudgments we use in applying our most critical accounting policies have asignificant impact on the results we report in our financial statements. Ourmost critical policies and the methods, estimates and judgments used aredisclosed below.

 

**Revenuerecognition**

 

In general, revenue isrecognized to the extent that it is probable that the economic benefits willflow to the Company and the amount of revenue and the cost (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 recognized on agross basis when the Company acts as the principal in an arrangement. Revenuesare recognized on a net basis when the Company acts as agent.

 

Goods or services traded foritems 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 product sales isrecognized when:

 

·        The significant risk and rewards of ownership of the products havepassed to the buyer,

·        The Company does not retain either managerial involvement to the degreeusually associated with ownership or effective control over the goods sold,

·        The amount of revenue and the cost (to be) incurred in the transactioncan be measured reliably; and

·        It is probable that the economic benefits associated with thetransaction will flow to the entity.

 

**Discounts,rebates and returns**

At the time sales revenue isrecognized, we also record estimates for revenue deductions, includingdiscounts, rebates and product returns. We report net sales after deducting allsales deductions from gross sales revenue. The following table identifies theitems that reduced our gross product revenue as at the end of the periods endedDecember 31, 2007, 2006 and 2005.

 

In thousands of Euro

 
| ** **                            | ** ** | 2007        |   | 2006    |   | 2005   | ** ** |
|---------------------------------------|------------|-------------|--------|---------|--------|--------|------------|
| Product  sales, gross                 |       | **179,395** |   | 105,059 |   | — |       |
| Discounts  and rebates                |       | **626**     |   | 291     |   | — |       |
| Returns                               |       | **1,200**   |   | 850     |   | — |       |
| Total  discounts, rebates and returns |       | **1,826**   |   | 1,141   |   | — |       |
| Product  sales, net                   |       | **177,569** |   | 103,918 |   | — |       |

 

Prior to January 1,2006, the Company did not have any discounts, rebates and/or returns because itwas not engaged in product sales prior to the 2006 business acquisitions.

 

**Discountsand rebates**

Discounts include promptpayment discounts and charge backs. In 2007, our discounts and rebates amountedto € 626.

 

We generally offer our U.S.wholesalers a prompt- pay cash discount as an incentive to remit payment infull within one month after the date of an invoice. Prompt-pay discountcalculations are based on the gross amount of each invoice. We account forthese discounts by reducing product sales by the estimated discount amount whenthe product is sold.

 

Wholesaler chargebacks,customary in our industry, are arrangements that relate to contractualagreements to sell products to Group Purchasing Organizations (GPOs) in theU.S. at fixed prices that are lower than the list prices we charge wholesalers.When the GPOs purchase our products through wholesalers at these reducedprices, the wholesaler charges us for the difference between the price thewholesaler paid to us and the price at which they sold the products to the GPO.Accruals for wholesaler charge backs closely approximate actual results becausecharge back amounts are fixed at the date of purchase by the GPOs. As thecharge backs are settled within a short time of incurring the liability theoutstanding accruals are relatively low.

 

We offer rebates primarily inconnection with attainment of sales targets by wholesalers and large retailersin contractually agreed percentages. The rebates are accrued as the underlyingsales transactions are recognized and are based on reasonable estimates on theattainment of the sales targets. These rebates have primarily been granted tocustomers in Switzerland and the U.S..

 

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Operating and Financial Reviewand Prospects

 

**Returns**

Returns that reduce our grossproduct revenue may arise from the following:

 

·        Customers return of products defective upon delivery,

·        Specific right of return in accordance with contractual terms and

·        Returns via the normal distribution channels if the product is in goodcondition, pursuant to local law in certain jurisdictions.

 

In 2007, returns amounted to€ 1,200 (2006: € 850) or approximately 0.7% (2006: 0.8%) of our product sales.

 

If we sell products thatinclude a specific righttoreturn, either pursuant to the sales contract or local law, revenue from thatsale is recognized at time of sale only if all of the following conditions are met, in addition to the generalrevenue recognition terms described above:

 

·        The customer is obligated to pay us and that obligation is notcontingent on resale of the product.

·        The customer’s obligation to pay us would not be changed in the event oftheft or physical destruction or damage of the product.

·        The customer acquiring the product for resale has economic substanceapart from that provided by us, e.g. the customer sells other products besidesthe products we deliver to it.

·        We do not have significant future performance obligations to directlyensure resale of the product by the buyer.

·        The amount of future returns can be reasonably estimated.

 

Revenue and cost of salesthat are not recognized at time of the sale because the foregoing conditionswere not met are recognized on the earlier of either the substantial expirationof the customer’s right to return the product or the subsequent satisfaction ofthose conditions.

 

**Basis forestimates**

 

**Discountsand rebates**

We base our estimates fordiscounts and rebates primarily on historical experience and contractualagreements, supplemented by Management’s judgment. In 2007, our estimates forrebates based on historical experience did not differ materially from actualresults. With respect to discounts, we have limited uncertainties indetermining our estimates, because these deductions generally occur within ashort time frame of incurring the liability.

 

For calculating our rebatesestimates we make use of quantifiable contractual rebates data. In general ourrebates are based on fixed rebate percentages on product sales by customersthat have been granted rebates.

 

**Returns**

We base our estimates ofproduct returns on the percentage of returns that we have experiencedhistorically. We may adjust these return estimates if we are aware of otherfactors that we believe could meaningfully impact our expected returnpercentages. For example, in respect of our influenza vaccine, we specificallytake into account the development of the flu season, in particular, the numberand impact of outbreaks. While we do not have a formula that estimates theimpact of the number and impact of outbreaks on the level of the accrual forreturned vaccines, an increased number of outbreaks will result in a loweraccrual for returned influenza vaccines, because it becomes more unlikely thatvaccines will be returned. Alternatively, a lower number of outbreaks canresult in a higher accrual, because it becomes more likely that influenzavaccines will be returned unused at the end of a mild flu season.

 

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

 

·        Increased media coverage of vaccination programs, either by advertisingcampaigns or coverage of flu outbreaks, results in an increased publicawareness. 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 the distribution channeland short shelf life of product sold can be indicators for an increased levelof returns.

·        Sales and market trends are taken into account by reference to theproduct life cycle phase of products. If product sales show a decreasingrevenue pattern over time, this can be an indicator for an increased level ofreturns.

 

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We do not rely onquantitative externally sourced information in our calculation of returnsestimates. We are not aware of any external quantitative information or otherquantifiable data available that would provide us the benefit of a morereliable estimate.

 

The rate of product returnsis quantifiable data. We monitor returns primarily on a per country basis basedon the country from which the product was sold because our accruals aredetermined at this level. Within the individual countries, we monitor thereturns on a product-by-product basis.

 

In 2007 our estimates forreturns did not differ materially from actual results.

 

The following table shows thepercentage of products returned as a percentage of the gross product sales percountry during 2007 based on the country from which the products wereoriginally sold.

 
| Country     |   | Returns 2007 |       | Returns 2006 |   |
|-------------|--------|-------------------|------------|-------------------|--------|
| Spain       |   | **2.5%**          | ** ** | 1.7%              |   |
| Italy       |   | **1.4%**          | ** ** | 0.1%              |   |
| Switzerland |   | **0.1%**          | ** ** | 0.7%              |   |
| U.S.        |   | **1.9%**          | ** ** | 0.9%              |   |
| Sweden      |   | **0.1%**          | ** ** | 0.2%              |   |
| Korea       |   | **0.0%**          | ** ** | 0.0%              |   |
| Netherlands |   | **0.0%**          | ** ** | N/A               |   |

 

**Roll-forwardinformation**

The table below shows theroll-forward information of our discounts, rebates, and product returns:

 

In thousands of Euro

 
|                                           |   | Accrual for  discounts and  rebates |   | Accrual for  returns |   | Total      |   |
|------------------------------------------------|--------|-----------------------------------------------|--------|---------------------------|--------|------------|--------|
| **January 1,  2007**                      |   | **(257**                                      | **)**  | **(824**                  | **)**  | **(1,081** | **)**  |
| Additions –  current period               |   | (776                                          | )      | (1,235                    | )      | (2,011     | )      |
| Actual  returns/ credits – current period |   | 678                                           |   | 707                       |   | 1,385      |   |
| Actual  returns/ credits – prior period   |   | —                                        |   | 184                       |   | 184        |   |
| Release of  accruals – current period     |   | 150                                           |   | —                    |   | 150        |   |
| Release of  accruals – prior period       |   | —                                        |   | 35                        |   | 35         |   |
| Effect of  movements in exchange rates         |   | 15                                            |   | 16                        |   | 31         |   |
| **December 31,  2007**                    |   | **(190**                                      | **)**  | **(1,117**                | **)**  | **(1,307** | **)**  |

 

**Licenserevenues**

We recognize initial fees tothe licensing of our technology as revenues over the period of our significantcontinuing performance obligations, if any, and upon transfer of the significantrisks and rewards to the buyer. More detailed information on the accountingpolicies for license revenues is provided in note 2.1 ‘Revenue recognition’ inthe financial statements.

 

**Service fees**

As part of variouscollaboration agreements, the Company receives service fees for work performedunder such agreements. Revenues and related costs associated with completingperformance services are recognized when the service is completed and thecollectibility of the receivable is deemed probable. Revenues associated withtime and material performance contracts are recognized when the costs incurredand the costs to complete the transaction can be measured reliably.

 

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** **

**Utilization of tax carry forward losses**

 

**Income tax**

We are required to estimateour income taxes in jurisdictions in which we operate. This involves estimatingour actual current tax exposure together with assessing the valuation for carryforward losses and temporary differences resulting from different treatment fortax purposes compared to IFRS. These temporary differences mainly relate tointangible fixed assets, property, plant and equipment and inventories.

 

As at December 31, 2007we had tax carry forward losses for € 254,511 (2006: € 222,338, 2005: €103,714) that are available, with certain restrictions in time, for offsetagainst future taxable profits of the companies in which the losses arose. Weassessed the likelihood that our carry forward losses will be recovered fromfuture taxable profit, and to the extent we believe that recovery is probablewe recognized a deferred tax asset, which at December 31, 2007 is € 678(2006: € 749). To the extent the likelihood of a recovery of deferred taxassets changes, we include an expense or a gain within the tax charge in ourincome statement for the relevant period.

 

In the Netherlands anti abuselaws may limit our ability to realize certain tax carry forward losses for anamount up to € 26,170.

 

Significant managementjudgment is required in the valuation of our deferred tax assets. We considerfuture taxable profit projections, historical results and ongoing tax planningstrategies in assessing the recoverability of deferred tax assets. In the eventthat actual results differ from these estimates due to future changes in incometax law or results from final review of our tax returns by tax authorities, wemay need to adjust the valuation of our deferred tax assets, which could materiallyimpact our financial position and results of operations.

 

**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, but excluding future restructuring) of theacquired business at fair value. Goodwill acquired in a business combination isinitially measured at cost being the excess of the cost of the businesscombination over the Company’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 includes intangibleassets that were identified in a business combination, but not valuedseparately because the assets were either not separable or could not bemeasured reliably. Assets identified and included as part of goodwill can bespecific customer relationships, supply contracts not meeting the recognitionrequirements or the workforce acquired.

 

Assigning fair values to theassets and liabilities acquired in a business combination inherently requiresthe use of estimates. Under IFRS 3 Business Combinations, these fair values canbe adjusted up to one year after the acquisition date, which can affect theamount recognized as goodwill. In 2007 the Company adjusted the followingprovisional values:

 

·        The Company adjusted the provisional values as determined for BPC forcertain deferred tax liabilities that related to the customer lists acquired,resulting in a € 1,277 increase of goodwill compared to the amount previouslyreported at 31 December 2006.

·        The Company adjusted the provisional values as determined for SBL forcertain deferred tax assets that related to property, plant and equipment,resulting in a € 580 decrease of goodwill compared to the amount previouslyreported at 31 December 2006.

 

**Impairment reviews of property,plant and equipment, intangible assets and goodwill**

For property, plant andequipment and intangible assets, Crucell assesses at each reporting datewhether there is an indication that an asset may be impaired. If there is anindication of impairment, or when annual impairment testing for an asset isrequired, the Company makes an estimate of the asset’s recoverable amount.Where the carrying amount of an asset exceeds its recoverable amount, the assetis considered impaired and is written down to its recoverable amount.

 

In the year ended December 31,2006, an impairment loss of € 19,568 was recognized for two buildings,including installed equipment, that were acquired in the business combinationwith Berna Biotech. Both buildings are located in Switzerland. Berna

 

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performed contract manufacturing andconducted a candidate vaccine development program in those buildings. Thedevelopment of the candidate vaccine and the contract manufacturing were phasedout during 2006. The buildings are specially configured for biotechnologypurposes and it is impracticable to separate the equipment from the buildings.Since there was no direct use for these buildings for any of the Company’sother activities, no market for the sale of the buildings to third parties andno expectation that these buildings could be utilized in the foreseeablefuture, an impairment was recorded for the total carrying amount of € 19,568 asat December 31, 2006.

 

On March 3, 2008 the Company announced thatit had entered into an exclusive agreement with Wyeth Pharmaceuticals. TheCompany will develop and manufacture certain components of a vaccine for use byWyeth in clinical studies. The contract manufacturing will take place in one ofthe two buildings that was impaired in 2006. This is an indication that theimpairment loss recognised in 2006 no longer exists or may have decreased. TheGroup will estimate the recoverable amount, if any, of that asset as of thefirst subsequent reporting date after entry into the contract and will reversethe previous impairment loss, to the extent of any such recoverable amount. Theagreement with Wyeth is a subsequent event that arose after balance sheet dateand consequently has no impact on the 2007 financial statements. Instead, thisreversal will be included in our financial statements as of and for the yearended December 31, 2008.

 

Theintangible assets were impaired for the in-process R&D of the Tetravaccine. In February 2006 Crucell acquired Berna Biotech, including rightsto the Tetra vaccine. Management decided to stop the development of Tetra afterQuinvaxem received approval by the WHO. Consequently the carrying value ofTetra was impaired for the total amount of € 10,848 in 2006.

 

Goodwill is reviewed annually for impairment or more frequently ifevents or changes in circumstances indicate that the carrying value may beimpaired. Where the recoverable amount of the cash-generating unit is less thanthe carrying amount of the cash-generating unit to which goodwill has beenallocated an impairment loss is recognized.

 

In 2007 Crucell established two segments, a vaccines segment and aproteins segment, which affected the reporting structure of the Company. Thisalso changed the composition of units to which goodwill had previously beenallocated. Management exercised significant judgment in determining thesegments and the subsequent reallocation of the goodwill. Normally areallocation is performed using a relative value approach, unless some other methodbetter reflects the goodwill associated with the reporting units. Managementdemonstrated that an alternative allocation better reflected the goodwill andaccordingly, the Company allocated all goodwill to the vaccines segment and nogoodwill to the proteins segment based on the following considerations:

 

·        The vast majority of theacquired entities is part of the vaccines segment.

·        During the purchase priceallocation process in 2006, goodwill recognized was mostly attributed to theacquired workforce, the vast majority of which still operates in the vaccinessegment.

 

**Valuation of defined benefit plans**

Under defined benefit plans, the pension entitlements are calculatedusing the projected unit credit actuarial method. The pension liabilityrecognized in the balance sheet is the present value of the defined benefitobligation at the balance sheet date, less the fair value of the plan assetsafter adding or subtracting unrecognized actuarial gains or losses andpast-service costs.

 

The defined benefit obligation is calculatedseparately for each plan by estimating the amount of future benefit thatemployees have earned in return for their service in the current and priorperiods. That benefit is discounted to determine its present value and anyunrecognized past service costs and the fair value of any plan assets arededucted.

 

The weighted average of the principal assumptions used in determiningthe employee benefit obligations for the defined benefit plans of the Companyare shown below:

 
| ** **                     | ** ** | **2007**  | ** ** | 2006  | ** ** |
|--------------------------------|------------|-----------|------------|-------|------------|
| Discount rate                  |       | **3.40%** | ** ** | 3.32% |       |
| Expected return on plan assets |       | **4.53%** | ** ** | 4.55% |       |
| Future salary increases        |       | **1.22%** | ** ** | 1.19% |       |
| Future pension increases       |       | **0.78%** | ** ** | 0.66% |       |

 

Prior tothe acquisition of Berna Biotech and SBL the

 

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Company did not operate any defined benefit plans.

 

**Share based payments**

** **

**Option plans**

Employees(including senior executives) of the Company receive remuneration in the formof share-based payment transactions, whereby employees render services asconsideration for equity instruments.

 

The cost ofequity-settled transactions with employees is measured by reference to the fairvalue at the date on which they are granted. The Company accounts for itsemployee stock options under the fair value method. The fair value of optionswas estimated at the date of grant using the Black Scholes option-pricingmodel.

 

The following weighted average assumptions were used in determining thefair value of the stock options.

 
| Year ended December 31 | ** ** | **2007**   |       | 2006   |   | 2005   |   |
|---------------------------------------|------------|------------|------------|--------|--------|--------|--------|
| Risk free interest rate               |       | **4.1%**   | ** ** | 3.6%   |   | 4.1%   |   |
| Expected dividend yield               |       | **—** | ** ** | — |   | — |   |
| Expected volatility                   |       | **33.3%**  | ** ** | 41.8%  |   | 52.8%  |   |
| Expected life (years)                 |       | **4.25**   | ** ** | 4.25   |   | 4.31   |   |

 

**Market based performance conditions**

Our long-term incentive plan includesspecific market-based conditions that are estimated at the time of the grant.IFRS 2 does not allow updates to the original estimate for market-basedconditions during the vesting period. Significant estimates of market basedconditions in our long-term incentive plan include the absolute share pricegrowth on the stock markets and our Total Shareholder Return (‘TSR’). TSRreflects the return received by a shareholder, taking into account both the changein share price and dividends received, while assuming dividends are re-investedin us. The absolute share price growth serves as a hurdle which must beovercome to qualify for any possible vesting of the shares. After the shareprice hurdle is met, the TSR performance measurement is twofold: relative to apeer group of the Goldman Sachs European Biotech Index and relative to theNasdaq Biotech Index. The conditionally awarded shares vest subject to theCompany’s ranking within the aforementioned indexes.

 

**Recognition of provisions for litigations and claims**

 

Provisions are recognized when the Company has a present obligation(legal or constructive) as a result of a past event, it is probable that anoutflow of resources embodying economic benefits will be required to settle theobligation and a reliable estimate can be made of the amount of the obligation.

 

The Company is subjected to (potential) lawsuits and other legalproceedings, resulting from the ordinary course of business. The current statusof any pending proceedings has been reviewed with a legal counsel. Uponconsideration of known relevant facts and circumstances, provisions wererecognized for losses that are considered to be more likely than not and thatcan be reasonably estimated as of the balance sheet date.

 

The Company uses significant judgment in determining the provision forlitigations and exposure to contingent liabilities related to pendinglitigation or other outstanding claims. Judgment is used in assessing thelikelihood that a pending claim will succeed or a liability will arise and toquantify the possible range of the final settlement.

 

**Valuation of inventories**

 

Inventories are stated at the lower of cost and net realizable value.The cost of inventories includes expenditures for materials acquired, directlyattributable costs and related production overhead expenses. Allowances aremade for obsolete inventory. Management exercises judgment in determining theallowance for obsolete inventory. Inventories are usually written down to netrealizable value item by item. In some circumstances, however, it may beappropriate to group similar or related items. In these cases, the Companyconsiders numerous items, which include test results by quality testing, reviewby local supply chain, historic scrapping and rejection percentages per productand the current product portfolio. The allowance recognized in 2007 is € 6,428(2006: € 4,722).

 

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**Results of operations**

** **

**Revenues**

 

The tablebelow shows our revenues for each of the years in the three-year period ended December 31,2007 and the percentage change between these periods.

 

Inthousands of Euros

 
|               |   | Year ended December 31, |   | %-Change    |   |
|--------------------|--------|----------------------------------------|--------|-------------|--------|
|               |   | **2007**                               |   | 2006        |   | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Product sales      |   | **177,569**                            |   | 103,918     |   | — |   | 70.9 |   | — |   |
| License revenues   |   | **12,211**                             |   | 16,955      |   | 20,848 |   | (28.0 | ) | (18.7 | ) |
| Service fees       |   | **14,006**                             |   | 10,694      |   | 11,881 |   | 31.0 |   | (10.0 | ) |
| **Total revenues** |   | **203,786**                            |   | **131,567** |   | **32,729** |   | **54.9** |   | **302.0** |   |

 

Totalrevenues grew € 72,219 in 2007 or 54.9% from € 131,567 in 2006 to € 203,786 in2007. The increase is primarily attributable to increases in sales ofpaediatric vaccines by € 41.4 million or 115.3% and travel vaccines by € 24.2million or 104.9% and higher revenues related to the acquisitions made in thesecond half of 2006.

 

In 2006,total revenues increased to € 131,567 from € 32,729 in 2005, an increase of302%. The increase in total revenues was mainly attributable to product salesafter the acquisition of our product portfolio as a result of our acquisitionsof Berna Biotech in February 2006 and SBL in November 2006.

 

Referenceis made to note 4.4 ‘Geographical segments’ in the Financial Statements for thebreakdown of our revenues by geographic segment.

 

**Product sales**

Our productsales by type of product in 2007 and 2006, as well as the percentage changebetween the periods are shown below:

 

In thousands of Euros

 
|                 |   | Year ended December 31, |   | %-Change    |       |
|----------------------|--------|----------------------------------------|--------|-------------|------------|
|                 |   | **2007**                               |   | 2006        |       | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Paediatric vaccines  |   | **77,371**                             |   | 35,933      |       | — |   | 115.3 |   | — |   |
| Respiratory vaccines |   | **33,188**                             |   | 40,386      |       | — |   | (17.8 | ) | — |   |
| Travel vaccines      |   | **47,282**                             |   | 23,072      |       | — |   | 104.9 |   | — |   |
| Other vaccines       |   | **15,703**                             |   | 3,933       |       | — |   | 299.3 |   | — |   |
| Proteins             |   | **4,025**                              |   | 594         |       | — |   | 577.6 |   | — |   |
|                 |   | **177,569**                            |   | **103,918** | ** ** | **—** | ** ** | **70.9** | ** ** | **—** | ** ** |

 

In 2007,product sales grew by € 73,651 or 70.9%. The growth in revenue from productsales was mainly due to increased revenue from sales of paediatric vaccines of€ 41,438 or 115.3%; travel vaccines of € 24,210 or 104.9% and sales of othervaccines of € 11,770 or 299.3%. The increase in product sales is partly offsetby a decrease in respiratory vaccines by € 7,198, mainly caused by lowerinfluenza vaccine sales as a result of a mild flu-season.

 

In 2007,sales to our two largest customers, which are in the paediatric vaccines area,amounted to € 45,480 or 25.6% and € 23,457 or 13.2% of net product sales. In2006, sales to these customers accounted for € 14,262 or 13.7% and € 10,399or 10.0% of net product sales, respectively.

 

Our core product portfolio contains of six vaccines, Quinvaxem,Hepavax-Gene (paediatric vaccines), Inflexal V (Respiratory), Dukoral, Epaxaland Vivotif (travel vaccines). The aggregated revenues for our core productportfolio amounted to € 149,297 in 2007 compared to € 91,664 in 2006 andrepresented 84.1% (2006: 88.2%) of our total product sales.

 

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Othervaccines contain the sales of legacy-SBL vaccine trade goods. Our results in2006 only included one month of revenue derived from these legacy-SBL vaccinetrade goods. Other vaccines also include the sales of conjugates to Wyeth underour contract manufacturing arrangements.

 

The increase in revenue from sale of proteins relates to sales of Prolastinthat we began in 2007 under our distribution agreement with Talecris and alsorelates to sales of legacy-SBL protein trade goods. Our results in 2006 onlyincluded one month of revenue derived from these legacy-SBL protein tradegoods.

 

**License revenues**

In 2007, our license revenues decreased to €12,211, a reduction of € 4,744 or 28% compared to 2006. Recognized licenseissuance fees decreased in 2007 by € 10.5 million compared to 2006 because theissuance fees included in contracts with DSM and sanofi pasteur in 2006 werenot duplicated in 2007. The underlying agreements with DSM and sanofi pasteurare still in effect. The decrease is partly offset by recognized issuance feeson contracts signed in 2007 with MedImmune, ADImmune and Wyeth that total € 4.3million and numerous smaller contracts.

 

In December2007, we signed an exclusive collaboration and commercialization agreement withsanofi pasteur related to our rabies monoclonal antibodies. We received apayment of € 10.0 million, which will be recognized as license revenues overthe period that the development activities are performed. We will be eligiblefor additional potential milestone payments of up to € 66.5 million. No licenserevenue on this collaboration agreement was recognized in 2007.

 

In 2006 license revenues decreased by € 3,893 to a total of € 16,955compared to 2005. The decrease is mainly caused by developments under thefollowing contracts. Total license revenues generated on IAVI (InternationalAIDS Vaccine Initiative) contracts decreased by € 2.6 million; license revenueson DSM contracts decreased by € 1.4 million; license revenues on sanoficontracts decreased by € 1.0 million. This reduction was partially offset byseveral contracts with other parties such as Merck and Ferring.

 

**Service fees**

In 2007 service fees amount to € 14,006, an increase of € 3,312 or31.0% compared to 2006. This increase was mainly attributable to consultingservices provided to ADImmune and increased service fees in Sweden realized onmiscellaneous projects.

 

In 2006service fees amounted to € 10,694, a decrease of € 1,187 or 10% compared to2005. This decrease was mainly due to lower service fees generated on contractsrelated to the National Institute of Allergy and Infectious Diseases (NIAID).

 

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**Cost of goods sold**

 

Thefollowing table shows our cost of goods sold for each of the years in thethree-year period ended December 31, 2007 and the percentage changebetween these periods.

 

In thousands of Euros

 

 

 
|                          |       | Year ended December 31, |       | %-Change   |       |
|-------------------------------|------------|----------------------------------------|------------|------------|------------|
|                          |       | **2007**                               |       | 2006       |       | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Cost of  product sales        |       | **124,557**                            |       | 83,518     |       | — |   | 49.1 |   | — |   |
| Cost of  service fees         |       | **10,327**                             |       | 6,971      |       | 7,156 |   | 48.1 |   | (2.6 | ) |
| **Total  cost of goods sold** | ** ** | **134,884**                            | ** ** | **90,489** | ** ** | **7,156** | ** ** | **49.1** | ** ** | **1164.5** | ** ** |

 

**Cost of product sales**

Costs ofproduct sales comprise direct labour, materials, and overhead costs incurred inperforming work under various collaboration agreements directly related toproduct sales. The cost of product sales increased mainly due to the increasein product sales of 70.9%. This increase was partly offset by the reduction inpurchase price allocation charges in 2007. The 2007 cost of product salesinclude additional expenses of € 10,191 (2006: € 16,186) relating tothe purchase price allocations of the acquired businesses. The gross margin onproduct sales amounts to 29.8% (2006: 19.6%). The percentage increase in grossmargin is mainly due to the reduction in purchase price allocation charges in2007.

 

**Cost of service fees**

Cost ofservice fees comprise direct labour, materials and overhead costs related towork under various collaboration agreements, excluding collaboration agreementsrelated to product sales.

 

In 2007 thecost of service fees increased by € 3,356 or 48.1% compared to 2006, which isprimarily attributable to the increase of the service fee revenues by 31.0%.The gross margin on service fees was 26.3% in 2007 compared to 34.8% in 2006.

 

In 2006 thecost of service fees decreased by € 185 or 2.6% compared to 2005. The decreasereflects the lower level of services fee revenues, which reduced our expenses.The gross margin on service fees was 34.8% in 2006 compared to 39.8% in 2005.

 

**Other operating income**

 

Thefollowing table shows our other operating income for each of the years in thethree-year period ended December 31, 2007 and the percentage changebetween these periods.

 

In thousands of Euros

 
|                          |   | Year ended December 31, |       | %-Change  |       |
|-------------------------------|--------|----------------------------------------|------------|-----------|------------|
|                          |   | **2007**                               |       | 2006      |       | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Government  grants            |   | **7,086**                              |       | 6,901     |       | 4,137 |   | 2.7 |   | 66.8 |   |
| Other  income                 |   | **2,244**                              |       | 2,455     |       | 703 |   | (8.6 | ) | 249.2 |   |
| Total  other operating income |   | **9,330**                              | ** ** | **9,356** | ** ** | **4,840** | ** ** | **(0.3** | **)** | **93.3** | ** ** |

 

**Government grants**

In 2007,government grants are stable compared to 2006. The most significant grants in2007 were received from NIAID for further research on HIV and from SenterNovem,an agency of the Dutch ministry of economic affairs, for numerous researchprojects.

 

Revenuesgenerated from government grants increased 66.8% in 2006 to € 6,901 afterincreasing by 20.2% in 2005. The increase in 2006 was primarily the result ofadditional subsidies from NIAID for further research on HIV.

 

**Other income**

Otherincome results from non-core business transactions and mainly consists of thesale of tangible and intangible assets incidental to the business, andreimbursement of development costs.

 

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The amountin 2007 is stable compared to 2006. The increase in 2006 compared to 2005 isdue to the other income generated in the acquired subsidiaries.

 

**Other operating expenses**

 

The following table shows our other operating expenses for each of theyears in the three-year period ended December 31, 2007 and the percentagechange between these periods.

 

In thousands of Euros

 
|                                 |       | Year ended December 31, |       | %-Change    |       |
|--------------------------------------|------------|----------------------------------------|------------|-------------|------------|
|                                 |       | **2007**                               |       | 2006        |       | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Research  and development            |       | **63,995**                             |       | 67,606      |       | 34,048 |   | (5.3 | ) | 98.6 |   |
| Selling,  general and administrative |       | **65,621**                             |       | 47,199      |       | 13,689 |   | 39.0 |   | 244.8 |   |
| Restructuring                        |       | **—**                             |       | 3,120       |       | — |   | — |   | — |   |
| Impairment                           |       | **171**                                |       | 30,416      |       | — |   | (99.4 | ) | — |   |
| **Total  other operating expenses**  | ** ** | **129,787**                            | ** ** | **148,341** | ** ** | **47,737** | ** ** | **(12.5** | **)** | **210.7** | ** ** |

 

**Research and development expenses**

Researchand development 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 equipment lease.Research and development expenses also include fees we pay to third parties whoconduct research on our behalf.

 

Researchand development expenses decreased in 2007 by € 3,611 or 5.3% compared to 2006,which is primarily attributable to the effect of the restructuring program thattook place in 2006 to centralize research and development activity in Leidenand phasing out work on a vaccine candidate and on programs at the Center ofMammalian Cell Culture.

 

Researchand development expenses increased in 2006 by € 33,558 or 98.6% compared to2005. € 27,339 of this increase can be attributed to the research anddevelopment programs of businesses we acquired during 2006. The remainingincrease of € 6,219 is the result of the increased number of developmentprograms progressing into the clinical phase.

 

Researchand development expenses comprised 49.3% of total other operating expenses in2007 (2006: 45.6%). We expect that research and development expenses willcontinue to be a significant portion of our overall expenses. The expenses ofour R&D activities support the development of our technology platforms andresearch on potential new products.

 

**Selling, general and administrative expenses**

Selling,general and administrative expenses consist of personnel expenses and otheroperating expenses in marketing and sales, finance, human resources, investorrelations, legal and general management.

 

Theseexpenses increased in 2007 by € 18,422 or 39.0% compared to 2006. This increaseis primarily due to increased costs related to the sales force and otherselling costs of the companies acquired in 2006. General and administrativeexpenses also include additional costs relating to compliance with the internalcontrol over financial reporting requirements under U.S. law.

 

Selling,general and administrative expenses amounted to € 47,199 in 2006, compared to €13,689 in 2005. Selling costs increased as a result of the cost base of thecompanies acquired in 2006. General and administrative expenses also includedintegration costs of the 2006 acquisitions and additional costs relating tocompliance with the internal control over financial reporting requirementsunder U.S. law.

 

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**Restructuring**

There wereno restructuring expenses in 2007.

 

Therestructuring expense in 2006 is related to centralizing R&D functions inLeiden and phasing out R&D projects in Switzerland, including Aerugen, acandidate vaccine, and the Center of Mammalian Cell Culture. The decision toconcentrate R&D in Leiden was made to increase efficiency in R&Dspending. The provision was recognized in 2006 as recognition criteria were metat that time. The actual reduction in the number of staff employed was effectedin the first quarter of 2007.

 

**Impairment**

In 2007 theCompany recognized an impairment charge of € 171 for a warehouse in Korea thatwas demolished to make way for the construction of a light railway. See ‘Riskfactors – We rely on our manufacturing facilities in Korea to produce all ofour supplies of Quinvaxem, and any events or disputes concerning that facilitythat interrupt, reduce or terminate production there may harm our business’.

 

In 2006 theCompany recognized a total impairment of € 30,416. The impairment relates totwo buildings in Switzerland including installed equipment, for an amount of €19,568 and to acquired in-process research and development related to the Tetravaccine for an amount of € 10,848. See – ‘Critical accounting policies –Impairment reviews of property, plant and equipment, intangible assets andgoodwill’ above for more details.

 

**Operating loss**

 

Thefollowing table shows our operating loss, net for each of the years in thethree-year period ended December 31, 2007 and the percentage changebetween these periods.

 
|                |       | Year ended December 31, |   | %-Change    |   |
|---------------------|------------|----------------------------------------|--------|-------------|--------|
|                |       | **2007**                               |   | 2006        |   | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| **Operating  loss** | ** ** | **(51,555**                            | **)**  | **(97,907** | **)**  | **(17,324** | **)** | **(47.3** | **)** | **(465.2** | **)** |

 

Themovements in operating loss are explained by the operating results discussedabove.

 

**Financial income and expense, net**

 

Thefollowing table shows our financial income and expenses, net for each of theyears in the three-year period ended December 31, 2007 and the percentagechange between these periods.

 
|                                            |       | Year ended December 31, |       | %-Change |   |
|-------------------------------------------------|------------|----------------------------------------|------------|----------|--------|
|                                            |       | **2007**                               | ** ** | 2006     |   | 2005 |   | 07 vs. 06 |   | 06 vs. 05 |   |
| Financial  income                               |       | **13,190**                             | ** ** | 13,453   |   | 2,332 |   | (2.0 | ) | 476.9 |   |
| Financial  expenses                             |       | **(11,812**                            | **)**      | (11,706  | )      | (131 | ) | 0.9 |   | 8835.9 |   |
| Results investments  non-consolidated companies |       | **(996**                               | **)**      | (1,956   | )      | (455 | ) | (49.1 | ) | 329.9 |   |
| Gain on disposal of  non-consolidated companies |       | **(2,186**                             | **)**      | —   |   | — |   | — |   | — |   |
| **Total  Financial income/(expense), net**      | ** ** | **(1,804**                             | **)**      | **(209** | **)**  | **1,746** | ** ** | **763.2** | ** ** | **(112.0** | **)** |

 

**Financial income**

Financialincome mainly consists of interest income and currency gains.

 

In 2007financial income decreased by € 263 or 2.0%. The decrease is primarilyattributable to lower foreign exchange gains of € 2.0 million as the foreigncurrencies in which we traded lost value compared to the Euro. The decrease waslargely offset by increased interest income of € 1.8 million resultingprimarily from higher interest rates.

 

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**Management Report**

Operating and Financial Review and Prospects

 

In 2006financial income increased by € 11,121 or 476.9% primarily due to an increasein the foreign exchange gains and an increase in interest income. Totalcurrency gains amounted to € 9.5 million in 2006. Prior to 2006 the Company hadlimited transactions denominated in foreign currencies. In 2006 interest incometotalled € 3,718, an increase of € 1,753 compared to 2005. This was primarilydue to higher cash balances resulting from proceeds from share issuances andcash acquired in business combinations.

 

The 2005 financial income consisted primarily of interest incomeprimarily due to higher cash balance resulting from the private share placementin May 2005.

 

**Financial expense**

Financial expense consists mainly of interest expenses, currency lossesand other financial expenses.

 

In 2007 our financial expenses increased by € 106 or 0.9%. Negativecurrency results decreased by € 0.8 million due to the first full year effectof our 2006 acquisitions, which was party offset by currency losses as foreigncurrencies in which we traded overall lost value compared to the Euro. In 2007interest expenses increased by € 0.5 million as a result from additionalcharges relating to leasing and the full year effect of our 2006 acquisitions.In addition other financial expenses increased by € 0.4 million, which isprimarily due to factoring arrangements engaged in during 2007.

 

In 2006interest expense increased by € 1,737 compared to 2005. The increase is due tothe mortgage loan in the Netherlands, which is being used to finance the newproduction facility, and the loan obligations of the companies acquired in2006. Total foreign currency expenses amounted to € 9.6 million in 2006.

 

**Results of investments in associates and joint ventures**

At December 31,2007, we had two associates, Kenta Biotech AG and ADImmune Corp and one jointventure, Percivia. In 2007, we sold our investment in Pevion Biotech AG. Theresults of these companies are accounted for under the equity method and amountto a total loss of € 996 (2006: € 1,956). The decrease compared to previousyear is mainly due to the reduced losses in Pevion Biotech AG and Kenta BiotechAG by € 730 and an increase in the result of Percivia by € 230. For furtherdetails we refer to note 5.9 ‘Investments in associates and joint venture’ inthe Financial Statements.

 

The loss in2005 of € 455 reflected the result of the investment in Galapagos B.V. until itwas designated as an available-for-sale-investment. In May 2005, ourholding in Galapagos decreased to 11.7% of its share capital. Since then, the investmenthas been treated as an available-for-sale-investment.

 

**Gain on disposal of non-consolidatedcompanies**

On November 5,2007 the Company sold all of the 2.9 million shares it owned in Pevion BiotechAG, Switzerland for an amount of € 6,081 to other shareholders of PevionBiotech. The Company realized a gain of € 2,186 on the sale.

 

**Income tax**

 

**Change in deferred taxes**

Deferred income tax is provided by using the asset and liability methodon temporary differences between the tax base of assets and liabilities andtheir carrying amounts for financial reporting purposes. Changes in theunderlying timing differences in 2007 resulted in a taxation income of € 3,856(2006: € 11,022).

 

**Tax loss carry forwards**

We have taxcarry forward losses of € 254,511 (2006: € 222,238; 2005: € 103,714) that areavailable, with certain restrictions in time, for offset against future taxableprofits of the companies in which the losses arose. In the Netherlands antiabuse laws are applicable that may limit the ability to set off tax lossesagainst future profits when the beneficial ownership of a company changes. Thislaw may limit our ability to realize certain tax carry forward losses for anamount up to € 26,170.

 

The unrecognized carry forward losses expire as follows:

 
| 2009        |   | 2010        |   | 2011         |   | After 2011 |   | Unlimited   |   | Total         |
|-------------|--------|-------------|--------|--------------|--------|-----------------|--------|-------------|--------|---------------|
| €3,062 |   | €4,086 |   | €81,744 |   | €163,198   |   | €2,421 |   | €254,511 |

 

Weevaluated evidence impacting the recoverability of these deferred tax assets,which consist principally of tax loss carry forwards. We recognized a deferredtax asset of € 678 for the carry forward losses of SBL.

 

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**Management Report**

Operating andFinancial Review and Prospects

 

**Liquidity and capital resources**

 

**Liquidity**

We have astrong cash position, which we believe makes it possible to continue financingimportant development programs. We believe that the Company’s working capitalis sufficient for the Company’s present requirements. Our cash and cashequivalents amounted to € 163,248 and € 157,837 as of December 31, 2007and 2006, respectively.

 

**Cash flows**

Thefollowing table shows our cash flow statement for each of the years in thethree-year period ended December 31, 2007 and the percentage changesbetween these periods.

 

In thousands of Euro

 
| ** **                                                | ** ** | Year ended December 31 |       | %-Change    | ** ** |
|-----------------------------------------------------------|------------|---------------------------------------|------------|-------------|------------|
| ** **                                                | ** ** | **2007**                              | ** ** | 2006        |       | 2005 |   | 07 vs. 06 |   | 06 vs. 05 | ** ** |
| Loss of  the period                                       |       | **(45,947**                           | **)**      | (87,565     | )          | (15,578 | ) | (47.5 | ) | 462.1 |   |
| Adjustments  for non-cash items                           |       | **47,630**                            | ** ** | 58,872      |       | 9,616 |   | (19.1 | ) | 512.2 |   |
| Changes  in net working capital                           |       | **24,208**                            | ** ** | (23,174     | )          | (8,915 | ) | (204.5 | ) | 159.9 |   |
| Interest  and taxes paid                                  |       | **(3,697**                            | **)**      | (2,087      | )          | (132 | ) | 77.1 |   | 1,481.1 |   |
| **Net  cash flows from/ (used in) operating activities**  | ** ** | **22,194**                            | ** ** | **(53,954** | **)**      | **(15,009** | **)** | **(141.1** | **)** | **259.5** | ** ** |
| **Net  cash flows from/(used in) investing activities**   | ** ** | **(24,241**                           | **)**      | **23,159**  | ** ** | **(15,273** | **)** | **(204.7** | **)** | **(251.6** | **)** |
| **Net  cash flows from financing activities**             | ** ** | **11,244**                            | ** ** | **78,731**  | ** ** | **65,305** | ** ** | **(85.7** | **)** | **20.6** | ** ** |
| Effect  of exchange rates on cash and cash equivalent     |       | **(3,786**                            | **)**      | (1,833      | )          | — |   | 106.5 |   | — |   |
| **Net increase/(decrease)  in cash and cash equivalents** | ** ** | **5,411**                             | ** ** | **46,103**  | ** ** | **35,023** | ** ** | **(88.3** | **)** | **31.6** | ** ** |
| Cash and  cash equivalents at beginning of the period     |       | **157,737**                           | ** ** | 111,734     |       | 76,711 |   | 41.2 |   | 45.7 |   |
| Cash and  cash equivalents at end of the period           |       | **163,248**                           | ** ** | 157,837     |       | 111,734 |   | 3.4 |   | 41.3 |   |

 

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

In 2007 ournet cash flow from operating activities increased by € 76,148 or 141.1%. Theincrease resulted from a reduction of our net loss by € 41.6 million and areduction of our working capital by € 47.3 million. The increase is partlyoffset by a decrease in the adjustments for non-cash items by € 11.2 million.

 

In 2007 themost significant adjustments for non-cash items were:

 

·        one-off restructuring and impairment charges in 2006 for €30.4 million that related to two Swiss buildings and equipment for € 19.6million and the Tetra vaccine for € 10.9 million,

·        the reduction of the fair value write-downs on inventory by€ 2.8 million, as inventory levels with a step-up to fair value as a resultfrom the business acquisitions were already reduced significantly in 2006 and

·        the non-cash adjustment for the accounting gain on the saleof Pevion for € 2.2 million in 2007.

 

Thedecrease was partly offset by:

 

·        an increasein non-current deferred revenue of € 7.5 million, which is the non-currentportion of the € 10 million payment by sanofi pasteur for the development ofrabies monoclonal antibodies,

·        an increasein non-current deferred revenue of € 4.0 million related to the non-currentportion of the ADImmune technology license,

·        a reductionof the non-cash tax gains by € 7.5 million compared to 2006, which included thetax impact on the write-down of the buildings in Switzerland and a reduction ofthe nominal tax rate in Korea and

·        increased amortization expenses of € 4.3 million as 2007 isthe first year in which the intangible assets that were acquired during 2006were amortized for a full year.

