**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 

**FORM 20-F**

 

**ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934**

**Forthe fiscal year ended December 31, 2009**

 

**Commissionfile number: 0-30962**

 

**CrucellN.V.**

(Exact name ofRegistrant as specified in its charter)

 

**CrucellN.V.**

(Translation ofRegistrant’s name into English)

 

**TheNetherlands**

(Jurisdiction ofincorporation or organization)

 

**Archimedesweg4-6, 2333 CN Leiden, The Netherlands**

(Address of principalexecutive offices)

 

**OnnoKrap, Vice President Finance**

**+31 71519 9226, onno.krap@crucell.com**

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

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

 

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

 

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

 

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

**None**

(Title of Class)

 

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

**None**

(Title of Class)

 

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

**81,446,295Ordinary Shares**

(nominalvalue EUR 0.24 per share)

 

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

Yesx No o

 

If this report is an annual or transition report, indicateby check mark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Securities Exchange Act of 1934.

Yeso No x

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.

Yesx No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).

Yeso No o

 

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

 

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

 

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

 

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

 

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

Item 17o Item 18 o

 

If this is an annual report, indicate by check mark whetherthe registrant is a shell company (as defined in Rule 12b-2 of theExchange Act)

Yes o No x

 

 

 

** **

**Bringing innovation to globalhealth**

** **

Crucell Annual Report andForm 20-F 2009

 

 

 

 

 

 

Contents

 
| **Overview**                                                      |   |
|-------------------------------------------------------------------|--------|
|                                                              |   |
| Crucell at a glance                                               | 02     |
| Crucell: A global  perspective                                    | 04     |
| Performance highlights                                            | 06     |
| Message from our CEO                                              | 10     |
| The Crucell Ambition                                              | 12     |
| Management Committee                                              | 14     |
| Report of the Supervisory  Board                                  | 16     |
|                                                              |   |
| **Our  business**                                                 |   |
|                                                              |   |
| Research &  development, technologies and products       | 18     |
| Research &  development                                  | 20     |
| Technologies                                                      | 26     |
| Products                                                          | 30     |
|                                                              |   |
| **Crucell’s  commitment to corporate social responsibility** |   |
|                                                              |   |
| Expanding the scope of our  ambitions                             | 34     |
| Crucell’s responsibility  to society                         | 36     |
| Developing our approach to  CSR                                   | 39     |
| Our CSR ambitions, targets  and tools                             | 63     |
|                                                              |   |
| **Management  report**                                            |   |
|                                                              |   |
| Report of the Management  Board                                   | 74     |
| Information on the Company                                        | 79     |
| Risk factors                                                      | 106    |
| Operating and financial  review and prospects                     | 115    |
| Corporate governance                                              | 133    |
| Articles of association  and share capital                        | 155    |
| Report of independent  registered public accounting firm          | 162    |
|                                                              |   |
| **Financial  statements**                                         |   |
|                                                              |   |
| Consolidated statements of  income                                | 163    |
| Consolidated statements of  comprehensive income                  | 164    |
| Consolidated statements of  financial position                    | 165    |
| Consolidated statements of  changes in equity                     | 166    |
| Consolidated statements of  cash flows                            | 167    |
| Notes to the consolidated  financial statements                   | 168    |
| Company financial  statements                                     | 218    |
| Notes to the Company  financial statements                        | 219    |
|                                                              |   |
| **Other  information**                                            |   |
|                                                              |   |
| Other information                                                 | 222    |
| Auditor’s report                                             | 223    |
| Information for  shareholders and investors                       | 224    |
| Appendix overview  licensees and partners                         | 234    |
| Cross-reference to  Form 20-F                                | 236    |
| Exhibits                                                          | 238    |

 

**Shareholders’ information**

Crucell N.V. is a public limitedliability company registered in the Netherlands. Crucell’s shares are listed onNYSE Euronext (Amsterdam), and SWX Swiss Exchange (Zurich) stock exchanges andCrucell’s American Depositary Shares (ADSs) are listed on NASDAQ (New York).The shares listed on NYSE Euronext, as well as the ADSs listed on NASDAQ, aretraded under ticker symbol CRXL. The shares trade under ticker symbol CRX atSWX Swiss Exchange. Our website can be found 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 US. Cross-references toForm 20-F are set out on pages 236 to 237. The Crucell 2009 AnnualReport and Form 20-F (hereinafter referred to as the Annual Report) isprepared in English as approved by the General Meeting of Shareholders andexpressed in Euro. All amounts set forth in this Annual Report, unlessotherwise noted, are in thousands of Euro, except share and option data.

 

**For all Investor Relationsinquiries, please contact:**

Oya Yavuz, Vice President CorporateCommunications & Investor Relations 

Tel: +31 (0)71 519 7064 Email:ir@crucell.com

 

www.crucell.com | Crucell AnnualReport and Form 20-F 2009

 

**2009 key highlights**

 
|                                         |
|-----------------------------------------|
|                                    |   |   |
| Research &  development **page 20** | Technologies **page 26** | Products **page 30** |

 

**Our mission**

 

Crucell’smission is to protect human lives from infectious diseases by bringingmeaningful innovation to global health.

 

 

**Total revenues and other operating income in 2009**

An increaseof 26% compared to €283.3 mln in 2008.

 

 

**Operating profitin 2009**

Compared to €7.4 mln in 2008.

 

 

**Net profitin 2009**

An increase of 68% compared to€14.3 mln in 2008.

 

**2009 key highlights**

 

·  Record revenues and profits in 2009 

·  Strategic collaboration Johnson &Johnson 

·  NIH award for flu-mAbs 

·  Positive results rabies Phase II Philippines 

·  Promising preliminary results HIV Phase I 

·  Collaboration MVI for malaria vaccine 

·  Exclusive license hepatitis C antibodies 

·  Total Quinvaxem® contracts $0.8billion 

·  New Korea facility technically complete 

·  Strengthening vaccine sales in UK 

·  12 new license/vendor agreements

 

01

 

**Overview**

 

**Crucell at a glance**

 

 

Crucell is a fully integratedbiopharmaceutical company. We focus on developing, producing and marketingproducts that combat infectious diseases.

 

**Who we are**

 

Crucell is a fully integratedbiopharmaceutical company dedicated to bringing meaningful innovation to globalhealth by developing, producing and marketing products to combat infectiousdiseases. Innovation is the driving force behind our strong research &development (R&D) pipeline, with promising products in pre-clinical andclinical development. Crucell product candidates include flu-mAb, an antibodyproduct effective against a broad range of influenza virus strains,tuberculosis and malaria vaccines, as well as a rabies monoclonal antibodycombination–all produced on our unique PER.C6® human cell-linetechnology. 

 

The sustainability of our businessis demonstrated by our solid balance sheet and our strong cash flow. For acompany of our size, we invest heavily in R&D: our R&D expenditures in2009 were €70.2 million.

 

**Strategy**

 

We develop products that addresscurrently unmet medical needs, particularly in the field of infectiousdiseases. We have a fully integrated infrastructure for in-house development,production and marketing of vaccines, and we are leveraging our knowledge inthe vaccines field to excel in the antibodies market. Our competitive edgecomes from our proprietary technology platforms like PER.C6®, which is ideally suited for the manufacture of vaccinesand therapeutic proteins, such as antibodies. Compared to traditionalproduction platforms, PER.C6® technology offers much higheryields at lower cost, as well as safety advantages. The markets we operate in,our technological knowledge and our quality marketed products position us to bea major player in the multi-billion dollar biopharmaceutical arena.

 

02

 

**Overview**

Crucell at aglance

 

We focus on the paediatric,travel & endemic and respiratory markets. Our core product portfolioincludes Quinvaxem®, a fullyliquid pentavalent vaccine against five important childhood diseases; Epaxal®, the only aluminum-free hepatitis A vaccine on the market;Vivotif® and Dukoral®, oral vaccines against typhoid and cholera; and Inflexal® V, a virosomaladjuvanted vaccine against influenza. In 2009 we distributed more than 115million doses of vaccines in over 100 countries, focusing strongly–but notexclusively–on unmet medical needs in developing countries.

 

**Partnersand licensees**

 

In addition to our own R&Dactivities, we have strategic partnerships with several leading healthcarecompanies. Through these agreements, our technologies play a vital role in thedevelopment of a vast number of vaccines and antibody products. Some of ourpartners and licensees are listed below.

 

·  Cangene

·  Centocor

·  CSL

·  DSM Biologics

·  Gedeon Richter

·  GSK

·  Johnson & Johnson

·  MedImmune

·  Merck

·  Novartis

·  sanofi pasteur

·  Talecris

·  TapImmune

·  Wyeth

 

**Whyinfectious diseases?**

 

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

 

 

 

**Productsales in 2009**

Compared to €226.1 mln in 2008.

 

 

**Cash andcash equivalents at year-end 2009**

Strong cash position to invest inprofitable growth.

 

 

**Net profitper share in 2009**

Compared to net profit per share of€0.22 in 2008.