 

In 2007,the positive cash flow relating to changes in the net-working capital for €24.2 million mainly resulted from the increase in the accounts payable by €16.3 million, the reduction in accounts receivable by € 8.6 million and theincrease in other current liabilities by € 8.2 million. The increase is partlyoffset as a result of inventory increases for € 6.1 million and the increase inshort-term provisions for € 2.2 million.

 

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**Management Report**

Operating andFinancial Review and Prospects

 

The netcash flows used in operating activities increased in 2006 by € 38,945 or 259.5%compared to 2005. This is mainly due to increase of the operations resultingfrom the business acquisitions made in 2006.

 

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

Our cashflow from/ (used in) investing activities amounted to (€ 24,241) in 2007,compared to € 23,159 in 2006 and (€ 15,273) in 2005.

 

In 2007,the most significant cash flows used in investing activities were from thefollowing transactions:

 

·        Investmentsmade in property, plant and equipment for an amount of € 27,156 in 2007. Theinvestments in 2007 mainly related to our new GMP production facility inLeiden, the Netherlands and investments in our facilities in Bern, Switzerlandthat will improve current production processes and allow in-house production ofmaterials currently acquired from third parties.

·        The Company acquired a 20% equity-stake in Taiwan basedADImmune Corp. in March 2007 for € 8.9 million.

 

In 2007,the most significant cash flows from investing activities were from thefollowing transactions:

 

·        The sale of all shares owned by the Companyin Pevion Biotech AG, Switzerland for € 6,081 to other shareholders of PevionBiotech.

·        Interest received of € 5,274 in 2007 (2006: € 3,075).

 

In 2006,the most significant cash flows from investing activities were from thefollowing transactions:

 

·        The acquisition of Berna Biotech caused a net cashin-flow of € 67.8 million. Although the acquisition itself was completed by ashare exchange and the cash used for acquisition costs amounted to € 10.1million, we acquired € 77.9 million cash in the acquisition.

·        The sale ofBerna Biotech’s veterinary division, which included Dr. E. Graub AG andBerna Veterinary AG and the divestment of the biopharmaceutical and vaccinemanufacturer Rhein Biotech caused a cash in-flow of € 11,772.

·        Reduction ofrestricted cash at Berna Biotech accounted for a net cash inflow of € 7,627.

·        Interestreceived of € 3,075 in 2006 (2005: €1,864).

 

Theincrease is partly offset by cash flows used in investing activities:

 

·        The acquisition of SBL caused a net cash-outflow of€ 33.4 million. The acquisition price, including acquisition costs, amounted to€ 40.5 million. Crucell acquired € 7.1 million cash in the acquisition.

·        Investmentsmade in property, plant and equipment for an amount of € 20,337 in 2006.Investments were mainly related to building and equipping our new GMPproduction facility in Leiden, the Netherlands.

·        Acquisitions of intangible assets in 2006 for € 12,371related to the acquisition of the business of BPC.

 

In 2005,the Company used € 17,137 cash to invest in property, plant and equipment, inparticular in the new production and development facility in Leiden. Thisexpenditure was partially offset by the receipt of interest of € 1,864 on cashdeposits.

 

**Net cash flows from financing activities**

Our cashflow from financing activities amounted to € 11,244 in 2007, € 78,731 in 2006and € 65,305 in 2005.

 

In 2007,the cash flow from financing activities decreased by 85.7% as we limited theuse of additional financing and funded our operations and investments with ownresources. The cash-flow inflow from financing activities in 2007 mainlyrelated to:

 

·        Factoring of trade accounts receivable in Italyfor an amount of € 5.7 million, and

·        Financeleases with proceeds of € 3.1 million. These finance leases mainly relate toequipment for the new production and development facility in Leiden.

 

In 2006 wehad a cash-flow inflow from financing activities of € 78,731 that mainlyrelated to the following:

 

·        Proceeds of € 76,835 from the private placement ofordinary shares in November 2006.

·        Proceedsfrom the issuance of ordinary shares inrelation to the exercise of employee stock options of € 5,962.

 

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Operating andFinancial Review and Prospects

 

·        The Companydrew € 8,109 under the terms of the mortgage loan for financing the new GMPproduction facility in Leiden, Netherlands.

·        The Company entered into new finance lease contracts in 2006with proceeds of € 6,493. These finance leases mainly relate to equipment forthe new production and development facility in Leiden.

 

Theincrease was partly offset by repayments of financial liabilities of BernaBiotech of € 17,834.

 

In 2005,the Company received proceeds from a private placement of ordinary shares of €50,112. Together with the issuance of ordinary shares in relation to theexercise of employee stock options in the amount of € 7,423, the total proceedsfrom the issuance of share capital in 2005 amounted to € 57,535. In addition weentered into a mortgage loan to finance the new GMP production facility inLeiden, the Netherlands. The Company drew € 8,982 under this loan.

 

**Tabular disclosure of contractual obligations**

 

Futureminimum payments for all contractual obligations for years subsequent to December 31,2007 are as follows:

 

Inthousands of Euro

 
|                                                    |       | Total       |       | Less than  one year |       | 1-3 years |       | 3-5 years |       | More than  five years |       |
|---------------------------------------------------------|------------|-------------|------------|-------------------------------|------------|----------------|------------|----------------|------------|---------------------------------|------------|
| **Contractual  Obligations**                            | ** ** | ** **  | ** ** | ** **                    | ** ** | ** **     | ** ** | ** **     | ** ** | ** **                      | ** ** |
| Debt  obligations (excluding finance lease obligations) |       | 42,715      |       | 23,345                        |       | 3,660          |       | 821            |       | 14,889                          |       |
| Finance  lease obligations(1)                           |       | 10,080      |       | 1,420                         |       | 3,108          |       | 5,552          |       | —                          |       |
| Interest  payments on debt obligations                  |       | 11,084      |       | 1,430                         |       | 2,515          |       | 1,946          |       | 5,193                           |       |
| Derivative  financial instruments                       |       | 12,553      |       | 12,553                        |       | —         |       | —         |       | —                          |       |
| Accounts  payable                                       |       | 50,970      |       | 50,970                        |       | —         |       | —         |       | —                          |       |
| Other  liabilities                                      |       | 30,489      |       | 29,960                        |       | 529            |       | —         |       | —                          |       |
| **Recognized  obligations**                             | ** ** | **157,891** | ** ** | **119,678**                   | ** ** | **9,812**      | ** ** | **8,319**      | ** ** | **20,082**                      | ** ** |

 
| **Commitments**                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| Operating  lease obligations(2)     |       | 34,261     |       | 4,798      |       | 8,157      |       | 5,998      |       | 15,308     |       |
| Capital  expenditure commitments(3) |       | 4,696      |       | 4,696      |       | —     |       | —     |       | —     |       |
| **Total  commitments**              | ** ** | **38,957** | ** ** | **9,494**  | ** ** | **8,157**  | ** ** | **5,998**  | ** ** | **15,308** | ** ** |

 
| Total  recognized obligations and commitments |   | 196,848 |   | 129,172 |   | 17,969 |   | 14,317 |   | 35,390 |   |
|-----------------------------------------------|--------|---------|--------|---------|--------|--------|--------|--------|--------|--------|--------|

 
| (1)    |   | Finance lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | Certain of the Company’s fixtures  and equipment are finance leases. The finance leases mainly relate to  equipment for the new production facility in Leiden, the Netherlands.  Interest rates are fixed at the contract date. All leases are on a fixed  repayment basis and no arrangements have been entered into for contingent  rental payments. The fair value of the company’s lease obligations approximates  their carrying amount. |
| (2)    |   | Operating lease obligations                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |   | The operating lease obligations  include rental obligations. Crucell concluded long-term rental agreements for  premises in Sweden and the Netherlands. In addition, Crucell leases certain  motor vehicles and items of machinery and equipment.                                                                                                                                                                                                       |
| (3)    |   | Capital expenditure commitments                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |   | The remaining contractual  commitments for purchases of property, plant and equipment amount to  approximately € 4,696 (2006: € 11,693). These commitments mainly relate to  our new production facility in Leiden, the Netherlands.                                                                                                                                                                                                          |
|   |   | See note 5.19 ‘Short and long-term  financial liabilities’ in the notes to the financial statements for details  on the maturity profile and the interest rate environment of our financial  liabilities.                                                                                                                                                                                                                                     |

 

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**Management Report**

Operating andFinancial Review and Prospects

 

**Off-balance sheet arrangements**

 

As of December 31,2007, we have no unconsolidated special purpose financing or partnershipentities or other off-balance sheet arrangements that have or are reasonablylikely to have a current or future effect on our financial condition or lead tochanges in financial condition, revenues or expenses, results of operations,liquidity, capital expenditures or capital resources, that is material toinvestors.

 

The Companyhas investments in two associates and in one joint venture. Further details areprovided in note 5.9 ‘Investments in associates and joint venture’ in thefinancial statements.

 

**Quantitative and qualitative disclosure about market risk**

 

Market riskis the risk of loss related to adverse changes in market prices, includingcurrency risk, interest rate risk, of financial instruments. During theordinary course of business, the Company is exposed to various financial marketrisks, primarily from foreign exchange and interest rates and credit risk.Further details on our market risks are disclosed in note 3 ‘Financialrisk management’ in our financial statements.

 

**Impact of inflation**

Crucell doesnot operate subsidiaries in countries with hyperinflation. Sales to customersin hyperinflation countries are made in hard currency, mainly Euro, USD andCHF.

 

102

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**Management Report**

CorporateSocial Responsibility

 

**Corporate Social Responsibility**

 

**Introduction**

 

Crucell isaware of the corporate social responsibility it has towards its employees,customers, shareholders, the local community and society at large. The Companyis committed to being a good corporate citizen. Crucell’s policy is to conductits business affairs honestly and in an ethical manner.

 

**Primary business**

 

Crucell’sstrategy is to develop products that address currently unmet medical needs,particularly in relation to infectious diseases. We believe that our businessmakes a valuable contribution to society. By developing and manufacturinguseful medicines, we improve the quality of life for large groups of people.Sustainable development is considered to be an integral part of the way we dobusiness.

 

**Vaccines**

Vaccinesprotect against disease. They have a longer-term benefit and are more costeffective than treating people after they fall ill. Vaccination is alsobeneficial in preventing disease outbreaks and reducing long-term effects ofdisease including permanent disabilities.

 

We makevaccines that protect against a number of debilitating and deadly diseasesincluding hepatitis A and B, typhoid, seasonal influenza, measles, rubella andcholera. In 2007 we distributed more than 90 million vaccine doses in more than70 countries throughout the world. Of these, more than 80% went to developingcountries.

 

For ourQuinvaxem paediatric vaccine, we have been awarded major contracts bysupranational organizations related to the World Health Organization (WHO).These contracts underline Crucell’s position as a supplier of importantvaccines to improve public health. Quinvaxem is the first internationallyavailable fully-liquid vaccine containing antigens against five importantchildhood diseases. The product makes a significant contribution to children’svaccination programs in the developing world.

 

**Innovation**

Crucell’sresearch efforts today are focused on developing vaccines and proteins thataddress unmet market needs and bring innovation to global health. We believeour research and development into innovative new vaccines and proteins is animportant part of our corporate social responsibility. In 2007, Crucellinvested € 64 million and employed 368 people in research and developmentprograms.

 

Currentlywe are researching vaccines against (seasonal and pandemic) influenza, ebola,malaria, tuberculosis and HIV/AIDS as well as antibody products against rabies,avian influenza and hospital-acquired bacterial infection. Our yellow fevervaccine is in late-stage development.

 

Many of thediseases we are working to combat severely affect developing countries. We areone of the few companies developing vaccines against the World HealthOrganization’s three priority diseases: malaria and tuberculosis and HIV/AIDS.To support our work in these and other development areas, Crucell receivesgrants from government, supranational and welfare organizations.

 

**Research and development**

 

Researchand development into new and valuable vaccines and proteins is fundamental forthe future of our Company. The nature of the business Crucell operates in meansthat it is critically important we meet high ethical and scientific standardsin our work.

 

**Clinical trials**

Before anyvaccine or medical product can be marketed, it must first go through a seriesof clinical trials in humans to test the product’s safety and effectiveness.Before reaching this point, a vaccine is likely to have already been indevelopment for a number of years and undergone rigorous pre-clinical testing.

 

Typically,clinical trials unfold in three phases in order to gather data and informationabout a vaccine or medicine and its performance. This forms the basis of adossier submitted to regulatory authorities. For vaccines, the progression ofclinical trials differs to some extent from conventional medicines. This isbecause vaccines are primarily given to healthy individuals as a preventativemeasure while medicines are for use in patients already suffering from acondition.

 

All Crucellclinical trials are carried out in compliance with the principles outlined inthe World Medical Association Declaration of Helsinki on the ‘EthicalPrinciples for Medical Research Involving Human Subjects’, the Good Clinical Practice(GCP) guidelines developed by the International Conference on Harmonization(ICH) and the local legal requirements.

 

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**Management Report**

Corporate Social Responsibility

 

Before thestart of any study, the Study Protocol, the Subject Information and theInformed Consent forms, as well as all other study-related documents, asrequired by applicable laws and regulations, are submitted to the responsibleInstitutional Review Board (IRB)/Independent Ethics Committee (IEC) for writtenapproval. The IRB/IEC, according to the applicable laws and regulations, arekept informed about Amendments to the Study Protocol including, but not limitedto, any new information that require an ethical reconsideration of the StudyProtocol.

 

Inaddition, before initiating the study, the Clinical Study Protocol is submittedto the relevant Regulatory Authorities and approval is obtained according toapplicable laws and regulations.

 

**Animal efficacy rule**

Forvirulent and deadly diseases such as ebola, for example, challenge trials wherepeople are exposed to the disease are ethically impossible. The speed of thedisease’s onset in remote areas also makes it almost impossible to trial avaccine during an outbreak. It is for these reasons that the Bioshield Act inthe U.S. has incorporated an ‘animal efficacy rule’, requiring proof ofefficacy in two animal models, with a phase III study focusing on safety anddosage in humans. 

 

Clinicaltrials are a long and intensive process so that no drug or vaccine should findits way onto the market and be used in humans without a thorough examination ofits benefits and potential side effects.

 

**Patient safety**

The safetyof our vaccines is of critical importance. Our vaccines are thoroughlymonitored, reviewed and evaluated both during development and followingcommercialization. Any side effects related to our marketed vaccines arereported and if necessary investigated. When appropriate, investigations areconducted on the possible causal relationship of the reported adverse events.This may result in the inclusion of the adverse event in the Summary of ProductCharacteristics (SPC) or, in the most extreme cases, in withdrawal of theinvolved batch(es) or of the product from the market.

 

Theindustry we operate in is highly regulated. Our products are subjected to thehighest standards, both from an internal and external point of view. Externalaudits of our products are carried out on a regular basis.

 

**Ethical conduct**

 

Ethics arean integral part of how a company and its employees conduct themselves.Adhering to high standards of ethics and transparency is important in dealingswith stakeholders and contributes to business success. In every aspect of ourwork Crucell aims to demonstrate the highest levels of integrity,accountability, openness and fairness.

 

**Code of Conduct**

Crucell hasa Code of Business Conduct and Ethics (the ‘Code of Conduct’) available on theCompany’s website (www.crucell.com) and intranet. The Code of Conduct underlinesthat one of the most valuable assets of Crucell is its integrity. The Codeapplies to every officer, director and employee of the Company.

 

We have awhistle blower policy in place, which encourages employees to report abuses andnon-compliance of our Code of Conduct – anonymously if necessary.

 

**Company stakeholders**

Crucell iscommitted to dealing fairly and honestly with the Company’s customers,suppliers, competitors, employees and shareholders. Crucell does not permitengagement in unfair methods of competition or unfair or deceptive acts andpractices. We do not allow representatives of the Company to take unfairadvantage of anyone through manipulation, concealment, abuse of privilegedinformation, misrepresentation of material facts, or any other unfair orunethical dealing. Our business standards are founded on transparency, honestyand integrity.

 

Most of oursuppliers and customers are in the medical industry, are non-profitorganizations or are intermediate distribution companies. We have no indicationnor are we aware of unethical behaviour by our suppliers and customers.

 

**Employees**

 

Our workingenvironment is based on respect for the individual, innovation and creativity.We value open communication, a critical attitude and a can-do mentality. Focusand flexibility are also important. We encourage people to think where no onehas thought before and make significant contributions to the company.

 

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Corporate Social Responsibility

 

**Diversity**

Diversityin the workplace is important for giving different viewpoints to betterunderstand the needs of customers and patients. Crucell values both gender andethnic diversity and acts as an equal opportunity employer. In 2007, 41% of ourworkforce was female, with 11% holding management positions. The Companyemployed people of more than 26 different nationalities.

 

**Development, appraisal and remuneration programs**

We firmlybelieve that investing in our people is investing in our future. We work hardto attract and retain the best and we spend a lot of time and effort trainingour team to become highly qualified employees. Crucell is dedicated todeveloping our employees’ competencies and promoting individual performance.

 

In 2007,Crucell began using a new global Performance Management System. The appraisalsbased on this system were used for the Remuneration Round in 2007. Using thisapproach a global procedure was put in place for all management.

 

A globalremuneration policy was also used for the first time in 2007. This policy isfor all members of management who are not members of the Management Board orManagement Committee.

 

**Internal communications**

Goodinternal communications are essential in creating a transparent and openworking environment. Crucell has worked hard in 2007 to further develop a rangeof communications channels to keep employees informed and up-to-date withcompany developments. Two important communications channels include the globalintranet site and the internal newsletter. The global intranet was introducedin August and provides news and information on developments taking placewithin the Company. Local intranet sites are maintained at each subsidiary andinclude information relevant to that specific location. The internalnewsletter, titled Crucell Update, was published each month during 2007.

 

**Workers Council**

In 2007,Management met with the Dutch Workers Council on five occasions. Items on theagenda included subjects like the introduction of the new Workers Council, thestrategy of the Company, financials, the conducted external salary benchmarks,information sessions that were held by the Workers Council amongst employeesand retention and recruitment. Next to these formal meetings several informaldiscussions took place about employee matters between the Workers Council andthe CEO and Human Resources department.

 

**Health, safety and the environment**

 

Our dailyactivities at Crucell include working with high-risk materials and procedures.For that reason, the authorities have created an extensive and detailed systemof rules and permits aimed at protecting both the environment and theindividual employee. We manage health and safety together with the environmentin an integrated system.

 

We use aBiological Safety Manual developed in-house to meet the specific needs of ourworking environment. Crucell personnel involved in Research and Development arerequired to undertake a course titled ‘Safe Microbiological Techniques andVirology’.

 

**Regulations and continuous improvement**

Crucellseeks to comply with both the letter and spirit of the laws, rules, regulationsand company policies under which we operate. Given the nature of our work atCrucell and the materials we handle, the protection of our employees and theenvironment is of utmost importance. Above and beyond compliance with legalrequirements, our processes aim to meet the goal of continuous improvement.

 

105

 

**Management Report**

Corporate Governance

 

**Corporate Governance**

 

**Corporate governance at Crucell**

 

Corporategovernance is concerned with the relationship between the Management and theshareholders, and more generally the stakeholders, of the Company. It is theformal codification of the manner in which the Company is governed, of theaccountability of its Management and its supervision, of the manner in whichstakeholders, and more particularly shareholders, are able to gain an insightinto the state of affairs within the Company, and finally, of the way in whichthey can influence the decision-making process. With regard to this finalissue, voting rights and the manner in which the vote can be exercised, play animportant role.

 

As a Dutchcorporation, Crucell is subject to Dutch Corporate Governance regulations. As aforeign private issuer whose ADSs trade on Nasdaq Global Select Market (‘Nasdaq’),we are also subject to U.S. securities laws (including the provisions of theSarbanes-Oxley Act of 2002) and the Nasdaq rules.

 

As aforeign private issuer Crucell may follow its home country practice in lieu ofthe requirements of the rules of Nasdaq but we disclose in our AnnualReports each requirement it does not follow and describe the home countrypractice we do follow. See ‘Exemptions from certain Nasdaq Corporate GovernanceRules’ in this section.

 

BecauseCrucell has a secondary listing on the SWX Swiss Exchange, under the rules ofthe SWX Swiss Exchange it is allowed to apply the Dutch corporate governancecode (the ‘Code’).

 

**Corporate governance developments**

 

We monitorand assess applicable corporate governance rules, including recommendations andinitiatives regarding principles of corporate governance. These include thosethat have been developed in the U.S., both by the Nasdaq and by the SECpursuant to the Sarbanes-Oxley Act of 2002 and the Dutch corporate governancecode, which came into effect as of the financial year starting on or after January 1,2004.

 

**Dutch Corporate Governance Code**

 

The Codehas been instituted by government decree. According to Dutch law, a publiccompany should include in its Annual Report a statement about the compliancewith the principles and best practice provisions of the Code that regard theManagement Board and Supervisory Board. If a corporation does not, or does notintend to comply with any of the principles and best-practice provisions, itmust explain its motivation in the Annual Report. Substantial amendments to theexisting corporate governance structure and compliance with the Code have to besubmitted for discussion to the General Meeting of Shareholders.

 

Importantprinciples of the Code are:

 

·        Strengtheningthe role of the Supervisory Board and its committees and increasing itsindependence, quality and expertise;

·        Strengtheningthe role 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;

·        Facilitatingand stimulating shareholders to use their voting power and to activelyparticipate in the General Meeting of shareholders;

·        Definingthe role of the external auditor vis-à-vis the Supervisory Board as itsprincipal contact; and

·        Maintainingan appropriate internal risk and control system.

 

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

 

·        Corporategovernance at Crucell

·        By-lawsManagement Board

·        Remunerationpolicy Management Board

·        By-lawsSupervisory Board

·        Code ofConduct (Crucell’s company code) including whistle-blower policy

 

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During2003, we adopted a code of business conduct and ethics that applies to allemployees of the Company, including our principal executive officer andprincipal financial officer. The code of business conduct and ethics was filedas an exhibit to our Form 20 F for the fiscal year ended December 31,2003. No amendments or waivers of the code of ethics were made or grantedduring 2007.

 

**Compliance with the Code**

In June 2005,the Annual General Meeting of Shareholders approved our current corporategovernance structure. Except for three provisions of the Code, Crucell hasfully implemented the recommendations as laid down in the Code and incorporatedthem into our corporate governance policy.

 

One of therequirements of the Code is that all members of the Supervisory Board are ableto act critically and independently of one another and of the Management Boardand any particular interests. The Supervisory Board explicitly declares thatthis requirement of the Code is complied with.

 

**Exceptions to compliance with Code**

Crucellcomplies with all of the best practice provisions of the Code, except for thefollowing items:

 

**Remuneration of Management Board members**

 

Under theCode, the maximum severance pay for a Management Board member should be no morethan one year’s salary, unless this is manifestly unreasonable. We do not applythis principle in the event of a dismissal arising from an unwanted change ofcontrol for Management Board members that were appointed before 2005.

 

**Loans to the Company’s management**

 

We do notapply the provision in the Code that no personal loans shall be granted to acompany’s management board members because, prior to the Code’s development andpassage of similar legislation in the U.S., loans were made to Management Boardmembers and one such loan remains outstanding. Reference is made to note 5.23 ‘Relatedparties’ in the financial statements. We have not granted additional loans toManagement Board members since 2002.

 

**Remuneration of Supervisory Board members**

 

We do notapply the principle that the remuneration of the members of the SupervisoryBoard does not include share grants. Crucell deems this form of remunerationadequate because this is customary among internationally operating biotechnologycompanies, and helps attract excellently qualified supervisory directors withspecific expertise in biotechnology and international business fields.

 

**Exemptions from certain Nasdaq corporate governance rules**

 

Nasdaq rules providethat Nasdaq may provide exemptions from the Nasdaq corporate governancestandards to a foreign issuer when those standards are contrary to a law, rule orregulation of any public authority exercising jurisdiction over such issuer orcontrary to generally accepted business practices in the issuer’s country ofdomicile. We have received from Nasdaq exemptions from certain Nasdaq corporategovernance standards that are contrary to the laws, rules, regulations orgenerally accepted business practices of the Netherlands. These exemptions andthe practices followed by our company are described below:

 

·        We are exempt from Nasdaq’s quorum requirements applicableto meetings of shareholders. In keeping with Dutch law and the Netherlandsgenerally accepted business practice, our articles of association provide thatthere are no quorum requirements generally applicable to general meetings ofshareholders.

·        We are exempt from Nasdaq’s requirements regarding thesolicitation of proxies and provision of proxy statements for meetings of shareholders.We inform shareholders of meetings in a public notice, but we do not solicitproxies for general meetings of shareholders. Dutch law does not have aregulatory regime for the solicitation of proxies and the solicitation ofproxies is not a generally accepted business practice in the Netherlands. Inconnection with our American Depositary Shares (‘ADSs’), the Bank of New York,as depositary under our depositary agreement relating to our ADSs, distributesproxy materials to holders of our ADSs.

 

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·        We areexempt from Nasdaq’s requirements regarding shareholder approval. In keepingwith Dutch law and Netherlands generally accepted business practices, our articlesof association do not include a shareholder approval requirement. Our articlesof association provide that the General Meeting of shareholders may resolve toamend our articles of association, or dissolve, merge or demerge the Company,if our Supervisory Board first proposes the measure. In addition theshareholder approval requirements with respect to equity compensation plansunder Dutch Law and the Code differ from those applicable to U.S. companiesthat are subject to the Nasdaq’s listing standards. Under Dutch Company Law andthe Code shareholder approval is only required for equity compensation plans(or changes thereto) for members of the Executive Board and Supervisory Board,and not for equity compensation plans for other groups of employees.

·        We do not distribute Annual Reports to all of ourshareholders in accordance with Nasdaq rules. As our shares are bearer sharesaccording to Dutch law, we are not able to distribute to shareholders copies ofannual and interim reports. Copies of such reports are available toshareholders at our corporate headquarters, and are filed with Nasdaq and theBank of New York as depositary under our depositary agreement relating to ourADSs. Under the terms of the depositary agreement, the Bank of New York distributesour Annual Reports to holders of our ADSs.

·        The Company has a two-tiered board structure, in contrast tothe one-tier board structure used by most U.S. companies. In the Netherlands, apublic limited liability company has an Executive Board as its management bodyand a Supervisory Board which advises and supervises the Executive Board. Ingeneral, Executive Board members are employees of the company while members ofthe Supervisory Board are often former state or business leaders and sometimesformer members of the Executive Board. Members of the Executive Board and otherofficers and employees cannot simultaneously act as member of the SupervisoryBoard. The Supervisory Board must approve specified decisions of the ExecutiveBoard. Under the Code all members of the Supervisory Board with the exceptionof not more than one person, must be independent. The definitions ofindependence under the Code however, differ in their details from thedefinitions of independence under the Nasdaq listing standards. In some casesthe Dutch requirements are stricter and in other cases the Nasdaq listingstandards are the stricter of the two.

·        In contrast to the Sarbanes-Oxley Act of 2002, the Codecontains a ‘comply-or-explain’ principle, offering the possibility to deviatefrom the Code as long as any such deviations are explained.

·        Dutch law requires that the external auditors be appointedat the General Meeting of Shareholders and not by the Audit committee.

 

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**Directors, senior management and Boardpractices**

 

Crucell hasa so-called ‘two-tier’ governance, in which executive and supervisoryresponsibilities are clearly separated. Our Management Board is responsible formanaging the Company’s daily affairs and business and, as such, is responsiblefor achieving Crucell’s goals, strategy, policy, and results.

 

TheSupervisory Board, which consists of only of independent directors, supervisesthe Management Board. In the execution of their duties, the members of theSupervisory Board must be guided by the best interest of Crucell and itsstakeholders.

 

TheSupervisory Board reports to the General Meeting of Shareholders with regard tothe corporate governance of Crucell, its structure and the compliance withapplicable internal and external rules and regulations.

 

**Supervisory Board**

 

Theprincipal duty of the Supervisory Board is to supervise the policies of theManagement Board and to provide advice. More generally, the Supervisory Boardoversees the corporate strategy and the risks inherent in the Company’sactivities, the structure and operation of the internal risk management andcontrol systems, the financial reporting process and the Company’s compliancewith relevant legislation and regulations.

 

OurSupervisory Board must approve certain resolutions of our Management Board,which are specified in our articles of association. In addition, ourSupervisory Board may give our Management Board written notice of othercorporate actions that it wishes to approve. The division of duties and theprocedures within the Supervisory Board are set forth in the by-laws of theSupervisory Board and can be found on Crucell’s website (www.crucell.com).

 

Ourarticles of association provide that at least three Supervisory Board membersmust serve on our Supervisory Board. We must fill any vacancies on theSupervisory Board as soon as possible, but until they are filled the remainingmembers of our Supervisory Board constitute a competent board. Under Dutch law,Supervisory Board members cannot serve as members of our Management Board.

 

The membersof our Supervisory Board are appointed for terms ending on the date of thefirst annual meeting of shareholders that is held four years after the date of theirappointment. They may be reappointed for two consecutive terms of four years.Our Supervisory Board nominates its members. To be binding, there must be atleast two nominees for each vacancy on the Supervisory Board. The generalmeeting of shareholders can override these binding nominations by a vote of anabsolute majority of the votes cast. This vote must represent more than onethird of our issued share capital. If the Supervisory Board does not make anynominations within three months after the vacancy has occurred, our generalmeeting of shareholders can fill Supervisory Board vacancies. If theSupervisory Board made a non binding nomination, then an appointment indeviation with the nomination is only possible by a resolution of the generalmeeting of shareholders taken by an absolute majority of the votes cast,representing at least one third of our issued capital. The Supervisory Boardmembers retire according to a rotation plan that the Supervisory Boardestablishes.

 

OurSupervisory Board appoints its own chairman and must adopt rules for itsown internal governance and establish committees. The Supervisory Board must,in any event, establish an Audit committee, a Remuneration committee and aNomination committee. Passing Supervisory Board decisions requires a majorityof the votes cast at a meeting of our Supervisory Board, unless otherwiseprovided for in the articles of association or the by-laws of the SupervisoryBoard. The company secretary assists the Supervisory Board.

 

ASupervisory Board member can be suspended or dismissed at any time by aresolution of our general meeting of shareholders passed by an absolutemajority of the votes cast. This vote must represent more than one third of ourissued share capital if the resolution to suspend or dismiss a SupervisoryBoard member is not proposed by our Supervisory Board. Within three monthsafter a suspension, our general meeting of shareholders must dismiss theSupervisory Board member, terminate the suspension or extend it. The total suspensionmay not exceed three months.

 

The generalmeeting of shareholders determines the Supervisory Board members’ compensation.In contrast to the provisions of the Dutch corporate governance code, until theend of our 2004 fiscal

 

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year wepaid our Supervisory Board members in options on our ordinary shares as well ascash, and as of the beginning of our 2005 fiscal year in ordinary shares andcash, or cash only, at the member’s discretion and reimburse them for theirexpenses. The remuneration policy is intended to be able to attract and retainqualified and expert Supervisory Board members. It is in line with what iscustomary in the U.S. biotechnology industry and is in line, as much aspossible, with the best practice provisions of the Code.

 

Accordingto the best practice provisions of the Code, an individual may hold a maximumof five Supervisory Board memberships in Dutch listed companies, with thechairmanship of a Supervisory Board counting as two. All members of ourSupervisory Board comply with this provision.

 

All membersof the Supervisory Board comply with the criteria for independence as set outin the Code and are also independent in accordance with the requirements ofapplicable EU and Swiss rules.

 

Thebusiness address of each Supervisory Board member is the address of ourprincipal executive office in Leiden, the Netherlands. As of April 25,2008 our Supervisory Board members held an aggregate of 0.15% of our ordinaryshares.

 

At of December 31,2007 the Supervisory Board of Crucell consisted of:

 
| Name                 |   | Age |   | Position |   | Service  period   according to   rotation  scheme |
|----------------------|--------|-----|--------|----------|--------|---------------------------------------------------|
| Jan  Oosterveld      |   | 63  |   | Chairman |   | 2010                                              |
| Phillip  Satow       |   | 65  |   | Member   |   | 2009                                              |
| Claes  Wilhelmsson   |   | 68  |   | Member   |   | 2011                                              |
| Seán  Lance     |   | 59  |   | Member   |   | 2011                                              |
| Arnold  Hoevenaars   |   | 58  |   | Member   |   | 2009                                              |
| Dominik  Koechlin(1) |   | 48  |   | Member   |   | 2010                                              |
| Jürg  Witmer(2) |   | 58  |   |     |   |                                              |
| Claude  Thomann(2)   |   | 55  |   |     |   |                                              |
| Steve  Davis(3)      |   | 50  |   |     |   |                                              |

 

(1)    Mr. Koechlin will resign as amember of the Supervisory Board at the company’s Annual General Meeting ofShareholders on May 30, 2008.

(2)    Mr. Witmer and Mr. Thomannresigned from the Supervisory Board on June 1, 2007.

(3)    Mr. Davis was nominated in January 2008to join the Supervisory Board of Crucell. The Supervisory Board will propose toCrucell’s shareholders to appoint Mr. Davis as member of the SupervisoryBoard at the company’s Annual General Meeting of Shareholders on May 30,2008.

 

**JanOosterveld** has served as chairman ofour Supervisory Board since June 2006. He retired from Royal PhilipsElectronics N.V. on April 1, 2004, after an international career of 32years. At his retirement he was responsible for Corporate Strategy, CorporateAlliances and the joint ventures with LGE on Cathode Ray Tubes (CRTs) andLiquid Crystal Displays (LCDs). In the latter responsibility he was thechairman of the board of LG Philips Ltd, which went public in April 2004,and vice-chairman of the board of LG Philips Displays BV. He was also the CEOof Philips Asia Pacific.

 

Hegraduated as a mechanical engineer from the Technical University Eindhoven, andholds an MBA from the Instituto de Estudios Superiores de la Empresa (IESE) inBarcelona. He was appointed Professor at IESE in 2003. Mr. Oosterveld hasserved as a member of our Supervisory Board since his appointment at the annualgeneral meeting of shareholders on June 3, 2004. He is also a member ofthe board of Barco, Kortrijk, Belgium, Atos Origin, Paris, France, CooksonElectronics Group, London, UK and Continental, Hannover, Germany. Mr. Oosterveldis a Dutch citizen.

 

**PhillipSatow** has served as a member of ourSupervisory Board since our incorporation. He spent 14 years at Pfizer, Inc.where his last position was vice president, Pfizer Europe. From 1985 to 1997,he was executive vice president of 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 wasformerly a member of the board of Eyetech Pharmaceuticals Inc. Mr. Satowis currently a member of the Board of Directors of Noven Inc. Mr. Satow isan American citizen.

 

**ClaesWilhelmsson** has served as a member ofour Supervisory Board since May 2003. He was previously the executivedirector of research and development of AstraZeneca plc from 1999 to July 2002,where he was responsible for AstraZeneca’s global R&D. He joined Astra in1985 and held various positions until the company merged with Zeneca in 1999.Prior to working for Astra, he was a lecturer and researcher at the Universityof Göteborg in Sweden, where he also completed his medical education and PhD.He currently serves on the boards of a number of biotechnology and start-up

 

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companies. Dr. Wilhelmssonpreviously served on the board of AstraZeneca plc. Mr. Wilhelmsson is aSwedish citizen.

 

**SeánLance** has served as a member of ourSupervisory Board since January 2004. Mr. Lance is the past chairmanof Chiron Corporation. He joined Chiron as president and Chief ExecutiveOfficer in 1998. From 1985 to 1998 he was employed at Glaxo Holdings where hislast position was group Chief Operating Officer and CEO designate. He is a pastpresident of the International Federation of Pharmaceutical ManufacturersAssociation. Mr. Lance is a chartered company secretary and administratorand he also holds a post-graduate qualification in Advanced FinancialManagement. Mr. Lance is a South African citizen.

 

**ArnoldHoevenaars** has served as a member ofour Supervisory Board since June 2005 and has been attending ourSupervisory Board meetings as an observer since July 2004. Mr. Hoevenaarsis a chartered accountant in the Netherlands, and his previous positionsinclude, among others, chairman of the management board of the Achmea Group,chairman of the board of directors and chairman/CEO of the Executive Board ofEureko B.V. and member of the management board and CFO of Royal BoskalisWestminster N.V. Mr. Hoevenaars is a Dutch citizen.

 

**DominikKoechlin** has served as a member of ourSupervisory Board since February 2006 upon settlement of Crucell’sexchange offer for Berna Biotech AG, where he was a member of the Board ofDirectors. His career began in 1986 as a financial analyst at Bank Sarasin &Cie in Basel. In 1990 he was a founding partner of Ellipson AG, a consultancyspecialized in strategy, corporate finance and sustainability. In 1996 hebecame a member of the executive board of Telecom PTT, now known as SwisscomAG. In 1999 he took over responsibility for all of Swisscom’s internationalparticipations. He has served on the boards of Debitel AG (Stuttgart), BluewinAG, Swisscom, SAM and was chairman of the board of UTA (Vienna) and a member ofthe supervisory board of Cesky Telecom (Prague). He is currently a member ofthe supervisory boards and Audit committees of LGT Bank (Liechtenstein), EGL AGand Swissmetal AG, and a board member at M2, Corris AG, Avaloq and theUniversity of Basel. Mr. Koechlin is a Swiss citizen.

 

**SteveDavis** has been nominated to join theSupervisory Board. Mr. Davis was CEO of Corbis Corporation until 2007 andnow acts as a senior advisor to the company. He has held positions within theUnited Nations High Commissioner for Refugees and several refugee resettlementprograms. Currently he is a member of the Board of Trustees and Chair of theLeadership Council for PATH, a non-profit organization focused on improvingpublic health in the developing world. He is a member of the Board of Trusteesfor the Fred Hutchinson Cancer Research Center. He holds a board position inIntrepid Learning Solutions, Seattle Foundation, and PlanetOut Inc. Mr. Davisholds a Bachelor of Arts from Princeton University, a Master of Arts from theUniversity of Washington and a Doctorate in Law from Columbia University Schoolof Law.

 

**Committees**

 

TheSupervisory Board appoints from its members an Audit committee, a Remunerationcommittee, a Nomination committee and a Scientific advisory committee. Thefunction of the committees is to prepare the decision-making of the SupervisoryBoard.

 

**Audit committee**

ArnoldHoevenaars, chairmanSeán LanceDominik Koechlin

 

The Auditcommittee consists of three Supervisory Board members who are independentwithin the meaning of the Nasdaq listing rules. This committee is responsiblefor, among other things, reviewing our annual and interim reports and accountsand for securing and monitoring our auditors’ involvement in that process. TheAudit committee is the first point of address for the external auditor, whenirregularities are found in the contents of the financial reports. The ultimateresponsibility for reviewing our Annual Report and interim financial reportinglies with our Supervisory Board. At request of the Audit committee, thechairman of the Supervisory Board may be invited to attend the meetings of theAudit committee.

 

Our Auditcommittee is in compliance with all of the relevant rules and regulationsof the Netherlands. We believe that the members of our Audit committee havesufficient financial and other experience to perform their responsibilities onthe

 

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committee. Mr. A.Hoevenaars is a ‘financial expert’ as defined in the rules promulgatedunder the Sarbanes-Oxley Act of 2002.

 

**Remuneration committee**

PhillipSatow, chairman

ClaesWilhelmsson

JanOosterveld

 

TheRemuneration committee advises on policies and reviews and determinesobjectives relevant to the compensation of the members of the Management Boardand members of the Management Committee. Remuneration consists of a fixedsalary portion and a variable bonus portion that is linked to our overallperformance and the achievement of set objectives. The Remuneration committeeevaluates the performance of members of the Management Board and ManagementCommittee in view of those objectives and advises on the fixed and variablecompensation of members of the Management Board and the Management Committee.In advising on short and long term incentive compensation for members of theManagement Board and Management Committee, the Remuneration committeeconsiders, among other factors, our financial and commercial performance,scientific performance and progress and the increase in value. Externalcompensation survey data available for the biotechnology industry are also usedas another factor to benchmark the compensation levels. It is the aim of theRemuneration committee to position the remuneration packages for members of theManagement Board and Management Committee at competitive levels. The bonus paidto the Management Board is paid in connection with achievement of certainobjectives set by the Supervisory Board.

 

Crucellmaintains stock option plans whereby the Remuneration committee may grantoptions to employees and members of the Supervisory Board as well asnon-employees in exchange for consulting services, subject to approval by theshareholders.

 

Inaddition, the Remuneration committee reviews the general compensation andbenefit policies for our employees.

 

**Nomination committee**

TheNomination committee consists of all Supervisory Board members. This committee (a) drawsup selection criteria and appointment procedures for members of the SupervisoryBoard and the Management Board, (b) periodically assesses the size andcomposition of the Supervisory Board and the Management Board and makes aproposal for a composition profile of the Supervisory Board, (c) periodicallyassesses the functioning of individual members of the Supervisory Board and theManagement Board, and reports on this to the Supervisory Board and (d) supervisesthe policy of the Management Board on the selection criteria and appointmentprocedures for senior management. The committee also makes proposals forappointments of Management Board members to the Supervisory Board and forappointments of members to the Supervisory Board.

 

**Scientific advisory committee**

ClaesWilhelmsson, Chairman

 

TheScientific advisory committee consists of one Supervisory Board member who isindependent within the meaning of the Nasdaq listing rules. This committee isresponsible for, among other things, reviewing progress in our research anddevelopment activities. The committee reports to the Supervisory Board on aregular basis.

 

**Management Board**

OurManagement Board manages our general affairs and business, under thesupervision of our Supervisory Board. Under our articles of association, theManagement Board requires prior approval of the Supervisory Board to:

 

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

·         Participate in, sell an interest in, or change itsparticipation in, or otherwise take an interest in, or assume the management ofanother business enterprise;

·         Enter into, terminate or amend any joint venture or poolingarrangement;

·         Acquire fixed assets exceeding price limits set by theSupervisory Board; and

·         Enter into financial commitments exceeding price limits setby the Supervisory Board or for longer than a year.

 

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Under Dutchlaw, in certain circumstances, Management Board actions may require theapproval of the general meeting of shareholders.

 

OurSupervisory Board determines the size of our Management Board afterconsultation with our Chief Executive Officer. Our general meeting ofshareholders appoints the members of our Management Board from nominations madeby our Supervisory Board. A member of the Management Board may be appointed orreappointed for a term of not more than four years at a time. To be binding,there must be at least two nominees for each vacancy on our Management Board.The general 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 issued share capital. If our Supervisory Board does notnominate anyone for a specific position within three months after the vacancyhas occurred, our general meeting of shareholders can appoint a replacement byan absolute majority of votes. If the Supervisory Board makes a non-bindingnomination, then an appointment contrary to the nomination is only possible bya resolution of the general meeting of shareholders taken by an absolute majorityof the votes cast, representing at least one third of our issued capital.

 

OurManagement Board may establish rules governing its internal organization.Our Supervisory Board must approve the adoption of and any changes to theserules. Our Management Board may charge each member of the Management Board withparticular duties. The allocation of duties requires the approval of theSupervisory Board. Resolutions of our Management Board require a majority ofvotes cast, unless provided otherwise in the by-laws of the Management Board.The Management Board may appoint a company secretary who will assist theManagement Board. The appointment and removal of the company secretary requiresthe prior approval of the Supervisory Board.

 

AManagement Board member can be suspended or dismissed and a suspension can belifted by a resolution of an absolute majority of the votes cast at ashareholders meeting. This vote must represent more than one third of theissued share capital if the resolution to suspend or dismiss a Management Boardmember is not proposed by our Supervisory Board. Our Supervisory Board may alsosuspend (but not dismiss) a member of our Management Board. We must hold ageneral meeting of shareholders within three months after a suspension toeither terminate or extend it. The total suspension may not exceed threemonths.

 

OurSupervisory Board determines the compensation and benefits of the members ofour Management Board, on a proposal by the Remuneration committee, within thescope of the remuneration policy adopted by the general meeting ofshareholders. The business address of the members of our Management Board isthe same as the address of our principal executive office in Leiden, theNetherlands.

 

Pursuant tothe Code, members of the Management Board are allowed to hold a maximum of twoSupervisory Board positions in other listed companies. The members of theManagement Board did not hold any such positions in 2007.

 

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

 
| Name/Position                          |   | Date of appointment   |
|----------------------------------------|--------|-----------------------|
| **Ronald  Brus**                       |   | January 26, 2004 |
| Chairman  of the Management Board,     |   |                  |
| President  and Chief Executive Officer |   |                  |
| **Leonard  Kruimer**                   |   | January 1, 2005  |
| Chief  Financial Officer               |   |                  |
| **Jaap  Goudsmit**                     |   | January 26, 2004 |
| Chief Scientific  Officer              |   |                  |
| **Cees de  Jong**(1)                   |   | Nominated             |
| Chief  Operating Officer               |   |                  |

 

(1) Mr. deJong was nominated in February 2008 to join the Management Board ofCrucell. This nomination will be proposed to the Company’s shareholders at thecompany’s Annual General Meeting of Shareholders on May 30, 2008.

 

**Management Board service contracts**

Thecontracts for the Management Board members have been entered into for anindefinite period and provide for a notice period of up to six months upon

 

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terminationby us and a notice period of three months upon termination by the individual. Adismissal arising from an unwanted change of control will result in a severancearrangement limited to two years’ worth of base salaries for the ManagementBoard members.

 

Thecontracts of the Management Board members contain non-compete provisions thatwould apply for a period of one year after the end of their employment with us.

 

**Management Committee**

For itsday-to-day operations Crucell has established a Management Committee that isalso responsible for the design, implementation and management of long- andshort-term strategy under the final responsibility of the Management Board. TheManagement Board determines the number of members of the Management Committee.Members of the Management Committee are appointed and dismissed by theManagement Board, with the approval of our Supervisory Board. The ManagementCommittee generally meets once a month, and works closely with other members ofour management team. Our Management Board may establish rules governingits relationship with our Management Committee. Our Supervisory Board mustapprove the adoption of and any changes to these rules.

 

The followingtable sets forth the name, age and position of each of the members of ourManagement Committee:

 
| Name/position                                     |   | Age    |
|---------------------------------------------------|--------|--------|
| **Ronald  Brus**                                  |   |   |
| Chairman  of Management Board,                    |   |   |
| President  and Chief Executive Officer            |   | 44     |
| **Leonard  Kruimer**                              |   |   |
| Chief  Financial Officer                          |   | 49     |
| **Jaap  Goudsmit**                                |   |   |
| Chief  Scientific Officer                         |   | 56     |
| **René  Beukema**                            |   |   |
| General  Counsel and Corporate Secretary          |   | 44     |
| **Arthur  Lahr**                                  |   |   |
| Chief  Strategy Officer & Executive Vice |   |   |
| President  Business Development                   |   | 39     |
| **Cees de  Jong**                                 |   |   |
| Chief  Operating Officer                          |   | 47     |
| **Björn Sjöstrand**                     |   |   |
| Chief  Business Officer                           |   | 40     |

 

Thefollowing paragraphs contain brief biographies of the members of our ManagementBoard and the members of our Management Committee:

 

**RonaldBrus** is chairman of the ManagementBoard and president and Chief Executive Officer since January 2004, andhas been a member of our Management Committee since our incorporation. He wasexecutive vice president, business development at IntroGene from 1997 to 2000and Chief Operating Officer at Crucell from March 2003 until hisappointment as president and Chief Executive Officer. From 1994 to 1996, he wasproduct-planning physician at Forest Laboratories (New York) and from 1990 to1994 he was medical director for Zambon B.V. He holds a medical degree (MD)from the University of Groningen. Mr. Brus is a Dutch citizen.

 

**LeonardKruimer** became a member of the ManagementBoard in January 2005. He has been our Chief Financial Officer and amember of our Management Committee since our incorporation. He held the sameposition at IntroGene from 1998 to 2000. From 1996 to 1998 he was anindependent 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 Price Waterhouse. Heholds a Masters in Business Administration from Harvard Graduate School ofBusiness Administration, a degree from the University of Massachusetts,Amherst, and is a CPA in New York State. Mr. Kruimer is a Dutch citizen.

 

**JaapGoudsmit** is a member of the ManagementBoard since January 2004. He was our senior vice president vaccineresearch from September 2001 until July 2002 and member of ourManagement Committee from July 2002 as executive vice president vaccineR&D. In September 2002 he was appointed Chief Scientific Officer andhead of research and development. He chaired the Academic Medical Center of theUniversity of Amsterdam, the Research Institute for Infectious Diseases and theInstitute for Science Education. He was the founding chair of the ScientificAdvisory Committee of the International AIDS Vaccine Initiative (IAVI) and thefounding co-chair of the European Vaccine Effort against HIV/AIDS (EuroVac). Since1989 he has been a

 

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professor at the University ofAmsterdam and the Academic Medical Center. He holds a medical degree (MD) and aPhD from the University of Amsterdam and is a board certified medicalmicrobiologist. Mr. Goudsmit is a Dutch citizen.

 

**René K. Beukema** has beenour General Counsel and Corporate Secretary since our incorporation. He heldthe same position at IntroGene from 1999 to 2000. From 1994 to 1999 Mr. Beukemawas senior legal counsel for GE Capital/TIP Europe. From 1991 to 1994, he waslegal counsel for TNT Express Worldwide N.V. He has a Masters in Law from theUniversity of Amsterdam.

 

**Arthur Lahr** is Crucell’sChief Strategy Officer and Executive vice president corporate businessdevelopment. He joined Crucell in April 2001 as executive directorbusiness development, was appointed vice president business development in December 2003,a member of the Management Committee in January 2004, executive vicepresident in January 2006 and assumed responsibility for European marketingand sales and company strategy in the summer of 2006. From 1994 to 2001 he wasa consultant with McKinsey & Co. in the Netherlands and New York.Prior to that he worked with Unilever. He holds a Masters in BusinessAdministration from INSEAD and a Masters in Science, Applied Physics, from theUniversity of Delft, the Netherlands.

 

**Cees de Jong** has joinedCrucell as Chief Operating Officer in 2007. During the last four years Mr DeJong worked at Quest International in Naarden, the Netherlands. There he was amember of the Board and responsible for the Flavours Division, which he turnedaround from loss making to outperforming industry growth rates. Prior to Quest,he worked as Managing Director of DSM Anti-infectives, a $ 625 million globalbusiness, employing more than 4000 people worldwide. In 1989 Mr De Jong startedhis career at Gist Brocades, holding a variety of roles in BusinessDevelopment, Strategy and General Management before the company’s acquisitionby DSM in 1998. Mr De Jong holds a Medical Degree and an MBA at the ErasmusUniversity Rotterdam.

 

**Björn Sjöstrand** has joinedCrucell in 2007 and is Crucell’s Chief Business Officer. He was the ChiefExecutive Officer at SBL Vaccines before it merged with Crucell in November 2006.Mr. Sjöstrand, a Swedish national, successfully headed the Crucell SBLintegration committee while directing the travel franchise and the Nordic salesforce for the Crucell Group. He initiated and led a Management buyout of SBLVaccin AB funded by 3i and SEB Företagsinvest. At SBL, he successfullyimplemented a triumphant, award-winning turnaround of the company from aloss-making company to a growth- focused, profit-making company between 2004and 2006. Between 1999 and 2001, he was the Vice president operations &IT at Active Biotech, where he was also a member of the senior management team.Mr Sjöstrand completed a Bachelor of Science (BSc) degree in Economics andBusiness Administration at the University of Örebro. He also studied Financialinvestment theory and Commercial law at the same university.

 

**Disclosurecommittee**

The Disclosure committee is designedto help senior management, particularly the Chief Executive Officer and ChiefFinancial Officer, in the maintenance and evaluation of our disclosure controlsand procedures. The Disclosure committee gathers all relevant financial andnon-financial information and assesses materiality, timeliness and necessityfor disclosure of such information. The Disclosure committee is comprised ofthe members of the Management Committee and selected senior managers. Membersof the Disclosure committee have direct access to our external legal counseland our external auditor. The Disclosure committee reports to the ChiefExecutive Officer and Chief Financial Officer.

 

The Disclosure committee is anintegrated part of our organization and is essential to our internal controlover financial reporting. The Disclosure committee and additional actions takenfor further improvement of disclosure and internal control are intended to helpus comply with the requirements of the Sarbanes-Oxley Act of 2002 andregulations promulgated by the Securities and Exchange Commission under thatAct.

 

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** **

**Remuneration policy for Management Board and Supervisory Board**

 

The Remuneration committee hasadvised the Supervisory Board on the remuneration policy and structure for theManagement Board. The Supervisory Board reviewed the remuneration policy. Theannual general meeting of shareholders has approved the current remunerationpolicy. The remuneration policy is based on the following key principles:

 

·         Overall remuneration levels need tobe sufficient to attract, retain and motivate top management given the dynamicbusiness environment in which we compete for talent;

·         Base salaries should be broadly inline with average market levels, whereas short- and longterm incentive levelsshould reflect an upside potential in case of outstanding performance;

·         To enhance the effectiveness of theshort-term incentive, clearly measurable and challenging targets are set, whichreflect our strategic focus in the short-term; and

·         The long-term incentive plan shouldensure a focus on longer-term strategic performance targets, which aim forshareholder alignment and motivation and retention of qualified executives.

 

**Remunerationstructure 2007**

The Management Board members receivea fixed remuneration in the form of a base salary and variable remuneration inthe form of a short-term incentive plan and a long-term incentive plan.

 

The incentive for the at targetperformance of the Chief Executive Officer amounts to 109% of base salary (75%short-term incentive and 34% long-term incentive) and for the Chief FinancialOfficer and Chief Scientific Officer a total target bonus of 86% of base salaryis applicable (60% short-term incentive and 26% long-term incentive). Thisresults for the Chief Executive Officer in 48% fixed and 52% variablecompensation for at target performance. For the other two Management Boardmembers, the balance equals 54% fixed and 46% variable compensation.

 

**Base salary**

In 2007, base salary levels of theManagement Board have been increased by 3% in order to account for an inflationcorrection. Each consecutive year the Supervisory Board considers whether basesalary levels should be adjusted by taking account of our external and internalbusiness environment.

 

**Short-termincentive**

At the annual general meeting ofshareholders in 2005, our shareholders approved the short-term share-basedincentive plans. The short-term incentive is linked to the achievement ofpredetermined collective milestones in combination with a budget hurdle andindividual milestones. The collective milestones are based on pre-determined annualmilestones for research, development, business development, finance,intellectual property and corporate legal affairs. The specific details of themilestones are not disclosed as these qualify as commercially sensitiveinformation.

 

In addition, part of the short-termincentive award is based on individual milestones, assessed on the basis ofpredefined measurable milestones set for each executive. These milestonesdepend on the specific responsibilities of the individual and are approved byour Supervisory Board. All milestones linked to the short-term incentive planare revised annually and approved by our Supervisory Board to ensure that theyremain challenging but realistic.

 

The table below shows the relativeweight of the collective and individual milestones:

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

 

The target bonus of the ChiefExecutive Officer amounts to 75% of base salary and for the Chief FinancialOfficer and Chief Scientific Officer a target bonus of 60% of base salary isapplicable. In the event performance exceeds expectations to a considerableextent, up to 125% of the target bonus could be rewarded as a maximum bonus.

 

The bonus is payable in restrictedshares or cash, at the option of the participant. Our Management Board membersare encouraged to opt for restricted shares to maximize alignment ofshareholders’ interest. Therefore when opted for cash, a penalty of up to 25%reduction will be applied.

 

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**Long-term incentive**

At the annual general meeting ofshareholders in 2005, our shareholders approved the long-term share-basedincentive plan.

 

Target long-term incentive levelsamount to 34% of base salary for the Chief Executive Officer and 26% for theChief Scientific Officer and the Chief Financial Officer. When achievingmaximum performance, a maximum of 200% of the target award can be awarded.Overall, no vesting takes place for below median performance.

 

The performance shares will beconditionally granted and vest if pre-set performance targets have been met atthe end of a three-year performance period. The performance targets are basedon a combination of absolute share price growth on the stock markets, and ourTotal Shareholder Return (‘TSR’). The TSR reflects the return received by ashareholder, taking into account both the change in share price and dividendsreceived, while assuming dividends are re-invested in us.

 

The absolute share price growthserves as a hurdle which must be overcome to qualify for any possible vestingof the shares. After the share price hurdle is met, the TSR performancemeasurement is twofold: relative to a peer group consisting of 26 constituentsof the Goldman Sachs European Biotech Index and relative to the Nasdaq BiotechIndex. Fifty percent of the conditionally awarded shares vest subject to ourranking within the Goldman Sachs European Biotech Index on the date of vesting.The table below shows the vesting scheme:

 

**Goldman Sachs European Biotech Index Vesting Scheme**

 
| Ranking    |   | Vesting as % of 50%   of target award |
|------------|--------|---------------------------------------|
| 1          |   | 200%                                  |
| 2          |   | 183%                                  |
| 3          |   | 167%                                  |
| 4          |   | 150%                                  |
| 5          |   | 133%                                  |
| 6          |   | 117%                                  |
| 7          |   | 100%                                  |
| 8          |   | 89%                                   |
| 9          |   | 79%                                   |
| 10         |   | 68%                                   |
| 11         |   | 57%                                   |
| 12         |   | 46%                                   |
| 13         |   | 36%                                   |
| 14         |   | 25%                                   |
| 15–27 |   | 0%                                    |

 

The remaining 50 percent of theconditionally granted performance shares vest based on the positive differencein percentage-points between Crucell’s American Depository Shares (ADS), TSRperformance and the Nasdaq Biotech Index. The following table shows the vestingscheme:

 

**Nasdaq Biotech Index Vesting Scheme**

 
| Positive  difference in Crucell’s   TSR performance  and the Nasdaq Biotech Index |   | Vesting as % of 50%  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%                                   |

 

In December 2005, 36,842 LTIPlan shares were granted to selected executives, of which 28,582 were grantedto members of the Management Board. No LTI plan shares were granted in 2007 and2006. There were no forfeitures of the LTI Plan grants through December 31,2007. The conditionally granted shares vested on December 31, 2007 andwere issued to the executives in the first quarter of 2008.

 

**Pension**

At the beginning of our 2005 fiscalyear a new pension plan for our Management Board was introduced. The plan is adefined contribution plan, with a pensionable age of 65 years. The employeecontribution is set at 7% of the pensionable salary (base pay minus an offset).The table below outlines the annual contribution rates, including the employeecontribution. The risk premium for the survivor’s pension is financedseparately by the employer.

 

Total contribution rates for ourBoard members:

 
| Age      |   | Contribution  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%              |

 

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**RemunerationManagement Board and Supervisory Board**

 

As of April 25, 2008 members ofour Management Board and Supervisory Board held the following ordinary sharesand options1.

 
| Name of Holder |       | Ordinary shares  held par   April 25, 2008 |       | Options   held par   April 25, 2008 |       | Year of   expiration |       | Exercise   price |       |
|--------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------|------------|---------------------------|------------|------------------|------------|
| Ronald  Brus             |       | 154,202                                                        |       | 250,000                                            |       | 2009                      |       | 9.40             |       |
|                     |       |                                                           |       | 200,000                                            |       | 2011                      |       | 3.49             |       |
|                     |       |                                                           |       | 90,000                                             |       | 2011                      |       | 2.64             |       |
|                     |       |                                                           |       | 125,000                                            |       | 2011                      |       | 5.94             |       |
| Jaap  Goudsmit           |       | 159,276                                                        |       | 85,000                                             |       | 2009                      |       | 9.40             |       |
|                     |       |                                                           |       | 125,000                                            |       | 2011                      |       | 5.94             |       |
| Leon  Kruimer            |       | 28,194                                                         |       | 85,000                                             |       | 2009                      |       | 9.40             |       |
|                     |       |                                                           |       | 30,000                                             |       | 2011                      |       | 3.49             |       |
|                     |       |                                                           |       | 125,000                                            |       | 2011                      |       | 5.94             |       |
| **Totals**               | ** ** | **341,672**                                                    | ** ** | **1,115,000**                                      | ** ** | ** **                | ** ** | ** **       | ** ** |
| Jan  Oosterveld          |       | 9,500                                                          |       | 10,000                                             |       | 2009                      |       | 8.81             |       |
|                     |       |                                                           |       | 10,000                                             |       | 2009                      |       | 11.55            |       |
| Seán  Lance         |       | —                                                         |       | 10,000                                             |       | 2011                      |       | 7.86             |       |
|                     |       |                                                           |       | 10,000                                             |       | 2009                      |       | 11.55            |       |
| Phillip  Satow           |       | 63,800                                                         |       | 10,000                                             |       | 2009                      |       | 11.55            |       |
|                     |       |                                                           |       | 22,000                                             |       | 2011                      |       | 3.49             |       |
|                     |       |                                                           |       | 10,000                                             |       | 2011                      |       | 6.48             |       |
| Claes  Wilhelmsson       |       | 7,500                                                          |       | 10,000                                             |       | 2009                      |       | 11.55            |       |
|                     |       |                                                           |       | 10,000                                             |       | 2011                      |       | 6.48             |       |
| Arnold  Hoevenaars       |       | 7,500                                                          |       | 5,000                                              |       | 2009                      |       | 8.81             |       |
|                     |       |                                                           |       | 10,000                                             |       | 2009                      |       | 11.55            |       |
| Dominik  Koechlin        |       | 7,591                                                          |       | —                                             |       | —                    |       | —           |       |
| **Totals**               | ** ** | **95,891**                                                     | ** ** | **117,000**                                        | ** ** | ** **                | ** ** | ** **       | ** ** |

1 During theperiod December 31, 2007 and April 25, 2008 a number of 60,000options with an exercise price of €2.64 were exercised by Jaap Goudsmit. Therewere no other changes in the number of options held by members of theManagement Board and Supervisory Board during this period.

 

For additional details on Managementand Supervisory Board remuneration reference is made to note 5.23 ‘Relatedparties’ in the financial statements.

 

**Principalaccountant fees and services**

 

Deloitte audited the accompanyingconsolidated balance sheets of Crucell N.V. and subsidiaries (the ‘Group’) asof December 31, 2007 and 2006 and the related consolidated incomestatements, shareholders’ equity, and cash flows for the years then ended. Theconsolidated income statement, changes in equity and cash flows of the Groupfor the period ended December 31, 2005 were audited by Ernst &Young Accountants.

 

The Sarbanes-Oxley Act of 2002requires that Audit committees pre-approve all services provided by the Company’sindependent auditor. This process is critical to the auditor maintainingindependence. Our process requires that all services provided by theindependent auditor be pre-approved by the Audit committee.

 

During 2007 and 2006 we paid thefollowing amounts to our auditors for audit services, audit related servicesand tax services.

 
| Year ended December 31,                                  |       | **2007**   |       | 2006      |       |
|-------------------------------------------------------------------------|------------|------------|------------|-----------|------------|
| Audit  fees                                                             |       | **904**    |       | 1,178     |       |
| Audit  related fees                                                     |       | **64**     |       | 58        |       |
| Tax fees  for services provided related to consultations on tax matters |       | **—** |       | —    |       |
| **Total**                                                               | ** ** | **968**    | ** ** | **1,236** | ** ** |

 

Audit fees include fees associatedwith the annual audit, interim reviews, required statutory audits and servicesthat only the independent auditor can reasonably provide, such as servicesassociated with documents issued in connection with securities offerings.

 

Audit-related fees includeaccounting consultations on financial and accounting reporting standards.

 

**Controls and procedures**

 

**Internal riskmanagement and control system**

 

Crucell’s Management Board isresponsible for designing, implementing and operating the Company’s internalrisk management and control systems. The purpose of these systems is to managein an effective and efficient manner the significant risks to which the Companyis exposed. Crucell’s internal and risk management and control systems withrespect to financial reporting are in line with the guidance set forth in theCOSO model, an integrated internal control framework established by the Committeeof Sponsoring Organizations of the Treadway Commission. The Company’s internalrisk 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 management andcontrol systems make use of various measures including:

 

·         Annual strategic evaluations of ourbusiness;

·         Periodical operational reviewmeetings of the Management Board with the Management Committee;

·         Quarterly financial planningmeetings of the Management Board with the Supervisory Board;

·         A planning and control cycleperformed consisting of annual, quarterly and monthly procedures, includingsubsequent follow-up on achievements of targets set;

 

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·        Advice of Crucell’s Disclosure committee to our ChiefExecutive Officer and Chief Financial Officer with respect to the timelyreview, disclosure and evaluation of periodical (financial) reports as well aswith respect to the maintenance and evaluation of disclosure controls andprocedures;

·        Letters of representation that are signed by selectedkey-management members on a quarterly basis in which they confirm that fortheir responsible area based upon their knowledge:

-  An effective system of internal controls and procedures is maintainedand

-  The financial reports fairly present the financial position, results ofoperations and cash flows;

·        Management letters and audit reports provided by ourexternal auditor;

·        Crucell’s standardized and formalized working practices,including the Biological Safety Manual which was developed in-house to meet thespecific needs of Crucell’s working environment;

·        The Code of Business Conduct and Ethics (Code of Conduct) ofCrucell.

 

TheManagement Board has discussed the internal risk management and control systemwith the Audit committee and the Supervisory Board.

 

As a resultof its listing at Nasdaq, Crucell is also obliged to comply with Section 404of the American Sarbanes-Oxley Act of 2002 and related regulations (‘Section 404’).Section 404 addresses the responsibility of the Management Board forestablishing and maintaining an adequate system of internal control overfinancial reporting. Internal control over financial reporting is a process toprovide reasonable assurance regarding the reliability of our financialreporting for external purposes in accordance with the accounting policies ofthe Company.

 

The Companyhas established a Steering committee, which governs the annual evaluation ofthe effectiveness of our system of internal control over financial reporting.

 

**Evaluation of disclosure controls and procedures**

We haveevaluated, with the participation of our Chief Executive Officer and ChiefFinancial Officer, the effectiveness of our disclosure controls and proceduresas of December 31, 2007. There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingthe possibility of human error and the circumvention or overriding of thecontrols and procedures. Accordingly, even effective disclosure controls andprocedures can only provide reasonable assurance of achieving their controlobjectives. Based upon our evaluation, our Chief Executive Officer and ChiefFinancial Officer concluded that the disclosure controls and procedures as of December 31,2007 were effective to provide reasonable assurance that information requiredto be disclosed in the reports we file or submit under the U.S. SecuritiesExchange Act of 1934, as amended, is recorded, processed, summarized andreported, within the time periods specified in the applicable rules andforms, and that it is accumulated and communicated to our management, includingour Chief Executive Officer and Chief Financial Officer, as appropriate toallow timely decisions regarding required disclosure.

 

**Management’s Report on Internal Control over Financial Reporting**

Managementof the Company is responsible for establishing and maintaining adequateinternal control over financial reporting as defined in Rules 13a 15(f) and15d 15(f) under the U.S. Securities Exchange Act of 1934. The Company’sinternal control over financial reporting is designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. The Company’s internal control over financialreporting includes those policies and procedures that:

 

·        Pertain to the maintenance of records that, in reasonabledetail, accurately and fairly reflect the transactions and disposition of theassets of the Company;

·        Provide reasonable assurance that transactions are recordedas necessary to permit preparation

 

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of financial 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 reasonable assurance regarding prevention or timelydetection of unauthorized acquisition, use or disposition of the Company’sassets that could have a material effect on the financial statements.

 

Because ofits inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

As requiredby Section 404 of the Sarbanes-Oxley Act of 2002, Management assessed theeffectiveness of the Company’s internal control over financial reporting as of December 31,2007. In making this assessment, management used the criteria set forth by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO) inInternal Control-Integrated Framework.

 

Based onour assessment and those criteria, Management concluded that the Companymaintained effective internal control over financial reporting as of December 31,2007.

 

DeloitteAccountants B.V., the independent registered public accounting firm thataudited the financials statements included in this Annual Report, has issued anattestation report on the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2007 as stated in their reportbeginning on page 121 of this report.

 

**Changes in internal control over financial reporting**

There hasnot been any change in the internal controls over financial reporting of theCompany that occurred during the period covered by this report that hasmaterially affected, or is reasonably likely to materially affect, suchinternal controls over financial reporting.

 

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**Attestation Report of the IndependentRegistered Public Accounting firm**

 

To theSupervisory Board and Shareholders of Crucell N.V. Leiden, the Netherlands

 

We haveaudited the internal control over financial reporting of Crucell N.V. andsubsidiaries (the “Company”) as of December 31, 2007, based on criteriaestablished in Internal Control—Integrated Framework issued by the Committee ofSponsoring 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.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness of internalcontrol based on the assessed risk, and performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides areasonable basis for our opinion.

 

A company’sinternal control over financial reporting is a process designed by, or underthe supervision 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) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because ofthe inherent limitations of internal control over financial reporting,including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented ordetected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to futureperiods are subject to the risk that the controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

In ouropinion, the Company maintained, in all material respects, effective internalcontrol over financial reporting as of December 31, 2007, based on thecriteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of the Treadway Commission.

 

We havealso audited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements as ofand for the year ended December 31, 2007 of the Company and our reportdated May 6, 2008 expressed an unqualified opinion on those financialstatements.

 

**Deloitte Accountants B.V.**Amsterdam, the Netherlands, May 6, 2008

 

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**Articles of Association and Share Capital**

 

**Memorandum and Articles of Association**

 

Set outbelow is a summary of material information concerning our shares, which are ourordinary shares together with our preference shares, and related materialprovisions of our articles of association and of Book 2 of the Dutch Civil Code(Boek 2 van het Burgerlijk Wetboek). This summary is not complete and isqualified in its entirety by reference to our articles of association and toDutch law.

 

**General**

We wereincorporated as a limited liability company (naamloze vennootschap) on October 9,2000 by deed executed before Mr. R.J.J. Lijdsman, civil law notary. Ourcorporate seat is in Leiden, the Netherlands, and we have offices atArchimedesweg 4-6, 2333 CN Leiden, the Netherlands. We are registered in thetrade register of the Chamber of Commerce and Industry for Leiden under number28087740. The statement of no objection of the Minister of Justice in respectof our deed of incorporation was issued on October 9, 2000 under numberN.V. 1133178. Our agent in the U.S. is CT Corporation, 111 Eighth Avenue, NewYork, New York 10011.

 

**Corporate purpose**

Our objectsinclude acquiring, establishing and managing companies in our field,controlling and using intellectual property, and funding our operations.

 

**Limitation of liability and indemnification matters**

Pursuant toDutch law, each member of our Supervisory and Management Boards is responsibleto us for the proper performance of his or her assigned duties. They are alsoresponsible for taking measures to prevent the consequences of any improperperformance of duties by another member of our Supervisory Board or ourManagement Board. Our articles of association provide that our Management Boardmembers and our Supervisory Board members are discharged from liability fortheir actions as board members, if our general meeting of shareholders adopts aresolution to that effect. This discharge extends only to actions or omissionsdisclosed in or apparent from the adopted annual accounts or otherwisecommunicated to our general meeting of shareholders.

 

Thisdischarge of liability may be limited by mandatory provisions of Dutch law,such as in the case of bankruptcy. Under Dutch law, our Supervisory Boardmembers and members of our Management Board generally cannot be held personallyliable for decisions made exercising their reasonable business judgment.

 

Ourarticles of association provide that we shall generally indemnify any personwho is or was a member of our Supervisory Board or our Management Board or oneof our employees, officers or agents, and 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.

 

Thisindemnification generally will not be available if the person seekingindemnification acted with gross negligence or wilful misconduct in theperformance of their duties to us. A court in which an action is brought may,however, determine that indemnification is appropriate nonetheless.

 

**Share capital**

 

Ourauthorized share capital amounts to € 40.8 million divided into: 85,000,000ordinary shares and 85,000,000 preference shares, each with a par value of €0.24.

 

At December 31,2007, there were 65,348,796 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. The preference shares can only be issued in registered form. Noshare certificates will be issued for shares in registered form.

 

**Ordinary shares**

Ourordinary shares may be in registered or bearer form and will be in bearer formunless the shareholder indicates otherwise in writing. Only bearer ordinaryshares can trade on NYSE Euronext Amsterdam.

 

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**Bearer ordinary shares**

All of ourbearer ordinary shares are embodied in a single global share certificate whichwill not be exchanged for single or multiple physical securities and which wewill deposit with NECIGEF for safekeeping on behalf of the parties entitled tothe ordinary shares in bearer form.

 

Theordinary shares represented by the single global share certificate may only betransferred through the book-entry system maintained by NECIGEF. A participantin the collective deposit (verzameldepot) of a securities institution admittedto NECIGEF may, at his own expense, require conversion of one or more of hisbearer ordinary shares into ordinary shares in registered form.

 

**Registered ordinary shares**

We enterholders of registered ordinary shares in the register of shareholders. We donot issue share certificates. However, the shareholder may request an extractfrom the shareholders’ register regarding the ordinary shares registered in hisname. We are required to provide this free of charge. Dutch law requires thattransfers of registered ordinary shares be recorded in a written instrument towhich we are a party or which is served on us, or that the transaction beacknowledged by us.

 

**Preference shares**

As of thedate of this Annual 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, identity of the proposed acquirer oridentity of us, our business and the parties connected therewith. The PreferredFoundation can safeguard these interests through acquiring and managing ourpreference shares and by exercising the rights attaching to these shares, inparticular, the voting rights.

 

ThePreferred Foundation has an option to acquire preference shares up to 100% ofthe number of our outstanding shares, necessary to match the total number ofstatutory votes on all of the ordinary shares outstanding at the time of anacquisition. The Preferred Foundation must pay at least 25% of the nominalvalue of the preference shares it acquires from us. If we acquire anypreference shares, they may be cancelled.

 

A board ofgovernors of up to five persons directs the Preferred Foundation. JanOosterveld, in his capacity as chairman of our Supervisory Board, and PieterBouw, Mick W. den Boogert, Sweder van Wijnbergen and Gerard P. Krans, have beenappointed to the board of governors. A majority of these members may not bemembers or former members of our Management or Supervisory Board, or anemployee of any of our advisers, any of our banks or us. These independentmembers are appointed by the board of governors. The non independent membersare appointed by our Supervisory Board after consultation with our ManagementBoard.

 

Membershipof the board of 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;

·        Dismissalby the complete 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.

 

123

 

**Management Report**

Articles ofAssociation and Share Capital

 

**Issue of shares and pre-emptive rights**

Our generalmeeting of shareholders, or our Management Board if the general meeting ofshareholders has delegated the power to it, has the authority to decide on anyfurther issuance of shares or rights to subscribe for shares and on the termsand conditions of such issuance. Our Management Board is the authorizedcorporate body (orgaan) for this purpose until November 21, 2008 and thisauthorization may at any time be extended for periods of up to five years. OurManagement Board’s authority to issue shares is limited to our authorized sharecapital.

 

Our ManagementBoard can issue shares of any class if it has the approval of our SupervisoryBoard. Without specific authorization from our general meeting of shareholdersour Management Board may not issue preference shares or grant options for suchshares if, as a result, more preference shares than other shares will or couldbecome outstanding.

 

Each holderof ordinary shares has pre-emptive rights to subscribe for any ordinary sharesthat we issue and has pre-emptive rights to subscribe if we grant rights tosubscribe for ordinary shares. Pre-emptive rights are in proportion to thepercentage of our outstanding ordinary shares that the holder owns. Pre-emptiverights do not apply to ordinary shares issued for a non-cash contribution, toordinary shares issued to our employees or ordinary shares issued to a personwho exercises a previously acquired right to subscribe for ordinary shares.Holders of preference shares do not have pre-emptive rights if we issueordinary shares, and holders of ordinary shares have no pre-emptive rights topurchase preference shares if we issue preference shares.

 

If ourManagement Board has been delegated the authority to issue shares, it can limitor exclude any pre-emptive rights as long as the general meeting ofshareholders has granted it that power and our Supervisory Board approves. Atpresent, our Management Board is authorized to do this. This authorization isvalid until November 21, 2008 and the general meeting of shareholders mayat any time extend this authorization for periods of up to five years.

 

Our sharescannot be issued below par. The ordinary shares must be fully paid up uponissue. Preference shares may be issued without being fully paid up, but atleast one-quarter of the nominal amount must be paid up upon subscription, andeach issue of preference shares must have the same amount paid up. OurManagement Board may determine the day and the amount of a further call forpayment on preference shares.

 

**Acquisition by us of shares in our own capital**

We mayacquire our own shares if the following conditions are met:

 

·        Our generalmeeting of shareholders has authorized our Management Board to acquire theshares;

·        Theauthorization specifies the number of shares that we may acquire, the manner inwhich they may be acquired and the limits within which the price must be set;

·        Ourshareholders’ equity, after deduction of the price of acquisition, is not lessthan the sum of the paid and called up portion of the share capital and thereserves that provisions of Dutch law or our articles of association require usto maintain; and

·        Theaggregate par value of the shares to be acquired, together with the shares inour share capital that we already hold directly, indirectly or as pledgee, doesnot equal more than one-tenth the aggregate par value of our total issued sharecapital.

 

We may notacquire our own shares if they have not been fully paid-up. The authorizationby the general meeting of shareholders may be for a term of up to 18 months.

 

We and oursubsidiaries may not vote shares that we or they hold. We may acquire shares totransfer them to our employees or the employees of our group companies underdesignated stock option plans without authorization.

 

124

 

**Management Report**

Articles ofAssociation and Share Capital

 

**Capital reduction**

If ourManagement Board proposes, our Supervisory Board approves and Dutch lawpermits, the general meeting of shareholders can reduce our issued sharecapital by cancellation of shares or reduction of the nominal value of shares.

 

**Other key provisions of our articles of association**

 

**Voting rights and shareholders’ meetings**

We musthold annual general meetings of shareholders within six months of the end ofour fiscal year. The annual meeting is held, among other things, to adopt ourannual accounts. We must hold extraordinary general meetings of shareholderswhenever:

 

·        Shareholdersand holders of depositary receipts for shares together representing at leastone-tenth of our outstanding share capital request it in writing, listing thetopics to be discussed; and

·        OurManagement Board or our Supervisory Board deems appropriate.

 

Generalmeetings of shareholders may only be held in the municipalities of Leiden,Amsterdam, Haarlemmermeer (including Schiphol Airport and Schiphol-Rijk),Utrecht, Rotterdam and The Hague.

 

Eachshareholder can attend general meetings in person or by proxy, address themeeting and vote. Each share, whether ordinary or preference, confers one voteon the shareholder. The Management Board must be notified in writing of aregistered shareholder’s intention to attend the general meeting ofshareholders. The holders of bearer ordinary shares can vote if a NECIGEFparticipant sends a written statement as to their shareholdings to our offices.Resolutions are passed by absolute majority of votes cast unless statedotherwise in Dutch law and our articles of association.

 

The generalmeeting of shareholders can amend our articles of association, dissolve us,merge us or demerge us only if proposed by the Supervisory Board.

 

Dutch lawand our articles of association do not impose any limitations on non Dutchownership or voting of our ordinary shares.

 

**Annual report**

We have acalendar fiscal year. Dutch law requires that within five months after the endof our fiscal year, unless the general meeting of shareholders has extendedthis period for a maximum of six months, our Management Board must makeavailable to the shareholders a report with respect to that fiscal year. Thisreport must include the financial statements and a report of an independentaccountant. The Annual Report is submitted to the annual general meeting ofshareholders for adoption. See ‘Management – Limitation of Liability andIndemnification Matters’.

 

**Dividends**

Annualdividends may only be paid out of profits as shown in the adopted annualfinancial statements. We may not make distributions if the distribution wouldreduce our shareholders’ equity below certain reserves required by Dutch law orour articles of association. The profits must first be used to set up andmaintain reserves required by Dutch law and must then be set off againstcertain financial losses. The preference shares will be paid their dividends,which will be a certain percentage of their nominal value, first. WithSupervisory Board approval, our Management Board then decides whether and howmuch of the remaining profit they will reserve. Any profits remaining shall bepaid as a dividend on the ordinary shares, if the retained earnings are negativeor are to be used to form a statutory reserve no dividend will be paid out.With the approval of our Supervisory Board and subject to Dutch law, ourManagement Board can pay an interim dividend.

 

We can makedistributions to shareholders at the charge of one or more of our reserves.Holders of shares are entitled to the full dividend for the fiscal year 2000and subsequent fiscal years. Any dividends that are not claimed within fiveyears of their declaration revert to us.

 

125

 

**Management Report**

Articles ofAssociation and Share Capital

 

**Amendment of our articles of association and liquidation rights**

The generalmeeting of shareholders may only resolve to amend our articles of associationor to dissolve, merge or demerge us on the proposal of our Supervisory Board.The class of shareholders affected must approve a resolution to amend thearticles of association to change the rights of the class. If we are dissolvedand liquidated, after we pay all debts and liquidation expenses, the holders ofpreference shares have first rights to payment of any dividends not fully paidto them in previous years and of the nominal value of their preference shares.Any remaining assets will be distributed to the holders of ordinary shares.

 

**Enforcement of civil liabilities**

We areincorporated under the laws of the Netherlands, and the majority of the membersof our Supervisory Board, all of the members of our Management Board andmanagement team and all of the experts named in this document are residents of,and most of our and their assets are in, jurisdictions outside the U.S. As aresult, it may not be possible for you to effect service of process within theU.S. upon us or these persons, or to enforce against us or these persons incourts in the U.S., judgments of these courts predicated upon the civilliability provisions of U.S. securities laws. In addition, it is not clearwhether a Dutch court would impose civil liability on us, members of our ManagementBoard or Supervisory Board or management team or any of the experts named inthis document in an original action based solely upon the federal securitieslaws of the U.S. brought in a court of competent jurisdiction in theNetherlands. Dutch law, furthermore, does not recognize a shareholder’s rightto bring a derivative action on behalf of a corporation.

 

Our legalcounsel in the Netherlands, Allen & Overy, has advised us that becausethere is no treaty on the reciprocal recognition and enforcement of judgmentsin civil and commercial matters between the U.S. and the Netherlands, courts inthe Netherlands will not automatically enforce a final judgment rendered by aU.S. court. In order to obtain a judgment enforceable in the Netherlands,claimants must litigate the relevant claim again before a Dutch court ofcompetent jurisdiction. Under current practice, however, a Dutch court willrecognize a final and conclusive judgment rendered by a U.S. court if the Dutchcourt finds that:

 

·        The U.S.court assumed jurisdiction on grounds that are acceptable from an internationallaw perspective;

·        The finaljudgment results from proceedings compatible with Dutch concepts of dueprocess; and

·        The finaljudgment does not contravene public policy of the Netherlands.

 

If theDutch court recognizes the final judgment, that court generally will grant thesame judgment without litigating again on the merits.

 

**Obligations of shareholders to disclose holdings under Dutch law**

Under theFinancial Supervision Act any person who, directly or indirectly, acquires, ordisposes of, an interest in the capital and/or the voting rights of a publiclimited liability company incorporated under Dutch law with an official listingon a stock 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%.

 

Thenotification requirement also applies if a person’s capital interest or votingright meets, exceeds or falls below the abovementioned thresholds as a resultof a change in the share capital or voting rights, and the notification must bemade no later than the fourth trading day after the AFM has published thenotification as described in the following sentence. Crucell is required tonotify the AFM immediately if its share capital or voting rights change by 1%or more since the previous notification. Other changes must be notifiedperiodically.

 

126

 
| **Management Report**                      |
|--------------------------------------------|
| Articles of  Association and Share Capital |

 

In addition, the members of the Management Board and Supervisory Boardare required to immediately notify the AFM of any change in the number ofCrucell shares oroptions they hold or voting rights in respect of these shares. The AFM will disclose this information in a public register on itswebsite. Non-compliance withthe obligations of the Financial Supervision Act can lead to criminal prosecution. In addition, a civil court can issue ordersagainst any person who fails to notify or incorrectly notifies in accordance with the FinancialSupervision Act, includingsuspension of the voting rights in respect of such person’s ordinary shares.

 

127

 

| **Management Report** |
|-----------------------|

 

 

128

 

**Contents**

 
| **Report of Independent  Registered Public Accounting Firm** | **130** |
|--------------------------------------------------------------|---------|
|                                                         |    |
| **Financial  Statements**                                    |    |
|                                                         |    |
| Consolidated  Income Statements                              | 132     |
| Consolidated Balance  Sheets                                 | 133     |
| Consolidated  Statements of Changes in Equity                | 134     |
| Consolidated  Cash flow Statements                           | 135     |
| Notes to  the Consolidated Financial Statements              | 136     |
| Company Financial  Statements                                | 174     |
| Notes to  the Company Financial Statements                   | 175     |
|                                                         |    |
| **Other  Information**                                       |    |
|                                                         |    |
| Other  information                                           | 177     |
|                                                         |    |
| **Information  for Shareholders and Investors**              | **179** |
|                                                         |    |
| **Cross-reference to  Form 20-F**                            | **189** |
|                                                         |    |
| **Exhibits**                                                 | **191** |

 

129

 
| **Report of Independent Registered Public  Accounting Firm** |
|--------------------------------------------------------------|

 

**Report of Independent Registered Public Accounting Firm**

 

**To theSupervisory Board and Shareholders of Crucell N.V.**

 

We have audited the accompanying consolidated balance sheets of CrucellN.V. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the relatedconsolidated statements of income, comprehensive income, shareholders’ equity,and cash flows foreach of the two years in the period ended December 31, 2007. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits. Theconsolidated financialstatements of the Company, for the year ended December 31, 2005 wereaudited by other auditors whose reports dated April 18, 2006 expressed an unqualified opinionon these statements.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements referred to above present fairly, in all material respects, thefinancial position ofCrucell N.V. and subsidiaries as of December 31, 2007 and 2006, and theresults of their operations and their cash flows for each of the two years inthe period ended December 31, 2007, in conformity with InternationalFinancial Reporting Standards as issued by the International Accounting Standards Board.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2007, based on the criteriaestablished in Internal Control – Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission and our report dated May 6, 2008 expressed anunqualified opinion on the Company’s internal control over financial reporting.

 

 

**Deloitte Accountants B.V.**

Amsterdam, the Netherlands,

May 6, 2008

 

130

 
| **Report of Independent Registered Public  Accounting Firm** |
|--------------------------------------------------------------|

 

**Reportof Independent Registered Public AccountingFirm**

 

**To theBoard of Supervisory Directors and Shareholders of Crucell N.V.**

 

We have audited the accompanying consolidated statements of income,changes in equity and cash flows of Crucell N.V. for the year ended December 31, 2005. Thesefinancial statements are the responsibility of the Company’s management. Our responsibility is to express an opinionon these financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (U.S.). Those standards require that we plan and perform the auditto obtain reasonable assurance about whether the financial statements are free of material misstatement. We werenot engaged to perform an audit of the Company’s internal control overfinancial reporting. Ouraudit included consideration of internal control over financial reporting as abasis for designing audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. Webelieve that our auditprovides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above presentfairly, in all material respects, the consolidated results of operations andcash flows of Crucell N.V. for the year ended December 31, 2005, inconformity with International Financial Reporting Standards as issued by the International Accounting StandardsBoard.