 

03

 

 

**Overview**

 

**Crucell: Aglobal perspective**

 

 

04

 

**Overview**

Crucell: A global perspective

 

**Research & development**

** **

**Vaccines in development:**

**Flavimun****®**** **yellow fever vaccine.

**Influenza**cell-based seasonal vaccine.1

**Tuberculosis**recombinant AdVac®–based vaccine.

**Malaria**recombinant AdVac®–based vaccine.

**Ebola and Marburg**recombinant AdVac®–based vaccine.

**HIV**recombinant AdVac®-based vaccine.

 

**Human monoclonal antibodies in development:**

**Rabies**antibody combination.

**Influenza**antibodies.

**Hepatitis C**antibody combination.

**Details on: p20**

 

**Technologies**

 

**PER.C6****®** human cell line for development andmanufacturing.

**AdVac****®**** **used with PER.C6® to develop recombinantvaccines.

**MAbstract****®**** **to discover noveldrug targets and identify human monoclonal antibodies.

**STAR****®**** **to enhance yields ofrecombinant human antibodies and proteins.

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

**Details on: p26**

 

**Products**

 

**Paediatric:**

**Quinvaxem****®**** **fully liquid vaccineto protect against five important childhood diseases.

**Hepavax-Gene****®**** **recombinant hepatitisB vaccine.

**Epaxal****®**** Junior** low dosage,aluminum-free hepatitis A vaccine.

**MoRu-Viraten****®**** **vaccine for protectionagainst measles and rubella.

** **

**Travel & endemic:**

**Epaxal****®**** **aluminum-freehepatitis A vaccine.

**Vivotif****®**** **oral typhoid vaccine.

**Dukoral****®**** **only internationallylicensed oral vaccine against cholera (and ETEC).

 

**Respiratory:**

**Inflexal****®**** V**virosomal adjuvantedinfluenza vaccine.

**Details on: p30**

 

1 Developed by sanofi pasteur using PER.C6®

 

05

** **

**Overview**

 

**Performancehighlights**

 

**Financials**

** **
| **Total revenues and other operating income**

(€  million) | **Operating profit/(loss)**

(€  million) |
|------------------------------------------------------------------|------------------------------------------------|
| ** **                                                       | ** **                                     |
| ****                                                             | ****                                           |

** **
| **Profit /(loss) for the period**

(€  million) | **Cash and cash equivalents at December 31**

(€  million) |
|------------------------------------------------------|----------------------------------------------------------------------|
| ** **                                           | ** **                                                           |
| ****                                                 | ****                                                                 |

** **

06

 

**Overview**

Performance highlights

 

**Revenues and other operating income**

 

 

**Outlook for 2010**

 
| Use  continued strong operating cash flow to accelerate product development.                                            |
|-------------------------------------------------------------------------------------------------------------------------|
| Research &  development spending to increase by over one-third, while maintaining a  healthy operating profit. |
| Revenues  and other operating income broadly in line with 2009.1                                                        |

 

1 In guidance currency= EUR/USD rate of 1.41.

 

07

 

**Overview**

 

**Performancehighlights continued**

 

**Selected financial data**

 

Ourconsolidated financial statements and Company financial statements (hereinafterreferred to as the ‘financial statements’), and the notes thereto, have beenprepared in accordance with International Financial Reporting Standards (IFRS)as endorsed 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.

 

Priorto 2006, we prepared our financial statements, as included in Form 20-F,in accordance with accounting principles generally accepted in the US (USGAAP), which differs in certain significant respects from, and is notcomparable with, IFRS. On December 21, 2007, the SEC approvedrule amendments under which Form 20-F, as prepared by Foreign PrivateIssuers (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 2008 financial year. As a result, wedo not provide reconciliation to US GAAP.

 

Theselected financial data should be read in conjunction with ‘Operating andfinancial review and prospects’ and our financial statements and accompanyingnotes thereto, included elsewhere in this Annual Report.

 

 

Thefollowing table shows the selected financial data under IFRS for the yearsended December 31, 2005 through 2009.

 

08

 

**Overview**

Performance highlights

 

**IFRS selected financial data**

 
| **Year ended December 31,**                                  | ** ** | ** ** | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** | ** **    | ** ** |
|-----------------------------------------------------------------------------|------------|------------|------------|---------------|------------|---------------|------------|---------------|------------|---------------|------------|
| **(in thousands of Euro, except share data)** | ** ** | **2009**   | ** ** | **2008****1** | ** ** | **2007****1** | ** ** | **2006****1** | ** ** | **2005****1** | ** ** |
|                                                                        |       |       |       |          |       |          |       |          |       |          |       |
| Consolidated  statement of income data:                                     |       |       |       |          |       |          |       |          |       |          |       |
| Revenues:                                                                   |       |       |       |          |       |          |       |          |       |          |       |
| Product sales                                                               |       | 304,439    |       | 226,055       |       | 177,569       |       | 103,918       |       | —        |       |
| License revenues                                                            |       | 23,049     |       | 30,202        |       | 12,211        |       | 16,955        |       | 20,848        |       |
| Service fees                                                                |       | 10,675     |       | 10,900        |       | 14,006        |       | 10,694        |       | 11,881        |       |
| **Total revenues**                                                          |       | 338,163    |       | 267,157       |       | 203,786       |       | 131,567       |       | 32,729        |       |
|                                                                        |       |       |       |          |       |          |       |          |       |          |       |
| Total cost of sales                                                         |       | (194,613   | )          | (145,755      | )          | (134,884      | )          | (90,489       | )          | (7,156        | )          |
| **Gross margin****2**                                                       |       | 143,550    |       | 121,402       |       | 68,902        |       | 41,078        |       | 25,573        |       |
| Total other  operating income                                               |       | 19,839     |       | 16,152        |       | 9,330         |       | 9,356         |       | 4,840         |       |
| Operating expenses:                                                         |       |       |       |          |       |          |       |          |       |          |       |
| Research &  development                                            |       | (70,176    | )          | (70,229       | )          | (63,995       | )          | (67,606       | )          | (34,048       | )          |
| Selling, general  and administrative                                        |       | (61,400    | )          | (64,778       | )          | (63,566       | )          | (47,478       | )          | (13,689       | )          |
| Restructuring                                                               |       | —     |       | —        |       | —        |       | (3,120        | )          | —        |       |
| (Reversal of)  impairment                                                   |       | 7,199      |       | 4,888         |       | (171          | )          | (30,416       | )          | —        |       |
| Total other  operating expenses                                             |       | (124,377   | )          | (130,119      | )          | (127,732      | )          | (148,620      | )          | (47,737       | )          |
| **Operating profit/(loss)**                                                 |       | 39,012     |       | 7,435         |       | (49,500       | )          | (98,186       | )          | (17,324       | )          |
| Financial  income & expenses                                       |       | (3,193     | )          | (2,662        | )          | 1,378         |       | 1,747         |       | 2,201         |       |
| Results  non-consolidated companies                                         |       | 2,147      |       | 1,442         |       | 1,190         |       | (1,956        | )          | (455          | )          |
| Disposal of  subsidiaries                                                   |       | —     |       | (367          | )          | —        |       | —        |       | —        |       |
| Profit/(loss)  before tax                                                   |       | 37,966     |       | 5,848         |       | (46,932       | )          | (98,395       | )          | (15,578       | )          |
| Income tax                                                                  |       | (14,028    | )          | 8,402         |       | 2,598         |       | 10,611        |       | —        |       |
| **Profit/(loss) for the year**                                              |       | 23,938     |       | 14,250        |       | (44,334       | )          | (87,784       | )          | (15,578       | )          |
|                                                                        |       |       |       |          |       |          |       |          |       |          |       |
| Net profit/(loss)  per share–basic                                     |       | 0.34       |       | 0.22          |       | (0.68         | )          | (1.54         | )          | (0.39         | )          |
| Net profit/(loss)  per share–diluted                                   |       | 0.33       |       | 0.21          |       | (0.68         | )          | (1.54         | )          | (0.39         | )          |
| Weighted average  shares outstanding–basic                             |       | 70,266     |       | 65,593        |       | 65,103        |       | 57,064        |       | 39,852        |       |
|                                                                        |       |       |       |          |       |          |       |          |       |          |       |
| Consolidated  statement of financial position data:                         |       |       |       |          |       |          |       |          |       |          |       |
| Assets:                                                                     |       |       |       |          |       |          |       |          |       |          |       |
| Cash and cash  equivalents                                                  |       | 327,837    |       | 170,969       |       | 163,248       |       | 157,837       |       | 111,734       |       |
| Total current  assets                                                       |       | 655,071    |       | 322,318       |       | 303,262       |       | 317,071       |       | 131,038       |       |
| Total assets                                                                |       | 1,011,131  |       | 636,297       |       | 629,838       |       | 653,961       |       | 169,737       |       |
| Liabilities and  shareholders’ equity:                                 |       |       |       |          |       |          |       |          |       |          |       |
| Total shareholders’  equity                                            |       | 738,265    |       | 452,534       |       | 440,913       |       | 497,683       |       | 137,609       |       |
| Total non-current  liabilities                                              |       | 114,700    |       | 65,462        |       | 74,183        |       | 66,026        |       | 9,380         |       |
| Total current  liabilities                                                  |       | 158,166    |       | 118,301       |       | 114,742       |       | 90,252        |       | 22,748        |       |
| Total liabilities  and shareholders’ equity                            |       | 1,011,131  |       | 636,297       |       | 629,838       |       | 653,961       |       | 169,737       |       |
| Number of employees                                                         |       | 1,248      |       | 1,126         |       | 1,126         |       | 1,073         |       | 282           |       |

 

1  Prioryear numbers have been adjusted retrospectively, following the change inaccounting policy to recognize actual gains and losses in other comprehensiveincome.

2  Gross margin = total revenues less cost ofsales.

 

09

 

 

**Overview**

 

**Message from our CEO**

 

 

Ronald H.P. Brus

(CEO)

 

In 2009, Crucell’s vaccines wereadministered to a vast number of people worldwide, thereby preventing more than3.6 million cases of infectious disease and over 819,000 deaths.1

 

1 Figures based on Crucell vaccines Quinvaxem®,Hepavax-Gene®, Inflexal® V, Epaxal® and Vivotif®.

 

**Dearshareholder,**

 

In 2009, we made great strides interms of global integration, streamlining the way we work, improvingperformance and increasing accountability—all with the ultimate aim ofincreasing the impact Crucell has on human health. These achievements form asolid foundation on which to build our future.