 

 
| ** **                 | **/s/ Ernst & Young Accountants** |
|----------------------------|--------------------------------------------|
| Amsterdam, the Netherlands |
| April 18, 2006        |

 

131

 
| **Financial Statements**        |
|---------------------------------|
| Consolidated  Income Statements |

 

**Consolidated Income Statements**

 
| **Year ended December 31, **                                                    | ** ** | **Notes**  | ** ** | **2007 ** | ** ** | **2006 ** | ** ** | **2005 ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|------------|
| (Amounts in thousands of Euro, except per share data)  | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| ** **                                                                                          | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| Product sales                                                                                  |       |       |       | **177,569**    |       | 103,918        |       | —         |       |
| License revenues                                                                                    |       |       |       | **12,211**     |       | 16,955         |       | 20,848         |       |
| Service fees                                                                                        |       |       |       | **14,006**     |       | 10,694         |       | 11,881         |       |
| **Total revenues**                                                                                  |       | 4          |       | **203,786**    |       | **131,567**    | ** ** | **32,729**     |       |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Cost of product sales                                                                               |       |       |       | **(124,557**   | **)**      | (83,518        | )          | —         |       |
| Cost of service fees                                                                                |       |       |       | **(10,327**    | **)**      | (6,971         | )          | (7,156         | )          |
| **Total cost of goods sold**                                                                        |       | 4/5.1      |       | **(134,884**   | **)**      | **(90,489**    | **)**      | **(7,156**     |       |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| **Gross margin**                                                                                    |       |       |       | **68,902**     | ** ** | **41,078**     | ** ** | **25,573**     |       |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Government grants                                                                                   |       |       |       | **7,086**      |       | 6,901          |       | 4,137          |       |
| Other income                                                                                        |       |       |       | **2,244**      |       | 2,455          |       | 703            |       |
| **Total other operating income**                                                                    |       | 4          |       | **9,330**      |       | **9,356**      | ** ** | **4,840**      |       |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Research and development                                                                            |       | 5.1        |       | **(63,995**    | **)**      | (67,606        | )          | (34,048        | )          |
| Selling, general and administrative                                                                 |       | 5.1        |       | **(65,621**    | **)**      | (47,199        | )          | (13,689        | )          |
| Restructuring                                                                                       |       | 5.18       |       | **—**     | ** ** | (3,120         | )          | —         |       |
| Impairment                                                                                          |       | 5.6/5.7    |       | **(171**       | **)**      | (30,416        | )          | —         |       |
| **Total other operating expenses**                                                                  |       | 4          |       | **(129,787**   | **)**      | **(148,341**   | **)**      | **(47,737**    | **)**      |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| **Operating loss**                                                                                  |       |       |       | **(51,555**    | **)**      | **(97,907**    | **)**      | **(17,324**    | **)**      |
| Financial income                                                                                    |       | 5.2        |       | **13,190**     | ** ** | 13,453         |       | 2,332          |       |
| Financial expenses                                                                                  |       | 5.3        |       | **(11,812**    | **)**      | (11,706        | )          | (131           | )          |
| Results investments associates and joint ventures                                                   |       | 5.9        |       | **(996**       | **)**      | (1,956         | )          | (455           | )          |
| Gain on disposal of non-consolidated companies                                                      |       | 5.9        |       | **2,186**      | ** ** | —         |       | —         |       |
| **Loss before tax**                                                                                 |       |       |       | **(48,987**    | **)**      | **(98,116**    | **)**      | **(15,578**    | **)**      |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Income tax                                                                                          |       | 5.4        |       | **3,040**      | ** ** | 10,551         |       | —         |       |
| **Loss for the year**                                                                               |       |       |       | **(45,947**    | **)**      | **(87,565**    | **)**      | **(15,578**    | **)**      |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Attributable to:   Equity holders of the parent                                                     |       |       |       | **(45,947**    | **)**      | (87,313        | )          | (15,578        | )          |
| Minority interest                                                                                   |       |       |       | **—**     | ** ** | (252           | )          | —         |       |
|                                                                                                |       |       |       | **(45,947**    | **)**      | **(87,565**    | **)**      | **(15,578**    | **)**      |
|                                                                                                |       |       |       |           |       |           |       |           |       |
| Net loss per share – basic and diluted                                                         |       | 5.5        |       | **(0.71**      | **)**      | (1.53          | )          | (0.39          | )          |
| Weighted average  shares outstanding – basic and diluted (in thousands)                        |       |       |       | **65,103**     | ** ** | 57,064         |       | 39,852         |       |

 

132

 
| **Financial Statements**     |
|------------------------------|
| Consolidated Balance  Sheets |

 

**Consolidated Balance Sheets**

 
| **Year ended December 31, **                                                    | ** ** | **Notes**  | ** ** | **2007 ** | ** ** | **2006 ** | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|
| (Amounts in thousands of Euro, except per share data)  | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| ** **                                                                                          | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Assets**                                                                                          | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Non-current assets**                                                                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** |
| Property, plant and equipment                                                                       |       | 5.6        |       | **145,525**    |       | 138,018        |       |
| Intangible assets                                                                                   |       | 5.7        |       | **94,045**     |       | 113,077        |       |
| Goodwill                                                                                            |       | 5.8        |       | **44,377**     |       | 47,419         |       |
| Investments in associates and joint venture                                                         |       | 5.9        |       | **9,070**      |       | 5,998          |       |
| Pension asset                                                                                       |       | 5.10       |       | **2,479**      |       | 2,555          |       |
| Available-for-sale investments                                                                      |       | 3.5        |       | **10,009**     |       | 12,339         |       |
| Other financial assets                                                                              |       | 5.11       |       | **16,153**     |       | 16,430         |       |
| Deferred tax asset                                                                                  |       | 5.4        |       | **—**     |       | 308            |       |
|                                                                                                |       |       |       | **321,658**    |       | 336,144        |       |
| **Current assets**                                                                                  |       |       |       | ** **     |       |           |       |
| Cash and cash equivalents                                                                           |       | 5.12       |       | **163,248**    |       | 157,837        |       |
| Trade accounts receivable                                                                           |       | 5.13       |       | **47,563**     |       | 58,563         |       |
| Inventories                                                                                         |       | 5.14       |       | **67,233**     |       | 75,519         |       |
| Other current assets                                                                                |       | 5.15       |       | **25,218**     |       | 25,152         |       |
|                                                                                                |       |       |       | **303,262**    |       | 317,071        |       |
| **Total assets**                                                                                    |       |       |       | **624,920**    |       | **653,215**    |       |
| ** **                                                                                          |       |       |       | ** **     |       | ** **     |       |
| **Liabilities and equity**                                                                          |       |       |       | ** **     |       |           |       |
| Equity attributable to equity holders of the parent                                                 |       | 5.16       |       | **437,242**    |       | 497,300        |       |
|                                                                                                |       |       |       | ** **     |       |           |       |
| **Non-current liabilities**                                                                         |       |       |       | ** **     |       |           |       |
| Long-term provisions                                                                                |       | 5.18       |       | **4,573**      |       | 5,132          |       |
| Long-term financial liabilities                                                                     |       | 5.19       |       | **28,030**     |       | 26,945         |       |
| Deferred tax liability                                                                              |       | 5.4        |       | **28,210**     |       | 33,586         |       |
| Other non-current liabilities and deferred income                                                   |       | 5.20       |       | **12,123**     |       | —         |       |
|                                                                                                |       |       |       | **72,936**     |       | 65,663         |       |
| **Current liabilities**                                                                             |       |       |       | ** **     |       |           |       |
| Trade accounts payable                                                                              |       | 5.21       |       | **50,970**     |       | 38,512         |       |
| Short-term financial liabilities                                                                    |       | 5.19       |       | **24,765**     |       | 19,468         |       |
| Other current liabilities and deferred income                                                       |       | 5.20       |       | **37,897**     |       | 29,132         |       |
| Income tax payable                                                                                  |       |       |       | **349**        |       | 266            |       |
| Short-term provisions                                                                               |       | 5.18       |       | **761**        |       | 2,874          |       |
|                                                                                                |       |       |       | **114,742**    |       | 90,252         |       |
|                                                                                                |       |       |       | ** **     |       |           |       |
| Total liabilities                                                                                   |       |       |       | **187,678**    |       | 155,915        |       |
| **Total liabilities and equity**                                                                    |       |       |       | **624,920**    |       | **653,215**    |       |

 

133

 
| **Financial Statements**                      |
|-----------------------------------------------|
| Consolidated  Statements of Changes in Equity |

 

**Consolidated Statements ofChanges in Equity**

** **

**Consolidated Statements of Changes in Equity**

(Amounts in thousands of Euro)

 
| ** **                                                                                             | ** ** | Attributable to  equity holders of the parent | ** ** | ** **     | ** ** | ** **                          | ** ** | ** **           | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|----------------|------------|-------------------------------------|------------|----------------------|------------|
|                                                                                                   |       | Issued  capital                               |       | Share  premium |       | Net  unrealized  gains reserve |       | Translation  reserve |       | Accumulated  deficit |   | Total |   | Minority  interests |   | Total  equity |   |
|                                                                                                   |       |                                          |       |           |       |                                |       |                 |       |   |   |   |   |   |   |   |   |
| **At  January 1, 2005**                                                                           | ** ** | **8,850**                                     | ** ** | **216,790**    | ** ** | **—**                          | ** ** | **—**           | ** ** | **(144,981** | **)** | **80,659** | ** ** | **—** | ** ** | **80,659** | ** ** |
| Unrealized gain on  available for sale securities                                                      |       | —                                        |       | —         |       | 9,630                               |       | —               |       | — |   | 9,630 |   | — |   | 9,630 |   |
| **Total  income and expense for the year recognized directly in equity**                               | ** ** | **—**                                    | ** ** | **—**     | ** ** | **9,630**                           | ** ** | **—**           | ** ** | **—** | ** ** | **9,630** | ** ** | **—** | ** ** | **9,630** | ** ** |
| Loss for the year                                                                                      |       | —                                        |       | —         |       | —                              |       | —               |       | (15,578 | ) | (15,578 | ) | — |   | (15,578 | ) |
| **Total  recognized income and expense for the year**                                                  | ** ** | **—**                                    | ** ** | **—**     | ** ** | **9,630**                           | ** ** | **—**           | ** ** | **(15,578** | **)** | **(5,948** | **)** | **—** | ** ** | **(5,948** | **)** |
| Issue of shares                                                                                        |       | 1,096                                         |       | 56,439         |       | —                              |       | —               |       | — |   | 57,535 |   | — |   | 57,535 |   |
| Costs share based  payment transactions                                                                |       | —                                        |       | 2,349          |       | —                              |       | —               |       | — |   | 2,349 |   | — |   | 2,349 |   |
| Issue of warrants  and non-employee stock options to acquire ordinary shares in exchange for  services |       | —                                        |       | 2,992          |       | —                              |       | —               |       | — |   | 2,992 |   | — |   | 2,992 |   |
| Stock based  incentive plan                                                                            |       | —                                        |       | 22             |       | —                              |       | —               |       | — |   | 22 |   | — |   | 22 |   |
|                                                                                                   |       |                                          |       |           |       |                                |       |                 |       |   |   |   |   |   |   |   |   |
| **At  December 31, 2005**                                                                         | ** ** | **9,946**                                     | ** ** | **278,592**    | ** ** | **9,630**                           | ** ** | **—**           | ** ** | **(160,559** | **)** | **137,609** | ** ** | **—** | ** ** | **137,609** | ** ** |
| Foreign currency  translation                                                                          |       | —                                        |       | —         |       | —                              |       | (7,920               | )          | — |   | (7,920 | ) | (814 | ) | (8,734 | ) |
| Unrealized gain 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                                                                                      |       | —                                        |       | —         |       | —                              |       | —               |       | (87,313 | ) | (87,313 | ) | (252 | ) | (87,565 | ) |
| **Total  recognized income and expense for the year**                                                  | ** ** | **—**                                    | ** ** | **—**     | ** ** | **1,040**                           | ** ** | **(7,920**           | **)**      | **(87,313** | **)** | **(94,193** | **)** | **(1,066** | **)** | **(95,259** | **)** |
| Issue of shares                                                                                        |       | 5,458                                         |       | 433,104        |       | —                              |       | —               |       | — |   | 438,562 |   | 12,093 |   | 450,655 |   |
| Costs of  share-based payment transactions                                                             |       | —                                        |       | 4,000          |       | —                              |       | —               |       | — |   | 4,000 |   | — |   | 4,000 |   |
| Acquisition of  minority interest                                                                      |       | 149                                           |       | 10,878         |       | —                              |       | —               |       | — |   | 11,027 |   | (11,027 | ) | — |   |
| Issue of warrants  and non-employee stock options to acquire ordinary shares in exchange for  services |       | —                                        |       | 295            |       | —                              |       | —               |       | — |   | 295 |   | — |   | 295 |   |
|                                                                                                   |       |                                          |       |           |       |                                |       |                 |       |   |   |   |   |   |   |   |   |
| **At  December 31, 2006**                                                                         | ** ** | **15,553**                                    | ** ** | **726,869**    | ** ** | **10,670**                          | ** ** | **(7,920**           | **)**      | **(247,872** | **)** | **497,300** | ** ** | **—** | ** ** | **497,300** | ** ** |
| Foreign currency  translation                                                                          |       | —                                        |       | —         |       | —                              |       | (20,622              | )          | — |   | (20,622 | ) | — |   | (20,622 | ) |
| Net unrealized  gain on available for sale securities                                                  |       | —                                        |       | —         |       | (2,330                              | )          | —               |       | — |   | (2,330 | ) | — |   | (2,330 | ) |
| **Total  income and expense for the year recognized directly in equity**                               | ** ** | **—**                                    | ** ** | **—**     | ** ** | **(2,330**                          | **)**      | **(20,622**          | **)**      | **—** | ** ** | **(22,952** | **)** | **—** | ** ** | **(22,952** | **)** |
| Loss for the year                                                                                      |       | —                                        |       | —         |       | —                              |       | —               |       | (45,947 | ) | (45,947 | ) | — |   | (45,947 | ) |
| **Total  recognized income and expense for the year**                                                  | ** ** | **—**                                    | ** ** | **—**     | ** ** | **(2,330**                          | **)**      | **(20,622**          | **)**      | **(45,947** | **)** | **(68,899** | **)** | **—** | ** ** | **(68,899** | **)** |
| Issue of shares                                                                                        |       | 132                                           |       | 2,185          |       | —                              |       | —               |       | — |   | 2,317 |   | — |   | 2,317 |   |
| Costs of  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**                           | ** ** | **(28,542**          | **)**      | **(293,819** | **)** | **437,242** | ** ** | **—** | ** ** | **437,242** | ** ** |

 

The accompanyingnotes are an integral part of these financial statements.

 

134

 
| **Financial Statements**           |
|------------------------------------|
| Consolidated Cash  Flow Statements |

 

**Consolidated Cash Flow Statements**

 
| **Year ended December 31, **                 | ** ** | **Notes**  | ** ** | **2007 ** | ** ** | **2006 ** | ** ** | **2005 ** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|----------------|------------|----------------|------------|----------------|------------|
| (Amounts in thousands of Euro)                                   | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| **Cash  flows from (used in) operating activities**              |       |       |       |           |       |           |       |           |       |
| Loss of  the year                                                |       |       |       | **(45,947**    | **)**      | (87,565        | )          | (15,578        | )          |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| Adjustments  for non-cash items                                  |       |       |       | ** **     | ** ** |           |       |           |       |
| Income  tax                                                      |       | 5.4        |       | **(3,040**     | **)**      | (10,551        | )          | —         |       |
| Results  investments associates and joint ventures               |       | 5.9        |       | **996**        | ** ** | 1,956          |       | 455            |       |
| Financial  income                                                |       | 5.2        |       | **(13,190**    | **)**      | (13,453        | )          | (2,332         | )          |
| Financial  expenses                                              |       | 5.3        |       | **11,812**     | ** ** | 11,706         |       | 131            |       |
| Depreciation                                                     |       | 5.6        |       | **14,453**     | ** ** | 14,275         |       | 2,973          |       |
| Amortization                                                     |       | 5.7        |       | **11,894**     | ** ** | 7,560          |       | 1,470          |       |
| Impairment                                                       |       | 5.6/5.7    |       | **171**        | ** ** | 30,416         |       | —         |       |
| Fair  value adjustments on inventory                             |       | 5.14       |       | **8,493**      | ** ** | 11,272         |       | —         |       |
| Change  in long-term provisions                                  |       | 5.18       |       | **11,460**     | ** ** | 180            |       | —         |       |
| Gain on  disposal of assets                                      |       | 5.9        |       | **(2,236**     | **)**      | (176           | )          | —         |       |
| Stock  based compensation                                        |       | 5.17       |       | **6,817**      | ** ** | 5,687          |       | 6,919          |       |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| Changes  in net working capital                                  |       |       |       | ** **     | ** ** |           |       |           |       |
| Trade  accounts receivable                                       |       |       |       | **8,583**      | ** ** | (25,755        | )          | 196            |       |
| Inventories                                                      |       |       |       | **(6,128**     | **)**      | (15,674        | )          | —         |       |
| Other  current assets                                            |       |       |       | **(615**       | **)**      | 1,136          |       | (11,557        | )          |
| Trade  accounts payable                                          |       |       |       | **16,274**     | ** ** | 18,509         |       | 6,662          |       |
| Other  current liabilities                                       |       |       |       | **8,247**      | ** ** | (3,211         | )          | (4,216         | )          |
| Short-term  provisions                                           |       |       |       | **(2,153**     | **)**      | 1,821          |       | —         |       |
| Interest  paid                                                   |       |       |       | **(2,152**     | **)**      | (2,211         | )          | (132           | )          |
| Income  taxes paid                                               |       |       |       | **(1,545**     | **)**      | 124            |       | —         |       |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| **Net  cash flows from (used in) operating activities**          |       |       |       | **22,194**     | ** ** | **(53,954**    | **)**      | **(15,009**    | **)**      |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| **Cash  flows from (used in) investing activities**              |       |       |       | ** **     | ** ** |           |       |           |       |
| Purchase  of property, plant and equipment                       |       | 5.6        |       | **(27,156**    | **)**      | (20,337        | )          | (17,137        | )          |
| Proceeds  from sale of equipment                                 |       | 5.6        |       | **113**        | ** ** | 197            |       | —         |       |
| Acquisition  of intangible assets                                |       | 5.7        |       | **—**     | ** ** | (12,371        | )          | —         |       |
| Proceeds  from sale of intangible assets                         |       | 5.7        |       | **—**     | ** ** | 225            |       | —         |       |
| Acquisition of Berna Biotech,  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/ associates      |       | 5.9        |       | **(8,553**     | **)**      | (1,427         | )          | —         |       |
| Proceeds  from disposal joint ventures/ associates               |       | 5.9        |       | **6,081**      | ** ** | —         |       | —         |       |
| Assets  classified as held for sale                              |       |       |       | **—**     | ** ** | 11,772         |       | —         |       |
| Proceeds  from financial assets                                  |       |       |       | **—**     | ** ** | 7,627          |       | —         |       |
| Interest  received                                               |       | 5.2        |       | **5,274**      | ** ** | 3,075          |       | 1,864          |       |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| **Net cash  flows from (used in) investing activities**          |       |       |       | **(24,241**    | **)**      | **23,159**     | ** ** | **(15,273**    | **)**      |
|                                                             |       |       |       | ** **     | ** ** |           |       |           |       |
| **Cash  flows from financing activities**                        |       |       |       | ** **     | ** ** |           |       |           |       |
| Proceeds  from issue of share capital                            |       | 5.16       |       | **2,281**      | ** ** | 82,797         |       | 57,535         |       |
| Proceeds  from financial liabilities                             |       | 5.19       |       | **10,309**     | ** ** | 14,703         |       | 8,982          |       |
| Repayment  of financial liabilities                              |       | 5.19       |       | **(1,346**     | **)**      | (18,769        | )          | (1,212         | )          |
| **Net  cash flows from financing activities**                    |       |       |       | **11,244**     | ** ** | **78,731**     | ** ** | **65,305**     | ** ** |
| Effects  of exchange rate on cash and cash equivalents           |       |       |       | **(3,786**     | **)**      | (1,833         | )          | —         |       |
| **Net  increase (decrease) in cash and cash equivalents**        |       |       |       | **5,411**      | ** ** | **46,103**     | ** ** | **35,023**     |       |
| Cash and  cash equivalents at beginning of the year              |       | 5.12       |       | **157,837**    | ** ** | 111,734        |       | 76,711         |       |
| **Cash  and cash equivalents at end of the year**                |       | 5.12       |       | **163,248**    | ** ** | **157,837**    | ** ** | **111,734**    |       |

 

135

| **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 domiciledin Leiden, the Netherlands. Its shares are publicly traded at NYSE EuronextAmsterdam (CRXL), and SWX Swiss Exchange Zurich (CRX). Its American DepositaryShares (ADSs) are publicly traded at Nasdaq New York (CRXL). Crucell and itssubsidiaries together constitute the Crucell Group, or the ‘Group’. The Companyhas subsidiaries in the Netherlands, Switzerland, Spain, Italy, Sweden, Koreaand the U.S. Crucell employed 1,126 people at December 31, 2007 (2006:1,073).

 

Crucell is a fully integrated biopharmaceutical company, focused ondeveloping, producing and marketing products to combat infectious diseases. Itscore vaccine portfolio includes Inflexal V, a vaccine against influenza, paediatricvaccines Hepavax-Gene and Quinvaxem and travel vaccines Vivotif, Dukoral, andEpaxal. In addition to these portfolio vaccines, the Company has a broadpipeline of new potential vaccines and proteins.

 

TheCompany has developed various proprietary technologies such as PER.C6,MAbstract, AdVac, STAR and virosome-adjuvanted technologies. Crucell licensesthese proprietary technologies to others in the biopharmaceutical industry.

 

**Changes in the scope of consolidation**

Theconsolidated financial statements include the results of the acquired companiesfor the period from the date of acquisition unless mentioned otherwise. Therehave been no changes in the scope of consolidation in 2007. In 2006 the mostsignificant changes in the scope of consolidation were due to:

 

·                 the acquisition of the shares of Berna Biotech AG (February 2006);

·                 the establishment of Crucell Vaccines Inc. followedby the acquisition of the assets and liabilities of Berna Products Corporation(October 2006) and

·                 the acquisition of the shares of SBL Vaccin HoldingAB (November 2006).

 

Further details on these acquisitions are provided in note 5.8.1.

 

List of consolidated companies

 

The Company’s most significant subsidiaries asof December 31, 2007 were:

 

**Subsidiaries (fully consolidated)**

 
| Name                         |   | Legal Seat |   | Country          |   | 2007  Ownership |   | 2006  Ownership |   | 2005  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%            |   | 0%              |   |
| Berna Biotech España SA |   | Madrid          |   | Spain            |   | 100%            |   | 100%            |   | 0%              |   |
| Berna Biotech Italia Srl     |   | Milano          |   | Italy            |   | 100%            |   | 100%            |   | 0%              |   |
| Etna Biotech Srl             |   | Catania         |   | Italy            |   | 100%            |   | 100%            |   | 0%              |   |
| Berna Rhein B.V.             |   | Leiden          |   | the  Netherlands |   | 100%            |   | 100%            |   | 0%              |   |
| Rhein Vaccines B.V.*         |   | Maastricht      |   | the  Netherlands |   | —          |   | 100%            |   | 0%              |   |
| Berna Biotech Korea corp.    |   | Seoul           |   | Korea            |   | 100%            |   | 100%            |   | 0%              |   |
| Crucell Holding Inc.         |   | Wilmington,  DE |   | United  States   |   | 100%            |   | 100%            |   | 0%              |   |
| Crucell Vaccines Inc.        |   | Wilmington,  DE |   | United  States   |   | 100%            |   | 100%            |   | 0%              |   |
| Crucell Biologics Inc.       |   | Wilmington,  DE |   | United  States   |   | 100%            |   | 100%            |   | 0%              |   |
| SBL Vaccin Holding AB        |   | Stockholm       |   | Sweden           |   | 100%            |   | 100%            |   | 0%              |   |
| SBL Vaccin AB                |   | Stockholm       |   | Sweden           |   | 100%            |   | 100%            |   | 0%              |   |
| Vitec AB                     |   | Stockholm       |   | Sweden           |   | 100%            |   | 100%            |   | 0%              |   |

* On November 30, 2007 Rhein VaccinesB.V. legally merged into Berna Rhein B.V. and ceased to exist per that date.

 

136

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

**1.2 Basis of preparation**

 

Theconsolidated financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) as endorsed by the EU andare prepared on a historical cost basis unless stated otherwise. There are nodifferences between IFRS applied by the Group and IFRS as issued by theInternational Accounting Standards Board.

 

As permitted by article 362 of Book 2 of the Netherlands Civil Code, theCompany financial statements have been prepared applying the same IFRSaccounting policies as used in the consolidated financial statements. Inconformity with article 402, Book 2 of the Dutch Civil Code, the Company incomestatement is presented in abbreviated form.

 

The consolidated financial statements for the year ended December 31,2007 were authorized for issue in accordance with a directors’ resolution on April 29,2008. Certain prior year figures were restated to confirm with the currentyear’s classification.

 

**Foreign currency translation**

Thefunctional and presentation currency of the Group is the Euro. All values arerounded to the nearest thousand (€ 000) unless indicated otherwise.

 

Eachentity in the Group determines its own functional currency based on the primaryeconomic environment in which it operates. Items included in the financialstatements of each entity are measured using that functional currency.Transactions in foreign currencies are initially recorded at the functionalcurrency exchange rate ruling at the date of the transaction. Monetary assetsand liabilities 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.

 

Atthe reporting date, the assets and liabilities of subsidiaries with different functionalcurrencies are translated into Euro at the rate of exchange ruling at thebalance sheet date and their income statements and cash flow statements aretranslated into Euro at the weighted average exchange rates for the year. Theexchange differences arising on the translation are taken directly to thetranslation reserve, a separate component of equity.

 

**1.3 Use of estimates and judgments**

 

The preparation of financial statements requires management to makejudgments, estimates and assumptions that affect the application of accountingpolicies and the reported amounts of assets, liabilities, income and expenses.Actual results may differ from these estimates.

 

Estimatesand underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognized in the period in which the estimate isrevised and in any future periods affected. In particular, information aboutsignificant areas of estimation uncertainty and use of critical judgments inapplying accounting policies that have the most significant effect on theamount recognized in the financial statements are described in the followingnotes:

 
| ·   note 2.1           |   | Revenue  recognition                                                                 |
|---------------------------------------|--------|--------------------------------------------------------------------------------------|
| ·   note 5.8           |   | Accounting  for business combinations                                                |
| ·   note 5.4           |   | Utilization  of tax carry forward losses                                             |
| ·   note 5.6/ 5.7/ 5.8 |   | Impairment  reviews of property, plant and equipment, intangible assets and goodwill |
| ·   note 5.10          |   | Valuation  of defined benefit plans                                                  |
| ·   note 5.14          |   | Valuation  of inventories                                                            |
| ·   note 5.17          |   | Valuation  of share-based-payments                                                   |
| ·   note 5.18          |   | Recognition  of provisions for litigations and claims                                |

 

**1.4 Basis of consolidation**

 

Theconsolidated financial statements comprise the financial statements of theCompany and its subsidiaries at December 31, 2007 and for the period thenended. The financial statements of the subsidiaries are prepared for the samereporting year as the Company, using consistent accounting policies. Allintra-group balances and transactions are eliminated in full.

 

**Subsidiaries**

Subsidiariesare entities controlled by the Company. Control is achieved where the Companyhas the power to govern the financial and operational policies of an enterpriseso as to obtain benefits from its activities. Subsidiaries are fullyconsolidated from the date of acquisition, which is the date on which theCompany obtains control and continue to be consolidated until the date suchcontrol ceases.

 

137

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

Minorityinterests represent the portion of profit or loss for the year and net assetsat the end of the year not held by the Company and are presented separately inthe consolidated income statement and within equity in the consolidated balancesheet, separately from the equity attributable to equity holders of the parent.

 

**Joint ventures**

Ajoint venture is a contractual arrangement whereby two or more partiesundertake an economic activity that is subject to joint control. A jointlycontrolled entity is a joint venture that involves the establishment of aseparate entity in which each venturer has an interest. The Company recognizesits interest in joint ventures using the equity method, under which theinvestment in the joint venture is carried in the balance sheet at cost pluspost-acquisition changes in the Company’s share of net assets of the jointventure. The income statement reflects the share of the results of operationsof the joint venture. Periodically the Company determines whether it isnecessary to recognize an impairment loss with respect to the Company’s netinvestment in the joint venture.

 

The reporting dates of the joint ventures are the same as those of theCompany and the accounting policies of the joint ventures conform to those usedby the Company.

 

**Associates**

TheCompany’s investments in associates are accounted for under the equity methodof accounting. An associate is an entity in which the Company has significantinfluence and which is neither a subsidiary nor a joint venture. The reportingdates of the associates are the same as those of the Company. If an associateuses accounting policies other than those of the Company for like transactionsand events in similar circumstances, adjustments are made to conform theassociate’s accounting policies to the Company’s accounting policies.

 

**Joint Ventureand Associated companies********(not consolidated)**

 
| Name              |   | Joint venture/ associate |   | Legal Seat |   | Country            |   | 2007  Ownership |   | 2006  Ownership |   |
|-------------------|--------|------------------------------------|--------|-----------------|--------|--------------------|--------|-----------------|--------|-----------------|--------|
| Percivia LLC      |   | Joint  venture                     |   | Cambridge,  MA  |   | United  States     |   | 50%             |   | 50%             |   |
| Kenta Biotech AG  |   | Associated  company                |   | Bern            |   | Switzerland        |   | 22%             |   | 37%             |   |
| ADImmune corp.    |   | Associated  company                |   | Taipei          |   | Republic  of China |   | 20%             |   | 0%              |   |
| Pevion Biotech AG |   | Sold on  November 5, 2007     |   | Bern            |   | Switzerland        |   | 0%              |   | 50%             |   |

 

**1.5 Changes in accounting policies**

 

**1.5.1 Newly adopted accountingpolicies in 2007**

The Group has adopted the following new and amended IFRS and IFRICinterpretations during the year. Adoption of these revised standards andinterpretations did not have any significant effect on the Group’s consolidatedfinancial statements or on the Company’s financial statements. They did howevergive rise to additional disclosures.

 

The following standard and interpretations are effective as of 2007 andhave been adopted:

 

·                 IFRS 7 ‘Financial instruments: Disclosures’, andthe complementary amendment to IAS 1, ‘Presentation of financial statements –Capital disclosures’, introduces new disclosures relating to financialinstruments and does not have any impact on the classification and valuation ofthe Company’s financial instruments, or the disclosures relating to taxationand trade and other payables.

·                 IFRIC 8, ‘Scope of IFRS 2’, requires considerationof transactions involving the issuance of equity instruments, where theidentifiable consideration received is less than the fair value of the equityinstruments issued in order to establish whether or not they fall within thescope of IFRS 2. This interpretation does not have any impact on the financialstatements.

·                 IFRIC 10, ‘Interim financial reporting and impairment’,prohibits the impairment losses recognized in an interim period on goodwill andinvestments in equity instruments and in financial assets carried at cost to bereversed at a subsequent balance sheet date. This interpretation does not haveany impact on the financial statements.

·                 IFRIC 11, ‘IFRS 2 – Group and treasury sharetransactions’. IFRIC 11 provides guidance on whether share-based transactionsinvolving treasury shares or involving group entities (for example, optionsover a parent’s shares) should

 

138

 

**Financial Statements**

Notesto the Consolidated Financial Statements

 

be accounted for as equity settled or cash-settled share-based paymenttransactions in the stand-alone accounts of the parent and group companies.This interpretation does not have an impact on the financial statements.

 

The following standard was not yet effective as December 31, 2007,but has been early adopted:

 

·                 IFRS 8, ‘Operating segments’ (effective from 1 January 2009).IFRS 8 replaces IAS 14 and aligns segment reporting with the requirements ofthe U.S. standard SFAS 131, ‘Disclosures about segments of an enterprise andrelated information’. The new standard requires a ‘management approach’, underwhich segment information is presented on the same basis as that used forinternal reporting purposes. The Group applied IFRS 8 starting January 1,2007. The impact of the early adoption is described in note 4 ‘Segmentinformation’.

 

Thefollowing amendment and interpretation were not yet effective as per balancesheet date and were not early adopted by the Company:

 

·                 IAS 23 (Amendment), ‘Borrowing costs’ (effectivefrom 1 January 2009). The amendment to the standard is still subject toendorsement by the European Union. It requires an entity to capitalizeborrowing costs directly attributable to the acquisition, construction orproduction of a qualifying asset (one that takes a substantial period of timeto get ready for use or sale) as part of the cost of that asset. The option ofimmediately expensing those borrowing costs will be removed. The Company willapply IAS 23 (Amended) from 1 January 2009, but adoption will have noimpact on the Company’s financial statements as borrowing costs directlyattributable to qualifying assets are already capitalized in line with theallowed alternative treatment of IAS 23.

·                 IFRIC 14, ‘IAS 19 –The limit on a defined benefit asset, minimum funding requirements and theirinteraction’ (effective from 1 January 2008). IFRIC 14 provides guidance on assessing thelimit in IAS 19 on the amount of the surplus that can be recognized as anasset. It also explains how the pension asset or liability may be affected by astatutory or contractual minimum-funding requirement. The Company will applyIFRIC 14 from 1 January 2008 and currently assesses the impact of theinterpretation. This interpretation is still subject to endorsement by theEuropean Union.

 

The following interpretations to existing standards have been publishedand are mandatory for the Company’s accounting periods beginning on or after 1 January 2008or later periods but are not relevant for the Company’s operations:

 

·                 IFRIC 12, ‘Service concession arrangements’(effective from 1 January 2008). IFRIC 12 applies to contractualarrangements whereby a private sector operator participates in the development,financing, operation and maintenance of infrastructure for public sectorservices. IFRIC 12 is not relevant to the Company’s operations because none ofthe Company’s companies provides for public sector services. Thisinterpretation is still subject to endorsement by the European Union.

·                 IFRIC 13, ‘Customer loyalty programmes’ (effectivefrom 1 July 2008). IFRIC 13 clarifies that where goods or services aresold together with a customer loyalty incentive (for example, loyalty points orfree products), the arrangement is a multiple-element arrangement and theconsideration receivable from the customer is allocated between the componentsof the arrangement in using fair values. IFRIC 13 is not relevant to theCompany’s operations because none of the Company’s companies operate anyloyalty programmes. This interpretation is still subject to endorsement by theEuropean Union.

 

139

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

**2 Summary of significant accounting policies**

 

**2.1 Revenue recognition**

 

**General**

In general,revenue is recognized to the extent that it is probable that the economicbenefits will flow to the Group and the amount of revenue and the cost (to be)incurred in the transaction can be measured reliably. Revenue is measured atthe fair value of the consideration received excluding discounts, rebates,value added taxes and duties.

 

Revenuesare recognized on a gross basis when the Group acts as the principal in anarrangement, and recognized on a net basis when the Group acts as agent.

 

Goods orservices traded for items of a similar nature are not regarded as transactionsthat generate revenue. Goods or services traded for dissimilar items areregarded as transactions that generate revenue.

 

**Product sales**

Revenuefrom product sales is recognized when:

 

·                  the significant risk and rewards of ownership of the products havepassed to the buyer,

·                  the Group does not retain either managerial involvement to the degreeusually associated with ownership or effective control over the goods sold,

·                  the amount of revenue and the cost (to be) incurred in the transactioncan be measured reliably and

·                  it is probable that the economic benefits associated with thetransaction will flow to the entity.

 

**Licence revenues**

The Grouprecognizes initial fees to the licensing of the technology as revenues over theperiod of the significant continuing performance obligations, if any, and upontransfer of the significant risks and rewards to the buyer.

 

Undercertain arrangements, 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.

 

The Group’sarrangements provide for continuing support of its technology at standardconsulting rates. Revenues derived from consulting services that are notessential to licensee’s ability to use the Group’s technology, are recognizedas earned during the period that the consulting services are performed.

 

In certainarrangements, the Group collaborates with third parties to develop novelproducts or processes using its proprietary technology. These arrangementsgenerally include an initial license fee upon the delivery of the proprietarytechnology and additional fees for providing ongoing research and developmentactivities. The research and development activities performed are substantiveand critical to the licensees’ exploitation of the delivered technology. Whensignificant risks and rewards pass to the buyer, initial fees from thesearrangements are recognized as revenues over the period of continuingperformance obligations. Additional fees from research and developmentactivities are recognized as revenues earned over the period of the developmentcollaboration or the manufacturing obligation. All fees received undercollaboration agreements are non-refundable.

 

Certain ofthe Group’s license agreements provide for additional non-refundable fees to bepaid to the Group upon the achievement of milestones by the licensee. Thesemilestone payments may be included in license agreements regardless of whetherthe Group has continuing performance obligations under a particular agreement.

 

For licenseagreements where there are no continuing performance obligations, milestonerevenue is recognized when those amounts become due and payable uponachievement of the milestone. The licensee has to confirm the achievement of amilestone in writing before the revenue is recognized.

 

The Groupalso has license agreements with continuing performance obligations. Licenserevenues from the achievement of these research and development milestones, ifdeemed substantive (as described below), are recognized as revenue when themilestones are achieved, and the milestone payments are due and collectibleunder the terms of the agreement.

 

140

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

Milestonesare considered ‘substantive’ if all of the following conditions are met:

 

·                  The milestone payments are non-refundable under the terms of theagreement;

·                  Achievement of the milestone involved a degree of risk and was notreasonably assured at the inception of the arrangement;

·                  Substantial effort involved in achieving the milestone;

·                  The amount of the milestone payment is reasonable in relation to theeffort expended or the risk associated with achievement of the milestone; and

·                  A reasonable amount of time passed between the upfront license payment andthe first milestone payment as well as between each subsequent milestonepayment.

 

If any ofthese conditions are not met, the Group would recognize the proportionateamount of the milestone payment upon receipt as revenue that corresponds withthe percentage of work already completed. The remaining portion of themilestone payment would be deferred and recognized as revenue as performanceobligations are completed.

 

In additionto the initial fee, the Group’s arrangements generally provide that the licenseemakes semi-annual or annual payments (called ‘license maintenance fees’) tomaintain the license for a subsequent term. Generally, licensees may terminatethe license and related maintenance fees upon 30 days’ to 90 days’ notice.License maintenance fees are recognized as revenues when the amounts becomefixed and payable. 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.

 

**Service fees**

As part ofvarious collaboration agreements, the Group receives service fees for workperformed under such agreements. Revenues and related costs associated withcompleting performance services are recognized when the service is completedand the collectibility of the receivable is deemed probable. Revenuesassociated with time and material performance contracts are recognized when thecosts incurred and the costs to complete the transaction can be measuredreliably.

 

**2.2 Cost of product sales and cost of service fees**

 

Cost ofproduct sales and cost of service fees both comprise direct labour, materials,and overhead costs, incurred in performing work under various collaborationagreements that directly relate to revenues earned.

 

**2.3 Other operating income**

 

**Government grants**

The Groupreceives certain government grants that support research efforts in definedprojects. These grants generally provide for reimbursement of approved costsincurred as defined in various grants. Income associated with these grants isrecognized when costs under each grant are incurred in accordance with theterms and conditions of the grant and the collectibility of the receivable isdeemed probable and all attaching conditions will be achieved. Where the grantrelates to an expense item, it is recognized as income over the periodnecessary to match the grant on a systematic basis to the costs that it isintended to compensate.

 

**Other income**

Otherincome results from non-core business transactions and mainly consists of thesale of tangible and intangible assets incidental to the business,reimbursement of development costs and sublet of premises.

 

**2.4 Research and Development expenses**

 

Expenditureon research activities is recognized as an expense in the period in which it isincurred. Internally generated intangible assets arising from the Group’sdevelopment activities are recognized if all of the recognition criteria forinternally generated intangible assets are met, meaning:

 

·     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 registrationfees will, in principle, meet these recognition requirements. Where nointernally generated intangible asset can be recognized, developmentexpenditure is recognized as an expense in the period in which it is incurred.Research and development expenses are comprised

 

141

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

of thefollowing types of costs when incurred in performing research and developmentactivities:

 

·                  Salaries and benefits paid to research and development employees,

·                  Allocated overhead and facility costs,

·                  Pre-clinical study costs,

·                  Clinical trial costs,

·                  Amortization of intangible assets,

·                  Contract services and

·                  Other outside costs.

 

**2.5 Taxes**

 

**Current tax**

Current taxassets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the tax authorities. The taxrates and tax laws used to compute the amount are those that are enacted at thebalance sheet date. Current income tax relating to items recognized directly inequity is recognized in equity and not in the income statement. Current taxassets and current tax liabilities are offset, if a legally enforceable rightexists to offset the recognized amounts and the Group intends either to settleon a net basis, or to realize the asset and settle the liabilitysimultaneously.

 

**Deferred tax**

Deferredincome tax is calculated using the asset and liability method on temporarydifferences at the balance sheet date between the tax bases of assets andliabilities and their carrying amounts under IFRS. Deferred tax liabilities arerecognized for all taxable temporary differences, except:

 

·                  where the deferred tax liability arises from the initial recognition ofgoodwill or of an asset or liability in a transaction that is not a businesscombination and, at the time of the transaction, affects neither the accountingprofit nor taxable profit or loss; and

·                  in respect of taxable temporary differences associated with investmentsin subsidiaries, associates and interests in joint ventures, where the timingof the reversal of the temporary differences can be controlled and it isprobable that the temporary differences will not reverse in the foreseeablefuture.

 

Deferredincome tax assets 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.

 

Theunrecognized deferred income tax assets are reassessed at each balance sheetdate and are recognized to the extent that it has become probable that futuretaxable profit will allow the deferred tax asset to be recovered. Deferredincome tax assets and liabilities are measured at the tax rates that areexpected to apply to the year when the asset is realized or the liability issettled, based on tax rates (and tax laws) that have been enacted at thebalance sheet date.

 

Income taxrelating to items recognized directly in equity is recognized in equity and notin the income statement. Deferred tax assets and deferred tax liabilities areoffset, if a legally enforceable right exists to set off current tax assetsagainst current tax liabilities and the deferred taxes relate to the sametaxable entity and the same taxation authority.

 

**2.6 Net loss per share**

 

Basic netloss per share is computed based on the weighted average number of ordinaryshares outstanding during the period. Diluted net loss per share is computedbased on the weighted average number of ordinary shares outstanding, includingthe dilutive effect of stock options, if any.

 

**2.7 Cash and cash equivalents**

 

The Companyconsiders all highly liquid investments with maturities of three months orless, which are convertible to a known amount of cash and bear an insignificantrisk of change in value, to be cash equivalent.

 

**2.8 Financial assets**

 

**Trade accounts receivable**

Tradereceivables do not carry any interest and are recognized and carried atoriginal nominal invoice amount less an allowance for any uncollectibleamounts. Allowance is made when there is objective evidence that the Companywill not be able to collect the debts. Bad debts are written off whenidentified.

 

**Available-for-sale investments**

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

 

142

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

fair valuewith unrealized gains or losses being recognized directly in equity in the netunrealized gains reserve. When the investment is disposed of, the cumulativegain or loss previously recorded in equity is recognized in the incomestatement.

 

**Other financial assets**

Otherfinancial assets are valued at their nominal value less an allowance for anyuncollectible amounts.

 

**Derecognition of financial assets**

A financialasset is derecognized when:

 

·                  The rights to receive cash flows from the asset have expired;

·                  The Group retains the right to receive cash flows from the asset, buthas assumed an obligation to pay them in full without material delay to a thirdparty under a ‘pass through’ arrangement; or

·                  The Group has transferred its rights to receive cash flows from theasset and either has transferred substantially all the risks and rewards of theasset, or has neither transferred nor retained substantially all the risks andrewards of the asset, but has transferred control of the asset.

 

**2.9 Inventories**

 

Inventoriesare stated at the lower of cost or net realizable value. The cost ofinventories includes expenditures for materials acquired, directly attributablecosts and related production overhead expenses. Net realizable value isdetermined using the estimated selling price in the ordinary course ofbusiness, less estimated costs of completion and the estimated costs necessaryto make the sale. Allowances are made for obsolete inventory.

 

**2.10 Other current assets**

 

Othercurrent assets are stated at amortized cost, which generally corresponds withface value, less an adjustment for bad debts.

 

**2.11 Property, plant and equipment**

 

Property,plant and equipment is stated at cost, excluding the costs of day-to-dayservicing, less accumulated depreciation and accumulated impairment in value.The cost of replacing a part of a plant or equipment is capitalized if therecognition criteria are met. Where an item of property, plant and equipmentcomprises major components having different useful lives, they are accountedfor as separate items of property, plant and equipment. Depreciation is chargedto the income statement on a straight-line basis over the estimated useful lifeof the assets:

 

·                  Freehold land is not depreciated;

·                  Buildings: 20 to 50 years;

·                  Computer equipment: three years;

·                  Furniture and laboratory equipment: five years;

·                  Leasehold improvements: the shorter of the lease term and ten years.

 

An item ofproperty, plant and equipment is derecognized upon disposal or when no futureeconomic benefits are expected from its use. Any gain or loss arising onderecognition of the asset is included in the income statement. The asset’sresidual values, useful lives and methods are reviewed, and adjusted ifappropriate, at each financial year-end.

 

**Borrowing costs**

Borrowingcosts directly attributable to the acquisition, construction or production ofqualifying assets are added to the cost of these assets until they aresubstantially ready for their intended use. Qualifying assets are those assetsthat necessarily take a substantial period of time to be completed for theirintended use. All other borrowing costs are recognized as an expense in theincome statement when incurred.

 

**2.12 Intangible assets**

 

Intangibleassets acquired are measured at cost on initial recognition. The cost ofintangible assets acquired in a business combination is the fair value at thedate of acquisition. Following initial recognition, intangible assets arecarried at cost less any accumulated amortization and accumulated impairmentlosses. Internally generated intangible assets are not capitalized if therecognition requirements are not met; in which case the expenses associatedwith generating the intangible asset are recognized in the income statement.The useful lives of intangible assets are assessed to be either finite orindefinite. Intangible assets with finite lives are amortized over the usefullife. The amortization period and the amortization method are reviewed at leastat each financial year-end. Changes in the expected useful life or the expectedpattern of consumption of future economic benefits embodied in the asset areaccounted for by changing the amortization period or method, and

 

143

** **
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

treated aschanges in accounting estimates. The amortization expense on intangible assetswith finite lives is recognized in the income statement consistent with thefunction of the intangible asset.

 

Theestimated useful life of the assets is as follows:

 

·                  Patents and licenses: one year to 20 years;

·                  Customer lists: three years;

·                  Developed technology: five years to 20 years;

·                  In-process R&D is not depreciated until completion of the asset.

 

**2.13 Goodwill and business combinations**

 

Businesscombinations are accounted for using the purchase method. This involvesrecognizing identifiable assets (including previously unrecognized intangibleassets) and liabilities (including contingent liabilities, but excluding futurerestructuring) of the acquired business at fair value. Goodwill acquired in abusiness combination is initially measured at cost, which is the excess of thecost of the business combination over the Group’s interest in the net fairvalue of the acquiree’s identifiable assets, liabilities and contingentliabilities. Following initial recognition, goodwill is measured at cost lessaccumulated impairment losses.

 

Goodwillincludes intangible assets that were identified in a business combination, butnot valued separately because the assets were either not separable or could notbe measured reliably. Assets identified and included as part of goodwill can bespecific customer relationships or supply contracts not meeting the requirementsfor separate recognition and the workforce acquired.

 

Assigningfair values to the assets and liabilities acquired in a business combinationinherently requires the use of estimates. Under IFRS 3 Business Combinations,these fair values can be adjusted up to one year after the acquisition date,which can affect the amount recognized as goodwill.

 

Goodwillacquired in a business combination is allocated from the acquisition date toeach of the Group’s cash-generating units that are expected to benefit from thesynergies of the combination, irrespective of whether other assets orliabilities of the Group are assigned to those units or groups of units.

 

Goodwilland fair value adjustments arising on the acquisition of a foreign operationare treated as assets and liabilities of the foreign operation and, ifnecessary, translated into Euro at the rate of exchange ruling at the balancesheet date.

** **

**2.14 Impairment of non-financial assets**

 

The Groupassesses non-financial assets at each reporting date to determine whether thereis an indication that an asset may be impaired. If any such indication exists,or when 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.

 

Goodwill isreviewed for impairment, annually or more frequently if events or changes incircumstances indicate that the carrying value may be impaired. Impairment isdetermined for goodwill by assessing the recoverable amount of thecash-generating unit, to which the goodwill has been allocated. Where therecoverable amount of the cash-generating unit is less than the carrying amountof the cash-generating unit to which goodwill has been allocated, an impairmentloss is recognized. Impairment losses relating to goodwill cannot be reversedin future periods.

 

**2.15 Employee benefits**

 

**Pensions**

The Groupoperates both defined benefit plans and defined contribution plans. For definedcontribution plans, obligations for contributions are recognized as an expensewhen they are due. The Group has no obligation to pay further contributionsinto a defined contribution plan if the fund does not hold sufficient assets topay all plan benefits.

 

Underdefined benefit plans, the pension entitlements are calculated using theprojected unit credit actuarial method. The pension liability recognized in thebalance sheet is the present value of the defined benefit obligation at thebalance sheet date, less the fair value of the plan assets after adding orsubtracting unrecognized actuarial gains or losses and past-service costs.

 

144

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

The definedbenefit obligation is calculated separately for each plan by estimating theamount of future benefit that employees have earned in return for their servicein the current and prior periods. That benefit is discounted to determine itspresent value and any unrecognized past-service costs and the fair value of anyplan assets are deducted. For each plan the recognized assets are limited tothe net total of any cumulative unrecognized net actuarial losses andpast-service costs and the present value of any future refunds from the plan orreductions in future contributions to the plan (the ‘asset ceiling’). Actuarialgains and losses in excess of a threshold of the higher of 10% of the pensionliabilities and 10% of the fair value of the plan assets are charged orcredited to the income statement over the employees’ expected average remainingworking lives.

 

**Share-based payment transactions**

 

**Stock option plans**

Certainemployees receive a portion of their remuneration in the form of stock options,which are treated as share-based payment transactions, whereby employees renderservices as consideration for equity instruments (‘equity-settled transactions’).

 

The cost ofequity-settled transactions with employees is measured by reference to the fairvalue at the date on which the options are granted, determined using theBlack-Scholes stock option pricing model, as described in note 5.17.

 

The cost ofequity-settled transactions is recognized, together with a correspondingincrease in equity, over the period in which the performance and/or serviceconditions are fulfilled, ending on the date on which the relevant employeesbecome fully entitled to the award (‘the vesting date’). The cumulative expenserecognized for equity-settled transactions at each reporting date until thevesting date reflects the extent to which the vesting period has expired andthe Group’s best estimate of the number of equity instruments that willultimately vest. The income statement charge or credit for a period representsthe movement in cumulative expense recognized as at the beginning and end ofthat period with the offsetting entry recorded in share premium in equity.

 

**Short-term incentive plans**

The fairvalue of share grants under these plans is estimated on the date of grant bymultiplying the number of shares available to be granted by the fair value ofthe Company’s shares on the grant date. Management assumes any performancegoals required by the short-term incentive plan will be achieved and the awardwill vest in full.

 

**Long-term incentive plans**

The fairvalue of share grants under these plans is estimated on the date of grant usinga lattice-based option valuation model. The model calculates the likelihood ofachievement of the market-based measures at various levels and, once a value isdetermined for the shares, compensation cost is recognized over the measurementperiod of three years regardless of whether those market-based targets areachieved. Key assumptions for the lattice-based option valuation model includeexpected volatilities, expected term, dividend yield and risk-free interestrates. Expected volatilities are based on historical volatilities of theCompany’s stock measured over a period commensurate with the expected term ofthe grants. The expected term used is the three-year measurement period.Dividend yields used were based on historical information as to dividendsdeclared by the Company. Risk-free interest rates used were equal to theimplied yield available on zero-coupon Dutch government bonds with a remainingterm equal to the expected term of the share-based instrument.

 

**Options granted to non-employees**

The cost ofoptions granted to non-employees is recognized at the fair value of the goodsor services 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.

 

**2.16 Interest-bearing loans and borrowings**

 

Short-termfinancial liabilities consist of all liabilities with maturities up to oneyear. Long-term financial liabilities are liabilities with maturities over oneyear. All loans and borrowings are initially recognized at the fair value ofthe consideration 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.

 

145

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**2.17 Derivative financial instruments and hedging**

 

Derivativefinancial instruments are initially recognized at fair value on the date aderivative contract is entered into and are subsequently remeasured at fairvalue. Derivatives are carried as assets when the fair value is positive and asliabilities when the fair value is negative.

 

The Companydoes not apply formal hedge accounting and consequently any gains or lossesarising from changes in fair value on derivatives are taken directly to netprofit or loss for the year.

 

**2.18 Provisions**

 

Provisionsare recognized when there is a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation and a reliableestimate of the obligation can be made. The expense relating to any provisionis presented in the income statement net of any reimbursement. If the effect ofthe time value of money is significant, provisions are discounted. Wherediscounting is used, the increase in the provision due to the passage of timeis recognized as a financial expense.

 

**2.19 Leases**

 

Leases ofproperty, plant and equipment where the Group assumes substantially all therisks and rewards of ownership of the leased asset are classified as financeleases. Finance leases are capitalized at the inception of the lease at thefair value of the leased property or, if lower, at the present value of theminimum lease payments. Lease payments are apportioned between the financecharges and reduction of the lease liability to achieve a constant rate ofinterest on the remaining balance of the liability. Finance charges are chargeddirectly against income. Capitalized leased assets are depreciated over theshorter of the estimated useful life of the asset or, over the lease term, ifthere is no reasonable certainty that the Group will own the leased property bythe end of the lease term.

 

Leaseswhere the Group does not assume substantially all the risks and rewards ofownership are classified as operating leases, and are recognized as an expensein the income statement on a straight-line basis over the lease term.

 

Thedetermination of whether an arrangement is, or contains, a lease is based onthe substance of the arrangement and requires an assessment of whether thefulfilment of the arrangement is dependent on the use of a specific asset orassets and the arrangement conveys a right to use the asset.

 

146

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**3Financial risk management**

 

**3.1 Risk management policies**

 

**Capital risk management**

The Groupmanages its capital to ensure that it will be able to continue as a goingconcern. The Group does not have a target debt-to-equity ratio, but iscommitted to funding of the majority of the operations with equity. The Groupmay choose to renew any loan that becomes payable.

 

As part ofits overall working capital management efforts, the Group agreed with Novartisto extend payment terms on the supply of Quinvaxem antigens. These transactionswere secured by a bank guarantee issued by a third party bank.

 

The capitalstructure of the Company consists of financial liabilities, cash and cashequivalents and equity attributable to equity holders of the parent, comprisingissued capital, reserves and retained earnings.

 

Compared tolast year there have been no significant changes in our risk managementpolicies.

 

**Significant accounting policies**

Details ofthe significant accounting policies and methods adopted, including the criteriafor recognition, 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.

 

**Financial risk management objectives**

Theobjective of the Group’s Corporate Treasury function is to provide financingservices to the business, reduce the currency exposures in the IncomeStatement, optimize return on investments in cash deposits and monitor thefinancial risks relating to the Group’s operations. Risks include market risk(including currency risk, interest rate risk and security price risk), creditrisk and liquidity risk. The Group does not apply formal hedge accounting.

 

**3.2 Foreign currency risk**

 

Crucell isexposed to transaction currency risk as well as translation currency risk.

 

The Companyhas significant transactional currency exposures because the majority of theGroup’s sales are denominated in currencies other than the Group’s functionalcurrency the Euro. Specifically, movements in the U.S. Dollar/Euro exchangerate affect the results of operations because a significant portion of salesare denominated in U.S. Dollars.

 

As a resultof significant operations in Switzerland and Korea, movements in the SwissFranc and the Korean Won compared to the Euro can also significantly affectresults of operations because the balance sheet and the income statement of theSwiss and Korean subsidiaries are translated into Euro, the Group’s functionalcurrency.

 

The Grouponly engages on a limited basis in derivative transactions to hedge itscurrency exposure. The Group did not apply formal hedge accounting in 2007 buttries to realize economic hedging in its currency exposures.

 

**Foreign currency risk sensitivity analysis**

The Groupis mainly exposed to U.S. Dollar, Swiss Franc, Korean Won, Swedish Crown andAustralian dollar. The following table details the Group’s sensitivity to a 10percent strengthening of these currencies. The sensitivity analysis includesoutstanding foreign currency denominated monetary items and adjusts their translationas at December 31, 2007 for a 10 percent change in foreign currency rates.A positive amount indicates an increase in income before income tax and equity.

 

Inthousands of Euro

 
|               |   | ** **         | ** ** | **2007**       |       |         |       | 2006       | ** ** |
|--------------------|--------|--------------------|------------|----------------|------------|--------------|------------|------------|------------|
|               |   | **Impact on Loss** | ** ** | **Impact**     |       | Loss         |       |       | ** ** |
|               |   | **before   tax**   | ** ** | **on  equity** |       | before   tax |       | Equity     | ** ** |
| U.S.  Dollar       |   | **1,876**          | ** ** | **517**        | ** ** | **321**      | ** ** | **538**    |       |
| Swiss  Franc       |   | **(4,950**         | **)**      | **19,706**     | ** ** | **(1,180**   | **)**      | **20,595** |       |
| Korean  Won        |   | **860**            | ** ** | **8,055**      | ** ** | **1,113**    | ** ** | **8,320**  |       |
| Swedish  Crown     |   | **(486**           | **)**      | **3,825**      | ** ** | **(33**      | **)**      | **4,029**  |       |
| Australian  Dollar |   | **882**            | ** ** | **—**     | ** ** | **—**   | ** ** | **—** |       |

 

For a 10percent weakening of the foreign currencies against the Euro, there would beapproximately an equal and opposite effect on the income before income tax andequity.

 

Therevaluation effects of investments in foreign entities are recognized inequity. As we have significant operations denominated in other currencies thenthe Euro, the movements of currency exchange rates show a significant effect onequity. It is the Group’s policy to limit the currency effects through theincome statement. The effect on income before income tax as

 

147

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

presented in 2007 and 2006 ismainly attributable to timing differences between the arising of exposures andthe settlement thereof.

 

**3.3 Interest raterisk**

 

The Company is exposed to interestrate risks as a result of changes in the market interest rates compared toloans with fixed rates. The Group has several loans with fixed interest rates,which total € 45,795 (2006: € 46,413). Details on the interest rates andmaturity of these loans are provided in note 5.19. Except for cash and cashequivalents, the Group does not have any interest bearing financial instrumentsthat have a floating rate.

 

The Group had cash balances of €177,644 of which € 14,396 is restricted. (2006: € 172,233 of which € 14,396 isrestricted.) There are no other receivables that generate interest.

 

**Interest rate risksensitivity analysis**

The sensitivity analysis has beendetermined based on the exposure to interest rates at the balance sheet dateand the stipulated change taking place at the beginning of the financial yearand held constant throughout the reporting period. The effect of a 1% increasein interest rates on the Group’s loss before tax would be a positive result of €1,100 (2006:€ 1,152). For a 1% decrease in interest rates there would approximately be anequal and opposite effect on the loss before tax. A change in the interest ratedoes not have an impact on the equity of the Company.

 

The positive effect of a 1% increaseof interest on loss before tax is mainly attributable to the Company’s interestincome generating assets, which are higher than its interest bearingliabilities.

 

**3.4 Credit risk**

 

Credit risk represents the risk offinancial loss caused by default of the counter party. The Group’s principalfinancial assets are cash and cash equivalents, short-term deposits and tradeand other receivables and they represent the Group’s maximum exposure to creditrisk in relation to financial assets.

 

The Group’s credit risk isprimarily attributable to its trade accounts receivable and other receivables.The Group normally trades only with recognized, creditworthy third parties. Itis the Group’s policy that all customers who wish to trade on credit terms aresubject to credit verification procedures. Where considered appropriate, theGroup requires issuance of letters of credit to mitigate credit risk.

 

Receivable balances are monitoredon an ongoing basis and the Group tracks the payment history of its customersto identify any payment issues that have to be resolved before entering intoany new transactions. Allowances are recognized for receivable balances deemeduncollectible upon identification. In determining the recoverability of a tradeaccounts receivable, the Group considers changes in the credit quality of thetrade receivable from the date credit was initially granted up to the reportingdate. The customer base consists mainly of well-respected companies in thefield of medicine and non-governmental organizations. While the Group does haveconcentrations of trade accounts receivable outstanding to supranationalorganizations, Management has determined the risk of default by theseorganizations is limited and therefore considers the credit risk to be within acceptableboundaries. Management believes that there is no further credit provisionrequired in excess of the allowance for doubtful debts.

 

The credit risk on cash and cashequivalents, and short-term deposits is limited because the counter parties arefinancial institutions with high credit ratings assigned by internationalcredit-rating agencies. Furthermore the Group currently invests in liquidsecurities and money market transactions. Management does not expect anycounter party to fail to meet its obligations.

 

The carrying value of thesefinancial assets represents the Group’s maximum exposure to credit risk. Themaximum exposure at reporting date amounts to € 248,850 (2006: € 256,921).

 

**3.5 Security pricerisk**

 

The Group’s security price risk islimited to its investment in Galapagos valued at € 10,009 (2006: € 12,339),which is classified as an available-for-sale investment. The fair value isbased on the market quotation of Galapagos. The Group does not actively tradein available-for-sale investments.

 

148

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**Security pricerisk sensitivity analysis**

The sensitivity analysis below hasbeen determined based on the exposure to the security price risks at thereporting date. If the Galapagos share price had been 10% higher/lower:

 

·             Loss forthe year ended 31 December 2007 would have been unaffected as theinvestments are classified as available-for-sale and no investments weredisposed of or impaired; and

·             Netunrealized gains reserve would increase/decrease by € 1,001 (2006:increase/decrease by € 1,234) for the Company as a result of the changes in thefair value of the available-for-sale investment.

 

The Group’s sensitivity to securityprices did not change significantly from the prior year.

 

**Liquidity risk**

Liquidity risk represents the riskthat an entity will encounter difficulty in meeting obligations associated withits financial liabilities. Prudent liquidity risk management implies ensuringsufficient availability of cash resources for funding of the operations. TheGroup aims to maintain a solid cash base.

 

The current liquidity risk isconsidered to be limited because the Group has sufficient funding to meet itsobligations 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 € 163,248 as per December 31,2007 (2006: € 157,837).

 

**3.6 Financialinstruments by category**

 

**Financial assets**

 

In thousands of Euro

 
| December 31                                               | ** ** | **2007**    | ** ** | 2006    | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|---------|------------|
| Financial  assets carried at fair value through profit or loss |       |        |       |    |       |
| Derivative  financial instruments                              |       | **29**      |       | 68      |       |
| Available-for-sale  investments carried at fair value          |       | ** **  |       |    |       |
| Investment  Galapagos                                          |       | **10,009**  |       | 12,339  |       |
| Loans  and receivables                                         |       | ** **  |       |    |       |
| Other  financial assets                                        |       | **16,153**  |       | 16,430  |       |
| Cash and  cash equivalents                                     |       | **163,248** |       | 157,837 |       |
| Trade  accounts receivable                                     |       | **47,563**  |       | 58,563  |       |
| Other  current assets                                          |       | **11,848**  |       | 11,684  |       |
|                                                           |       | **238,812** |       | 244,514 |       |
|                                                           |       | **248,850** |       | 256,921 |       |

 

The carrying value of the financialassets approximates the fair value.

 

**Financialliabilities**

** **

In thousands of Euro 

 
| December 31                                               | ** ** | **2007**    | ** ** | 2006        | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|-------------|------------|
| Financial  assets carried at fair value through profit or loss |       |        |       |        |       |
| Derivative  financial instruments                              |       | **16**      |       | 11          |       |
| Financial  liabilities at amortized cost                       |       | ** **  |       |        |       |
| Financial  liabilities                                         |       | **52,795**  |       | 46,413      |       |
| Other  non-current liabilities                                 |       | **529**     |       | —      |       |
| Accounts  payable                                              |       | **50,970**  |       | 38,512      |       |
| Other  current liabilities                                     |       | **29,960**  |       | 25,858      |       |
|                                                           |       | **134,254** |       | **110,783** |       |
|                                                           |       | **134,270** |       | **110,794** |       |

 

149

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

The fair values of the financialliabilities of the Company approximate the carrying amount of the Company’sfinancial instruments, except for the following:

 

·             A loanentered into by Berna Biotech Korea Corp. for € 4,563. The fair value of thisloan is estimated to be € 4,353 at December 31, 2007. The fair value ofthe loan is lower than the carrying value due to an increase in the interestrate since inception of the loan.

·             A mortgageloan related to the new production facility in Leiden, the Netherlands with acarrying value of € 16,811. The fair value of the mortgage loan is estimated tobe € 16,710. The fair value of the loan is lower than the carrying value due toan increase in the interest rate since inception of the mortgage loan.

 

The fair values of the loans havebeen calculated by discounting the face values with the interest rate offinancial instruments with a similar risk profile and term. The fair values ofthe forward exchange contracts were calculated making use of the spot rate ofthe underlying exchange rates as per December 31, 2007.

 

**3.7 Derivativefinancial instruments**

 

The Company only engaged in forwardforeign exchange contracts. The Company did not have any additional derivativefinancial instruments that required recognition on the balance sheet. The termsof the forward foreign exchange contracts are as follows:

 

Inthousands of Euro

 
|                                                |   | Expiry date       |   | Exchange rate |   | Assets |   | Liabilities |   |
|-----------------------------------------------------|--------|------------------------|--------|--------------------|--------|--------|--------|-------------|--------|
| Forward  foreign exchange contracts – purchase |   |                   |   |               |   |   |   |        |   |
| AUD  1,300                                          |   | February 26, 2008 |   | CHF/ AUD 1.00      |   |   |   | 12          |   |
| AUD  4,500                                          |   | June 16, 2008     |   | CHF/ AUD 0.99      |   |   |   | 4           |   |
| AUD  4,500                                          |   | July 15, 2008     |   | CHF/ AUD 0.99      |   | 4      |   |        |   |
| AUD  4,500                                          |   | August 15, 2008   |   | CHF/ AUD 0.98      |   | 14     |   |        |   |
| Forward  foreign exchange contracts – sale     |   |                   |   |               |   |   |   |        |   |
| USD  5,500                                          |   | January 31, 2008  |   | CHF/USD 1.13       |   | 11     |   |        |   |

 

The Company chose not to applyformal hedge accounting. The total positive fair value of the financialinstruments amounts to € 13 (2006: € 57). The derivative financial instrumentsassets of € 29 (2006: € 68) are included in the other current assets. Thederivative financial instruments liabilities of € 16 (2006: € 11) are includedin the other current liabilities. The notional principal amounts of theoutstanding forward foreign exchange contracts amount to the purchase of AUD 14,800and the sale of $ 5,500.

 

150

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**4 Segmentinformation**

 

**4.1 General**

 

From January 1, 2007 Crucellearly adopted IFRS 8 ‘Operating Segments’, which replaces IAS 14, ‘Segmentreporting’. The new standard requires segment reporting to be based on theinternal management reporting provided to the Management Board. The Company’ssegmentation is based on our internal management reporting, which was changedin 2007 to distinguish the following two segments:

 

·   Vaccines: developing, producing and marketing vaccines worldwideto combat infectious diseases;

·   Proteins: leverage Crucell’s novel,proprietary technologies to develop monoclonal antibodies to combat infectiousdiseases.

 

In thousands of Euro

 
|                                 |       | Vaccines     |       | Proteins    |       | Total        |       |
|--------------------------------------|------------|--------------|------------|-------------|------------|--------------|------------|
| Product  sales                       |       | 173,544      |       | 4,025       |       | 177,569      |       |
| License  revenues                    |       | 8,680        |       | 3,531       |       | 12,211       |       |
| Service  fees                        |       | 12,916       |       | 1,090       |       | 14,006       |       |
| **Total  revenue**                   | ** ** | **195,140**  | ** ** | **8,646**   | ** ** | **203,786**  | ** ** |
|                                 |       |         |       |        |       |         |       |
| Cost of  product sales               |       | (121,779     | )          | (2,778      | )          | (124,557     | )          |
| Cost of  service fees                |       | (7,488       | )          | (2,839      | )          | (10,327      | )          |
| **Total  cost of goods sold**        | ** ** | **(129,267** | **)**      | **(5,617**  | **)**      | **(134,884** | **)**      |
|                                 |       |         |       |        |       |         |       |
| **Gross  margin**                    |       | **65,873**   |       | **3,029**   |       | **68,902**   |       |
|                                 |       |         |       |        |       |         |       |
| Government  grants                   |       | 5,934        |       | 1,152       |       | 7,086        |       |
| Other  income                        |       | 2,243        |       | 1           |       | 2,244        |       |
| **Total  other operating income**    | ** ** | **8,177**    | ** ** | **1,153**   | ** ** | **9,330**    | ** ** |
|                                 |       |         |       |        |       |         |       |
| Research  and development            |       | (48,019      | )          | (15,976     | )          | (63,995      | )          |
| Selling,  general and administrative |       | (54,574      | )          | (11,047     | )          | (65,621      | )          |
| Impairment                           |       | (171         | )          | —      |       | (171         | )          |
| **Total  other operating expenses**  | ** ** | **(102,764** | **)**      | **(27,023** | **)**      | **(129,787** | **)**      |
| **Operating  loss**                  | ** ** | **(28,714**  | **)**      | **(22,841** | **)**      | **(51,555**  | **)**      |
|                                 |       |         |       |        |       |         |       |
| **Total  assets**                    | ** ** | **549,784**  | ** ** | **75,136**  | ** ** | **624,920**  | ** ** |

 

Revenue reported is revenuegenerated from external customers. There were no inter-segment sales in 2007(2006: Nil).

 

The accounting policies of thereportable segments are the same as the Group’s accounting policies describedin note 2. Segment operating loss represents the loss earned by the segmentswithout allocation of financial income and expenses, results of investmentsassociates and joint ventures, gain on the sale of investments and income tax.This is the measure reported to the Management Board for the assessment of thesegment’s performance.

 

This segmentation was notapplicable throughout 2006 and comparative data cannot be produced withoutsignificant arbitrary allocations.

 

**4.2 Informationabout major products**

 

The breakdown of the Company’srevenues from its product sales was as follows:

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2007**    | ** ** | 2006        |   | 2005       | ** ** |
|--------------------------------------------|------------|-------------|------------|-------------|--------|------------|------------|
| Paediatric  vaccines                       |       | **77,371**  |       | 35,933      |   | —     |       |
| Respiratory  vaccines                      |       | **33,188**  |       | 40,386      |   | —     |       |
| Travel  vaccines                           |       | **47,282**  |       | 23,072      |   | —     |       |
| Other  vaccines                            |       | **15,703**  |       | 3,933       |   | —     |       |
| **Vaccines**                               |       | **173,544** |       | 103,324     |   | —     |       |
| **Proteins**                               |       | **4,025**   |       | 594         |   | —     |       |
| ** **                                 |       | **177,569** |       | **103,918** |   | **—** |       |

 

**4.3 Informationabout major customers**

 

In 2007, sales to our two largestcustomers, which are in the paediatric vaccines area, amounted to € 45.5million or 25.6% and € 23.4 million or 13.2% of net product sales. In 2006,sales to these customers accounted for € 14.3 million or 13.7% and € 10.4million or 10.0% of net product sales, respectively.

 

**4.4 Geographicalsegments**

 

The Company operates principally inthree geographical areas: Europe, North America and Asia. Segment revenue isbased on the geographical location of the customers, which is the billinglocation of the customers. Segmentation of the assets is based on thegeographical location of the assets.

 

151

 
| **Financial Statements**                       |
|------------------------------------------------|
| Notes to the Consolidated Financial Statements |

 

In thousands of Euro

 
| Year ended December 31, | ** ** | **2007**    | ** ** | 2006        | ** ** | 2005       | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|------------|------------|
| **Revenue**                            |       |        |       |        |       |       |       |
| Europe                                 |       | **144,969** |       | 94,663      |       | 9,382      |       |
| North  America                         |       | **33,346**  |       | 13,868      |       | 22,871     |       |
| Asia                                   |       | **18,589**  |       | 16,506      |       | 476        |       |
| Other                                  |       | **6,882**   |       | 6,530       |       | —     |       |
| **Total**                              |       | **203,786** |       | **131,567** |       | **32,729** |       |

 

**Assets (excluding investment in associates****and joint ventures)**
| Europe        |   | **467,323** |   | 502,054     |   | 169,737     |   |
|---------------|--------|-------------|--------|-------------|--------|-------------|--------|
| North America |   | **6,872**   |   | 7,235       |   | —      |   |
| Asia          |   | **141,655** |   | 137,928     |   | —      |   |
| **Total**     |   | **615,850** |   | **647,217** |   | **169,737** |   |

 

**Investment in associates and joint ventures**
| Europe        |   | **—** |   | 5,741     |   | —     |   |
|---------------|--------|------------|--------|-----------|--------|------------|--------|
| North America |   | **549**    |   | 257       |   | —     |   |
| Asia          |   | **8,521**  |   | —    |   | —     |   |
| **Total**     |   | **9,070**  |   | **5,998** |   | **—** |   |

** **

**Total assets**
| Europe        |   | **467,323** |   | 507,795     |   | 169,737     |   |
|---------------|--------|-------------|--------|-------------|--------|-------------|--------|
| North America |   | **7,421**   |   | 7,492       |   | —      |   |
| Asia          |   | **150,176** |   | 137,928     |   | —      |   |
| **Total**     |   | **624,920** |   | **653,215** |   | **169,737** |   |

 

In thousands of Euro

 
| **Year ended December 31,**                  | ** ** | **2007**   | ** ** | 2006        |   | 2005       | ** ** |
|-------------------------------------------------------------|------------|------------|------------|-------------|--------|------------|------------|
| **Capital  expenditure property, plant and equipment** |       |       |       |        |   |       |       |
| Europe                                                      |       | **26,472** |       | 120,652     |   | 17,137     |       |
| North  America                                              |       | **—** |       | 101         |   | —     |       |
| Asia                                                        |       | **684**    |       | 28,237      |   | —     |       |
| **Total**                                                   |       | **27,156** |       | **148,990** |   | **17,137** |       |

 

**Capital expenditure intangible assets (includinggoodwill)**
| ** **    |   |       |   |        |   |       |   |
|---------------|--------|------------|--------|-------------|--------|------------|--------|
| Europe        |   | —     |   | 110,761     |   | —     |   |
| North America |   | —     |   | 4,165       |   | —     |   |
| Asia          |   | —     |   | 63,097      |   | —     |   |
| **Total**     |   | **—** |   | **178,023** |   | **—** |   |

 

**5 Notes to the specific items of theconsolidated financial statements**

** **

**5.1 Personnel expenses**

 

In thousands of Euro

 
| Year ended December 31,         | ** ** | **2007**   | ** ** | 2006       |   | 2005       | ** ** |
|------------------------------------------------|------------|------------|------------|------------|--------|------------|------------|
| Wages  and salaries                            |       | **58,493** |       | 48,841     |   | 18,666     |       |
| Social  security costs                         |       | **6,734**  |       | 4,469      |   | 1,124      |       |
| Pension  defined benefit plans                 |       | **3,162**  |       | 2,179      |   | —     |       |
| Pension  defined contribution plans            |       | **1,708**  |       | 1,770      |   | 867        |       |
| Expenses  for employee shares and option plans |       | **7,349**  |       | 4,296      |   | 3,927      |       |
| Other  personnel expenses                      |       | **9,653**  |       | 6,464      |   | 3,180      |       |
|                                           |       | **87,099** |       | **68,019** |   | **27,764** |       |

 

As of December 31, 2007, we had 1,126 employees. The average number of employees in2007 was 1,115. Theywere employed in the following categories:

 
| ** **                  | ** ** | **2007**  | ** ** | 2006      |       | 2005    | ** ** |
|-----------------------------|------------|-----------|------------|-----------|------------|---------|------------|
| Research  and Development   |       | **368**   |       | 381       |       | 240     |       |
| General  and administrative |       | **134**   |       | 125       |       | 42*     |       |
| Operations                  |       | **466**   |       | 452       |       | —  |       |
| Marketing  and sales        |       | **158**   |       | 115       |       | —  |       |
| **Total**                   | ** ** | **1,126** | ** ** | **1,073** | ** ** | **282** | ** ** |

*The 2005 figures for general and administrative also include business development positions.

 

The Company’s personnel is located primarily in the Netherlands, Switzerland, Spain, Italy, South Korea, Sweden, the U.S. and China.

 

The split per geographical area is as follows:

 
| ** **     | ** ** | **2007**  | ** ** | 2006      |       | 2005    | ** ** |
|----------------|------------|-----------|------------|-----------|------------|---------|------------|
| Europe         |       | **916**   |       | 902       |       | 282     |       |
| North  America |       | **19**    |       | 17        |       | —  |       |
| Asia           |       | **191**   |       | 154       |       | —  |       |
| **Total**      | ** ** | **1,126** | ** ** | **1,073** | ** ** | **282** | ** ** |

 

152

 
| **Financial Statements**                       |
|------------------------------------------------|
| Notes to the Consolidated Financial Statements |

 

**5.2 Financial income**

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2007**   | ** ** | 2006       |       | 2005      | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|-----------|------------|
| Currency  gains                            |       | **7,479**  |       | 9,461      |       | 295       |       |
| Interest  income, third parties            |       | **5,711**  |       | 3,718      |       | 1,965     |       |
| Other  financial income                    |       | **—** |       | 274        |       | 72        |       |
|                                       |       | **13,190** |       | **13,453** | ** ** | **2,332** |       |

 

**5.3 Financial expenses**

 

In thousands of Euro

 
| **Year ended December 31,**               | ** ** | **2007**    | ** ** | 2006        |   | 2005     | ** ** |
|----------------------------------------------------------|------------|-------------|------------|-------------|--------|----------|------------|
| Interest  expense                                        |       | **(3,053**  | **)**      | (2,481      | )      | —   |       |
| Less:  amounts included in the cost of qualifying assets |       | **772**     | ** ** | 744         |   | —   |       |
|                                                     |       | **(2,281**  | **)**      | (1,737      | )      | —   |       |
| Currency  losses                                         |       | **(8,785**  | **)**      | (9,625      | )      | (61      | )          |
| Other  financial expenses                                |       | **(746**    | **)**      | (344        | )      | (70      | )          |
|                                                     |       | **(11,812** | **)**      | **(11,706** | **)**  | **(131** | **)**      |

 

**5.4 Income tax**

 

In thousands of Euro

 
| **Year ended December 31,**        | ** ** | **2007**  | ** ** | 2006       |       | 2005       | ** ** |
|---------------------------------------------------|------------|-----------|------------|------------|------------|------------|------------|
| Current  income tax                               |       | **(811**  | **)**      | (258       | )          | —     |       |
| Adjustments  current income tax of previous years |       | **(5**    | **)**      | (213       | )          | —     |       |
| Deferred  taxation                                |       | **3,856** | ** ** | 11,022     |       | —     |       |
| **Income  tax**                                   | ** ** | **3,040** | ** ** | **10,551** | ** ** | **—** | ** ** |

 

The reconciliation between the loss for the year multiplied by the applicable tax rate and the actual taxation is as follows:

 

In thousands of Euro

 
| **Year ended December 31,**                          | ** ** | **2007**    | ** **  | 2006       |       | 2005       | ** ** |
|---------------------------------------------------------------------|------------|-------------|-------------|------------|------------|------------|------------|
| Loss for  the year before income tax                                |       | **(48,987** | **)**       | (98,116    | )          | (15,578    | )          |
| At gross  weighted average income tax rate                          |       | **13,029**  | ** **  | 21,437     |       | 4,908      |       |
| Adjustments  in respect of current income tax of previous years     |       | **(5**      | **)**       | (213       | )          | —     |       |
| Stock  option compensation expense                                  |       | **(1,278**  | **)**       | (220       | )          | (1,409     | )          |
| Permanent  differences                                              |       | **(2,141**  | **) ** | 1,096      |       | —     |       |
| Effect  of tax rate changes                                         |       | **(197**    | **)**       | 3,894      |       | —     |       |
| Usage of  carry forward losses previously not recognized            |       | **4,072**   | ** **  | —     |       | —     |       |
| Other  effects                                                      |       | **(449**    | **)**       | 395        |       | 1,110      |       |
| Effect  of current tax losses not recognized as deferred tax assets |       | **(9,991**  | **)**       | (15,838    | )          | (4,609     | )          |
| Effective  income tax rate 6.6%, (2006: 10.8% 2005: nil)            | ** ** | **3,040**   | ** **  | **10,551** | ** ** | **—** | ** ** |

 

A deferred tax asset of € 580 was recognized against goodwill as an adjustment to the provisional purchase price allocation on the acquisition ofSBL. A deferred tax liability of € 1,277 was recognized against goodwillas an adjustment to the provisional purchase price allocation on theacquisition of Berna Products Corp. In 2007and 2006, the changes in deferredincome tax assets and liabilities on a net basis were as follows:

 

In thousands of Euro

 
| ** **                             | ** ** | **2007**    |       | 2006        | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|
| January 1,                        |       | **(33,278** | **)**      | —      |       |
| Acquisition  of subsidiaries           |       | **—**  | ** ** | (44,300     | )          |
| Deferred  tax through income statement |       | **3,856**   | ** ** | 11,022      |       |
| Deferred  tax through goodwill         |       | **(697**    | **)**      | —      |       |
| Effect  of movements in exchange rates |       | **1,909**   | ** ** | —      |       |
| **December 31,**                  | ** ** | **(28,210** | **)**      | **(33,278** | **)**      |

 

153

 
| **Financial Statements**                       |
|------------------------------------------------|
| Notes to the Consolidated Financial Statements |

 

The composition of the temporary differences and tax loss carry forwards in thebalance sheet is asfollows:

 

In thousands of Euro

 
| Year ended December 31,                    | ** ** | **2007**    | ** ** | 2006        | ** ** |
|-----------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **Deferred income tax liability**                         |       |        |       |        |       |
| Valuation  differences attributable to:                   |       |        |       |        |       |
|                                                      |       |        |       |        |       |
| Inventories                                               |       | **(1,641**  | **)**      | (4,269      | )          |
| Other  assets                                             |       | **(1,054**  | **)**      | (1,417      | )          |
| Property,  plant and equipment                            |       | **(9,782**  | **)**      | (9,560      | )          |
| Intangible  assets                                        |       | **(21,269** | **)**      | (21,656     | )          |
| Liabilities                                               |       | **(105**    | **)**      | (231        | )          |
|                                                      |       | **(33,851** | **)**      | **(37,133** | **)**      |
| **Deferred  income tax assets**                           |       | ** **  | ** ** |        |       |
| Losses available for offset against future taxable income |       | **678**     | ** ** | 749         |       |
| Valuation  differences attributable to:                   |       | ** **  | ** ** |        |       |
| Inventories                                               |       | **2,119**   | ** ** | 950         |       |
| Other  assets                                             |       | **595**     | ** ** | 543         |       |
| Property,  plant and equipment                            |       | **1,910**   | ** ** | 1,299       |       |
| Intangible  assets                                        |       | **—**  | ** ** | —      |       |
| Liabilities                                               |       | **339**     | ** ** | 314         |       |
|                                                      |       | **5,641**   | ** ** | **3,855**   |       |
| Offset  of deferred tax balances                          |       | **5,641**   | ** ** | 3,547       |       |
| Reflected  in the balance sheet as follows:               |       | ** **  | ** ** |        |       |
| Deferred  tax assets                                      |       | **—**  | ** ** | 308         |       |
| Deferred  tax liability                                   |       | **(28,210** | **)**      | (33,586     | )          |
| **Deferred  tax liabilities, net**                        | ** ** | **(28,210** | **)**      | **(33,278** | **)**      |

 

The Group has tax carry forward losses of € 254,511 (2006: € 222,238, 2005: € 103,714) thatare available,with certain restrictions in time, for offset against future taxable profits of the companies in which the losses arose. In the Netherlands, anti-abuse laws are applicable that may limit the ability tooffset tax losses against futureprofits when the beneficial ownershipof a company changes. This law could limitour ability to realize the benefits of our tax loss by an amount of € 26,170.

 

The unrecognized carry forward losses expire as follows:

 
| 2009        |       | € 3,062        |       |
|-------------|------------|---------------------|------------|
| 2010        |       | € 4,086        |       |
| 2011        |       | € 81,744       |       |
| After  2011 |       | € 163,198      |       |
| Unlimited   |       | € 2,421        |       |
| **Total**   | ** ** | **€  254,511** | ** ** |

 

The Company has evaluated evidence impacting therecoverability of its deferred tax assets, which consist principally of taxloss carry forwards. We recognized a deferred tax asset of € 678 for the carryforward losses of SBL.

 

**Tax rate changes**

The Netherlands’ maximum domestic statutorycorporate income tax rate is 25.5% for 2007 (a 20% tax rate applies to the first € 25 ofprofit, and a 23% taxrate applies to profits from € 25 up to € 60),which is reduced from 29.6% for 2006 and 31.5%for 2005. As of January 1, 2008, the Netherlands’ maximum statutory corporate income tax rate will remain 25.5%, although a 20% tax rate will apply tothe first € 40 of profit, and a 23%tax rate will apply to profits from € 40 up to € 200.

 

In Korea, the tax holiday granted by the governmentis decreasing over time. Fromfinancial year 2007 to financial year 2009 the applicable tax rate will be 16.5%. As of 2010 the tax rate will be the regular statutoryincome tax rate of 27.5%.

 

The Spanish domestic statutory corporate income tax rate amounts to 32.5% in 2007 andwill be decreased to 30% in 2008.

 

The Italian domestic statutory corporate income tax rate amounts to 33%in 2007 and will be decreased to 27.5% in2008.