 

Crucell is a rapidly growingbiopharmaceutical company with ambitious goals. We aim to create shareholdervalue by following a clear and convincing strategy for profitable growth bycontinued innovation. Our core business is stronger than ever and, with a clearstrategy for sustainable growth and even more focus on research &development (R&D) activities, we continue to increase the number of peoplewe can protect from illnesses and deaths caused by infectious diseases. I amvery proud that for the second year running, we have achieved profitability. Togetherwith solid revenue growth and a very strong year-end cash position, we wereable to end 2009 on a high.

 

In 2009, we distributed more than115 million vaccine doses in more than 100 countries throughout the world andwe were able to take The Crucell Ambition, our corporate strategy for bringinginnovation to global health, to the next level. The progress we made in 2009 isa clear indication that we are executing our strategy. Growth is the majortheme underlying all our efforts. Our total revenues and other operating incomein 2009 increased by 26% compared to 2008 and were driven by strong sales ofvaccines.

 

The pandemic (H1N1) 2009 influenzavirus brought into sharp focus the urgency of our mission to develop newsolutions for infectious diseases, while making sure that our innovativeproducts already on the market reach all those who need them. The relativelymild, but highly infectious, nature of the virus sparked public discussionabout the need for vaccination and the quality of the available vaccines. Therevolutionary influenza antibody research going on in our innovation &discovery department is what attracted Johnson & Johnson (JNJ) to sign atruly unique agreement with Crucell in September 2009. This partnership, with a

 

10

 

**Overview**

Message fromour CEO

 

total deal value of over €1billion, including an upfront payment of over €300 million, comes withexceptional safeguards of Crucell’s ongoing independence. The partnership withJNJ is a strong endorsement of Crucell’s in-house capabilities for medicalinnovation and discovery, and a tremendous boost for these capabilities. JNJ’sinvestment in Crucell enables us to accelerate and expand our R&D programsand supports our move into new markets for our existing products. We have aresponsibility to make the most of these opportunities.

 

As we grow further, capturingsynergies and rationalization become ever more important. A rigorous review ofCrucell’s business processes worldwide led to the operational excellenceprogram ‘Healthy Ambition’, one of the strategic pillars of The CrucellAmbition, which was rolled out in early 2008 and completed in 2009. The programachieved run-rate savings of over €30 million by the end of 2009 andcontributed to our positive results through improved yields in our productionfacilities, savings in overhead and many other operational improvements.

 

The launch of one global Crucellbrand in November 2009 reflects the new maturity of our organization and ourgrowing impact on world health, which further strengthens our ability to bringinnovation to global health. The new brand design is one we are proud of. It isstrong in its simplicity, with bold use of color and form, and was inspired bythe ‘eye’ of the Crucell logo. The ‘eye’ is the symbol of our vision as acompany founded on innovative technologies and continuously looking forsolutions to global health threats.

 

There is one other innovation Iwould like to highlight: the progress we are making in adopting a structuredapproach to corporate social responsibility (CSR). Crucell understands itsresponsibilities with regard to the environment and strives to be astransparent as possible about its activities. As we build the business, we mustnever forget to measure our success as a company in human as well as infinancial terms. Think of what we can achieve together in 2010 if we all setourselves the same goal: to make a meaningful difference to Crucell’s business,and with that to the health of people around the world. See pages 34-71 formore information on our CSR activities.

 

On June 25, 2009, I celebrated 12.5years with Crucell—a milestone anniversary in Dutch culture. Like mostanniversaries, this one got me thinking about both the past and the future. Overthe years, I have seen Crucell grow from a small biotech start-up to a globalorganization that is making a real difference to the health of peopleworldwide. That was my dream when I started at Crucell and I am both proud andgrateful that, together with more than 1200 highly qualified and dedicatedcolleagues, we have made it a reality. More importantly, I see that we areexpanding the boundaries of that reality, day by day. Innovation is thefoundation on which Crucell was built, and what gives us the momentum to moveforward.

 

Our achievements so far are thanksto the tireless efforts and motivation of our employees, Crucell’s mostimportant asset, and to your willingness as a shareholder to invest in Crucell.For 2010, we foresee another good year for Crucell and we thank you for yourcontinued support.

 

 

**Ronald H.P.Brus**

President and Chief ExecutiveOfficer 

Leiden, the Netherlands, April 6,2010

 

11

 

**Overview**

 

**The Crucell Ambition**

 

Here at Crucell, each innovation,business decision and new development is driven by one single aim–our desire toimprove healthcare across the globe.

 

To supportthis vision, we developed The Crucell Ambition, a global corporate strategyencompassing coordinated efforts in four priority areas–Organization &People, Focus, Operational Excellence and Deliver on Promises.

 

The CrucellAmbition was rolled out worldwide in 2008, and in 2009 it proved to be a greatsuccess, realizing just over €30 million in run-rate savings and moving usanother step closer to becoming one global Crucell.

 

Below arejust a few examples of how The Crucell Ambition has been embraced by employeesand translated into visible results.

 

**New business model**

 

A newbusiness model was presented company wide. This transformed Crucell from avertically organized company, where interrelated functions were fragmented andefficiency, speed and long-term planning were affected, into a global businessrun along horizontal lines. Three cross-functional business franchises wereintroduced for paediatric, travel & endemic and respiratory products.

 

Eachbusiness franchise has an overall business manager responsible for optimizingthe profitability of the business across all functions: innovation &discovery, development, operations and marketing & sales. Four valuestreams, which are dedicated to different products, or products with similarmanufacturing processes, have also been established. This allows us tostreamline processes and focus on continuous improvement.

 

 

“The Crucell Ambition is a good way to improve and make Crucell a bettercompany for tomorrow.”

 

**Information management**

 

Alongside the demands of theirusual roles at Crucell, many employees have been working hard on developing aglobal system for information management: an enterprise resource platform(ERP). Thanks to their dedication, it is on schedule and many facets will berolled out in 2010. A welcome by-product of the project is the great teamspirit created within the cross-functional teams drawn from Crucell sitesaround the world.

 

**One globalidentity**

 

Crucell’s new global brand was bornin November 2009. Following a smooth launch, implementation of the brand beganat all Crucell sites except the Korean site, where the rebranding is beingtimed to correspond with the move to the new manufacturing facility being builtin the Incheon Free Economic Zone. The new brand marks the successfulintegration of various Crucell companies and displays our commitment to being aleading biopharmaceutical company.

 

12

 

**Overview**

The CrucellAmbition

 

**Manufacturingrevolution**

 

Crucell’s process development teamhas revolutionized its manufacturing facilities with the creation of the ‘FlexFactory’, utilizing mobile manufacturing equipment in a mobile clean room. Thisdevelopment will lead to significant financial and environmental savings forCrucell. For more information see page 45.

 

“This is a clear strategy and provides a sound foundation for us to buildon.”

 

**Corporatesocial responsibility**

 

Our commitment to corporate socialresponsibility (CSR) led to a number of exciting developments for Crucell in2009. We acted on our desire to focus more on CSR performance and transparencyand implemented a strategy for how to do this. See pages 34-71 for moreinformation on our CSR program.

 

The Crucell Ambition strategybreathes life into the Crucell Values, a set of guiding principles adopted byour employees. These values allow us to cultivate the kind of qualities withinour company that help us realize even the most ambitious goals, and are astrong unifying force within Crucell.

 

“The positive results achieved are the best efficiency statement for TheCrucell Ambition program—let’s carry on!”

 

Crucell Values

 

 

The image above highlights theCrucell Values in the manylanguages spoken by Crucell employees around the world.

 

Quotes: Crucell employees’ views onThe Crucell Ambition.

 

13

 

**Overview**

 

**Management Committee**

 

Crucell has a two-tiered boardstructure in which executive and supervisory responsibilities are clearlyseparated.

 

TheSupervisory Board is comprised of independent, non-executive individuals whoare charged with supervising and advising Crucell’s Management Board. TheManagement Board, which is a subset of the Management Committee, is responsiblefor the general affairs and business of the company and, as such, isresponsible for achieving Crucell’s goals, strategy and policy, as well asresults.

 

**Dr. Ronald Brus (1963)***

**President and Chief Executive Officer**

 

 

Dr. Ronald Brus is Crucell’sPresident and Chief Executive Officer. He has been a member of Crucell’sManagement Committee since the company’s incorporation and was formerly ChiefOperating Officer (March 2003 to January 2004) and Chief Business Officer(October 2000 to February 2003). Prior to that, he was Executive Vice Presidentfor Business Development when he joined the company in 1997. From 1994 to 1996he was product planning physician at Forest Laboratories in New York and from1990 to 1994 he was Medical Director for Zambon B.V. He holds a medical degreefrom the University of Groningen, the Netherlands. Dr. Brus is Chairman of theManagement Board.

 

**LeonardKruimer (1958)***

**ChiefFinancial Officer**

 

 

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

 

**Dr. Cees deJong (1961)***

**ChiefOperating Officer**

 

 

Dr. Cees de Jong joined Crucell asChief Operating Officer in September 2007. He became a member of Crucell’s ManagementBoard in May 2008. Prior to that he worked at Quest International in Naarden,the Netherlands, as a member of the Board responsible for the FlavoursDivision. Prior to Quest, he worked as Managing Director of DSMAnti-infectives. In 1989, he started his career at Gist Brocades, holding avariety of roles in Business Development, Strategy and General Managementbefore the company’s acquisition by DSM in 1998. He holds a medical degree andearned an MBA at the Erasmus University Rotterdam, the Netherlands.