 

**5.5 Net loss per share**

 

In thousands of Euro

 
| Year ended December 31,                  | ** ** | **2007**       |       | 2006       |   | 2005       | ** ** |
|---------------------------------------------------------|------------|----------------|------------|------------|--------|------------|------------|
| Net loss  attributable to ordinary shareholders         |       | **(45,947**    | **)**      | (87,565    | )      | (15,578    | )          |
| **Weighted  average number of ordinary shares**         |       | ** **     | ** ** |       |   |       |       |
| Weighted average number of ordinary shares for the year |       | **65,102,801** | ** ** | 57,064,034 |   | 39,852,064 |       |
| Net loss per share –  basic                        |       | **(0.71**      | **)**      | (1.53      | )      | (0.39      | )          |
| Net loss  per share – diluted                      |       | **(0.71**      | **)**      | (1.53      | )      | **(0.39**  | **)**      |

 

154

 
| **Financial Statements**                       |
|------------------------------------------------|
| Notes to the Consolidated Financial Statements |

 

Because the effect of issuing potential ordinaryshares under stock options plans, stock plans and warrants is anti-dilutive, these shares do not havean impact on the calculation of diluted net loss per share.

 

**5.6 Property, plant and equipment**

 

Amounts in thousands of Euro

 
| **Cost**                               |       | Freehold  Land andbuildings |       | Plant andequipment |       | Assets  underconstruction |       | Total       |       |
|----------------------------------------|------------|----------------------------------|------------|-------------------------|------------|---------------------------|------------|-------------|------------|
| **At January 1, 2006**            | ** ** | **5,704**                        | ** ** | **16,118**              | ** ** | **14,478**                | ** ** | **36,300**  | ** ** |
| Additions                              |       | 1,902                            |       | 6,318                   |       | 12,117                    |       | 20,337      |       |
| Acquisition of subsidiaries            |       | 63,753                           |       | 55,639                  |       | 9,261                     |       | 128,653     |       |
| Disposals                              |       | (149                             | )          | (2,188                  | )          | —                    |       | (2,337      | )          |
| Reclassifications                      |       | 417                              |       | 939                     |       | (1,356                    | )          | —      |       |
| Effect of movements in exchange rates  |       | (1,880                           | )          | (1,736                  | )          | (202                      | )          | (3,818      | )          |
| **At December 31, 2006**          | ** ** | **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** | ** ** |
|                                   |       |                             |       |                    |       |                      |       |        |       |
| **Depreciation and  impairment**       | ** ** | ** **                       | ** ** | ** **              | ** ** | ** **                | ** ** | ** **  | ** ** |
|                                   |       |                             |       |                    |       |                      |       |        |       |
| **At January 1, 2006**            | ** ** | **(1,773**                       | **)**      | **(9,898**              | **)**      | **—**                | ** ** | **(11,671** | **)**      |
| Depreciation charge for the year       |       | (3,836                           | )          | (10,439                 | )          | —                    |       | (14,275     | )          |
| Impairment                             |       | (7,746                           | )          | (11,822                 | )          | —                    |       | (19,568     | )          |
| Disposals                              |       | 33                               |       | 2,060                   |       | —                    |       | 2,093       |       |
| Effect of movements in exchange rates  |       | 956                              |       | 1,348                   |       | —                    |       | 2,304       |       |
| **At December 31, 2006**          | ** ** | **(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** | **)**      |
|                                   |       |                             |       |                    |       |                      |       |        |       |
| **Net book value**                     | ** ** | ** **                       | ** ** | ** **              | ** ** | ** **                | ** ** | ** **  | ** ** |
|                                   |       |                             |       |                    |       |                      |       |        |       |
| **At December 31, 2007**          | ** ** | **50,829**                       | ** ** | **39,812**              | ** ** | **54,884**                | ** ** | **145,525** | ** ** |
| **At December 31, 2006**          | ** ** | **57,381**                       | ** ** | **46,339**              | ** ** | **34,298**                | ** ** | **138,018** | ** ** |

 

Depreciation is included in the cost of goods sold for € 11,176 (2006: €8,995), research and development costs for € 2,353 (2006: € 4,448) and selling, general and administrativecosts for € 924 (2006: € 832).

 

**Impairment**

 

In the yearended December 31, 2006, an impairment loss of € 19,568 was recognized fortwo buildings, including installed equipmentthat were acquired in the business combination with Berna Biotech. Both buildings are located in Switzerland. Bernaperformed contract manufacturing and conducted a candidate vaccine developmentprogram in those buildings. The development of the candidate vaccine andthe contract manufacturing were phased out during 2006. The buildings arespecially configured for biotechnologypurposes and it is impracticable to separate the equipment from the buildings.Since there

 

155

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

was nodirect use for these buildings for any of the Company’s other activities, nomarket for the sale of the buildings to third parties and no expectation thatthese buildings could be utilized in the foreseeable future, an impairment wasrecorded for the total carrying amount of € 19,568 as at December 31,2006.

 

On March3, 2008 the Group entered into an exclusive agreement with WyethPharmaceuticals, pursuant to which the Group will manufacture certain vaccinecomponents for use by Wyeth in clinical studies. The contract manufacturingwill take place in one of the two buildings that was impaired in 2006. This isan indication that the impairment loss recognized in 2006 no longer exists ormay have decreased. The Group will estimate the recoverable amount, if any, ofthat asset as of the first subsequent reporting date after entry into thecontract and will reverse the previous impairment loss, to the extent of anysuch recoverable amount. This is because the agreement with Wyeth is asubsequent event that arose after the December 31, 2007 balance sheet date.

 

**Lease and borrowing costs**

At December 31,2007 and 2006, the Company held laboratory equipment under finance leases witha cost of € 11,137 and €10,912, respectively and a net book value of € 11,137and € 7,291. The laboratory equipment is used in the new production facility inLeiden, the Netherlands, and is not yet depreciated as the asset is still underconstruction. These leases are secured by the value of the underlying assetsand a compensating cash balance.

 

At December 31,2007 an amount of € 1,516 of borrowing costs related to the construction of anew production facility in Leiden, the Netherlands, has been capitalized (2006:€ 744). The borrowing costs are capitalized at a capitalization rate of 4.55%.

 

**Commitments**

Theremaining contractual commitments amount to € 4,696 (2006: € 11,693, 2005: €10,500) for purchases of property, plant and equipment, mainly related to thenew GMP production facility in Leiden, the Netherlands.

** **

**5.7 Intangible assets**

** **

In thousands of Euro

 
|                                   |       | Customer   |       | Patents and |       | Developed    |       | In-process  |       |        |       |
|----------------------------------------|------------|------------|------------|------------------|------------|--------------|------------|-------------|------------|-------------|------------|
| Cost                                   |       | lists      |       | licenses         |       | technologies |       | R&D     |       | Total       |       |
| **At  January 1, 2006**           | ** ** | **—** | ** ** | **—**       | ** ** | **10,669**   | ** ** | **—**  | ** ** | **10,669**  | ** ** |
| Additions                              |       | 8,316      |       | —           |       | —       |       | —      |       | 8,316       |       |
| Disposals                              |       | —     |       | (19              | )          | —       |       | —      |       | (19         | )          |
| Acquisition  of subsidiaries           |       | —     |       | 26,771           |       | 34,729       |       | 60,788      |       | 122,288     |       |
| Transfer  in process R&D           |       | —     |       | —           |       | 42,838       |       | (42,838     | )          | —      |       |
| Effect  of movements in exchange rates |       | (104       | )          | (613             | )          | (1,022       | )          | (257        | )          | (1,996      | )          |
| **At  December 31, 2006**         | ** ** | **8,212**  | ** ** | **26,139**       | ** ** | **87,214**   | ** ** | **17,693**  | ** ** | **139,258** | ** ** |
| Effect  of movements in exchange rates |       | (302       | )          | (865             | )          | (6,378       | )          | (1,500      | )          | (9,045      | )          |
| **At  December 31, 2007**         | ** ** | **7,910**  | ** ** | **25,274**       | ** ** | **80,836**   | ** ** | **16,193**  | ** ** | **130,213** | ** ** |
|                                   |       |       |       |             |       |         |       |        |       |        |       |
| **Amortization  and impairment**       | ** ** | ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  | ** ** |
| **At  January 1, 2006**           | ** ** | **—** | ** ** | **—**       | ** ** | **(8,092**   | **)**      | **—**  | ** ** | **(8,092**  | **)**      |
| Amortization                           |       | (693       | )          | (3,704           | )          | (3,163       | )          | —      |       | (7,560      | )          |
| Impairment                             |       | —     |       | —           |       | —       |       | (10,848     | )          | (10,848     | )          |
| Disposals                              |       | —     |       | 19               |       | —       |       | —      |       | 19          |       |
| Effect  of movements in exchange rates |       | 6          |       | 139              |       | 38           |       | 117         |       | 300         |       |
| **At  December 31, 2006**         | ** ** | **(687**   | **)**      | **(3,546**       | **)**      | **(11,217**  | **)**      | **(10,731** | **)**      | **(26,181** | **)**      |
|                                   |       |       |       |             |       |         |       |        |       |        |       |
| Amortization                           |       | (2,657     | )          | (4,030           | )          | (5,207       | )          | —      |       | (11,894     | )          |
| Effect  of movements in exchange rates |       | 48         |       | 232              |       | 332          |       | 1,295       |       | 1,907       |       |
| **At  December 31, 2007**         | ** ** | **(3,296** | **)**      | **(7,344**       | **)**      | **(16,092**  | **)**      | **(9,436**  | **)**      | **(36,168** | **)**      |
|                                   |       |       |       |             |       |         |       |        |       |        |       |
| **Net  book value**                    | ** ** | ** ** | ** ** | ** **       | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  | ** ** |
| **At  December 31, 2007**         | ** ** | **4,614**  | ** ** | **17,930**       | ** ** | **64,744**   | ** ** | **6,757**   | ** ** | **94,045**  | ** ** |
| **At  December 31, 2006**         | ** ** | **7,525**  | ** ** | **22,593**       | ** ** | **75,997**   | ** ** | **6,962**   | ** ** | **113,077** | ** ** |

 

156

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

Amortizationof intangible assets is included in the cost of goods sold for € 131 (2006: €nil, 2005: nil), research and development costs for € 8,939 (2006: € 6,858,2005: € 1,470) and selling, general and administrative costs for € 2,824 (2006:€ 702, 2005: nil).

 

**Impairment**

Theimpairment loss of € 10,848 in 2006 relates to the in process research anddevelopment of the Tetra vaccine which was acquired in February 2006 whenCrucell acquired Berna Biotech. Management decided to stop the development ofTetra after Quinvaxem received approval by the WHO. Consequently the carryingvalue of Tetra was impaired for the total amount of € 10,848.

 

Thefollowing individual intangible assets are considered material to Crucell’sfinancial statements:

 

In thousands of Euro

 
|                            |   |                                  |   | **Carrying**          |   | Carrying          |   |
|---------------------------------|--------|---------------------------------------|--------|-----------------------|--------|-------------------|--------|
|                            |   | Remaining amortization           |   | **value**             |   | value             |   |
|                            |   | period at December 31, |   | **December 31,** |   | December 31, |   |
|                            |   | 2007 (in years)             |   | **2007**              |   | 2006              |   |
| Developed  technology Quinvaxem |   | 18.7                                  |   | **34,778**            |   | 41,671            |   |
| Developed  technology Epaxal    |   | 18.2                                  |   | **10,410**            |   | 11,318            |   |
| Manufacturing  contract         |   | 3.2                                   |   | **10,391**            |   | 14,090            |   |
| Developed  technology Inflexal  |   | 10.2                                  |   | **7,052**             |   | 7,982             |   |
| In-process  R&D Flavimun    |   |                                  |   | **6,756**             |   | 6,962             |   |
| Developed  Technology Vivotif   |   | 18.2                                  |   | **5,315**             |   | 5,778             |   |
| Brand name  Berna Biotech       |   | 18.2                                  |   | **3,945**             |   | 4,289             |   |

 

**5.8 Business combinations and goodwill**

** **

**5.8.1 Business combinations**

** **

**Acquisition of Berna Biotech AG**

On February 22,2006, Crucell acquired approximately 97 percent of the outstanding commonshares of Berna Biotech AG (‘Berna Biotech’). The Company issued 16,691,492ordinary shares with a fair value of € 20.90 each, which was the publishedprice of the shares of Crucell at the date of exchange to acquire Berna. On March 31,2006 the Company purchased an additional 1.4% of the issued shares of BernaBiotech, for which the Company issued 239,270 ordinary shares with a fair valueof € 23.25. The consolidated financial statements include the results of BernaBiotech since March 1, 2006. There were no significant transactionsbetween February 22, 2006 and March 1, 2006. In September 2006the Company was able to squeeze out the remaining 1.6% minority interest ofBerna Biotech. With the squeeze-out, the delisting of Berna Biotech shares wasapproved and effected by the SWX Swiss Exchange on September 18, 2006.

 

**Acquisition of the assets and liabilities of Berna Products Corp.**

In October 2006,the Company purchased, via its subsidiary Crucell Vaccines Inc. the assets andliabilities of the Florida-based Berna Products Corp. (‘BPC’) from Acambis plcfor € 13,806, excluding acquisition costs. BPC was originally established in 1990by Berna Biotech to market Vivotif, Berna’s oral typhoid fever vaccine, in theU.S. and Canada and was acquired by Acambis plc in 2003.

 

The excessof the cost of acquisition over the fair value of the Group’s share ofidentifiable net assets acquired was recorded as goodwill. Assigning fairvalues to the net assets acquired requires the use of estimates. In accordancewith IFRS 3, upon completing the valuation of the net assets acquired, theCompany adjusted the provisional values for certain deferred tax liabilitiesthat related to the customer lists acquired resulting in a € 1,277 increase ofgoodwill compared to the amount previously reported at 31 December 2006.

 

**Acquisition of SBL Vaccin Holding AB**

On November 23,2006 the Group acquired the shares of Stockholm-based SBL Vaccin Holding AB(SBL) from 3i and SEB for a total consideration of € 39,341 in cash, excludingacquisition costs. SBL is a fully integrated independent Swedish biotechnologycompany employing 120 people. SBL’s main product is Dukoral, an oral vaccinethat protects against cholera and is registered in more than 50 countriesexcluding the U.S. In addition SBL has a sales and distribution organizationfor vaccines in Scandinavia. SBL markets a broad range of vaccines sourced fromglobal vaccine companies.

 

157

 

**Financial Statements**

Notes to theConsolidated Financial Statements

 

The excessof the cost of acquisition over the fair value of the Group’s share ofidentifiable net assets acquired was recorded as goodwill. Assigning fairvalues to the net assets acquired requires the use of estimates. In accordancewith IFRS 3, upon completing the valuation of the net assets acquired, theCompany adjusted the provisional values for certain deferred tax assets thatrelated to property, plant and equipment resulting in a € 580 decrease ofgoodwill compared to the amount previously reported at 31 December 2006.

 

**5.8.2 Goodwill**

 

Inthousands of Euro

 
| ** **                             | ** ** | Goodwill   | ** ** |
|----------------------------------------|------------|------------|------------|
| **Cost**                               |       |       |       |
| **At  January 1, 2006**           | ** ** | **—** | ** ** |
| Acquisition  of subsidiaries           |       | 47,419     |       |
| **December 31,  2006**            | ** ** | **47,419** | ** ** |
|                                   |       |       |       |
| Additions                              |       | —     |       |
| Adjustments  to provisional values     |       | 697        |       |
| Effect  of movements in exchange rates |       | (3,739     | )          |
| **At  December 31, 2007**         | ** ** | **44,377** | ** ** |
|                                   |       |       |       |
| **Net  book value**                    | ** ** | ** ** | ** ** |
| **At  December 31, 2007**         | ** ** | **44,377** | ** ** |
| **At  December 31, 2006**         | ** ** | **47,419** | ** ** |

 

Noimpairment losses were recognized on the acquired goodwill. Goodwill acquiredthrough business combinations has been allocated as follows:

 

Inthousands of Euro

 
| December 31,          |       | **2007**   |       | 2006       |       |
|----------------------------|------------|------------|------------|------------|------------|
| Berna  Biotech AG          |       |       |       | 29,970     |       |
| Berna  Biotech Korea Corp. |       |       |       | 6,702      |       |
| Crucell  Vaccines Inc.     |       |       |       | 4,165      |       |
| SBL  Vaccin AB             |       |       |       | 6,582      |       |
| Vaccines  segment          |       | 44,377     |       |       |       |
| Proteins  segment          |       | —     |       |       |       |
| **Total  goodwill**        | ** ** | **44,377** | ** ** | **47,419** | ** ** |

 

**Allocation of goodwill to the vaccines and proteins segments**

In 2007Crucell established two segments, a vaccines segment and a proteins segment,and therefore changed its reporting structure. This change also affected thecomposition of units to which goodwill had previously been allocated.Management exercised significant judgment in determining the segments and thesubsequent reallocation of the goodwill. Normally a reallocation is performedusing a relative value approach, unless some other method better reflects thegoodwill associated with the reporting units. Management demonstrated that analternative allocation better reflected the goodwill and accordingly, the Groupallocated all goodwill to the vaccines segment and no goodwill to the proteinssegment based on the following considerations.

 

·             The vast majority of the acquired entities is part of thevaccines segment;

·             During the purchase price allocation process in 2006,goodwill recognized was mostly attributed to the acquired workforce, the vastmajority of which still operates in the vaccines segment.

 

**Vaccines segment**

The recoverableamount of the vaccines segment was determined based on a value in usecalculation using the traditional discounted cash flow model with a terminalvalue after the last planning year in 2017. The Group uses a planning periodlonger than five years, which is a commonly used approach for biotechnologycompanies as the development and life cycle of a single product can besubstantially longer than the five years. Using a period of only five yearswould not lead to a fair valuation of the vaccines segment.

 

**Sensitivities to changes in assumptions**

Managementbelieves that any reasonable possible change in the key assumptions would notdecrease the value in use to the extent that the related goodwill would exceedthe recoverable amount. Reference is made to the key assumptions below as thesehave a significant impact on the calculated recoverable amount. The recoverableamount for the goodwill of the vaccines segment exceeds its carrying amount by€ 177.0 million. The implications of the key assumptions are discussed below:

 

·                  The recoverable goodwill amount of the vaccines segment wasdetermined on the basis of a pre-tax weighted average cost of capital (‘WACC’)of 13.8%. A higher WACC percentage would reduce the recoverable amount of thevaccines segment;

·                  Expected cash flows for clinical programs that were includedin the discounted cash flow analysis were risk adjusted. A higher riskadjustment would reduce the recoverable amount of goodwill;

·                  The discounted cash flow model used did not assign any valueto our pre-clinical programs.

 

158

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**5.9 Investments in associates and joint ventures**

** **

**5.9.1 Associated companies**

** **

**Kenta Biotech AG, Switzerland**

In February,2006, Kenta Biotech AG was founded with a capital of € 9,061 (CHF 14,290).Berna Biotech contributed investments in kind of € 3,329 (CHF 5,250) inexchange for 37% of Kenta Biotech’s share capital. In 2007, our ownership ofKenta Biotech was reduced to 22% of its share capital. Kenta Biotech AG isfocusing on the discovery and development of innovative, fully human monoclonalantibodies for the life-saving treatment of patients with serious infectiousdiseases.

 

Summaryfinancial information from Kenta Biotech AG for the years ended December 31,2007 and 2006, not adjusted for the percentage ownership held by the Company:

 

Inthousands of Euro

 
|                                  |   | **2007**   | ** ** | 2006      |   |
|---------------------------------------|--------|------------|------------|-----------|--------|
| **Associate’s  balance sheet:**  |   | ** ** | ** ** |      |   |
| Current  assets                       |   | **3,845**  | ** ** | 3,386     |   |
| Non-current  assets                   |   | **3,213**  | ** ** | 3,293     |   |
| Current  liabilities                  |   | **(360**   | **)**      | (349      | )      |
| Non-current  liabilities              |   | **—** | ** ** | —    |   |
| Net  assets                           |   | **6,698**  | ** ** | **6,330** |   |
|                                  |   | ** ** | ** ** |      |   |
| **Associate  revenues and expenses:** |   | ** ** | ** ** |      |   |
| Revenues                              |   | **—** | ** ** | 59        |   |
| Expenses                              |   | **(2,420** | **)**      | (2,664    | )      |
| Loss for  the period                  |   | **(2,420** | **)**      | (2,605    | )      |

 

**ADImmune Corp., Taiwan**

In March 2007,the Company acquired a 20% stake in Taiwanese-based ADImmune Corp. a companythat develops, manufactures and distributes vaccines and other biologicalproducts. ADImmune will use Crucell’s virosome technology to produce a virosomaladjuvanted influenza vaccine for specified markets: Taiwan, Japan and Macau.Additionally, ADImmune will in the future produce influenza antigen, which wemay purchase to produce our influenza vaccine product, Inflexal V.

 

Summaryfinancial information from ADImmune for the years ended December 31, 2007and 2006, not adjusted for the percentage ownership held by the Company:

 

Inthousands of Euro

 
| ** **                                   | ** ** | **2007**   | ** ** | 2006*      |   |
|----------------------------------------------|------------|------------|------------|------------|--------|
| **Associate’s  balance sheet:**         |       | ** ** | ** ** |       |   |
| Current  assets                              |       | **6,621**  | ** ** | 10,132     |   |
| Non-current  assets                          |       | **38,447** | ** ** | 27,225     |   |
| Current  liabilities                         |       | **(4,918** | **)**      | (741       | )      |
| Non-current  liabilities                     |       | **(209**   | **)**      | (269       | )      |
| Net  assets                                  |       | **39,941** | ** ** | **36,347** |   |
|                                         |       | ** ** | ** ** |       |   |
| **Associate’s  revenues and expenses:** |       | ** ** | ** ** |       |   |
| Revenues                                     |       | **5,056**  | ** ** | 5,482      |   |
| Expenses                                     |       | **(6,108** | **)**      | (5,401     | )      |
| Loss for  the period                         |       | **(1,052** | **)**      | **81**     |   |

 

* The Company did notown any shares of ADImmune Corp. in 2006.

 

**Pevion Biotech AG, Switzerland**

PevionBiotech AG develops vaccines based on its proprietary technology platforms. In November 2007,the Group sold all 2.9 million shares it owned in Pevion Biotech AG for € 6,081to the other Pevion Biotech shareholders. The Group realized a gain of € 2,186on the sale.

 

**5.9.2 Joint ventures**

** **

**Percivia LLC, United States**

In August 2006DSM Pharmaceutical Products Inc. and the Group established a joint venture,Percivia LLC (Percivia) to operate the PERCIVIA PER.C6 Development Center inCambridge, Mass, USA. Both companies hold 50% of the shares. The initialcontribution amounts to € 158 (USD 200). The joint venture further develops thePER.C6 cell line and provides a unique solution for the production ofpharmaceutical proteins to licensees utilizing the PER.C6 human cell line inthe biotech industry. Percivia recharges the costs incurred to the venturers.No additional fundings are planned.

 

Summaryfinancial information for this joint venture, not adjusted for the percentageownership held by the Company:

 

Inthousands of Euro

 
| ** **                                       | ** ** | **2007**  | ** ** | 2006      | ** ** |
|--------------------------------------------------|------------|-----------|------------|-----------|------------|
| **Joint venture balance sheet:  Current assets** | ** ** | **1,131** | ** ** | **3,206** | ** ** |
| Non-current assets                               |       | 981       |       | —    |       |
| Current liabilities                              |       | (965      | )          | (2,887    | )          |
| Non-current liabilities                          |       | —    |       | —    |       |
| Net assets                                       |       | **1,147** | ** ** | **319**   |       |

 

159

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**Joint venture revenues and expenses:**
| Revenues                                   |   | 8,081   |   | 2,454   |   |
|--------------------------------------------|--------|---------|--------|---------|--------|
| Expenses                                   |   | (7,348  | )      | (2,231  | )      |
| Profit/(loss)  for the period before taxes |   | **733** |   | **223** |   |

 

The taxcharge for PERCIVIA PER.C6 Development Center is accounted for in the financialstatements of the venturers. The tax charge recognized in the financialstatements relating to the percentage owned by the Company amounts to € 146in 2007.

 

**5.10 Retirement benefit obligations**

 

The Groupprovides employee benefit plans to most of its employees by means of variouspension plans. These plans comply with local regulations and practices in thecountries in which they operate and differ based on legal requirements, taxlegislation, local customs and economic conditions in the countries. While thenature of the plans varies by country, in general, the benefits provided dependon remuneration and years of service. Most of these benefits are administratedby insurance companies or pension funds.

 

Recognitionof pension expenses in the income statement and balance sheet:

 

Inthousands of Euro

 
| Year ended December 31 |   | **2007**  |   | 2006      |       | 2005    |   |
|---------------------------------------|--------|-----------|--------|-----------|------------|---------|--------|
| **Income  statement**                 |   |      |   |      |       |    |   |
| Defined  benefit plans                |   | **3,162** |   | 2,179     |       | —  |   |
| Defined  contribution plans           |   | **1,708** |   | 1,770     |       | 867     |   |
| **Total**                             |   | **4,870** |   | **3,949** | ** ** | **867** |   |

 
| Year ended December 31 |   | **2007**   |       | 2006       |   |
|---------------------------------------|--------|------------|------------|------------|--------|
| **Balance  sheet**                    |   |       |       |       |   |
| Defined  benefit plans                |   |       |       |       |   |
| Pension  assets                       |   | **2,479**  | ** ** | 2,555      |   |
| Pension  liability                    |   | **(3,466** | **)**      | (3,919     | )      |
| Net  pension liability                |   | **(987**   | **)**      | **(1,364** | **)**  |

 

Prior tothe acquisition of Berna Biotech and SBL, the Company did not operate anydefined benefit plans. As a result of the acquisitions, the Company nowoperates defined benefit plans in Switzerland, Korea and Sweden. The pensionasset of € 2,479 (2006: € 2,555) relates to the Swiss pension fund while thepension liability of € 3,466 (2007: € 3,919) relates to the Swedish and theKorean pension funds. In total, 96% (2006: 97%) of the plan assets and 90%(2006: 89%) of the defined benefit obligation relates to the Swiss pensionfund.

 

Theweighted average of the principal assumptions used in determining the employeebenefit obligations for the defined benefit plans of the Company are shownbelow:

 

In percent

 
| ** **                      | ** ** | **2007** |   | 2006 | ** ** |
|---------------------------------|------------|----------|--------|------|------------|
| Discount  rate                  |       | **3.40** |   | 3.32 |       |
| Expected  return on plan assets |       | **4.53** |   | 4.55 |       |
| Future  salary increases        |       | **1.22** |   | 1.19 |       |
| Future  pension increases       |       | **0.78** |   | 0.66 |       |

 

Changes inthese key assumptions can have a significant impact on the defined benefitobligations, funding requirements and periodic costs incurred. The Groupconsults at least annually with external actuaries regarding these assumptions.

 

Changes inthe present value of the defined benefit obligation are as follows:

 

Inthousands of Euro

 
| ** **                                                | ** ** | **2007**    |       | 2006        | ** ** |
|-----------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **Opening  defined benefit obligation, January 1**   |       | **(72,679** | **)**      | —      |       |
| Acquisition  of subsidiaries                              |       | **—**  | ** ** | (72,703     | )          |
| Interest  cost                                            |       | **(2,363**  | **)**      | (2,012      | )          |
| Current  service cost                                     |       | **(3,369**  | **)**      | (3,105      | )          |
| Benefits  paid                                            |       | **2,450**   | ** ** | 2,535       |       |
| Actuarial  (gains)/losses                                 |       | **(934**    | **)**      | 834         |       |
| Exchange  differences                                     |       | **2,389**   | ** ** | 1,772       |       |
| **Closing  defined benefit obligation, December 31** |       | **(74,506** | **)**      | **(72,679** | **)**      |

 

Changes inthe fair value of plan assets are as follows:

 

Inthousands of Euro

 
| ** **                                               | ** ** | **2007**    | ** ** | 2006        | ** ** |
|----------------------------------------------------------|------------|-------------|------------|-------------|------------|
| **Opening  fair value of plan assets, January 1**   |       | **102,306** | ** ** | —      |       |
| Acquisition  of subsidiaries                             |       | **—**  | ** ** | 100,677     |       |
| Expected  return on plan assets                          |       | **4,528**   | ** ** | 3,758       |       |
| Contributions  by employer                               |       | **2,338**   | ** ** | 2,137       |       |
| Contributions  by participants                           |       | **984**     | ** ** | 981         |       |
| Benefits  paid                                           |       | **(2,208**  | **)**      | (2,355      | )          |
| Actuarial  gains/(losses)                                |       | **(5,727**  | **)**      | (211        | )          |
| Exchange  differences                                    |       | **(3,189**  | **)**      | (2,681      | )          |
| **Closing  fair value of plan assets, December 31** |       | **99,032**  | ** ** | **102,306** |       |

 

160

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

In 2008,the Company expects to contribute an amount similar to the amount contributedin 2007 to its defined benefit pension plans. The actual return on plan assetsfor the year ended December 31, 2007 amounts to a loss of € 1,199 (2006:gain of € 3,547).

 

The costsfor defined benefit plans are as follows:

 

Inthousands of Euro

 
| Year ended December 31,           |   | **2007**   | ** ** | 2006      |   |
|--------------------------------------------------|--------|------------|------------|-----------|--------|
| Current  service cost                            |   | **3,369**  | ** ** | 3,105     |   |
| Interest  cost                                   |   | **2,363**  | ** ** | 2,012     |   |
| Expected  return on plan assets                  |   | **(4,528** | **)**      | (3,758    | )      |
| Additional  pension expense due to asset ceiling |   | **2,057**  | ** ** | 1,865     |   |
| Employee  contributions                          |   | **(984**   | **)**      | (981      | )      |
| Other                                            |   | **0**      | ** ** | (64       | )      |
|                                             |   | **2,277**  | ** ** | **2,179** |   |

 

Inthousands of Euro

 
| Year ended December 31,               |   | **2007**    |       | 2006       |   |
|------------------------------------------------------|--------|-------------|------------|------------|--------|
| Defined  benefit obligation                          |   | **(74,506** | **)**      | (72,679    | )      |
| Fair  value of plan assets                           |   | **99,032**  | ** ** | 102,306    |   |
| Funded  status                                       |   | **24,526**  | ** ** | **29,627** |   |
| Unrecognized  net actuarial losses                   |   | **233**     | ** ** | 237        |   |
| Amount  not recognized as asset due to asset ceiling |   | **(25,746** | **)**      | (31,228    | )      |
| Net  pension liability                               |   | **(987**    | **)**      | **(1,364** | **)**  |

 

Inthousands of Euro

 
| Year ended December 31,                  |   | **2007**    | ** ** | 2006       |   |
|---------------------------------------------------------|--------|-------------|------------|------------|--------|
| Defined  benefit obligation                             |   | **(74,506** | **)**      | (72,679    | )      |
| Plan  assets                                            |   | **99,032**  | ** ** | 102,306    |   |
| Surplus                                                 |   | **24,526**  | ** ** | **29,627** |   |
| Experience  adjustments on plan liabilities – gain |   | **(934**    | **)**      | 834        |   |
| Experience  adjustments on plan assets – loss      |   | **(5,727**  | **)**      | (211       | )      |

 

The majorcategories of plan assets as a percentage of the fair value of total planassets are as follows:

 

In percent

 
| Year ended December 31, | ** ** | **2007**  | ** ** | 2006      |   |
|----------------------------------------|------------|-----------|------------|-----------|--------|
| Bonds                                  |       | **41.7**  |       | 36.5      |   |
| Equity                                 |       | **26.1**  |       | 26.9      |   |
| Property                               |       | **28.6**  |       | 31.8      |   |
| Other                                  |       | **3.6**   |       | 4.8       |   |
|                                   |       | **100.0** |       | **100.0** |   |

 

The overallexpected rate of return on assets is determined based on the market pricesexpected to be applicable to the period over which the obligation is to besettled and the relative weight of the separate categories of plan assets.

 

**5.11 Other financial assets (non-current)**

** **

Inthousands of Euro

 
| Year ended December 31, |   | **2007**   |   | 2006       |   |
|----------------------------------------|--------|------------|--------|------------|--------|
| Long-term  restricted cash             |   | **14,396** |   | 14,396     |   |
| Long-term  deposits and guarantees     |   | **1,388**  |   | 2,034      |   |
| Other  long-term receivables           |   | **369**    |   | —     |   |
|                                   |   | **16,153** |   | **16,430** |   |

 

The Companyhas € 14,396 restricted cash, € 10,000 of which is related to the mortgage loandescribed in note 5.19. The remainder relates to a deposit for the PerciviaDevelopment Center and guarantees issued relating to finance leases.

 

**5.12 Cash and cash equivalents**

 

Inthousands of Euro

 
| Year ended December 31, | ** ** | **2007**    | ** ** | 2006        | ** ** |
|----------------------------------------|------------|-------------|------------|-------------|------------|
| Cash at  banks and in hand             |       | **108,273** |       | 87,761      |       |
| Call  deposits                         |       | **54,975**  |       | 70,076      |       |
|                                   |       | **163,248** |       | **157,837** |       |

 

Cash andcash equivalents are denominated in the following currencies (translated intoEuros):

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**    | ** ** | 2006        |   |
|----------------------------------------|--------|-------------|------------|-------------|--------|
| Euro (€)                          |   | **81,085**  | ** ** | 109,465     |   |
| Swiss  Francs (CHF)                    |   | **50,176**  | ** ** | 26,364      |   |
| U.S.  Dollar ($)                       |   | **484**     | ** ** | 7,363       |   |
| Korean  Won (KRW)                      |   | **18,033**  | ** ** | 7,268       |   |
| Swedish  Crowns (SEK)                  |   | **13,470**  | ** ** | 7,113       |   |
| Other  currencies                      |   | **—**  | ** ** | 264         |   |
|                                   |   | **163,248** | ** ** | **157,837** |   |

 

161

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**5.13 Trade accounts receivable**

 

Inthousands of Euro

 
| Year ended December 31,                |   | **2007**   |   | 2006       |   |
|-------------------------------------------------------|--------|------------|--------|------------|--------|
| Trade  receivables from third-party customers         |   | **47,553** |   | 58,550     |   |
| Trade receivables  from associates and joint ventures |   | **10**     |   | 13         |   |
|                                                  |   | **47,563** |   | **58,563** |   |

 

At December 31,2007 trade receivables are shown net of an allowance for doubtful debts for anamount of € 2,763 (2006: € 4,069). The Company’s normal credit period is 30days, although in some jurisdictions, including Italy, Korea and Spain, acredit period of 60 days is maintained in line with local customs. Receivablesare denominated in several currencies and can be specified as follows:

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**   | ** ** | 2006       |   |
|----------------------------------------|--------|------------|------------|------------|--------|
| Euro (€)                          |   | **28,343** | ** ** | 31,153     |   |
| U.S.  Dollar ($)                       |   | **6,056**  | ** ** | 19,644     |   |
| Swiss  Francs (CHF)                    |   | **4,077**  | ** ** | 1,411      |   |
| Swedish  Crowns (SEK)                  |   | **7,264**  | ** ** | 4,595      |   |
| Korean  Won (KRW)                      |   | **985**    | ** ** | 1,021      |   |
| Other  currencies                      |   | **838**    | ** ** | 739        |   |
|                                   |   | **47,563** | ** ** | **58,563** |   |

 

**Ageing of past due but not impaired**

Included inthe Company’s trade receivable balance are debtors with a carrying amount of €9.1 million (2006: € 6.9 million) which are past due at the reporting date forwhich the Company has not provided because there has not been a significantchange in credit quality and the amounts are still considered recoverable. TheCompany does not hold any collateral over these balances.

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**  |   | 2006      |   |
|----------------------------------------|--------|-----------|--------|-----------|--------|
| 1-60  days                             |   | **5,083** |   | 2,931     |   |
| 61-120  days                           |   | **479**   |   | 663       |   |
| 121-180  days                          |   | **1,411** |   | 303       |   |
| Over 180  days                         |   | **2,078** |   | 3,024     |   |
|                                   |   | **9,051** |   | **6,921** |   |

 

**Movement in the allowance for doubtful debts**

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**   | ** ** | 2006      |       |
|----------------------------------------|--------|------------|------------|-----------|------------|
| Balance  at beginning of the year      |   | **4,069**  | ** ** | 176       |       |
| Acquisition  of subsidiaries           |   | **—** | ** ** | 3,412     |       |
| Additions  to provision                |   | **535**    | ** ** | 1,104     |       |
| Amounts  written off as uncollectible  |   | **(968**   | **)**      | —    |       |
| Unused  amounts reversed               |   | **(601**   | **)**      | (611      | )          |
| Effect of  movements in exchange rates |   | **(272**   | **)**      | (12       | )          |
|                                   |   | **2,763**  | ** ** | **4,069** | ** ** |

 

The amountwritten of 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**

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**   | ** ** | 2006       |   |
|----------------------------------------|--------|------------|------------|------------|--------|
| Raw  materials and consumables         |   | **15,162** | ** ** | 18,418     |   |
| Work in  progress                      |   | **46,157** | ** ** | 45,623     |   |
| Finished  products                     |   | **5,914**  | ** ** | 11,478     |   |
|                                   |   | **67,233** | ** ** | **75,519** |   |

 

In order tobe able to meet the demand from the market (e.g. in case of outbreak of adisease) the Company stocks certain inventories to a level that they may not berealized in one year. This is in line with policies of the Group. Provisionsare recognized for obsolete inventory. The amount of write-down of inventoriesrecognized as an expense is € 6,428 (2006: € 4,722).

 

The amountof inventories recognized as an expense of cost of product sales is € 113,250(2006: € 74,523).

 

**5.15 Other current assets**

 

Inthousands of Euro

 
| Year ended December 31, |   | **2007**   |   | 2006       |   |
|----------------------------------------|--------|------------|--------|------------|--------|
| Accrued  income                        |   | **10,164** |   | 11,129     |   |
| Prepaid  expenses                      |   | **3,177**  |   | 2,271      |   |
| Other  short-term receivables          |   | **10,826** |   | 11,273     |   |
| Director’s  loan                  |   | **134**    |   | 168        |   |
| Income  tax receivables                |   | **888**    |   | 243        |   |
| Derivative  financial instruments      |   | **29**     |   | 68         |   |
|                                   |   | **25,218** |   | **25,152** |   |

 

162

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**5.16 Issued share capital and reserves**

 

Crucell’sauthorized share capital amounts to 85,000,000 ordinary shares and 85,000,000preference shares, each with a par value of € 0.24. As of December 31,2007, there were 65,348,796 ordinary shares issued and outstanding (2006:64,802,325). No preference shares are issued and outstanding as of December 31,2007.

 

On October 25,2000, the Company established a foundation called Stichting Preferente AandelenCrucell, also referred to as the Preferred Foundation. The Preferred Foundation’sobject is to safeguard the interests of Crucell, its business and partiesconnected 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.

 

Theagreement between the Company and the Preferred Foundation grants an option tothe Preferred Foundation to acquire preference shares up to 100% of the numberof our outstanding shares, necessary to match the total number of statutoryvotes on all of the ordinary shares outstanding at the time of a acquisition.The Preferred Foundation must pay at least 25% of the nominal value of thepreference shares it acquires from the Company. If the Company acquires anypreference shares, they may be cancelled.

 

A board ofgovernors of 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 beenappointed to the board of governors. A majority of these members may not bemembers or former members of the Management or Supervisory Board of theCompany, or an employee of any of our advisers, any of our banks or us. Theboard of governors appoints these independent members. The Supervisory Boardappoints the non-independent members after consultation with the ManagementBoard.

 
| Ordinary shares Issued and fully paid                        |   | Shares  000 |       | Issued  capital  € 000 |   |
|---------------------------------------------------------------------------------------|--------|-------------|------------|----------------------------------|--------|
| At  January 1, 2005                                                              |   | 36,874      |       | 8,850                            |   |
| Effect  of shares issued in May 2005 for cash                                    |   | 3,600       |       | 864                              |   |
| Shares  issued relating to share-based payments                                       |   | 967         |       | 232                              |   |
| 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  January 1, 2007                                                              |   | 64,802      |       | 15,553                           |   |
| Shares issued  relating to share-based payments                                       |   | 547         |       | 132                              |   |
| At  December 31, 2007                                                            |   | **65,349**  | ** ** | **15,685**                       |   |

 

**Net unrealized gains reserve**

The netunrealized gains reserve at December 31, 2007 is € 8,340 (2006: € 10,670,2005: € 9,630) records the fair value changes on available-for-saleinvestments.

 

**Translation reserve**

Thetranslation reserve is used to record exchange differences arising from thetranslation of the financial statements of foreign subsidiaries and thetranslation of goodwill on foreign operations.

 

**5.17 Share-based payment plans**

** **

**Stock-based compensationStock option plans**

The Groupmaintains stock option plans whereby the Remuneration committee of theSupervisory Board may grant options to employees, directors and members of theSupervisory Board. The compensation cost included in operating expenses forthose plans was € 5,048, € 4,000 and € 2,349 in 2007, 2006 and 2005respectively.

 

163

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the Consolidated  Financial Statements |

 

In December 2004, theSupervisory Board approved a new option plan (the ‘2005 Plan’) providing forthe grant of stock options to non-Management Committee members of up to 1% ofissued ordinary shares. Options granted under this stock option plan areexercisable once vested. Granted options vest straight line over a period offour years. Compensation costs are recognized in accordance with theaccelerated method. The options expire five years after date of grant. Upontermination of employment with Crucell, options must be exercised within 90days. Options granted under the stock option plan are granted at exerciseprices, which equal the fair value of the ordinary shares of the Company at thedate of grant.

 

All options granted under previousstock option plans (the ‘Prior Plans’) are exercisable immediately upon grant.Upon exercise of the options, employees are subject to profit re-distributionprovisions. Such provisions entitle the Company to receive a portion of theprofits upon the sale of the shares, calculated as the difference between thetotal proceeds from the sale of shares and the aggregate exercise price. Theportion of the profits payable to the Company decreases ratably over one tothree years. The relevant portion of any profits derived by the employee fromthe sale of shares received on exercise of options must be remitted to theCompany if the employee terminates employment prior to the end of the relevantperiod. The options expire four to eight years from the date of grant, orearlier upon termination of employment with the Company. Except as set outbelow, upon termination of employment, options must be exercised within 90days. Compensation costs for Prior Plans are recognized in accordance with theaccelerated method. Generally, options granted under the Prior Plans aregranted at exercise prices, which exceed the fair value of the Company’sordinary shares at the date of grant. No further grants are to be made under thePrior Plans.

 

The Company accounts for itsemployee stock options under the fair value method. The fair value of optionsis estimated at the date of grant using the Black-Scholes option-pricing model,with the following weighted average assumptions:

 

In percent

** **
| Year ended December 31, | ** ** | **2007**   | ** ** | 2006   |   | 2005   | ** ** |
|----------------------------------------|------------|------------|------------|--------|--------|--------|------------|
| Risk-free interest rate                |       | **4.1**    |       | 3.6    |   | 4.1    |       |
| Expected dividend yield                |       | **—** |       | — |   | — |       |
| Expected volatility                    |       | **33.3**   |       | 41.8   |   | 52.8   |       |
| Expected life (years)                  |       | **4.25**   |       | 4.25   |   | 4.31   |       |

 

The risk-free interest rate is basedon Dutch treasury securities in effect at the time of grant. In determining theexpected volatility, we take into account the historical volatility of theCompany’s stock over a period commensurate with the expected term of theemployee stock options. When establishing the expected life, we take intoaccount the contractual term of the options and historical employee exercisebehaviour. The weighted average fair value of options granted during the yearsended December 31, 2007, 2006 and 2005 was € 16.97, € 6.96 and € 9.03,respectively.

 

A summary of the stock optionactivity for the outstanding plans is as follows:

 
| ** **                        | ** ** | Number of  options |       | Weighted  average  exercise price | ** ** |
|-----------------------------------|------------|-------------------------|------------|----------------------------------------|------------|
| Balance at January 1, 2005   |       | 4,819,011               |       | 6.42                                   |       |
| Granted                           |       | 123,000                 |       | 19.45                                  |       |
| Exercised                         |       | (887,182                | )          | 8.09                                   |       |
| Forfeited                         |       | (25,325                 | )          | 9.07                                   |       |
| Balance at December 31, 2005 |       | **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**                              |       |

 

Included in the options outstandingas of December 31, 2007 are options to acquire ordinary shares held byformer employees and consultants. These individuals have been permitted tocontinue vesting in these options for services rendered.

 

164

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

The following table summarizesinformation about the Company’s stock options outstanding at December 31,2007:

 
| Exercise price              | ** ** | **Outstanding  Options at  December 31,  2007** | ** ** | Weighted  average  exercise  price |       | Weighted  average  remaining  contractual  life (years) |       | Exercisable  options |       | Weighted  average  exercise price-  exercisable  options |       |
|----------------------------------|------------|-----------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------------------------------|------------|----------------------|------------|---------------------------------------------------------------|------------|
| € 2.35 – € 4.99   |       | **604,995**                                               |       | 3.29                               |       | 3.14                                                         |       | 604,995              |       | 3.29                                                          |       |
| € 5.00 – € 9.99   |       | **1,545,104**                                             |       | 7.96                               |       | 2.34                                                         |       | 1,545,104            |       | 7.96                                                          |       |
| € 10.00 – € 14.99 |       | **795,500**                                               |       | 13.64                              |       | 4.06                                                         |       | 185,000              |       | 11.54                                                         |       |
| € 15.00 – € 19.99 |       | **1,355,526**                                             |       | 18.33                              |       | 3.94                                                         |       | 168,467              |       | 17.19                                                         |       |
| € 20.00 – € 22.22 |       | **359,558**                                               |       | 20.59                              |       | 3.16                                                         |       | 108,162              |       | 20.81                                                         |       |
| **Total**                        | ** ** | **4,660,683**                                             | ** ** | **12.31**                          | ** ** | **3.02**                                                     | ** ** | **2,611,728**        | ** ** | **8.26**                                                      | ** ** |

 

As of December 31, 2007, atotal of 9,720,349 ordinary shares, representing 15% (2006: 15%) of the issuedshare capital, have been reserved for issuance under the option plan, of which4,660,683 (2006: 3,785,440) are subject to outstanding options.

 

**Warrants**

In 2003, Crucell granted warrants toacquire 250,000 ordinary shares at an exercise price of € 3.00 per share to aconsultant in exchange for services. The consultant earned the warrants overthe service period that ended in 2004. As at the end of 2006, 100,000 warrantswere outstanding and exercisable; these were all exercised during 2007.

 

**Share-basedincentive plans**

Under its Short-term Incentive Plan(the ‘STI Plan’), Crucell granted executives share awards with vestingcontingent upon meeting various Company-wide, departmental and individualperformance goals in fiscal 2007. The employees granted shares under the STIPlan were allowed to elect to receive either cash (at a 25% discount from thetotal award) or shares if the performance criteria were met. As such, grantsunder the STI Plan are accounted for as liabilities and included in accrued compensationand related benefits in the accompanying balance sheets. In 2007, executiveswere entitled to a total of 15,544 STI Plan shares, after deduction of incometax. Shares granted under the STI Plan were issued to the executives in thefirst quarter of 2008.

 

Crucell also has a 2005 Long-termIncentive Plan (the ‘LTI Plan’), which allowed for the issuance for up to36,842 shares of common stock to be granted to executives with vestingcontingent upon meeting various market-based goals. 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 shares originally allowed forissuance. Shares granted in 2005 under the LTI Plan were granted at the shareprice at the beginning of the year of € 10.10, which was lower than the fairvalue of the shares on the date of grant which was € 21.10. The date of grantis the measurement date for the awards. In December 2005, all 36,842 LTIPlan shares were conditionally granted to executives. There were no forfeituresof the LTI Plan grants through December 31, 2007. The conditionallygranted shares vested on December 31, 2007 and were issued to theexecutives in the first quarter of 2008. Executives were entitled to a total of22,257 LTI Plan shares after deduction of income tax.

 

As of December 31, 2007, therewas no unrecognized compensation cost related to non-vested share-basedcompensation arrangements granted under the LTI Plan, which will be recognizedin 2007. Compensation cost recognized during the year ended December 31,2007 related to the LTI Plan amounted to € 532 (2006: € 531, 2005: € 44).

 

**Stock option grantsto non-employees**

Crucell has issued stock options tovarious non-employees in connection with consulting agreements over the years.These non-employee stock options included exercise prices greater than or equalto the fair value of the underlying common stock on the date of grant. Theexercise prices range from € 3.49 to € 21.38 per share and the stock optionsexpire on dates ranging from May 2010 through December 2011. During2007, the Company issued stock options to purchase 10,000 shares of commonstock to a consultant with an exercise price of € 14.58 and expiration date in August 2012.

 

Crucell can terminate the consultingagreements at any time and only those stock options vested as of the date oftermination are exercisable. As of December 31, 2007, total options topurchase 67,604 shares of common stock (2006: 57,604) related to consultingagreements were outstanding with an average exercise price of € 13.76 andexpiration dates ranging from May 2010 through August 2012. TheCompany recorded compensation expense

 

165

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

associated with these stock optionsof € 11, € 295 and € 2,800 for the years ended December 31, 2007, 2006 and2005, respectively.

 

Stock option grants to non-employeesare made pursuant to approved stock option plans and activity related theretois included in the tables above with the employee grants of the approved plans.

 

**5.18 Provisions,commitments and contingencies**

 

Inthousands of Euro

 
| ** **                          | ** ** | Restructuring |       | Litigation |       | Employee  benefits |       | Other     |       | Total     | ** ** |
|-------------------------------------|------------|---------------|------------|------------|------------|--------------------|------------|-----------|------------|-----------|------------|
| At  January 1, 2006            |       | —        |       | —     |       | —             |       | —    |       | —    |       |
| Acquisition  of subsidiaries        |       | 71            |       | 1,180      |       | 3,918              |       | 999       |       | 6,168     |       |
| Arising  during the year            |       | 3,120         |       | 259        |       | 71                 |       | 1,145     |       | 4,595     |       |
| Utilized                            |       | (1,147        | )          | (212       | )          | (10                | )          | (6        | )          | (1,375    | )          |
| Unused  amounts reversed            |       | (393          | )          | (215       | )          | (66                | )          | (678      | )          | (1,352    | )          |
| Exchange  adjustment                |       | (5            | )          | (12        | )          | 6                  |       | (19       | )          | (30       | )          |
| At  December 31, 2006          |       | **1,646**     | ** ** | **1,000**  | ** ** | **3,919**          | ** ** | **1,441** | ** ** | **8,006** |       |
|                                |       |          |       |       |       |               |       |      |       |      |       |
| Current  2006                       |       | 1,646         |       | 52         |       | —             |       | 1,176     |       | 2,874     |       |
| Non-current  2006                   |       | —        |       | 948        |       | 3,919              |       | 265       |       | 5,132     |       |
|                                |       |          |       |       |       |               |       |      |       |      |       |
| 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     |       |

 

**Restructuring**

In 2006, a restructuring charge wasrecognized in relation to centralization of R&D functions in Leiden andphasing out R&D projects in Switzerland. The decision to concentrateR&D in Leiden was made to increase efficiency in R&D spending and willresult in a reduction in the number of staff employed, which was effectuated inthe first quarter of 2007.

 

**Legal proceedings**

The Group is subject to certainlawsuits and other legal proceedings. The current status of any pendingproceedings has been reviewed with a legal counsel. Upon consideration of knownrelevant facts and circumstances, provisions are recognized for losses that areconsidered to be probable and that can be reasonably estimated at balance sheetdate.

 

**Complaint filed by Koreanlandlord**

The Group leases the property onwhich the Korean factory is built from Green Cross Holdings Corp under a leasethat expires in 2010, and which can be extended for an additional five years.The Group is the only party entitled to terminate the lease. Over a somewhatlonger term the Group intends to relocate its operations to another site inKorea.

 

The landlord plans to surrender aportion of the land on which the Korean facility sits, to the local andregional authorities due to construction of a light railway and a subway lineextension along with the potential urban development associated therewith.

 

In 2007, the Group demolished awarehouse that was directly in the path of the construction of the subway line.Currently, none of the Group’s property is in the way of the constructionprojects. The landlord has advised the Group it will stop providing utilitiesin early 2009. Furthermore, the landlord filed a complaint against the Group inNovember 2007, seeking the demolition of two more buildings at the Koreanfacility and delivery to them of the land on which those buildings are located.The suit alleges that there is an implied lease agreement for those buildingsand the land on which they sit, which automatically terminated uponcommencement of the subway line extension project. In January 2008, the Groupsubmitted its answer to the Court, denying the landlord’s allegations on thegrounds that there was no new (whether implied or express) agreement todemolish the buildings and deliver the relevant land. Such an agreement wouldbe inconsistent with the long-term lease agreement which the Group and thelandlord executed in April 2000. The Group expects this court case to lastseveral years.

 

166

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

An unfavourable outcome of the courtcase may have a material adverse effect on the Group’s business, financialcondition and results of operations. No provision was recognized for the Koreanfactory, because the Group considers it more likely than not that the courtcase will be won and the Group will be able to continue to produce in theKorean factory until the moment of the planned relocation.

 

**Deductibility of research anddevelopment costs**

In Italy, Berna Biotech Italia Srl.was subject to a tax audit for fiscal years 2001 and 2002. For the year 2001, asettlement was reached with the Italian tax authorities in 2007. For the year 2002,no settlement is reached. The tax authorities issued an assessment thatdeviates from the assessment in the tax return filed. The Group is challengingthis assessment in court. The Group made a provision for the costs ofadditional taxes, penalties and interest, as well as lawyers’ fees, which theGroup expects it will have to pay as a result. One of the items in dispute isthe deductibility of the research and development costs the Group makes inItaly. In the event that the Group loses the court case on this subject, theItalian tax authorities may challenge the deductibility of research anddevelopment costs for the years 2003 up until 2007. Because the Group considersit more likely than not that the research and development cost will be taxdeductible, no additional provision was recognized.

** **

**Employee benefits**

Further reference is made toretirement benefit obligations. See note 5.10.

 

**Other**

Other provisions mainly relate toasset retirement obligations and warranties.

 

**Contingentliability STAR technology**

The Company acquired STAR technologyin 2004 through the purchase of ChromaGenics B.V., a privately heldbiotechnology company based in Amsterdam. In connection with the purchase, wealso entered in a contingent payment agreement that could result in additionalpayments of up to € 7.0 million to former ChromaGenics shareholders uponreceipt of revenues and royalties generated from the STAR technology. Inconnection with this agreement, we paid € 2.0 million in 2007. The expense wasrecognized in the cost of goods sold.

 

**Guarantees**

Total guarantees issued by theCompany amount to € 2.5 million, which included a letter of credit issued bythe Company for an amount of $ 1.6 million which will expire on April 14,2013 for the benefit of the Percivia Development Center.

 

The Company has a guarantee facilityfor an amount of € 10.0 million with a third-party bank.

 

As part of the overall workingcapital management efforts, the Group agreed with Novartis to extend paymentterms on the supply of Quinvaxem antigens. These transactions were secured by athird-party bank guarantee in favour of Novartis.

 

**5.19 Short andlong-term financial liabilities**

 

This note provides information aboutthe contractual terms of the Group’s loans and borrowings as at December 31,2007 and 2006. For more information about the Company’s exposure to financialmarket risks, see note 3.

 

Debtrepayment schedule at December 31, 2007:

 
|                                             |   | Total      |       | 2008       |       | 2009      |       | 2010      |       | 2011      |       | 2012      |       | More than  5 years |   |
|--------------------------------------------------|--------|------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|------------------------------|--------|
| Mortgage  loan*                                  |   | 16,811     |       | 350        |       | 367       |       | 384       |       | 401       |       | 420       |       | 14,889                       |   |
| Loan Berna Biotech Korea Corp.                   |   | 4,364      |       | 1,455      |       | 1,455     |       | 1,454     |       | —    |       | —    |       | —                       |   |
| Equipment lease                                  |   | 10,080     |       | 1,420      |       | 1,503     |       | 1,605     |       | 1,701     |       | 3,851     |       | —                       |   |
| Privately placed bond Berna  Biotech Korea Corp. |   | 14,540     |       | 14,540     |       | —    |       | —    |       | —    |       | —    |       | —                       |   |
| Factoring liabilities                            |   | 5,653      |       | 5,653      |       | —    |       | —    |       | —    |       | —    |       | —                       |   |
| Other short-term bank loans                      |   | 1,347      |       | 1,347      |       | —    |       | —    |       | —    |       | —    |       | —                       |   |
|                                             |   | **52,795** | ** ** | **24,765** | ** ** | **3,325** | ** ** | **3,443** | ** ** | **2,102** | ** ** | **4,271** | ** ** | **14,889**                   |   |

* Calculated at the interest rate applicable until December 31,2010.

 

167

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**Mortgageloan**

 

In December 2005,the Company entered into a Euro mortgage loan of up to € 17,091 and as of December 31,2006 the Group has drawn the maximum amount. In 2006, interest was accrued tothe loan and no payments 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 percent forthe first five years. After this period the rates will be renegotiated. Theland, 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 is € 26,946.

 

**Loan Berna Biotech Korea Corp.**

BernaBiotech Korea Corp. has entered into an unsecured Euro loan that bears interestat 2.48% and matures on August 1, 2010.

 

**Finance lease liabilities**

Financeleases mainly relate to equipment for the new production facility in Leiden.The vast majority of the finance lease liabilities are denominated in Euro. Allleases are on a fixed repayment basis and interest rates are fixed at thecontract date. For further information see note 5.22.

 

**Privately placed bond Berna Biotech Korea Corp.**

BernaBiotech Korea Corp (‘Berna Biotech Korea’) issued a Korean Won denominated bondwith an interest rate of 6.73%. The bond matures June 13, 2008, andcontains covenants that require Berna Biotech Korea to maintain certain profitand liquidity ratios as of January 1, 2006. In 2006, these covenants werenot met, meaning bondholders could have accelerated maturity; consequently thebond is presented as a short-term bond. At December 31, 2007 the Companydoes not have any indications that the bond has to be repaid before the end ofits term.

 

**Factoring liabilities**

In December 2007the Company factored trade accounts receivable for a total amount of € 5.7million with an external party in Italy. The Company did not transfersubstantially all the risks and rewards associated with ownership of thetransferred trade accounts receivable, specifically the credit risk, andconsequently the cash payments received are accounted for as a financialliability. No interest is charged on the factoring liabilities.

 

**5.20 Other liabilities and deferred income – current and non-current**

 

In thousands of Euro

 
| ** **                                 | ** ** | **Current** | ** ** | **Non-Current** | ** ** | **2007  Total** |   | Current    |   | Non-Current |   | 2006Total  | ** ** |
|--------------------------------------------|------------|-------------|------------|-----------------|------------|-----------------|--------|------------|--------|-------------|--------|------------|------------|
| Deferred income                            |       | **7,921**   | ** ** | **11,594**      | ** ** | **19,515**      |   | 3,221      |   | —      |   | 3,221      |       |
| Accrued salary expenses and  payroll taxes |       | **10,318**  | ** ** | **—**      | ** ** | **10,318**      |   | 8,200      |   | —      |   | 8,200      |       |
| Accrued expenses                           |       | **14,684**  | ** ** | **—**      | ** ** | **14,684**      |   | 14,567     |   | —      |   | 14,567     |       |
| Derivative financial instruments           |       | **16**      | ** ** | **—**      | ** ** | **16**          |   | 11         |   | —      |   | 11         |       |
| Other liabilities                          |       | **4,958**   | ** ** | **529**         | ** ** | **5,487**       |   | 3,133      |   | —      |   | 3,133      |       |
|                                       |       | **37,897**  | ** ** | **12,123**      | ** ** | **50,020**      |   | **29,132** |   | —      |   | **29,132** |       |

 

**5.21 Trade accounts payables**

 

Inthousands of Euro

 
| Year ended December 31,     | ** ** | **2007**   | ** ** | 2006       | ** ** |
|--------------------------------------------|------------|------------|------------|------------|------------|
| Trade  accounts payables to third parties  |       | **50,970** |       | 38,360     |       |
| Trade  accounts payables to joint ventures |       | **—** |       | 152        |       |
|                                       |       | **50,970** | ** ** | **38,512** |       |

 

Tradeaccounts payables are generally paid under the payment terms, which vary bycompany and region. The Group’s general payment terms are typically 30 days.

 

168

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

**5.22 Operating and finance leases**

 

**Operating lease commitments**

The Groupleases certain research and corporate facilities, motor vehicles and items ofmachinery and equipment. No restrictions are placed upon the lessee by enteringinto these leases. Future minimum lease payments leases as at December 31,2007 and 2006 are as follows:

 

Inthousands of Euro

 
| Year ended December 31,       |   | **2007**   |       | 2006       |   |
|----------------------------------------------|--------|------------|------------|------------|--------|
| Within  one year                             |   | **4,798**  |       | 5,794      |   |
| After  one year but not more than five years |   | **15,308** |       | 14,680     |   |
| More  than five years                        |   | **14,155** |       | 16,658     |   |
|                                         |   | **34,261** | ** ** | **37,132** |   |

 

Mostoperating leases are increased by a general price index on an annual basis.

 

**Finance lease commitments**

Certain ofthe Group’s fixtures and equipment are subject to finance leases. These leasesmainly relate to equipment for the new production facility in Leiden. Interestrates are fixed at the contract date. All leases are on a fixed repayment basisand no arrangements have been entered into for contingent rental payments. Thefair value of the Company’s lease obligations approximates their carryingamount. The Company’s obligations under finance leases are secured by the valueof the underlying assets. The average term of finance leases entered into is5.5 years.

 

Futureminimum lease payments under finance leases as at December 31, 2007 and2006 are as follows:

 

In thousands of Euro

 
| ** **                                   | ** ** | **Minimum  payments** | ** ** | **2007  Present****value of  payments** |   | Minimum  payments |       | 2006  Present  value of  payments |   |
|----------------------------------------------|------------|-----------------------|------------|----------------------------------------------|--------|-------------------|------------|----------------------------------------|--------|
| Within  one year                             |       | **2,038**             | ** ** | **1,420**                                    |   | 1,637             |       | 1,139                                  |   |
| After  one year but not more than five years |       | **10,937**            | ** ** | **8,660**                                    |   | 5,073             |       | 3,691                                  |   |
| More  than five years                        |       | **—**            | ** ** | **—**                                   |   | 2,319             |       | 2,137                                  |   |
|                                         |       | **12,975**            | ** ** | **10,080**                                   |   | **9,029**         | ** ** | **6,967**                              |   |

 

**5.23 Related parties**

 

**Related party transactions within the group**

The Companyhas related party transactions and balances with its subsidiaries, jointventure partners, associates and directors and executive officers. Alltransactions with related parties were carried out under normal marketconditions (arm’s length principle). There are no related party transactionsoutside the normal course of business.

 

169

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

Thefollowing table provides the total value of transactions which have beenentered into with related parties, excluding directors and executive officers,for the relevant financial year.

 

In thousands of Euro

 
|                             |   | Income and expenses for  the year ended December 31, |       | Balance outstanding  as at December 31, |   |
|----------------------------------|--------|-----------------------------------------------------------------------------------------|------------|-------------------------------------------------------------|--------|
|                             |   | **2007**                                                                                | ** ** | 2006                                                        |   | **2007** | ** ** | 2006 |   |
| Related  party                   |   | ** **                                                                              | ** ** |                                                        |   | ** ** | ** ** |   |   |
| **Sales  of goods and services** |   | ** **                                                                              | ** ** |                                                        |   | ** ** | ** ** |   |   |
| Pevion  Biotech AG               |   | **364**                                                                                 | ** ** | 251                                                         |   | **—** | ** ** | 47 |   |
| Kenta  Biotech AG                |   | **223**                                                                                 | ** ** | 168                                                         |   | **—** | ** ** | 33 |   |
| ADImmune  Corp.                  |   | **2,271**                                                                               | ** ** | —                                                      |   | **6,724** | ** ** | — |   |
|                             |   | ** **                                                                              | ** ** |                                                        |   | ** ** | ** ** |   |   |
| **Expenses**                     |   | ** **                                                                              | ** ** |                                                        |   | ** ** | ** ** |   |   |
| Percivia                         |   | **(4,247**                                                                              | **)**      | (1,227                                                      | )      | **(332** | **)** | (1,227 | ) |
| Avv  Falaguerra                  |   | **(17**                                                                                 | **)**      | (12                                                         | )      | **(6** | **)** | (12 | ) |
| Kellerhals  & Partner AG     |   | **(76**                                                                                 | **)**      | (134                                                        | )      | **—** | ** ** | (155 | ) |
| Kenta  Biotech AG                |   | **—**                                                                              | ** ** | (60                                                         | )      | **—** | ** ** | — |   |

 

MrFalaguerra, the chairman of the Board of Directors of the Italian subsidiary,is related to Avv. Falaguerra, an Italian firm that provides taxation servicesto the Italian subsidiaries.

 

Kellerhals &Partner AG is a Swiss firm that provides legal advice to Berna Biotech. Thiscompany is related to the one of the Supervisory Board members of Crucell.

** **

**Terms and conditions of transactions with related parties**

The salesto and purchases from related parties are made at normal market prices.Outstanding balances at the year-end are unsecured, interest free andsettlement occurs in cash. There have been no guarantees provided by theCompany or received in respect of any related party receivables or payables.For the year ended December 31, 2007, the Company has not made anyprovision for doubtful debts relating to amounts owed by related parties (2006:nil). This assessment is undertaken each financial year through examining thefinancial position of the related party and the market in which the related partyoperates.

 

Transactionsbetween the Company and its subsidiaries, which are related parties, have beeneliminated on consolidation and are not disclosed in this note.

 

**Management Board**

The totalremuneration and related costs (excluding share-based payments – seeinformation below on stock options and performance stock) of the members of theManagement Board over the past three years, is as follows:

 

inthousands of Euro

 
| Year ended December 31, |       | **2007**  |       | 2006      |       | 2005      |       |
|----------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Salaries                               |       | **1,035** |       | 1,005     |       | 874       |       |
| Bonuses                                |       | **647**   |       | 893       |       | 1,058     |       |
| Pension  costs                         |       | **136**   |       | 205       |       | 189       |       |
| Other                                  |       | **37**    |       | 37        |       | 58        |       |
| ** **                             | ** ** | **1,855** | ** ** | **2,140** | ** ** | **2,179** | ** ** |

** **

170

 
| **Financial Statements**                        |
|-------------------------------------------------|
| Notes to the  Consolidated Financial Statements |

 

Theremuneration of the individual members of our Management Board during 2007,excluding stock options, was as follows:

 
| Name         |       | Salaries  |       | Bonuses1 |       | Pension  Costs | 2          | OtherCosts | 3          | Total     |       |
|--------------|------------|-----------|------------|----------|------------|----------------|------------|------------|------------|-----------|------------|
| R.H.P.  Brus |       | 412       |       | 314      |       | 33             |       | 0          |       | 759       |       |
| J.  Goudsmit |       | 340       |       | 189      |       | 71             |       | 21         |       | 621       |       |
| L.  Kruimer  |       | 283       |       | 144      |       | 32             |       | 16         |       | 475       |       |
| **Total**    | ** ** | **1,035** | ** ** | **647**  | ** ** | **136**        | ** ** | **37**     | ** ** | **1,855** | ** ** |

 

1          Bonus expense includes the short-term incentive plan and long-termincentive plan, including compensation for wage taxes to which the Management Board is entitled as at December 31,2007.

2           ‘Pension Costs’ include pensions, social security costs and disabilityinsurance.

3    ‘Other costs’ include company cars.

 

Pension,retirement and similar arrangements for our Management Board members consist ofthe defined contribution plan, and we do not have further pension obligationsbeyond the annual premium contribution.

 

The Company’sManagement Board members held the following options for the period ended December 31,2007:

 
| Name of Holder |       | Options  held at  December 31,  2006 |       | Year of  expiration |       | Exercise  Price |       | Granted  2007 |       | Exercised  2007 |       | Forfeited  2007 |       | **Options  held at  December 31,  2007** |       |
|--------------------------|------------|------------------------------------------------|------------|--------------------------|------------|-----------------|------------|---------------|------------|-----------------|------------|-----------------|------------|----------------------------------------------------|------------|
| 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**                                        |       |
| J.  Goudsmit             |       | 85,000                                         |       | 2009                     |       | 9.40            |       | —        |       | —          |       | —          |       | **85,000**                                         |       |
|                     |       | 60,000                                         |       | 2011                     |       | 2.64            |       | —        |       | —          |       | —          |       | **60,000**                                         |       |
|                     |       | 125,000                                        |       | 2011                     |       | 5.94            |       | —        |       | —          |       | —          |       | **125,000**                                        |       |
| L.  Kruimer              |       | 85,000                                         |       | 2009                     |       | 9.40            |       | —        |       | —          |       | —          |       | **85,000**                                         |       |
|                     |       | 65,000                                         |       | 2011                     |       | 3.49            |       | —        |       | 35,000          |       | —          |       | **30,000**                                         |       |
|                     |       | 125,000                                        |       | 2011                     |       | 5.94            |       | —        |       | —          |       | —          |       | **125,000**                                        |       |
| **Totals**               | ** ** | **1,210,000**                                  | ** ** | ** **               | ** ** | ** **      | ** ** | **—**    | ** ** | **35,000**      | ** ** | **—**      | ** ** | **1,175,000**                                      | ** ** |

 

The Company’sManagement Board members held the following shares in the Company at December 31,2007:

 
| Name of holder | ** ** | **Ordinary    shares held at  December 31,   2007** |   | % of total  ordinary  shares | ** ** |
|--------------------------|------------|--------------------------------------------------------------------|--------|----------------------------------------|------------|
| R.H.P.  Brus             |       | **142,699**                                                        |   | 0.22%                                  |       |
| J.  Goudsmit             |       | **151,240**                                                        |   | 0.23%                                  |       |
| L.  Kruimer              |       | **22,084**                                                         |   | 0.03%                                  |       |
|                     |       | **316,023**                                                        |   | **0.48%**                              |       |

 

Thefollowing table describes loans granted to the members of Crucell’s ManagementBoard and senior management since January 1, 2001. Crucell has not grantedany loans to any Supervisory Board members. The Company sets these interestrates in relation to Dutch income tax law, which changes on an annual basis.Crucell granted loans to the persons listed below in connection with optionsgranted to them on Crucell’s ordinary shares. These loans become payable at thetime shares received on exercise of the related options are sold or, in casethe employee ceases to work for Crucell before this time, immediately.

 

171

 

**Financial Statements**

Notes tothe Consolidated Financial Statements

 

Crucellfunds payments due under the loans prior to July 30, 2002, the datelegislation was passed in The U.S. prohibiting the granting of additional loansto company officers.

 
|             |   | Largest                   |   | **Amount**            | ** ** | ** **   | ** ** |
|------------------|--------|---------------------------|--------|-----------------------|------------|--------------|------------|
|             |   | amount                    |   | **of loan**      | ** ** | ** **   | ** ** |
|             |   | of loan              |   | **outstanding**       | ** ** | **2007**     | ** ** |
|             |   | outstanding               |   | **at**                | ** ** | **interest** | ** ** |
|             |   | since                     |   | **December 31,** | ** ** | **rate**     | ** ** |
| Name             |   | January 1, 2001 |   | **2007**              | ** ** | **in  %**    | ** ** |
| R.H.P.  Brus     |   | 132                       |   | **87**                | ** ** | **3.5**      |       |
| J.  Goudsmit     |   | 25                        |   | **—**            | ** ** | **3.5**      |       |
| Other  personnel |   | 61                        |   | **47**                | ** ** | **3.5**      |       |
|             |   |                      |   | **134**               | ** ** | ** **   |       |

 

The Company is no party to any materialtransactions, or proposed transactions, in which any director, any executiveofficer, any spouse or relative of any of the foregoing, or any relative of anysuch spouse had or was to have a direct or indirect material interest otherthan those transactions disclosed in these financial statements.

 

**Board of Supervisory Directors**

Dueto the fact that Crucell operates on a global scale with many of its directorsused to the international arena, Crucell offers compensation to its supervisorydirectors in accordance with customary practice in the biotechnology sector.For 2005 and onwards, compensation of all Supervisory Board members consists ofa fixed fee in cash and an annual share grant. The fixed fee in cash amounts to€ 25 per Supervisory Board member. The Chairman will receive a fixed fee of € 40.The annual share grant awarded to each member of the Supervisory Board shallequal 2,500 ordinary shares. This amount will be revised on a tri-annual basis.

 

Theshares should be held for as long as an individual is a member of theSupervisory Board. Instead of the share grant, a Supervisory Board member mayalso choose to receive a cash amount equalling the value of 2,500 shares at thedate of grant minus 25%. The shares (or cash equivalent minus 25%) were awardedin 2006 for the first time. In 2005 stock options were awarded to theSupervisory Board. A net allowance of € 10 that is grossed up for taxationpurposes is awarded annually to the Chairman of the Supervisory Board.

 

During2007, 2006 and 2005, the individual members of the Supervisory Board wereentitled to receive the following remuneration (excluding share-based payments –see information below on stock options and performance stock):

 
| Year ended December 31, |       | **2007**   |       | 2006      |       | 2005      |       |
|----------------------------------------|------------|------------|------------|-----------|------------|-----------|------------|
| P. Strijkert1                          |       | **—** |       | 16.7      |       | 44.9      |       |
| J.P. Oosterveld2                       |       | **60.8**   |       | 38.7      |       | 25.0      |       |
| A.  Hoevenaars                         |       | **25.0**   |       | 25.0      |       | 25.0      |       |
| S.P.  Lance                            |       | **25.0**   |       | 25.0      |       | 25.0      |       |
| P.M.  Satow                            |       | **25.0**   |       | 25.0      |       | 25.0      |       |
| C.E.  Wilhelmsson                      |       | **25.0**   |       | 25.0      |       | 25.0      |       |
| D.S. Koechlin3                         |       | **25.0**   |       | 25.0      |       | —    |       |
| J. Witmer4                             |       | **10.4**   |       | 25.0      |       | —    |       |
| C.E. Thomann4                          |       | **10.4**   |       | 25.0      |       | —    |       |
| **Totals**                             | ** ** | **206.6**  | ** ** | **230.4** | ** ** | **169.9** | ** ** |

 

1           Mr P. Strijkert resignedfrom the Supervisory Board in June 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.

4           Mr J. Witmer and Mr C.E.Thomann were appointed member of the Supervisory Board on June 2, 2006,but have attended meetings since January 2006. Mr J. Witmer and Mr C.E.Thomann resigned from the Supervisory Board in June 2007.

 

TheCompany’s Supervisory Board members held the following options for the periodended December 31, 2007:

 
| Name of Holder |       | Options  held per  December 31,  2006 |       | Year ofexpiration |       | Exercise  Price |       | **Granted  2007** | ** ** | **Exercised****2007** | ** ** | **Forfeited****2007** |       | **Optionsheld perDecember 31,2007** |       |
|--------------------------|------------|-------------------------------------------------|------------|------------------------|------------|-----------------|------------|-------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------------------------------|------------|
| 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**                                   | ** ** |

 

172

 

**Financial Statements**

Notes tothe Consolidated Financial Statements

 

Crucell’s Supervisory Board members held thefollowing shares in the Company per December 31, 2007:

 
| Name of holder |       | **Ordinary shares****held per  December 31,  2007** |       | % of totalordinaryshares |       |
|--------------------------|------------|--------------------------------------------------------------------|------------|------------------------------------|------------|
| J.P.  Oosterveld         |       | **7,000**                                                          |       | 0.01                               |       |
| A.  Hoevenaars           |       | **5,000**                                                          |       | 0.01                               |       |
| S.P.  Lance              |       | **—**                                                         |       | —                             |       |
| P.M.  Satow              |       | **61,300**                                                         |       | 0.09                               |       |
| C.E.  Wilhelmsson        |       | **5,000**                                                          |       | 0.01                               |       |
| D.S. Koechlin            |       | **6,341**                                                          |       | 0.01                               |       |
| ** **               | ** ** | **84,641**                                                         | ** ** | **0.13**                           | ** ** |

 

Pursuantto Dutch law, each member of Crucell’s Supervisory Board and Management Boardis responsible to the Company for the proper performance of his or her assignedduties. They are also responsible for taking measures to prevent theconsequences of any improper performance of duties by another member of Crucell’sSupervisory Board or Crucell’s Management Board. The Company’s Articles of Associationprovide that Crucell’s Management Board members and Crucell’s Supervisory Boardmembers are discharged from liability for their actions as board members, ifCrucell’s general meeting of shareholders adopts a resolution to that effect.

 

Thisdischarge extends only to actions or omissions disclosed in or apparent fromthe adopted annual accounts or otherwise communicated to the Company’s generalmeeting of shareholders.

 

Mandatoryprovisions of Dutch law may limit this discharge of liability, for example inthe case of bankruptcy. Under Dutch law, the Company’s Supervisory Boardmembers and members of the Company’s Management Board generally cannot be heldpersonally liable for decisions made exercising their reasonable businessjudgment.

 

TheCompany’s articles of association provide that the Company shall generallyindemnify any person who is or was a member of the Company’s Supervisory Boardor of the Company’s Management Board or one of the Company’s employees,officers or agents, and suffers any loss as a result of any action inconnection with their service to the Company, provided they acted in good faithin carrying out their duties.

 

Thisindemnification generally will not be available if the person seekingindemnification acted with gross negligence or wilful misconduct in theperformance of his or her duties to the Company. A court in which an action isbrought, may however determine that indemnification is appropriate nonetheless.

 

173

 

**Financial Statements**

CompanyFinancial Statements

 

**Company FinancialStatements**

 

**6 Balancesheet (After appropriation of result)**

 

(Amounts inthousands of Euro, except per share data)

 
|                                          |       | Notes      |       | 2007         |       | 2006        |       |
|-----------------------------------------------|------------|------------|------------|--------------|------------|-------------|------------|
| **Assets**                                    |       |       |       |         |       |        |       |
| Non-current  assets                           |       |       |       |         |       |        |       |
| Investments  in subsidiaries                  |       | 9.1        |       | **303,494**  |       | 318,393     |       |
| Other  long-term receivables                  |       | 9.2        |       | **87,680**   |       | 141,089     |       |
| ** **                                    | ** ** | ** ** | ** ** | **391,174**  | ** ** | **459,482** | ** ** |
|                                          |       |       |       | ** **   |       |        |       |
| Current  assets                               |       |       |       | ** **   |       |        |       |
| Short-term  receivables                       |       |       |       | **2,175**    |       | 1,218       |       |
| Cash and  cash equivalents                    |       |       |       | **54,997**   |       | 38,094      |       |
|                                          |       |       |       | **57,172**   |       | **39,312**  |       |
|                                          |       |       |       | ** **   |       |        |       |
| **Total assets**                              | ** ** | ** ** | ** ** | **448,346**  | ** ** | **498,794** | ** ** |
|                                          |       |       |       | ** **   |       |        |       |
| **Liabilities and shareholders’ equity** |       |       |       | ** **   |       |        |       |
| Shareholders’  equity                    |       |       |       | ** **   |       |        |       |
| Issued  capital                               |       |       |       | **15,685**   |       | 15,553      |       |
| Share  premium                                |       |       |       | **735,578**  |       | 726,869     |       |
| Translation  reserve (legal reserve)          |       |       |       | **(28,542**  | **)**      | (7,920      | )          |
| Available-for-sale  reserve                   |       |       |       | **8,340**    |       | 10,670      |       |
| Accumulated  deficit                          |       |       |       | **(293,819** | **)**      | (247,872    | )          |
| ** **                                    | ** ** | 9.3        | ** ** | **437,242**  | ** ** | **497,300** | ** ** |
|                                          |       |       |       | ** **   |       |        |       |
| Non-current  liabilities                      |       |       |       | ** **   |       |        |       |
| Provision  for financial fixed assets         |       | 9.4        |       | **—**   |       | 1,341       |       |
| Liabilities  to related parties               |       |       |       | **142**      |       | 132         |       |
|                                          |       |       |       | **142**      |       | **1,473**   |       |
|                                          |       |       |       | ** **   |       |        |       |
| Current  liabilities                          |       |       |       | ** **   |       |        |       |
| Accrued  compensation and related benefits    |       |       |       | **927**      |       | 21          |       |
| Liability  to related parties                 |       |       |       | **10,035**   |       | —      |       |
|                                          |       |       |       | **10,962**   |       | **21**      |       |
|                                          |       |       |       | ** **   |       |        |       |
| **Total equity and liabilities**              | ** ** | ** ** | ** ** | **448,346**  | ** ** | **498,794** | ** ** |

 

**7 Income statement (After appropriation of result)**

 

In thousands of Euro

 
| For the year ended  December 31, |       | **2007**    | ** ** | 2006        |   | 2005        |   |
|---------------------------------------|------------|-------------|------------|-------------|--------|-------------|--------|
| Result  from subsidiaries             |       | **(49,981** | **)**      | (89,965     | )      | (21,787     | )      |
| Other  income                         |       | **4,034**   | ** ** | 2,652       |   | 6,209       |   |
| **Net loss for the year**             | ** ** | **(45,947** | **)**      | **(87,313** | **)**  | **(15,578** | **)**  |

 

174

 

**Financial Statements**

Notes tothe Company Financial Statements

 

**Notes to the Company FinancialStatements**

 

**8 General**

 

Thedescription of the Group’s activities and the Group structure as included inthe notes to the consolidatedfinancial statements also apply to the Company financial statements (see note1.1).

 

Inaccordance with article 2:362 section 8 of Book2 Title 9 of the Dutch Civil Code, the accounting policies used in thepreparation of the Company financial statements are the same as those used in the preparation of the consolidatedfinancial statements. Investments in subsidiaries are stated at net asset valueas the Company effectively exercises influence of significance over theoperational and financial activities of these investments. The net asset valueis determined on the basis of the IFRS accounting principles applied by theCompany in its consolidated financial statements.

 

Inaccordance with article 402, Book 2 Title 9 of the Dutch Civil Code, theCompany income statement is presented in abbreviated form.

 

**9 Notes to the Companyfinancial statements**

** **

**9.1 Investments in subsidiaries**

 

Investments in subsidiary companies are stated at netasset value as the Company effectively exercises influence of significanceover the operational and financial activities of theseinvestments.

 
| In thousands of Euro                |       | Total       |       |
|----------------------------------------------------|------------|-------------|------------|
| **Book value as of January 1, 2007**          | ** ** | **318,393** | ** ** |
| Share in  result of subsidiaries                   |       | (49,981     | )          |
| Net  unrealized gain on available-for-sale reserve |       | (2,330      | )          |
| Effect of  movements in exchange rates             |       | (20,622     | )          |
| Dividends  received from Berna Biotech AG          |       | (80,907     | )          |
| Acquisition  shares Berna Rhein BV                 |       | 80,907      |       |
| Provisions  reversed during the year               |       | (1,341      | )          |
| Offset of  receivables                             |       | 59,375      |       |
| **Net book value at December 31, 2007**       |       | **303,494** |       |

 

January 1, 2007 Crucell owned 7.3% of the shares of Berna RheinB.V., the remaining 92.7% of the shares wereowned by Crucell’s subsidiary Berna Biotech. On November 3, 2007 Crucell acquired the remaining 92.7%shares for € 80,907. Berna Biotech subsequentlypaid a dividend of € 80,907 to Crucell.

 

**9.2 Other long-term receivables**

 
| In thousands of Euro        |   | 2007       |   | 2006        |   |
|--------------------------------------------|--------|------------|--------|-------------|--------|
| Long-term  receivables  on related parties |   | **73,285** |   | 126,694     |   |
| Other  long-term receivables               |   | **14,395** |   | 14,395      |   |
|                                       |   | **87,680** |   | **141,089** |   |

 

**9.3 Shareholders’ equity**

 

Referenceis made to the Consolidated Statement of Changes in Equity and to note 5.16 ‘Issuedcapital and reserves’ of the notes to the consolidated financial statements asof, and for the year ended December 31, 2007.

 

**9.4 Provision for financial fixed assets**

 

Theprovision for financial fixed assets in 2006 represents the negative net assetvalue of the Company’s 100% subsidiary Berna Rhein B.V.

 

**9.5 Taxes**

 

TheCompany constitutes a fiscal unity with the Dutch wholly owned subsidiariesCrucell Holland B.V., U-BiSys B.V. and ChromaGenics B.V. and is for that reasonjointly and severally liable for the tax liabilities of the whole fiscal unity.As of financial year 2008, Berna Rhein B.V. will be included in the fiscalunity.

 

**9.6 Employee information**

 

TheCompany had no employees in 2007 and 2006. 

 

**9.7 Joint and several liability**

 

Inaccordance with Section 403 of Book 2 Title 9 or the Netherlands CivilCode, the Company has assumed joint and several liability for all legaltransactions carried out by the following Group Companies:

 

·                  Crucell Holland B.V., Leiden

·                  U-BiSys B.V., Utrecht

·                  ChromaGenics B.V., Amsterdam

 

175

 

**Financial Statements**

Notes tothe Company Financial Statements

 

**Signing of the financial statements**

 

The financial statements were approved by theManagement Board and Supervisory Board and authorizedfor issue on April 29, 2008.

 

**Management Board**

R.H.P Brus

L. Kruimer

J. Goudsmit

 

**Supervisory Board**

J.P. Oosterveld

A. Hoevenaars

S.P. Lance

P.M. Satow

C.E. Wilhelmsson

D.S. Koechlin

 

176

 

**OtherInformation**

** **

**Other Information**

 

**Result treatment**

 

Annualdividends may only be paid out of profits as shown in the adopted annualfinancial statements. We may not make distributions if the distribution wouldreduce our shareholders’ equity below certain reserves required by Dutch law orour articles of association. The profits must first be used to set up andmaintain reserves required by Dutch law and must then be set off againstcertain financial losses. The preference shares will be paid their dividends,which will be a certain percentage of their nominal value, first. WithSupervisory Board approval, our Management Board then decides whether and howmuch of the remaining profit they will reserve. Any profits remaining shall bepaid as a dividend on the ordinary shares. If the retained earnings arenegative or are to be used to form a statutory reserve no dividend will be paidout. The loss for the year 2007 has been separately presented in shareholders’equity, as net result for the year. The loss for the year 2006 was charged tothe accumulated deficit.