 

14

 

**Overview**

ManagementCommittee

 

**Dr. JaapGoudsmit (1951)***

**ChiefScientific Officer**

 

 

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

 

**RenéBeukema (1964)**

**GeneralCounsel and Corporate Secretary**

 

 

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

 

**Arthur Lahr(1968)**

**ChiefStrategy Officer and**

**ExecutiveVice President Business Development**

 

 

Mr. Arthur Lahr is Crucell’s ChiefStrategy Officer and Executive Vice President for Business Development. Hejoined Crucell in April 2001 as Executive Director for Business Development andbecame a member of the Management Committee in January 2004, Executive VicePresident in January 2006 and assumed responsibility for European Marketing &Sales and Company Strategy in 2006. From 1994 to 2001, he was a consultant withMcKinsey & Co. in the Netherlands and New York. Prior to that, he worked atUnilever. He holds a Masters in Business Administration from INSEAD and aMasters in Science in Applied Physics from the University of Delft, the Netherlands.

 

*Fulldetails of the Management Committee can be found on page 141.*

 

* Member of the Management Board.

 

15

 

 

**Overview**

 

**Report of the Supervisory Board**

 

 

Jan P. Oosterveld

(Chairman)

 

**Dearshareholder,**

The Supervisory Board is pleased tosubmit toyou the combined AnnualReport and Form 20-F, including thefinancialstatements of Crucell N.V. forthe year ended December 31, 2009, as  prepared by the Management Board.Attached to the financialstatements is the auditor’s report by Deloitte Accountants B.V., free from anyqualification. We adopted the financial statements for the year 2009 and advisethe General Meeting of Shareholders to approve these statements and to grantdischarge to the Management Board, with respect to its management and to theSupervisory Board, with respect to its supervision.

 

The Supervisory Board held thirteenmeetings with the Management Board in 2009, of which eight were in the form ofconference calls. The meetings were arranged in such a way that, on severaloccasions, the Supervisory Board could meet immediately after the departure ofthe Management Board; so called closed sessions. There were also a number ofmore informal contacts between Supervisory Board Members and the ManagementBoard.

 

The Supervisory Board was closelyinvolved in all developments affecting the Company in terms of strategy,tactics and operations in the financial year 2009. The Board’s meeting schedulenot only reflects its commitment to the Company’s affairs, but also the dynamicway in which the Company is rapidly consolidating its position in the biotechindustry. Thanks to the well-documented information provided by, and to, thefrequent discussions with the Management Board, the Supervisory Board was ableto acquire a comprehensive perspective on all aspects of the Company’sstrategy. Where Supervisory Board approval of proposals was required, it wasable to arrive at decisions based on solid facts and coherent arguments.

 

All Supervisory Board meetings andconference calls were well attended. Regular items on the agenda included theCompany’s financial performance, based on quarterly reports, its budget and itsbusiness, including the research & development (R&D) portfolio,intellectual property matters and operational updates. Importantly, the Boardalso discussed the Company’s strategy and its near-, mid-and long-term risks,the current and future strategic objectives, planned acquisitions, theJohnson & Johnson (JNJ) strategic collaboration, sanofi pasteur andDSM collaborations and the reports from the Audit Committee, the Remuneration Committee,Research & Development Committee and Nomination Committee. Othersignificant issues addressed were compliance with Section 404 of theAmerican Sarbanes-Oxley Act of 2002 and related regulations (SOX 404), theongoing corporate rationalization processes and the progress made inintegrating acquired businesses.

 

The Supervisory Board alsodiscussed its own performance, reviewing its function and its individualmembers, and the performance of the Management Board and its individualmembers. The design of the strategic collaboration between Crucell and JNJ wasdiscussed frequently and in detail with the Management Board and its financialadvisors. In particular, the legal and financial consequences of such strategiccollaboration were reviewed with Crucell’s in-house and outside legal advisors.

 

In order to make decisions, theSupervisory Board has established an Audit Committee, a Remuneration Committee,a Nomination Committee and a Scientific Committee. For detailed information onthe composition and activities of these committees, please see ‘CorporateGovernance—Supervisory Board’.

 

In 2009, the Audit Committee metnine times, of which four were conference calls. The Company’s externalauditor, Deloitte, routinely attended these meetings, in particular, where theannual accounts, the auditor’s report and the quarterly results were discussed.

 

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

 

16

 

 

**Overview**

Report of theSupervisory Board

 

|                 |                       |                     |                   |                   |                       |
|-----------------|-----------------------|---------------------|-------------------|-------------------|-----------------------|
|            |                  |                |              |              |                  |
| **Steve Davis** | **Arnold Hoevenaars** | **Seán Lance** | **Phillip Satow** | **Floris Waller** | **Claes Wilhelmsson** |

 

The Nomination Committee consistsof the full Supervisory Board and, as such, met four times during the 2009fiscal year to discuss the Supervisory Board’s composition and functioning. TheScientific Advisory Committee held two meetings with R&D management todiscuss issues around protein production and various infectious diseases. Theyalso covered R&D budgets and organizational matters.

 

The Remuneration Committee met fourtimes to review collective 2009 milestones and set objectives for 2010, toapprove and ratify option grants and to discuss the remuneration policy for thesecond and third tiers of management. The Remuneration Committee and theSupervisory Board operate within the framework of the remuneration policy forthe Management Board, which was amended and adopted by the Annual GeneralMeeting of Shareholders in June 2009 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 pharmaceuticalindustry.

 

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

 

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

 

The remuneration of the SupervisoryBoard is further detailed in the corporate governance section of our managementreport. The remuneration policy can be found on Crucell’s website(www.crucell.com), which is not incorporated by reference herein.

 

The Nomination Committee initiateda global search to fill a vacancy on the Supervisory Board. As a result, andafter careful consideration, the Supervisory Board is pleased to report thatFloris Waller was elected in June 2009 to the Supervisory Board.

 

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

 

In particular, we would also verymuch like to thank our shareholders for their continued support and dialogue.

 

 

 

**Jan P.Oosterveld**

Chairman of the Supervisory BoardLeiden,

the Netherlands, April 6, 2010

 

17

 

 

**Our business**

 

**Research & development, technologies andproducts**

 

 
| **Research  & development** | ** ** | **Technologies** | ** ** | **Products** |
|---------------------------------|------------|------------------|------------|--------------|

** **

We develop, produce and marketvaccines and antibodies against a range of infectious diseases, focusingstrongly—but not exclusively—on unmet medical needs in developing countries andemerging economies. Vaccines play a vital role in protecting against diseasesand have contributed significantly to the improvement of global public healthin the 21st century. In the following pages we highlight Crucell’s keyinnovations.

 

 

**Totalrevenues and operating income**

Products continue to show stronggrowth.

 

 

Vaccine doses distributed in 2009.

 

 

Crucell vaccines were sold in morethan 100 countries in 2009.

 

18

 

 

**Our business**

Research &development, technologies and products

 
| **Development  stage**                           | ** ** | **Research/**    | ** ** | **Phase I** | ** ** | **Phase II** | ** ** | **Phase III** | ** ** | **Marketed** | ** ** | **Description**                                                                                 |
|--------------------------------------------------|------------|------------------|------------|-------------|------------|--------------|------------|---------------|------------|--------------|------------|-------------------------------------------------------------------------------------------------|
| ** **                                       | ** ** | **Pre-clinical** | ** ** | ** **  | ** ** | ** **   | ** ** | ** **    | ** ** | ** **   | ** ** | ** **                                                                                      |
| **Marketed  products:**                          |       |             |       |        |       |         |       |          |       |         |       |                                                                                            |
| Quinvaxem®                                  |       |                  |       |             |       |              |       |               |       |              |       | Fully liquid vaccine for  protection against five childhood diseases.                           |
| Hepavax-Gene®                               |       |                  |       |             |       |              |       |               |       |              |            | Recombinant hepatitis B  vaccine.                                                               |
| Epaxal® Junior                         |       |                  |       |             |       |              |       |               |       |              |       | Low dosage, aluminum-free  hepatitis A vaccine (0.25ml).                                        |
| MoRu-Viraten®                               |       |                  |       |             |       |              |       |               |       |              |       | Vaccine for protection  against measles and rubella.                                            |
| Epaxal®                                     |       |                  |       |             |       |              |       |               |       |              |            | Aluminum-free hepatitis A  vaccine.                                                             |
| Vivotif®                                    |       |                  |       |             |       |              |       |               |       |              |            | Oral typhoid vaccine.                                                                           |
| Dukoral®                                    |       |                  |       |             |       |              |       |               |       |              |       | Only internationally  licensed oral vaccine against cholera (and ETEC).                         |
| Inflexal® V                            |       |                  |       |             |       |              |       |               |       |              |            | Virosomal adjuvanted  influenza vaccine.                                                        |
| **Vaccines  in development:**                    |
| Flavimun®                                   |       |                  |       |             |       |              |       |               |       |         |            | Yellow fever vaccine.                                                                           |
| Influenza seasonal (flu  cell)                   |       |                  |       |             |       |              |       |          |       |         |       | Seasonal influenza  vaccine.1                                                                   |
| Tuberculosis                                     |       |                  |       |             |       |              |       |          |       |         |       | Recombinant AdVac®-based tuberculosis vaccine.2                                            |
| Malaria                                          |       |                  |       |             |       |         |       |          |       |         |       | Recombinant AdVac®-based malaria vaccine.3                                                 |
| Ebola and Marburg                                |       |                  |       |             |       |         |       |          |       |         |       | Recombinant AdVac®-based Ebola and Marburg vaccine.3                                       |
| HIV                                              |       |                  |       |             |       |         |       |          |       |         |            | Recombinant AdVac®-based vaccine.4                                                         |
| **Human  monoclonal antibodies in development:** |
| Rabies antibody  combination                     |       |                  |       |             |       |              |       |          |       |         |       | Two human monoclonal  antibodies for post-exposure treatment of rabies.5                        |
| Influenza antibodies                             |       |                  |       |        |       |         |       |          |       |         |       | Neutralizing antibody  cross reactive against different influenza subtypes including H5 and H1. |
| Hepatitis C antibody combination                 |       |                  |       |        |       |         |       |          |       |         |       | Neutralizing monoclonal  antibodies across all genotypes tested.                                |

 

1 Developed by sanofi pasteur using PER.C6®. 2 Partnered with Aeras. 3 Partnered with NIH/NIAID. 4 Partnered with Harvard. 5 Partnered with sanofi pasteur.

 

19

 

 

**Our business**

** **

**Research & development**

 

 

Our research efforts are bolsteredby ourtechnology range, which plays acritical role in our development programs.In thefollowing pages we discussimportant developments relating toourdiscovery programs and highlightour key areas of focus.

 

20

 

 

**Our business**

Research &development

 

 

1 Developed by sanofi pasteur using PER.C6®.

 

21

 

 

**Our business**

 

**Research & development continued**

 

**We have a strongresearch & development (R&D) pipeline with promisinginvestigational products.**

 

**Vaccinesbased on the AdVac****®**** technology**

 

AdVac® technology involvesthe use of adenoviral vectors, such as Ad35 and Ad26, in vaccines for diseasescaused by viruses, bacteria or parasites. These vectors are harmlessadenoviruses that have been disabled so that they cannot replicate. A vectorfunctions as an efficient ‘gene taxi’, delivering into the human body a fragmentof DNA that carries the code for a protein of a specific pathogen. Once insidethe body, the vectors express (produce) these proteins and present them to theperson’s immune system, which augments its protective response. Using thisversatile vaccine vector platform in combination with our PER.C6® manufacturingtechnology, we are working with our partners to develop vaccines againstdiseases like tuberculosis, malaria, Ebola and Marburg and HIV.

 

**Malaria**

 

Malaria is one of the mostprevalent infections in tropical and subtropical regions with children andpregnant women most severely affected. According to the World HealthOrganization (WHO), half of the world’s population is at risk of malaria, andan estimated 243 million cases led to nearly 900,000 deaths in 2008. Nolicensed vaccine is currently available.

 

Crucell is collaborating with theUS National Institute of Allergy and Infectious Diseases (NIAID), part of theNational Institutes of Health (NIH), on malaria vaccine research anddevelopment. A candidate vaccine arising from this partnership is being testedin a Phase I trial at two US sites: Vanderbilt University in Nashville,Tennessee, and Stanford University in Palo Alto, California. Boost vaccinationsfor the fourth and final group of volunteers have been completed andpreliminary examination of the blinded data indicates that the vaccine isimmunogenic.

 

**Tuberculosis**

 

Tuberculosis (TB) is a major causeof illness and mortality worldwide, responsible for 9.4 million new cases and1.8 million deaths in 20081. The current TB vaccine Baccille Calmette Guérin (BCG), developed morethan 85 years ago, is probably the world’s most widely used but least effectivevaccine. It does reduce the risk of disseminated TB, a form that spreads fromthe lungs to other organs, and is especially lethal in children. However, itdoes not reliably prevent pulmonary TB, the most prevalent form of the disease.The problem is compounded by the emergence of extensively drug-resistanttuberculosis (XDR-TB).

 

To address this urgent need,Crucell has joined forces with the Aeras Global TB Vaccine Foundation, one ofseveral non-governmental organizations we collaborate with to combat diseases.Together, we are developing the novel TB vaccine candidate AERAS-402/Crucell Ad35.Several Phase I trials have been held with promising results–a South Africanstudy found that CD8-cell immune responses were much higher than those seen inhumans in any previous TB vaccine studies. In January 2010, a Phase Iclinical trial was initiated in Portland, Oregon, to obtain a more detailedanalysis of the immune response to AERAS- 402/Crucell Ad35. InOctober 2008, enrollment for the first Phase II study of this vaccinecandidate began in South Africa, conducted by the University of Cape Town LungInstitute in conjunction with the South African Tuberculosis VaccineInitiative. It has found that CD8-cell immune responses are induced in patientswho have completed TB treatment.

 

More than 2 billion people, equalto one-third of the world’s population, are infected with TB bacilli, themicrobes that cause TB. (WHO, 2009Update, Tuberculosis Facts)

 

1 World Health Organization (WHO) 2009 Update,Tuberculosis Facts.

 

22

 

**Our business**

Research& development

 

 

(WHO, 2009, Global tuberculosiscontrol)

 

Notified TB cases (new and relapse)per 100,000 population in 2007.

 

 

“Tuberculosis is a leading killerof people with HIV.” (WHO, 2009Update, Tuberculosis Facts)

 

In July 2009, we announced anew collaboration with the US-based Malaria Vaccine Initiative (MVI) and USAIDMalaria Vaccine Development Program (MVDP) to accelerate development of apromising new type of malaria vaccine. Using funding from the USAID MVDP, thepartners will conduct studies to determine how effectively Crucell’sproprietary recombinant adenoviruses (a type of virus associated with thecommon cold and other mild respiratory infections) delivers a malaria antigento the immune system. Using Crucell’s AdVac® technology with twodifferent adenovirus vectors–Ad35 and Ad26–as delivery mechanisms, thisapproach seeks to elicit a protective immune response.

 

**Ebola andMarburg**

 

Ebola is one of the world’s mostlethal viral diseases and can be found on the US Department of Defense’sCategory ‘A’ list of bioterror agents. Both Ebola and Marburg are among the fewviruses capable of causing hemorrhagic fever, a severe, often fatal disease inhumans. There are currently no vaccines or antiviral therapies available foreither disease.

 

Crucell is developing a multivalentfilovirus vaccine against Ebola and Marburg in collaboration with the VaccineResearch Center of the NIH/NIAID. The candidate vaccine is based on Crucell’sproprietary adenoviral vector technology and is produced using Crucell’s PER.C6® technology.

 

A Phase I study showed safety andimmunogenicity at the doses evaluated. Based on these results, a second Phase Istudy is anticipated. This will use alternative multivalent adenovirus vectorsthat are able to bypass pre-existing immunity against the more commonly usedadenovirus serotype 5 (Ad5).

 

**HIV**

 

Over the past 25 years, HIVinfection resulting in AIDS has claimed millions of lives, devastatedcommunities, and enormously frustrated efforts to fight poverty, improve globalhealth and promote economic development. According to the 2009 AIDS EpidemicUpdate (a joint report by the United Nations Program on HIV/AIDS (UNAIDS) andWHO), 33.4 million people, more than ever before, are living with HIV. There iscurrently no licensed HIV vaccine available.

 

With the support of a $19.2 milliongrant from the NIH, Crucell is collaborating with Harvard Medical School andits teaching hospital Beth Israel Deaconess Medical Center to develop arecombinant AdVac®-basedvaccine against HIV. Adenovirus serotype 26 (Ad26) is being used as the vaccinevector, in order to avoid the problem of pre-existing immunity to Ad5. Preliminaryresults of a Phase I study at the Brigham and Women’s Hospital in Boston, USA,show that the HIV candidate vaccine is safe and immunogenic.

 

23

 

**Our business**

 

**Research & development continued**

 

 

**Rabies**

Countries or areas at risk.

 

 

(WHO, Rabnet/CDC, 2008)

 

**Antibodies**

 

Antibodies are proteins madenaturally by cells of the body’s immune system. They function as one of thebody’s principal defense mechanisms against pathogens – disease-causing agentssuch as parasites, viruses or bacteria. As antibodies recognize and bind toinvading pathogens, ultimately eliminating them, they play a crucial role inprotecting humans against disease.

 

**Rabiesantibody combination**

 

Rabies is widespread across theglobe. More than 55,000 people die of rabies each year, with around 95% ofthose deaths occurring in Asia and Africa–usually following a bite from aninfected dog.

 

Rabies causes more than 55,000deaths each year in endemic countries. (WHO,rabies factsheet, December 2008)

 

This highlights the significantunmet medical need for a safe, effective and affordable rabies treatment. Thetreatment currently used when someone is exposed to the virus combinesimmunoglobulins (antibodies prepared from human or equine blood) with thevaccine. This is usually successful if administered within 24-48 hoursfollowing exposure. However, concerns about the safety and availability ofblood-derived rabies antibodies have inspired a search for alternatives.

 

Using MAbstract® and PER.C6® technology, Crucellscientists–in collaboration with the Thomas Jefferson University inPhiladelphia and the US Centers for Disease Control and Prevention in Atlanta–havediscovered a combination of human monoclonal antibodies (mAbs) for thepost-exposure treatment of rabies. Clinical testing of this mAb combinationmade good progress during 2008, leading to the presentation in October ofvery promising efficacy and safety data from a Phase II trial in the US. Inorder to test the mAb combination in different populations and settings, anadditional Phase II trial was held among children in the Philippines, whichshowed that neutralizing activity levels were similar to those achieved byadministering human immunoglobulin (HRIG). A third Phase II study, at LotusLaboratories in Bangalore, India, is due to begin in the coming months. SinceJanuary 2008, the route towards global availability of thisnext-generation, life-saving rabies biological has been facilitated byCrucell’s strategic partnership with sanofi pasteur, a world leader in rabiesimmunization. The US Food and Drug Administration (FDA) has granted Crucell’smAb combination Fast Track status, paving the way for priority handling of theregulatory dossier.

 

**Humanmonoclonal antibodies against a broad range of influenza strains**

 

In December 2008, Crucellannounced the discovery of a new class of human monoclonal antibodies (mAbs)with the unprecedented ability to combat a broad range of influenza virusstrains.

 

24

 

**Our business**

Research& development

 

 

The broadly neutralizing CR6261antibody binds in the HA stem, distant from other strain-specific antibodies,by using only its heavy chain.

 

In a pre-clinical study, Crucell’smAb CR6261 was compared with the anti-influenza drug oseltamivir (Tamiflu) interms of its value for flu prevention and treatment; the monoclonal antibodystrongly outperformed oseltamivir.