 

**Preference shares**

 

OnOctober 25, 2000, the Company established a foundation called StichtingPreferente Aandelen Crucell, also referred to as the Preferred Foundation. ThePreferred Foundation’s object is to safeguard the interests of Crucell, itsbusiness and parties connected therewith by blocking any influences that maythreaten these interests, which interests may include the continuity,independence or identity of Crucell, its business and parties connectedtherewith. The Preferred Foundation can safeguard the interests throughacquiring and managing the preference shares and by exercising the rightsattaching to these shares, in particular, the voting rights.

 

ThePreferred Foundation has an option to acquire preference shares up to 100% ofthe number of our outstanding shares, necessary to match the total number ofstatutory votes on all of the ordinary shares outstanding at the time of anacquisition. The Preferred Foundation must pay at least 25% of the nominalvalue of the preference shares it acquires from us. If we acquire anypreference shares, they may be cancelled.

 

Aboard of governors of up to five persons directs the Preferred Foundation. MrJ.P. Oosterveld, in his capacity as chairman of our Supervisory Board, and MrP. Bouw, Mr M.W. den Boogert, Mr S. van Wijnbergen and Mr G.P. Krans, have beenappointed to the board of governors. A majority of these members may not bemembers 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.

 

177

 

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178

 

**Information forshareholders and investors**

 

**Information forshareholders and investors**

 

**Investor relations approach**

 

Crucellmaintains an active and transparent approach to relations with shareholders andinvestors whom we inform 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. In the past year we havestrengthened 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 a serious ambition to widen our investor base as well as todeepen existing investors’ understanding of Crucell.

 

Activities in 2007 for shareholders and investors included:

 
| · | A  full presentation of quarterly results to financial journalists and analysts  at each quarter, consisting of an online slide show and audio commentary,  question and answer session and archiving for subsequent retrieval; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Various additional telephone conference calls with management for analysts and investors;                                                                                                                                       |
| · | Several roadshow meetings  with shareholders and sell-side analysts who cover the company;                                                                                                                                      |
| · | Timely updates in the  Investor Relations section of the website  www.crucell.com, which is not incorporated by reference herein;                                                                                               |
| · | Periodic website updates of  morecomprehensive financial company data, including filings  with the U.S. Securities and Exchange Commission;                                                                                     |
| · | Online publication of  relevant scientific company presentations.                                                                                                                                                               |

 

 

**Crucell shares**

 

Crucell’s ordinary shares are listed on:

 
| · | NYSE Euronext Amsterdam N.V. (symbol: CRXL) since 2000;                                                       |
|--------|---------------------------------------------------------------------------------------------------------------|
| · | Nasdaq in the U.S. (symbol:  CRXL) in the form of ADS’s since 2000;                                      |
| · | SWX Swiss Exchange in Zurich since 2005;                                                                      |
| · | The Company’s primary listing is Amsterdam, where trading turnover reached EUR 2.28 billion in 2007;     |
| · | Crucell’s shares are included in the AMX mid-cap index (since 2005); – this one is mentioned below. |

 

 

**Share data**

 
|                                                                    |   | **2007**   |       | 2006   |   |
|-------------------------------------------------------------------------|--------|------------|------------|--------|--------|
| Earnings per share                                                      |   | **(0.71**  | **)**      | (1.53  | )      |
| Shares outstanding (million) at  year-end                               |   | **65.3**   | ** ** | 64.8   |   |
| Dividend                                                                |   | **—** | ** ** | — |   |
| Highest price                                                           |   | **22.45**  | ** ** | 24.11  |   |
| Lowest price                                                            |   | **10.26**  | ** ** | 13.52  |   |
| Price at December 31,                                              |   | **11.40**  | ** ** | 19.40  |   |
| Average daily trading volume on NYSE Euronext Amsterdam (in 000 shares) |   | **470**    | ** ** | 550    |   |

 

**Shareholders with holdings of Crucell shares exceeding 5%**

Percentage of beneficial ownership is based on an aggregateof 65,499,442 ordinary shares outstanding at April 25, 2008except as otherwise noted:

 
|                                                  |   | Ordinary Shares                      |   |
|-------------------------------------------------------|--------|--------------------------------------|--------|
|                                                  |   | Beneficially Owned1                  |   |
| Beneficial Owner                                 |   | Number of  Ordinary Shares |   | Holding  (%) |   |
| A. van Herk B.V.                                      |   | 7,123,264                            |   | 11.02 |   |
| Aviva plc                                             |   | 3,514,130                            |   | 5.93 |   |
| Ordinary shares held by our  Management Board members |   | 341,672                              |   | 0.52 |   |
| Ordinary shares held by our Supervisory Board members |   | 95,891                               |   | 0.15 |   |

 

1  Under Rule 13d3 of the Exchange Act, more than one person may bedeemed to beneficially own certain ordinary shares (if, for example, persons share the power to vote or the power to dispose of the ordinary shares). In addition, a person is deemed to beneficiallyown ordinary shares 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 whichthe information is provided. As aresult, the percentage of outstanding ordinary shares of any person asshown in this table does not necessarily reflectthe person’s actual ownership or voting power with respect to the number of ordinary shares actuallyoutstanding. In addition, filings with the Netherlands Authority for theFinancial Markets (Autoriteit Financiële Markten or AFM) with respect to shareholdingsin public companies do not specify the number of shares held by the filing party.

2   Percentage holding is derived from afiling made by A. van Herk B.V. with the Netherlands AFM

3   Percentage holding is derived from a filing made by Aviva plc. with the Netherlands AFM

 

Global Opportunities (GO)Capital Asset Management B.V. have notified the AFM that they hold less than 5%(August 10, 2007 3.69%).

 

179

** **

**Information for Shareholders andInvestors**

 

As of April 25, 2008 there were 11,388,626ADSs, each representing one ordinary share, all of which were held of record by nine registeredholders in the U.S.(including The Depository Trust Company). The number of ADSs at April 25, 2008 represent17.4% of our ordinary shares that were issued and outstanding on that date.

 

To the best of our knowledge, we are not directly or indirectly controlled by any othercorporation, foreigngovernment or other entity.

 

**Share information**

Crucell shares are included in the NYSE Euronext Amsterdam Dutch mid-cap index (AMX), and in the Nasdaq Composite Index. They are also included in the FTSE Nasdaq Small Cap index since 2005 and in the NYSE Euronext NEXT Biotech Index as of April 2008.

 
| ** **                                                    | ** ** | **2007**    | ** ** | 2006    | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|---------|------------|
| Market  Capitalisation at December 31, (€  million) |       | **744.4**   |       | 1,257.1 |       |
| Market  Capitalisation at December 31, ($ million)  |       | **1,080.1** |       | 1,651.1 |       |
| Closing  share price at December 31, (€)            |       | **11.40**   |       | 19.40   |       |
| Closing  share price at December 31, ($)                 |       | **16.54**   |       | 25.48   |       |
| Shares outstanding at December 31, (million)             |       | **65.3**    |       | 64.8    |       |

 

**Shareholder information**

 

On December 31, 2007 institutional investorshold 42% of theoutstanding shares in Crucell, private investors hold 57% of shares and insider holdings are approximately 1%.

 

Geographical spread of shareholders in approximate percentages on December 31, 2007,compared to the previous year.

 
| ** **       | ** ** | **2007** | ** ** | 2006 | ** ** |
|------------------|------------|----------|------------|------|------------|
| The  Netherlands |       | **66**   | **%**      | 61%  |       |
| USA              |       | **22**   | **%**      | 26%  |       |
| Germany          |       | **8**    | **%**      | 9%   |       |
| United  Kingdom  |       | **1**    | **%**      | 1%   |       |
| Scandinavia      |       | **1**    | **%**      | 1%   |       |
| Other            |       | **2**    | **%**      | 2%   |       |
| Total            |       | **100**  | **%**      | 100% |       |

 

**Outlook for 2008**

 

In constant currencies; weighted average €/$ rate of 1.38 in 2007:

 
| Total  revenue & other operating income |   | 20% growth |
|--------------------------------------------------|--------|------------|
| Margins                                          |   | Higher     |
| Cashflow                                         |   | Positive   |

 

**General information**

 

**Auditors**

Deloitte Accountants B.V.

 

**Legal Counsel**

Allen & Overy LLP

Cleary Gottlieb Steen & Hamilton LLP

 

**Tax Advisors**

Ernst & Young Accountants

 

**ADS Depository**

Bank of New York

 

**Investor Relations**

Oya Yavuz, Director of Investor Relations

Frauke Groenevelt, Coordinator Investor Relations

Tel: +31 71 5197064

Email: ir@crucell.com

 

**Exchange Controls**

There are currently no Dutch laws, decrees or regulations that restrict the export orimport of capital,including, but not limited to, foreign exchange controls, or that affect the remittance of dividends or other payments to non-Dutchresidents or to U.S. holders ofour securities except as otherwise set forth in ‘Taxation’ in this section.

 

180

 

**Information for Shareholders andInvestors**

 

**Exchangerate information**

The following table sets forth, for the yearsindicated, the high, low, average and year-end noon buying rates in New York City for cabletransfers as certified for customs purposes by the Federal Reserve Bank of New York (‘Noon Buying Rates’)expressed in Euro per USD 1.00.

 

In Euro

 
| Year ended December 31, |       | High     |       | Low      |       | Average1 |       | End of period |       |
|----------------------------------------|------------|----------|------------|----------|------------|----------|------------|-------------------------|------------|
| 2003                                   |       | 0.97     |       | 0.80     |       | 0.89     |       | 0.80                    |       |
| 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**                | ** ** |

1 The average of the Noon Buying Rates on the last business day of eachmonth during the period indicated.

 

The following table sets forth, for the previoussix months, the high and low Noon Buying Rates expressed in Euro per USD 1.00.

 

In Euro

 
| ** **                                   | ** ** | High  € |   | Low  € | ** ** |
|----------------------------------------------|------------|--------------|--------|-------------|------------|
| November 2007                           |       | 0.69         |   | 0.67        |       |
| December 2007                           |       | 0.70         |   | 0.68        |       |
| January 2008                            |       | 0.69         |   | 0.67        |       |
| February 2008                           |       | 0.69         |   | 0.66        |       |
| March 2008                              |       | 0.66         |   | 0.63        |       |
| April 2008  (Until April 25, 2008) |       | 0.64         |   | 0.62        |       |

 

On April 25, 2008 the Noon Buying Rate was $ 1.00 = € 0.64. These rates may differfrom the actual ratesused in the preparation of our financial statements and other financial information appearing in this annual report.

 

**Taxation**

The following is a summary of the material Dutch and U.S. tax consequences of aninvestment in ordinary shares or ADSs. This summary does not discuss everyaspect of taxation that may be relevant toa particular investor who is subject to specialtreatment under any applicable law, and is not intended to be applicable in all respects to all categories of investors. This summary also assumesthat our business will be conducted in the manner outlined in thisdocument. Changes in our organizational structure or the manner in which we conduct our business may invalidate this summary. The laws upon which this summary is based are subjectto change, perhaps with retroactive effect. A changeto these laws may invalidate the contents of this summary, which willnot be updated to reflect changes in the laws. Prospective investors should consult their professional tax advisors regarding theirparticular personal tax consequences of acquiring, owning and disposing of ourordinary shares or ADSs.

 

**Certain Dutch tax consequences for holders ofordinary shares or ADSs**

This summary describes the principal tax consequences that will generally apply in the case of aninvestment in the ordinary shares or ADSs underDutch tax laws in force and in effect as of the date hereof, and is subject to changes in Dutch law, includingchanges that could have retroactive effect. Not every potential tax consequence of such investment under the laws of the Netherlands will be addressed.

 

**Dutchtaxation of resident shareholders**

 

The summary of certain Dutch taxes set out in this section ‘Dutch Taxation of Resident Shareholders’is only intended for the followinginvestors:

 

·             Individuals who are resident or deemedto be resident or who have opted to be resident in the Netherlands for purposes of Dutchtaxation and who invest inthe ordinary shares or ADSs, excludingindividuals who invest in the ordinary sharesor ADSs that form part of a substantial interest (as described below) or deemed substantial interest in us and excluding individuals who are our employees or who 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) thatare resident or deemed tobe resident in the Netherlands for purposes of Dutch taxation and who invest in the ordinary shares or ADSs, excluding:

 

181

 

*Information for Shareholders and Investors*

 

·                  Corporate entities that are notsubject to Dutch corporateincome tax;

·                  Pension funds (pensioenfondsen) andother entities thatare wholly or partly exempt from Dutch corporate income tax;

·                  Corporate entities that hold ordinary shares or ADSs that qualify for application of the participation exemption (as laid down in the DutchCorporate Income Tax Act 1969); and

·                  Investment institutions(beleggingsinstellingen) and tax exempt investment institutions (vrijgestelde beleggingsinstellingen) as defined inthe Dutch Corporate Income Tax Act 1969; (the ‘Dutch Corporate Entities’).

 

Generally, a holder of ordinary shares or ADSs willnot have a substantial interest ifhe, his spouse, certainother relatives (including foster children) or certain persons sharing his household, do not hold,alone or together, whether directly or indirectly, theownership of, or certain other rights over,ordinary shares representing 5% or more of our total issued and outstandingcapital (or the issued andoutstanding capital of any class of shares), orrights to acquire ordinary shares, whether or not already issued, thatrepresent at any time 5% or more of our totalissued and outstanding capital (or the issued and outstanding capital of any class of shares) or the ownership of certain profit participatingcertificatesthat relate to 5% or more of our annual profit and/or to 5% or more of our liquidation proceeds.

 

*Individual and corporate income tax*

Dutch Individuals not engaged or deemed to be engaged in an enterpriseand Dutch individuals for whom the benefits derived from the ordinary shares or ADSs are not treated as ‘result from other activities’.

 

The taxable benefit from a Dutch Individual’s ‘savings and investments’ (sparen enbeleggen) 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 the average exceeds the ‘exempt net asset amount’(heffingvrij vermogen). Suchtaxable benefit is reduced by such portion of the personal allowance as has not been taken into account inrespect of certain other types of income. This benefit is taxed at the rate of 30%. For Dutch Individuals who invest in theordinaryshares or ADSs, the ordinary shares orADSs will form part ofthe yield basis. The ordinary shares or ADSs will be taken into account in the yield basis at their fair market value. The actualbenefits from the ordinary shares or ADSs donot influence the taxable benefit, even ifthey exceed, or are lower than, 4% of theyield basis.

 

Dutch Individuals engaged or deemed to be engaged in an enterprise, Dutch Individuals forwhom the benefits derived from the ordinary shares or ADSs are treated as result from otheractivities, and DutchCorporate Entities.

 

Any benefits derived or deemed to be derived from the ordinary shares or ADSs (includingany capital gains realizedon the disposal thereof) that are attributable to an enterprise carried on inthe Netherlands bya Dutch Individual or to an enterprise effectively managed in the Netherlands in which he has an interest, aregenerally subject to income tax charged at progressive rates in hishands. The same applies to a Dutch Individual for whom the benefitsderived from the ordinary shares or ADSs are treated as result from other activities. Any benefits derived or deemed to bederived from the ordinaryshares or ADSs (including any capital gains realized on the disposal thereof) that are held by a Dutch Corporate Entity aregenerally subject to corporate income tax in its hands.

 

*Withholding tax*

Dividends we distribute are generally subject to awithholding tax imposed by theNetherlands at a rate of 15%. The concept ‘dividendswe distribute’ used in this section includes,but is not limited to:

 

·                  Distributions in cash or in kind, deemedand constructivedistributions and repayments of paid-in capital not recognized for Dutch dividend withholding tax purposes;

·                  Liquidation proceeds, proceeds ofredemption of the ordinary shares or ADSsor, as a rule, consideration for the repurchase of the ordinary shares or ADSs by us in excess of the average paid-in capital recognized for Dutch dividend withholding tax purposes;

·                  The par value of the ordinary shares orADSs issued to aholder of the ordinary shares or ADSs or an increase of the par value of the ordinary shares or ADSs, as the case may be, to the extent that it does not appear that a contribution,recognized for Dutch dividend withholding tax purposes, has been made or will be made; and

·                  Partial repayment of paid-in capital, recognized forDutch dividend withholding tax purposes, if and to the extent that there are net profits (zuivere winst), unless:

 

182

 

**Information for Shareholders andInvestors**

 

·             The general meeting of our shareholdershas resolved inadvance to make such repayment; and

·             The par value of the ordinary sharesor ADSs concerned hasbeen reduced by an equal amount by way of an amendment of the articles of association.

 

Dutch Individuals and Dutch Corporate Entities generally can credit the dividendwithholding tax against their income tax or corporate income tax liability and will be entitled to arefund of dividend withholding tax insofar as such tax, together with any other creditable domestic and/orforeign taxes, exceedstheir aggregate income tax or corporate income tax liability. A condition to avoid ‘dividend stripping’ is that the recipient ofproceeds from the ordinaryshares or ADSs qualifies as the beneficial owner thereof. A recipient of proceeds from the ordinary shares or ADSs is notconsidered to be the beneficial owner thereof if the amount of dividend, following a set of transactions, isultimately wholly orpartly received by another person, if this other person also retains, directly or indirectly, aninterest in the ordinaryshares or ADSs and the recipient is entitled to a (partial) refund or exemption to which the other person isnot entitled to.

 

**Gift and inheritance taxes**

A gift tax liability will arise in the Netherlands with respect to an acquisition of theordinary shares or ADSs by way of a gift made by a Dutch individual or a Dutchcorporate entity. An inheritance tax liability will arise in the Netherlandswith respect to an acquisition or deemed acquisition of the ordinary shares or ADSs on the death of a Dutchindividual.

 

For purposes of Dutch gift and inheritance taxes, an individual who holds Dutchnationality will be deemed to be resident in the Netherlands if he has been resident in theNetherlands at any time during the ten years preceding the date of the gift or his death. For purposes of the Dutch gifttax, an individual not holding Dutch nationality will be deemed to be resident in theNetherlands if he has been resident in the Netherlands at any time during the12 months preceding the date of the gift.

 

**Dutchtaxation of Non-Resident Shareholders**

** **

This section ‘Dutch taxation of Non-ResidentShareholders’ describes certain Dutch tax consequences for a holder of the ordinary shares or ADSs who is neither resident, nor deemedto be resident, andwho has not opted to be treated as a resident in the Netherlands for purposes of Dutch taxation (a ‘Non-Resident Shareholder’).

 

*Withholding tax*

Dividends we distribute are generally subject to a withholding tax imposed by theNetherlands at a rateof 15%. Reference is made to the section ‘Dutch Taxation of Resident Shareholders – Withholding Tax’ for a description of the concept ‘dividends we distribute’.

 

If a double tax convention is in effect between the Netherlands and the country ofresidence of aNon-Resident Shareholder, such Non-Resident Shareholder may, depending on the terms of thatdouble taxation convention, be eligible for a full or partial exemption from, or refund of,Dutch dividend withholdingtax. See ‘ Taxation of Dividends’ for a discussion of the partial exemption available under the convention with the U.S.

 

A further condition to avoid ‘dividend stripping’ isthat the Non-Resident Shareholderqualifies as the beneficialowner of the dividend. A Non-Resident Shareholder is not considered to be thebeneficial owner of thedividend, if the amount of this dividend, following a set of transactions, is ultimatelywholly or partlyreceived by another person and this other person also maintains, directly or indirectly, an interest in the ordinary shares or ADSsand the recipient isentitled to a (partial) refund or exemption to which the other person is not entitled to.

 

*Taxes on income and capitalgains*

A Non-Resident Shareholder will not be subject to any Dutch taxes on income or capitalgains in respect ofdividends we distribute (other than the withholding tax described above) or in respect of any gain realized onthe disposal of the ordinary shares or ADSs, provided that:

 

·                  Such Non-Resident Shareholder does nothave an enterpriseor an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment or a permanent representative in the Netherlands and to which enterprise or part of an enterprise, as the case may be, the ordinary shares or ADSs are attributable;

·                  Such Non-Resident Shareholder does nothave a substantialinterest or a deemed substantial interest inus (if a double tax conventiondoes not refrain the Netherlands from taxation of income or capital gains from the substantial interest);

 

183

 

*Information for Shareholders and Investors*

 

Further, ifsuch Non-Resident Shareholder is an individual:

 

·                  The benefits derived from the ordinary shares or ADSs are not taxable inthe hands of such holder as a benefit from other activities in the Netherlands;

·                  Such Non-Resident Shareholder is not entitled to a share in the profitsof an enterprise effectively managed in the Netherlands, other than by way ofthe holding of securities or through an employment contract, to whichenterprise the ordinary shares or ADSs or payments in respect of the ordinaryshares or ADSs are attributable; and

·                  Such Non-Resident Shareholder does not carry out and has not carried outemployment activities in the Netherlands with which the holding of or incomederived from the ordinary shares or ADSs is connected.

 

Referenceis made to the section ‘Dutch Taxation of Resident Shareholders’ for adescription of the concept ‘substantial interest’.

 

*Gift and inheritance taxes*

Noliability for gift or inheritance taxes will arise in the Netherlands withrespect to an acquisition of the ordinary shares or ADSs by way of a gift madeby, or on the death of, a Non-Resident Shareholder, unless:

 

·                  Such Non-Resident Shareholder at the time of the gift has or at the timeof his death had an enterprise or an interest in an enterprise that is or was,in whole or in part, carried on through a permanent establishment or apermanent representative in the Netherlands and to which enterprise or part ofan enterprise, as the case may be, the ordinary shares or ADSs are or wereattributable; or

·                  In the case of a gift of the ordinary shares or ADSs by an individualwho at the time of the gift was a Non-Resident Shareholder, such individualdies within 180 days after the date of the gift, while (at the time of hisdeath) being resident or deemed to be resident in the Netherlands.

 

Forpurposes of Dutch gift and inheritance tax, an individual who holds Dutchnationality will be deemed to be resident in the Netherlands if he has beenresident in the Netherlands at any time during the ten years preceding the dateof the gift or his death. For purposes of the Dutch gift tax, an individual notholding Dutch nationality will be deemed to be resident in the Netherlands ifhe has been resident in the Netherlands at any time during the 12 monthspreceding the date of the gift.

 

*Other taxes and duties*

No Dutchregistration tax, transfer tax, stamp duty or any other similar documentary taxor duty will be payable in the Netherlands in respect of or in connection with thesubscription, issue, placement, allotment or delivery of the ordinary shares orADSs.

 

**Taxation of U.S. investors**

 

Thefollowing is a summary of the material U.S. federal income tax considerationsregarding the purchase, ownership and disposition of ordinary shares or ADSs toan eligible U.S. holder. You are an eligible U.S. holder if you are a residentof the U.S. for purposes of the tax treaty between the Netherlands and the U.S.(the ‘tax treaty’) and are fully eligible for benefits under the tax treaty.You generally will be entitled to the benefits of the tax treaty if you are:

 

·                  The beneficial owner of ordinary shares or ADSs (and of the dividendspaid with respect to such ordinary shares or ADSs);

·                  An individual resident of the U.S., a U.S. corporation, or apartnership, estate or trust to the extent your income is subject to taxationin the U.S. as the income of a resident, in your hands or in the hands of yourpartners or beneficiaries;

·                  Not resident in the Netherlands for Dutch tax purposes; and

·                  Not subject to an anti-treaty shopping rule.

 

Yougenerally will not be eligible for the benefits of the tax treaty, andtherefore will not be an eligible U.S. holder, if you hold ordinary shares orADSs in connection with the conduct of business through a permanentestablishment, or the performance of services through a fixed base in theNetherlands, or you are not resident in the U.S. for U.S. tax purposes.

 

The summarydoes not purport to be a comprehensive description of all of the taxconsiderations that may be relevant to your decision to purchase ordinaryshares or ADSs. In particular, the summary does not address considerations thatmay be applicable to you if you will not hold ordinary shares or ADSs ascapital assets, or if you are a taxpayer subject to special tax rules, such asa bank, tax-exempt entity, insurance company,

 

184

 

**Information for shareholders and investors**

 

a regulatedinvestment company, a pension fund, a real estate investment trust, a dealer insecurities or currencies, a person that holds ordinary shares or ADSs as partof an integrated investment (including a ‘straddle’) comprised of ordinaryshares or ADSs and one or more other positions, and a person who owns or isdeemed to own 10% or more of any class of our stock. The summary is based onlaws, treaties and regulatory interpretations in effect on the date of thisdocument, all of which are subject to change. You should consult your ownadvisers regarding the tax consequences of an investment in the ordinary sharesor ADSs in light of your particular circumstances, including the U.S. taxconsiderations discussed below and the effect of any state, local or othernational laws.

 

Based onour audited financial statements and relevant market data, we believe that wewere not treated as a ‘passive foreign investment company’ or ‘PFIC’ for U.S.federal income tax purposes with respect to the year 2007. In addition, basedon our current expectations regarding the value and nature of our assets, thesources and nature of our income, and relevant market data, we do notanticipate becoming a PFIC in the year 2008 or thereafter. We believe, however,that we were or may have been a PFIC for U.S. federal income tax purposes withrespect to the years before 2005. In order to avoid being subject tounfavourable U.S. federal income tax rules applicable to PFICs (the ‘PFICrules’) with respect to our ordinary shares or ADSs in the future, U.S. holdersthat held our ordinary shares or ADSs at any time before 2005 may wish to makea deemed sale election with respect to their ordinary shares or ADSs. See ‘PassiveForeign Investment Company Rules’.

 

For U.S.federal income tax purposes and for purposes of the tax treaty between theNetherlands and the U.S., beneficial owners of ADSs will be treated as theowners of the underlying ordinary shares represented by those ADSs.

 

**Taxation of dividends**

 

Subject tothe discussion below under ‘Passive Foreign Investment Company Rules’, thegross amount of dividends distributed by us (including amounts withheld inrespect of Dutch withholding tax) generally will be subject to U.S. federalincome taxation as foreign source dividend income, and will not be eligible forthe dividends received deduction. Subject to certain exceptions for positionsthat are hedged or held for less than 60 days, an individual U.S. holdergenerally will be subject to U.S. taxation at a maximum rate of 15% in respectof dividends received after 2002 and before 2011, unless we were in the yearprior to the year in which the dividend was paid, and are, in the year in whichthe dividend is paid, a PFIC. As described above, we believe that we were not aPFIC for U.S. tax purposes with respect to the year 2007, and also do notanticipate becoming a PFIC with respect to the year 2008. Dividends paid inEuro will be included in income in a U.S. dollar amount calculated by referenceto the exchange rate in effect on the date of receipt by you (or by thedepositary in the case of ADSs). If such dividends are converted into U.S.dollar on the date of receipt, you generally should not be required torecognize foreign currency gain or loss in respect of the dividend income. Ifyou receive a refund of Dutch withholding tax under the tax treaty between theNetherlands and the U.S., you may be required to recognize foreign currencygain or loss to the extent the amount of the tax treaty refund (in dollars)received by you differs from the U.S. dollar equivalent of the refund amount onthe date the dividends were received.

 

You mayclaim the benefit of the reduced withholding rate of 15 percent that isavailable under the tax treaty between the Netherlands and the U.S. bysubmitting a duly completed Form IB 92 (USA) that has been certified by afinancial institution (typically the entity that holds the ordinary shares orADSs as custodian for the holder). If we receive the required documentationprior to the relevant dividend payment date, we may apply the reducedwithholding rate at source. If you fail to satisfy these requirements prior tothe payment of a dividend, you may claim a refund of the excess of the amountwithheld over the tax treaty rate by filing Form IB 92 (USA) together witha supplemental statement with the Dutch tax authorities. Pension funds andtax-exempt organizations qualifying for a complete exemption from tax are notentitled to claim tax treaty benefits at source, and instead must file claimsfor refund by filing Form IB 95 (USA).

 

Subject toapplicable limitations 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 U.S. 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

 

185

 

**Information for Shareholders andInvestors**

 

expectedeconomic profit, after non-U.S. taxes, is insubstantial. You should consultyour own advisers concerning the implications of these rules in light ofyour particular circumstances.

 

**Taxation of capital gains**

 

Subject tothe discussion below under ‘Passive Foreign Investment Company Rules’, gain orloss realized by you on the sale or other disposition of ordinary shares orADSs will be capital gain or loss in an amount equal to the difference betweenyour basis in the ordinary shares or ADSs and the amount realized on thedisposition (or its dollar equivalent, determined at the spot rate on the dateof disposition, if the amount realized is denominated in a foreign currency).The gain or loss will be long-term gain or loss if the ordinary shares or ADSswere held for more than one year. The net amount of long-term capital gainrecognized by an individual U.S. holder generally is subject to taxation at amaximum rate of 20%; however, net long-term capital gain recognized by anindividual U.S. holder after May 5, 2003 and before January 1, 2011generally is subject to taxation at a maximum rate of 15%.

 

**Passive foreign investment company rules**

** **

UnfavourableU.S. tax rules (the ‘PFIC rules’) apply to companies that are consideredpassive foreign investment companies (‘PFICs’). We will be classified as a PFICin a particular taxable year if either:

 

·                  75% or more of our gross income is treated as passive income forpurposes of the PFIC rules; or

·                  The average percentage of the value of our assets that produce or areheld for the production of passive income is at least 50%.

 

Based onour audited financial statements and relevant market data, we believe that wewere not treated as a PFIC for U.S. federal income tax purposes with respect tothe year 2007. In addition, based on our current expectations regarding thevalue and nature of our assets, the sources and nature of our income, andrelevant market data, we do not anticipate becoming a PFIC in the year 2008 orthereafter. We believe, however, that we were or may have been a PFIC for U.S.federal income tax purposes with respect to the years before 2005.

 

If we areclassified as a PFIC in any year, then a U.S. holder who holds shares duringthat year and does not make a mark-to-market election or a qualified electingfund (‘QEF’) election 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,without regard to whether we were a PFIC in the year the excess distributionwas received. The amount of this tax will be increased by an interest charge tocompensate for tax deferral, calculated as if the excess distributions had beenearned ratably over the period the U.S. holder held its ordinary shares orADSs. Classification as a PFIC may also have other adverse tax consequences,including the denial of a step-up in the basis of ordinary shares and ADSs atdeath.

 

If we werea PFIC in the past, U.S. holders that held our ordinary shares or ADSs at anytime during the years when we were a PFIC and did not make a mark-to-marketelection or a QEF election will generally continue to be subject to the PFIC rules describedabove, even though we later ceased to qualify as a PFIC. You can generallyavoid the future application of the PFIC rules by making a deemed saleelection with respect to your ordinary shares or ADSs for your taxable yearthat includes the last day of our last taxable year during which we qualifiedas a PFIC (the ‘termination date’). If you make the deemed sale election withrespect to our ordinary shares or ADSs, you generally will be treated as havingsold all your ordinary shares or ADSs for their fair market value on thetermination date. The deemed sale generally will be taxed to you as an excessdistribution. Any loss realized on the deemed sale will not be recognized. Ifyou made a mark-to-market election or a QEF election with respect to yourordinary shares or ADSs in the past, you will not be required to include anymark-to-market gain or loss with respect to our ordinary shares or ADSs (in thecase of the mark-to-market election) or to include your pro rata share of ourordinary earnings and net capital gain (in the case of the QEF election) forthe years during which we do not qualify as a PFIC.

 

The PFIC rulesare extremely complex, and you should consult your own tax advisers regardingthe U.S. federal income tax considerations discussed above and the desirabilityof making a deemed sale election.

 

186

 

**Information for shareholders and investors**

 

**U.S. backup withholding tax and information reporting**

Payments inrespect of the ordinary shares or ADSs that are made in the U.S. or by a U.S.related financial intermediary will be subject to information reporting and maybe subject to backup withholding unless you:

 

·                  Are a corporation or other exempt recipient; or

·                  Provide an IRS Form W-9 or an acceptable substitute form,certifying your taxpayer identification number and that no loss of exemptionfrom backup withholding has occurred.

 

If you arenot a U.S. person, you generally are not subject to these rules, but may berequired to provide certification of non-U.S. status in order to establish thatyou are exempt.

 

**Documents on display**

 

We aresubject to the informational requirements of the Securities Exchange Act of1934, as amended, and in accordance therewith file information with the U.S.Securities and Exchange Commission (‘SEC’). You may read and copy thisinformation at the following location:

 

**Public Reference Room100 F Street, N.E.**

**Washington, D.C. 20549**

 

Please callthe SEC at 1800 SEC 0330 for further information on the public reference room.Copies of these materials can also be obtained by mail at prescribed rates fromthe Public Reference Section of the Securities and Exchange Commission,100 F Street, N.E., Washington, D.C. 20549. Our ADSs are quoted on the NasdaqNational Market, and consequently, the periodic reports and other informationfiled by us with the Commission can be inspected at the offices of the NasdaqNational Market, 1735 K Street, N.W., Washington, D.C. 20006. The primarymarket for our ordinary shares is NYSE Euronext Amsterdam. We make our filingswith the SEC by electronic means. Any filings we make electronically areavailable to the public over the internet at the Commission’s website atwww.sec.gov and at our website at www.crucell.com.

 

**Our ordinary shares and ADSs**

 

Ourordinary shares are traded in the U.S. solely in the form of ADSs, each ADSrepresenting one ordinary share. Each ADS is evidenced by an AmericanDepositary Receipt issued by The Bank of New York acting as Depositary inrespect thereof.

 

As of April 25,2008, total of 65,499,442 ordinary shares were issued and outstanding. On thesame date, there were 11,388,626 ADSs, each representing one ordinary share.

 

Thefollowing table sets forth the range of high and low closing prices, in U.S.dollars, for our ADSs on the Nasdaq National Market for the periods indicated.

 
| ** **                                              | ** ** |   |   | ADSs   | ** ** |
|---------------------------------------------------------|------------|--------|--------|--------|------------|
| ** **                                              | ** ** | High   |   | Low    | ** ** |
| **Annual information for the past  five years**         |       |   |   |   |       |
| 2003                                                    |       | 6.16   |   | 1.54   |       |
| 2004                                                    |       | 13.77  |   | 6.38   |       |
| 2005                                                    |       | 29.95  |   | 12.30  |       |
| 2006                                                    |       | 28.82  |   | 17.27  |       |
| 2007                                                    |       | 28.96  |   | 16.08  |       |
| **Quarterly  information for the past two years**       |       |   |   |   |       |
| **2006**                                                |       |   |   |   |       |
| First  Quarter                                          |       | 28.62  |   | 23.92  |       |
| Second  Quarter                                         |       | 28.82  |   | 17.27  |       |
| Third  Quarter                                          |       | 24.40  |   | 17.75  |       |
| Fourth  Quarter                                         |       | 25.63  |   | 22.83  |       |
| **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  |       |
| **Monthly  information for the most recent six months** |       |   |   |   |       |
| November 2007                                      |       | 19.80  |   | 16.08  |       |
| December 2007                                      |       | 18.58  |   | 16.16  |       |
| January 2008                                       |       | 19.39  |   | 13.26  |       |
| February 2008                                      |       | 14.78  |   | 13.42  |       |
| March 2008                                         |       | 15.41  |   | 13.15  |       |
| April 2008  (Until April 25, 2008)            |       | 19.17  |   | 15.59  |       |

 

187

 

**Information for Shareholders and Investors**

 

Ourordinary shares trade on Eurolist by NYSE Euronext Amsterdam N.V. through thebook-entry facilities of NEGICEF, Euroclear and Clearstream Luxembourg. For theordinary shares the International Securities Identification Number (ISIN) codeis NL0000358562, the Amsterdam Security Number is 35856 and the Common Code is11907164.

 

Thefollowing table sets forth the range of high and low closing prices, in Euro,for our ordinary shares in the Netherlands for the periods indicated.

 
| ** **                                              | ** ** | Ordinary shares | ** ** |
|---------------------------------------------------------|------------|----------------------|------------|
| ** **                                              | ** ** | High                 |       | Low | ** ** |
| **Annual  information for the past five years**         |       |                 |       |   |   |
| 2003                                                    |       | 4.92                 |       | 1.40 |   |
| 2004                                                    |       | 10.10                |       | 4.83 |   |
| 2005                                                    |       | 24.77                |       | 9.50 |   |
| 2006                                                    |       | 23.49                |       | 14.04 |   |
| 2007                                                    |       | 22.27                |       | 10.96 |   |
| **Quarterly  information for the past two years**       |       |                 |       |   |   |
| **2006**                                                |       |                 |       |   |   |
| First  Quarter                                          |       | 23.49                |       | 20.07 |   |
| Second  Quarter                                         |       | 23.29                |       | 14.04 |   |
| Third  Quarter                                          |       | 19.29                |       | 14.58 |   |
| Fourth  Quarter                                         |       | 19.61                |       | 17.53 |   |
| **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 |   |
| **Monthly  information for the most recent six months** |       |                 |       |   |   |
| November 2007                                      |       | 13.68                |       | 10.96 |   |
| December 2007                                      |       | 12.71                |       | 11.25 |   |
| January 2008                                       |       | 13.26                |       | 8.88 |   |
| February 2008                                      |       | 9.92                 |       | 9.19 |   |
| March 2008                                         |       | 9.75                 |       | 8.55 |   |
| April 2008  (Until April 25, 2008)            |       | 12.22                |       | 9.86 |   |

 

**Significant changes**

 

Other thanas disclosed in this annual report, no significant change has occurred since December 31,2007, the date of our most recent audited financial statements.

 

**Limitation of liability and indemnification matters**

Pursuant toDutch law, each member of our Supervisory and Management Boards is responsibleto us for the proper performance of his or her assigned duties. They are alsoresponsible for taking measures to prevent the consequences of any improperperformance of duties by another member of our Supervisory Board or ourManagement Board. Our articles of association provide that our managing boardmembers and our Supervisory Board members are discharged from liability fortheir actions as board members, if our general meeting of shareholders adopts aresolution to that effect. This discharge extends only to actions or omissionsdisclosed in or apparent from the adopted annual accounts or otherwisecommunicated to our general meeting of shareholders.

 

Thisdischarge of liability may be limited by mandatory provisions of Dutch law,such as in the case of bankruptcy. Under Dutch law, our Supervisory Boardmembers and members of our Management Board generally cannot be held personallyliable for decisions made exercising their reasonable business judgment.

 

Ourarticles of association provide that we shall generally indemnify any personwho is or was a member of our Supervisory Board or our Management Board or oneof our employees, officers or agents, and 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.

 

Thisindemnification generally will not be available if the person seekingindemnification acted with gross negligence or wilful misconduct in theperformance of their duties to us. A court in which an action is brought may,however, determine that indemnification is appropriate nonetheless.

 

188

 

**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                        |   |
|   | Five-year  financial summary  Exchange rate information  | 181                        |   |
| 3B     | Capitalization  and indebtedness                         | n/a                        |   |
| 3C     | Reasons  for the offer and use of proceeds               | n/a                        |   |
| 3D     | Risk  factors                                            | 72-84                      |   |
|   |                                                     |                       |   |
| 4      | Information  on the Company                              |                       |   |
| 4A     | History  and development of the Company                  | 41                         |   |
| 4B     | Business  overview                                       | 41-68, 85-86, 151-152      |   |
| 4C     | Organizational  structure                                | 136, 138                   |   |
| 4D     | Property,  plant and equipment                           | 69-70                      |   |
|   |                                                     |                       |   |
| 4A     | Unresolved  staff comments                               | n/a                        |   |
|   |                                                     |                       |   |
| 5      | Operating  and financial review and prospects            |                       |   |
| 5A     | Operating  results                                       | 85-98, 140-141             |   |
| 5B     | Liquidity  and capital resources                         | 99-101                     |   |
| 5C     | Research  and development, patents and licenses, etc,    | 22-27, 45-49, 60-63, 95-96 |   |
| 5D     | Trend  information                                       | 6-7, 16-32, 38-40, 85-102  |   |
| 5E     | Off-balance  sheet arrangements                          | 102                        |   |
| 5F     | Tabular  disclosure of contractual obligations           | 101                        |   |
| 5G     | Safe  harbor                                             | 36                         |   |
|   |                                                     |                       |   |
| 6      | Directors,  senior management and employees              |                       |   |
| 6A     | Directors  and senior management                         | 109-115                    |   |
| 6B     | Compensation                                             | 116-118, 170-173           |   |
| 6C     | Board  practices                                         | 109-115                    |   |
| 6D     | Employees                                                | 9, 105, 152                |   |
| 6E     | Share  ownership                                         | 116-118, 163-165, 170-173  |   |
|   |                                                     |                       |   |
| 7      | Major  shareholders and related party transactions       |                       |   |
| 7A     | Major  shareholders                                      | 118, 179                   |   |
| 7B     | Related  party transactions                              | 169-173                    |   |
| 7C     | Interests  of experts and counsel                        | n/a                        |   |
|   |                                                     |                       |   |
| 8      | Financial  information                                   |                       |   |
| 8A     | Consolidated  statements and other financial information | 69, 71, 132-173            |   |
| 8B     | Significant  changes                                     | 188                        |   |
|   |                                                     |                       |   |
| 9      | The offer  and listing                                   |                       |   |
| 9A     | Offer and  listing details                               | 187-188                    |   |
| 9B     | Plan of  distribution                                    | n/a                        |   |
| 9C     | Markets                                                  | 179                        |   |
| 9D     | Selling  shareholders                                    | n/a                        |   |
| 9E     | Dilution                                                 | n/a                        |   |
| 9F     | Expenses  of the issue                                   | n/a                        |   |

 

189

 
| **Cross-reference to Form 20-F** |
|---------------------------------------|

 
| 10     | Additional  information                                     |     |   |
|--------|-------------------------------------------------------------|----------|--------|
| 10A    | Share  capital                                              | 134, 163 |   |
| 10B    | Memorandum  and Articles of Association                     | 122-127  |   |
| 10C    | Material  contracts                                         | 71       |   |
| 10D    | Exchange  controls                                          | 180      |   |
| 10E    | Taxation                                                    | 181-187  |   |
| 10F    | Dividends  and paying agents                                | n/a      |   |
| 10G    | Statement  by experts                                       | n/a      |   |
| 10H    | Documents  on display                                       | 187      |   |
| 10I    | Subsidiary  information                                     | n/a      |   |
|   |                                                        |     |   |
| 11     | Quantitative  and qualitative disclosures about market risk | 147-150  |   |
|   |                                                        |     |   |
| 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                                 | 71, 180  |   |

 
| **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                                             | 111-112  |   |
| 16B    | Code of  ethics                                                               | 104, 119 |   |
| 16C    | Principal  accountant fees and services                                       | 118      |   |
| 16D    | Exemptions  from the listing standards for Audit committees                   | n/a      |   |
| 16E    | Purchase  of equity securities by the issuer and affiliated purchasers        | n/a      |   |

 
| **Part III** |
|-------------------|

 
| 17     | Financial  Statements          | 132-173 |   |
|--------|--------------------------------|---------|--------|
|   |                           |    |   |
| 18     | Financial  Statements          | n/a     |   |
|   |                           |    |   |
| 19     | Exhibits  (filed with the SEC) | 191-192 |   |

 

190

 
| **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)*                                                           |

 

191

 
| **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)* |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 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 Ethics (incorporated by reference as Exhibit 99.4 to Crucell  N.V.’s annual report on Form 20-F, as filed with the Securities and  Exchange Commission on February 27, 2004)                                                                                                                                              |

 

Confidential treatment has been granted with respect to portions of theexhibit indicated by a dagger (†). The omitted portions have been filedseparately with the Securities and Exchange Commission.

* Confidential treatment requested as to certain portions, whichportions have been filed separately with the Securities and Exchange Commissionby Crucell N.V.

 

192

 

**SIGNATURE**

** **

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

 

**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 |

 

 

May 6, 2008