 

The flu strains tested included the‘bird flu’ strain H5N1, which experts fear has the potential to cause apandemic, and H1N1 (including the recent pandemic H1N1 2009 virus), which issimilar to a descendant of the flu virus that caused the devastating pandemicin 1918. Importantly, the study showed that CR6261 provides immediateprotection against the influenza virus, suggesting that it will be able toprevent disease spread. In contrast, oseltamivir was less efficacious and, insome cases, not effective at all.

 

In August 2009, Crucellreceived an award from the US National Institute of Allergy and InfectiousDiseases (NIAID), part of the National Institutes of Health (NIH) for thedevelopment of our monoclonal antibodies for the treatment of seasonal andpandemic influenza. A month later, Crucell entered into an exciting strategiccollaboration with Johnson & Johnson, through its subsidiaryOrtho-McNeil-Janssen Pharmaceuticals, Inc. The immediate focus of thecollaboration will be the development and commercialization of a universalmonoclonal antibody product (flu-mAb) for the treatment and prevention ofinfluenza. One of the key focus areas of the long-term innovation collaborationwill be new discovery programs leading to the development and commercializationof a universal influenza vaccine.

 

**Hepatitis Cantibody combination**

 

In August 2009, Crucellobtained an exclusive license from Stanford University (Palo Alto, California)for the development of an antibody combination against the hepatitis C virus(HCV). A large panel of fully human monoclonal antibodies against HCV is beingevaluated by Crucell in a proof of concept phase. The monoclonal antibodieshave been found to neutralize the virus across all genotypes tested and eachrecognizes a different part of the HCV surface protein.

 

 

Worldwide, annual influenza epidemics result in about threeto five million cases of severe illness, and about 250,000 to 500,000 deaths. (WHO, Influenza (seasonal) fact sheet, April 2009)

 

25

 

**Our business**

 

**Technologies**

 

 

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

 

26

 

**Our business**

Technologies

 

 

27

 

 

**Our business**

 

**Technologies continued**

 

Crucell’s innovative approach hasnot only led to a broad range of successful vaccines and promising pipelineproducts, it has also inspired the development of an array of patentedtechnologies to support that portfolio. We have five core proprietarytechnology platforms.

 

**PER.C6****®**** technology**

 

Crucell’s PER.C6® cell line is derived from a single, human cell, immortalizedusing recombinant DNA technology. As a result, PER.C6® cells can replicateindefinitely, making them uniquely flexible and ideally placed to meet therising volume demands and stringent safety requirements of today’sbiopharmaceutical industry.

 

In areas where we do not aim todevelop our own products, Crucell licenses the technology, leading to a numberof companies and organizations around the world opting to use our PER.C6® technology platform.Potential customers not only need our know-how, but our PER.C6® cells, which are onlyavailable from us under agreement. This combination ensures PER.C6® is the best protectedhuman cell technology in the world.

 

 

**Record-leveltiter achieved at harvest for an antibody product using PER.C6**®** human cell line technology.**

 

Since 2008, we have collaboratedwith DSM Biologics and together we license PER.C6® for proteins and antibodies and invest in further innovationof the technology. We feel there is still tremendous potential to reduce theproduction costs of monoclonal antibodies whilst increasing yield, leading tomore affordable treatments for patients.

 

 

We have developed an enhanced cellsettling technique for clarification of high-density cell cultures of PER.C6® cells.1 The method overcomesthe limitations of traditional technologies and provides rapid reduction ofcell mass while significantly reducing impurities.

 

1 Emily Schirmer et. al. BioprocessInternational, January 2010-02-08.

 

We also believe that antibody andother protein products based on PER.C6® technology may demonstrateenhanced biological properties, rendering them potentially more effective.

 

**AdVac**®** technology**

 

Crucell has been a key player inthe development of adenoviral-based vaccines for more than six years. This hasled to the availability of proprietary AdVac® vectors, constructedfrom adenoviruses not usually found in

 

28

 

**Our business**

Technologies

 

humans, such as Ad35. AdVac® vectors can beengineered to contain small genetic fragments of various viruses, parasites andbacteria, allowing the development of a wide variety of novel vaccines. Whileno adenovirus-based recombinant vaccines are currently on the market, AdVac®-based vaccines for tuberculosis (TB), malaria, Ebola andMarburg, and HIV are in (pre) clinical trials.

 

In contrast to commonly usedadenoviral vectors, AdVac® technology can circumventpre-existing immunity offering accurate dose control of vaccines.

 

AdVac® vectors can beproduced on the PER.C6® cell line, which supports thecost-effective production of industrial-scale quantities of vaccines.

 

**MAbstract****®**** technology**

 

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

 

It has been used to isolateantibodies for numerous diseases which can then be directly reformatted intoantibodies for production using our PER.C6® technology.

 

We believe MAbstract**®** has a number of potential advantages overother technologies on the market. For example, it uses a subtraction method ofselection not available when generating human monoclonal antibodies with othertechnologies and it does not have an inherent limitation on antibodyspecificity. Fully human monoclonal antibodies also have an excellent safetyprofile.

 

**STAR****®**** technology**

 

We acquired STAR**®** technology in 2004 and it has provedinvaluable for increasing production of recombinant antibodies and therapeuticproteins on mammalian cell lines. One of its strong advantages is that thewell-established mammalian cell banks used in STAR**®** technology eliminate the need for speciallyengineered mammalian cells. This also allows for rapid, stable mammalian cellclone generation, which typically produces five to ten times more antibody orother therapeutic proteins compared to cell clones generated without STAR**®**.

 

 

**Virosometechnology**

 

One of the challenges in vaccinedevelopment is creating products with defined antigens of high purity that canefficiently induce a protective immune response. To solve this, many antigenpreparations resort to adjuvants to enhance the body’s immune response. Themost commonly used are aluminum salt derivatives, which are known to causeadverse reactions, for example, irritation and inflammation at the injectionsite.

 

Our virosome technology offers atool for developing novel, predominantly synthetic vaccines for infectious andchronic diseases. These vaccines offer additional benefits because they areeffective even in immune-suppressed patients and infants.

 

Virosomes are completelybiodegradable and the technology is used in the manufacture of several ofCrucell’s registered products where it has an excellent safety record.

 

29

 

**Our business**

** **

**Products**

 

 

Crucell vaccines have an excellentsafety record and are distributed globally in more than 100 countries. In thefollowing pages we focus on our range of marketed products, many of whichoffer unique advantages to the people who benefit from them.

 

30

 

**Our business**

Products

 

 

31

 

**Our business**

 

**Products continued**

 

Vaccines play a pivotal role inprotecting against diseases and contribute significantly to an improvement inglobal health.

 

**Products**

 

Our marketed vaccines currentlycombat 12 major infectious diseases. In 2009 we distributed more than 115million vaccine doses in over 100 countries throughout the world. Our productportfolio consists of three distinct focus areas:

 

·                  Paediatric

·                  Travel &endemic

·                  Respiratory

 

**Distributionof Crucell products**

 

 

**Crucell productsdistributed**

**Untapped markets**

 

**Quinvaxem****®**

 

 

Quinvaxem**®** is the only fully liquid pentavalentDTwP-HepB-Hib vaccine that is free from the preservative thiomersal. It is anideal solution for infants and protects against five potentially deadlychildhood diseases: diphtheria, tetanus, pertussis, Haemophilus influenzae typeb disease and hepatitis B. In its fifth year in the Extended Programme for Immunization (EPI), over 130milliondoses of Quinvaxem**®** have been delivered to morethan 50 countries. In August2009,supranationalorganizations renewed along-term arrangement withCrucell for the supply of$300million worth ofQuinvaxem**®** for the period2010-2012.This figure isprojected to grow furtherover the three year period.TodayQuinvaxem**®** has amarket share of over 50%.

 

**Quinvaxem****®**** vaccines sold**

(Doses in million units)

 

 

**Hepavax-Gene****®**

 

 

Hepavax-Gene**®** is a prophylactic recombinant vaccine againsthepatitis B virus infection, providing long-term protection. With a trackrecord of more than 500 million doses administered worldwide, it is also one ofthe established WHO pre-qualified vaccines.

 

32

 

**Our business**

Products

 

**MoRu-Viraten****®**

 

 

MoRu-Viraten**®** is a safe, well-tolerated and effectivevaccine for protection against measles and rubella in children, adolescents andadults. MoRu-Viraten**®** is free of eggproteins and antibiotics, posing no risk to children with allergies to thesesubstances. The vaccine has been marketed since 1986 and is on the WHO list ofvaccines for purchase by UN agencies.

 

**Epaxal****®**** and Epaxal****®**** Junior**

 

 

Epaxal**®** is the only aluminum-free hepatitis A vaccineon the market. The absence of aluminum reduces the pain when injected, makingit particularly well-suited to the paediatric market. Epaxal**®** induces protective antibody levels within 10days of primary vaccination and provides seroprotection for at least 20 yearsfollowing the second (booster) dose. Its excellent efficacy and safety havebeen documented in many clinical trials and it can be fitted into the regularimmunization schedule for babies. Epaxal**®** is licensed in morethan 40 countries worldwide. Epaxal**®** Junior is a lowdosage vaccine for the paediatric market with superior tolerability.

 

**Vivotif****®**** **

 

 

Vivotif® is a live attenuatedoral vaccine for the prevention of typhoid fever. It is the only oral vaccineindicated for use against Salmonella typhi, the most prevalent of the entericfever-causing bacteria. Protective efficacy has been proven in several large-scalefield trials and it has an excellent track record for safety, having been onthe market for more than 20 years. It is currently licensed in over 30countries, including the USA. Results suggest that Vivotif® may be unique in alsoprotecting against S. paratyphi, another common cause of enteric fever.

 

**Dukoral****®**

 

 

Dukoral**®** is a liquid oral vaccine which stimulates theimmune response in the intestine to provide 85% protection against diarrheacaused by cholera. It has alsoshown documented protection against traveler’s diarrhea caused by e-coli.Dukoral**®** was first licensed in 1992 and isnow licensed in over 60 countries. It is presently the only internationallylicensed oral cholera vaccine. To date, more than 10 million doses of Dukoral® have been suppliedand it enjoys an excellent safety record.

 

**Inflexal****®**** V**

 

 

Inflexal® V is a virosomaladjuvanted vaccine against influenza, based upon the virosome technologydeveloped and patented by Crucell. It is the only adjuvanted flu vaccinelicensed for all age groups (from six months). The vaccine’s antigencomposition follows yearly WHO recommendations. Inflexal® V was originally introducedin 1997, is registered in 43 countries and has extensive market experience,with more than 49 million doses confirming its safety profile. The tolerabilityof Inflexal® V is excellent due to its biocompatibility andpurity.

 

We also distribute a variety ofother products, such as Gardasil® (Merck) and Prolastin® (Talecris).

 

33

 

**Crucell’s commitment to corporate social responsibility**

** **

**Expanding the scope of our ambitions**

 

 

As part ofCrucell’s corporate strategy,The Crucell Ambition, we are working hardto translateour commitment to corporatesocial responsibility (CSR) into action. In ourefforts tofurther improve global healthworldwide, developing our CSR performanceandreporting are key priorities for Crucell inthe coming years. In the followingpages wehighlight our standards for doing business ina responsible way.

 

34

 

 

35

 

**Crucell’s commitment to corporate social responsibility**

** **

**Expanding the scope of our ambitions continued**

 

**A pivotal year**

 

Crucellhas made important progress in developing its approach to corporate socialresponsibility (CSR). In 2009 we made the transition from the ambition to focusmore on CSR performance and transparency, to a strategy for how to do this. Wealso created the basic framework necessary for embedding a CSR program in theorganization.

 

A globalCSR policy, focusing on the four themes of Performance, People, Planet andPhilanthropy, has been outlined. Key performance indicators, ambitions andtargets have been defined for each category, and construction of a centralizeddata management infrastructure is underway. Top-level ownership of the CSRprogram will support the continuous development of this approach in the yearsahead.

 

Thischapter describes where Crucell now stands in terms of CSR performance, wherewe are heading and how we plan to get there.

 

Theinformation in this chapter covers the entire organization for the year 2009unless otherwise stated. Crucell has not sought external verification of theinformation in this chapter as our current priority is to completeimplementation of our systems for CSR information management and reporting.

 

**CSR highlights in 2009**

 

· Crucell made great progress towards a global, evidence-basedsystem for systematic CSR development and reporting.

· Crucell formulated concrete ambitions and targets in the CSRcategories of performance, people, planet and philanthropy.

· Crucell was listed on the Dow Jones Sustainability Index(September 2009).

· Ronald Brus was named biotech CEO of the year at theinternational Vaccine Industry Excellence Awards.

· Crucell and Johnson & Johnson signed a landmarkagreement based on Crucell’s unique capabilities for healthcare innovation; thebillion-euro deal provides an enormous boost for these capabilities.

· Crucell started introducing the Flex Factory, arevolutionary approach to manufacturing. Substantial reductions in pipelinedevelopment times and production costs (for new products) are expected.

· Crucell professionalized its procurement organization,thereby laying the foundation for responsible supply chain management.

· Crucell launched ‘Footprint’, its own outreach program. Theprogram will bring Crucell employees and people in disadvantaged communitiestogether, in ways that benefit both groups.

 

**In thischapter**

 
| Overview: Crucell’s responsibility to society     |   | 37 |
|--------------------------------------------------------|--------|----|
| Transparency: Developing our approach to CSR           |   | 40 |
| Review: Crucell’s contribution to society in 2009 |   | 44 |
| Performance                                            |   | 44 |
| People                                                 |   | 52 |
| Planet                                                 |   | 57 |
| Philanthropy                                           |   | 59 |
| The way forward: CSR ambitions, targets and tools      |   | 64 |

 

36

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

 

**Crucell’s responsibility tosociety**

 

**Doing business with a warm heart and a cool head**

 

Crucell isdeeply committed to being a good corporate citizen: a company that createssignificant value for society. Our mission is to make a truly meaningfulcontribution to global health by directing our proven talent for innovationtowards the fight against infectious diseases. An entrepreneurial mind-set andsocial responsibility go hand-in-hand at Crucell.

 

We focus onmajor health threats that demand innovative solutions, striving to lead ratherthan to follow. Wherever we can, we focus on disease prevention rather thancure, knowing that this approach offers the best protection for societies’economies as well as for the individuals in these societies. We focus, too, onbusiness growth and operational excellence, so that we can deliver sustainablebenefits to all our stakeholders—from the people who use our healthcareproducts to those who invest in our company.

 

By running Crucell‘with a warm heart and a cool head’, we aim to generate sustainable profit,measured in both healthcare and financial terms. Revenues from product sales,technology licensing and partnerships are reinvested in our innovation anddiscovery programs, the acceleration of new product development in ourresearch & development (R&D) pipeline, and activities to expandaccess to our marketed products. Savings derived from greater operationalefficiency are also used to further Crucell’s core business of healthcareinnovation. Fuelling this virtuous cycle of business and health benefits isCrucell’s primary corporate social responsibility.

 

**Health and wealth**

 

The essential link between healthand wealth is well established. An extensive body of evidence indicates thathealthier individuals and societies are better off financially, and thateffective primary healthcare—especially disease prevention—is crucial forsocioeconomic development. These insights are fundamental to the UnitedNations’ Millennium Development Goals.

 

**An increasingly urgentmission**

 

Crucell’s commitment to innovationand focus on infectious diseases is becoming all the more important in the faceof worldwide trends affecting health and well-being.

 

· Globalization and urbanization are promotinginfectious diseases spread by insects or water, such as dengue fever, choleraand typhoid fever. Respiratory diseases like tuberculosis (TB) especiallyaffect the urban poor.

· Climate change and weather extremes are changing theincidence or geographical distribution of vector-borne diseases like malariaand dengue fever.

· Mobility and ease of travel are increasing the rapidglobal spread of infectious diseases like tuberculosis and influenza, as wellas increasing the risk of ruined holidays for travelers to exotic locations.

· Population growth and aging are associated with agrowing prevalence of infections carried in food and water that causeintestinal diseases like cholera, typhoid fever and hepatitis A.

 

“By running Crucell ‘with a warm heart and a cool head’, we aim togenerate sustainable profit, measured in both healthcare and financial terms.”

 

37

 

**Crucell’s commitment to corporate social responsibility**

** **

**Expanding the scope of our ambitions continued**

 

“We work to bring significant benefit to the lives of people worldwide byrecognizing our wider responsibility to society.”

 

**Widerresponsibilities**

 

We are committed to conducting ourbusiness with integrity, in a way that respects the rights and needs of ourlarge network of stakeholders, inside and outside the company. We value—andinvest in—being a company that talented people want to work with and for.

 

We want to help protect our planetby minimizing our environmental footprint and making sustainable practices apriority in our company. At present, Crucell is the smallest of the majorvaccine companies—though growing very fast—and therefore our manufacturingoperations are relatively modest. However, we are committed to identifying andseizing opportunities to improve performance in this area. This also meansworking proactively in anticipation of future growth.

 

We also place great value on doingmore to benefit society than we strictly ‘must’ do in accordance with Crucell’smission: bringing innovation to global health. This commitment embraceseverything from the sharing of scientific knowledge to community outreachprograms.

 

**Ourstakeholders**

 

Crucell works to bring significantbenefit to the lives of people worldwide. This requires constructiveinteraction with a large number of stakeholders, including employees,legislators, investors, policy makers, business partners, licensees, suppliers,customers and organizations dedicated to sustainability issues.

 

Our external stakeholders are far toonumerous to mention, but in the interests of transparency here is a shortlistof key examples.

 

· Legislators:US Food and Drug Administration, European Medicines Agency, and nationalregulatory authorities.

· Investors:the Dutch association of investors for sustainable development,Johnson & Johnson, Aviva.

· Policymakers: World Health Organization (WHO), Pan American Health Organization(PAHO), GAVI Alliance.

· Businesspartners: Johnson & Johnson, DSM Biologics, Merck, Novartis, sanofipasteur, Wyeth and MedImmune.

· Customers:Supranational purchasing organizations such as Unicef (on behalf of developingcountries); public and/or private health organizations in developed countries.

· Sustainabilityorganizatons: Dow Jones Sustainability Index, Carbon Disclosure Project.

 

**Stakeholderengagement**

 

We choose our business partnerscarefully, seeking above all a shared commitment to business integrity andhealthcare innovation. We require our suppliers to comply with the Crucell Codeof Conduct, our commitment to adhere to the highest ethical and legal standardsin all aspects of our business.

 

38

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

 

Our ambition is to makesustainability issues an integral part of our ongoing dialogue withstakeholders. During 2009 we laid the basis for realizing this, for example byestablishing a global procurement policy that will enable continuousimprovement in responsible supply chain management.

 

As part of the rebranding processleading to the launch of the global Crucell identity in November 2009,Crucell asked a diverse group of stakeholders (approximately 30; half internaland half external) for feedback on how they perceive Crucell in relation to CSRissues. The external participants included representatives of anon-governmental organization, a distributor, business partners, travelclinics, the nursing profession, an employment agency and a financial analyst,among others.

 

The survey results showed thatstakeholders generally perceive Crucell as a responsible corporate citizen. Allfound CSR to be an important issue for Crucell, particularly in view of its corebusiness. They felt that Crucell should do more to raise awareness of its CSRactivities and to communicate these activities. This advice has helped to shapethe development of Crucell’s CSR policy and plan. We see this example ofstakeholder engagement as a first step towards establishing an active dialogueabout CSR issues with our stakeholders worldwide.

 

39

 

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

**Transparency: Developingour approach to CSR**

 

**Towards a systematic approach**

 

Crucell isa dynamic and creative organization that encourages employees at all levels ofthe company to show initiative and take responsibility. We see that manyinnovations relating to corporate social responsibility (CSR), among otherfields, happen because of the passion, inspiration and insights of individualsclosest to a work process. During 2009 there were many examples of that Crucellspirit in action.

 

Werecognize that Crucell can contribute even more to society by formulatingshared CSR goals and addressing these in a structured way. In 2008, Crucelltook the first steps towards a more comprehensive and transparent approach toCSR.

 

In 2009, significant advances havebeen achieved where we made the transition from a working ambition to makeCrucell’s CSR more prominent in the organization and more transparent for theoutside world, to a strategy for how to do this. We also started building theglide path from where we are, to where we want to be. We have moved forward,step by step, using an approach that fits our corporate culture and our stageof development.

 

**Buildingthe system**

 

Initially, current practicesrelating to CSR were surveyed by interviewing a large number of employees froma broad cross-section of functions and sites. This survey revealed a stronginterest in CSR and a wide range of initiatives making a tangible contributionto the development of CSR awareness and good practices. Examples are describedlater in this chapter. The survey also highlighted the need for a moresystematic and consistent approach to CSR, guided by a 

 

40

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

global policy and clear targets,and supported by appropriate tools for measuring and reporting CSR performanceagainst these targets.

 

Armed with this information,Crucell created the framework necessary for embedding a mature CSR program inthe organization. This framework includes the outlines of a global CSR policy,key performance indicators, construction of a centralized system for managinginformation relevant to CSR (see footnote page 43), a working group andmeeting structure, and a system of governance. Overall ownership of CSR hasbeen taken on by Chief Executive Officer Ronald Brus, ensuring top-levelsupport for its ongoing development. Chief Operating Officer Cees de Jong isresponsible for operational aspects. Crucell’s CSR program and progress will bediscussed at Management Board meetings and in formal meetings of the CSRworking group at least two times a year.

 

Concrete CSR ambitions and targetsfor the coming years were defined by Crucell’s Management Board after reviewingthe outcomes of the interviews with employees throughout the organization. Thisapproach is consistent with Crucell’s culture, which values open dialogue inthe process of decision making. It also establishes a springboard for the rapidimplementation of CSR policy and adherence to the targets set.

 

Details of Crucell’s CSR system, includingresponsibilities, key performance indicators and targets are given in the finalsection of this CSR chapter.

 

 

**CSRbenchmarks**

 
|  | Crucell’s baseline  performance on external benchmarks of CSR reporting is good. |
|--|---------------------------------------------------------------------------------------|

 

Crucell was listed on the Dow JonesSustainability Index (DJSI) on September 3, 2009, in recognition of thesignificant steps the company has taken to define and develop its commitment tosustainability issues. We are very proud of this achievement. The DJSI wasintroduced in 1999 to indicate international corporations that have madesustainability an integral part of their business strategy. Companies areincluded on the basis of best-in-class performance.

 

Another objective measure ofCrucell’s progress in CSR development is Crucell’s participation in the CarbonDisclosure Project (CDP) in 2009. This project is a worldwide, investor-driveninitiative encouraging multinational corporations to report on theirenvironmental impact, specifically in relation to carbon emissions and climatechange.

 

In the Netherlands, where Crucellhas its global headquarters, the Company’s performance in CSR reporting showedgood progress in 2009 compared to the previous year. Crucell’s overall scorerose 17 points on the 100-point ‘Transparency Benchmark’, an index published bythe Dutch Ministry of Economic Affairs. This placed Crucell in the top threecompanies showing fastest progress.

 

 

Crucell’s next challenge regardingCSR reporting will be to meet the comprehensive criteria established by theGlobal Reporting Initiative (GRI). This international standard of CSR transparency demands much more data, and more performancemeasures, than we had access to in 2009. The systematic approach introduced in2009 lays the foundation

 

41

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

“Taking the next leap forward in CSR is an important focus for us.”

 

for achieving our ambition tocontinuously improve our level of GRI compliance and reach A level in 2015.Details of our current GRI compliance (self-declared C level) can be found onour website: www.crucell.com/commitment_to_csr.

 

Recording, measuring and reportingon our CSR performance in a verifiable and comprehensive way demandsconsiderable ongoing investment of time, effort and money. Crucell’s ManagementBoard considers this a priority for several reasons. First, we see transparentcommunication about CSR to be a social responsibility in itself. Second, we believethat by achieving greater insight into our impact on society, we will be bestable to weigh up the multiple considerations that shape our strategic decisionmaking. We want a CSR system that will enhance the virtuous cycle of innovationthat links business profit with health and its associated socioeconomicbenefits.

 

**Asupportive environment for CSR**

 

The growing maturity of Crucell’sapproach to CSR has to be seen in the context of Crucell’s overallorganizational development.

 

In 2009, Crucell implemented a widerange of programs designed to facilitate the integration of the Company’shistorically separate components, streamline processes and capture synergies,improve data management and promote cost-efficiency. Many of these initiativesemerged from the operational excellence program launched at the start of 2008.All are directed towards a single strategic goal: creating a sustainablebusiness model that lives up to Crucell’s ambitious promise to bring innovationto global health.

 

The launch of the global Crucellbrand on November 16, 2009, expresses the new maturity of our organizationand our growing impact on world health. Crucell embarked on an ambitiousmission in 2006 by acquiring Swiss vaccine maker Berna Biotech, SBL Vaccines ofSweden, and Berna Products Corporation. With these acquisitions, Crucell becamethe largest independent vaccine company in the world. Three years later,

 

42

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

“Global branding fits our ambition to increase transparency andvisibility.”

 

global branding is a logical andnecessary step to display the innovative power of today’s Crucell—anintegrated, global organization. Even more importantly, it will help tostrengthen our business and the contribution we can make.

 

Global branding fits Crucell’sambition to increase transparency and visibility. It supports a more harmonizedway of working within the company and towards external stakeholders.

 

Crucell’s transition towards a morecentralized, systematic and transparent approach to CSR is supported by thisevolution. Indeed, without the global policies and practices established in2009, taking this next leap forward in CSR would not have been possible.

 

**A globalCSR policy**

 

Crucell’s global CSR policy isfounded on a four-part framework (see 4P Framework on the right), correspondingto the four main ways in which we want to make a positive contribution tosociety. This organizational principle is to some extent artificial. Inpractice, there is considerable overlap among the four categories, pointing tothe interdependence of CSR activities. Crucell’s policy provides theoverarching vision needed to coordinate these efforts.

 

In the next section of this CSRchapter, we discuss Crucell’s activities in each of these four categoriesduring 2009.

 

**A ‘4PFramework’ as a foundation for a CSR Policy**

 

 

This framework system (ReportingManual), now under construction, includes definitions of performanceindicators, instructions for CSR reporting (how, what and who) and aninformation management tool. The Reporting Manual is being custom-built to fitCrucell’s organization and CSR policy. Roll-out of the Reporting Manualcompany-wide in 2010 is one of the quantitative targets set by Crucell’sManagement Board.

 

43

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

Review: Crucell’s contribution tosociety in 2009

 

**Performance**

 

Under the umbrella of ‘Performance’are grouped the four aspects of CSR that relate most directly to Crucell’s corebusiness: innovation, saving lives, responsible supply chain and transparency.

 

By the latter, we mean theresponsibility to evaluate and report on our CSR activities in a comprehensiveand systematic way. As discussed in section two of this chapter (Transparency:Developing our approach to CSR), we have made significant progress towardsgreater CSR transparency by outlining a global policy and initiating anevidence-based CSR system. The key performance indicators, ambitions andtargets defined are covered in detail in section four: ‘The way forward:Crucell’s CSR ambitions, targets and tools’.

 

**Creatingvalue through innovation**

 

Innovation is the foundation onwhich Crucell was built, and the fuel driving us forward. It is the key toachieving the virtuous cycle of sustainable business and health gains that liesat the heart of our strategic and CSR ambitions. 2009 was a breakthrough yearin this regard.

 

The revolutionary influenzaantibody research going on in our innovation & discovery (I&D)group, led by Chief Scientific Officer Jaap Goudsmit, attracted the world’slargest healthcare company, Johnson & Johnson (JNJ), to sign a trulyextraordinary agreement with Crucell in September, 2009. Crucell’s scientistshave discovered antibodies that cross-neutralize influenza viruses of differentsubtypes (including H5 and H1) and provide immediate protection against a broadrange of flu strains in pre-clinical models.

 

The agreement with JNJ guaranteesfull funding for bringing our flu antibodies to market as quickly as possibleand expanding our I&D programs. A payment of more than €300 million forJNJ’s minority stake in Crucell also provides an immediate cash injection forour other pipeline programs, which are developing much-needed solutions formalaria, tuberculosis, rabies and other major threats to human health.

 

The partnership with JNJ is thelatest in a string of partnerships Crucell has forged over the past few yearswith leading industry and academic organizations. For more information onCrucell’s agreements with strategic business partners (including DSM Biologics,JNJ, MedImmune, Merck, Novartis, sanofi pasteur and Wyeth) go towww.crucell.com/partners. There you will also find a full listing of ournumerous research & development partners and licensees.

 

We choose our business andscientific partners carefully, seeking above all a shared commitment tohealthcare innovation and integrity. We invest significant time and energy intobuilding and maintaining good relationships with these partners. Opencommunication and regular evaluations are an essential part of this.

 

 

44

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

**The Flex Factory: aparadigm leap offering exciting benefits**

 

The Flex Factory can most simplybe described as a modular system of mobile clean rooms containing lightweight,mobile equipment based on disposable technology—that is, all parts of theequipment that come into direct contact with the biological material aredisposable.

 

In contrast to a traditionalmanufacturing facility, with its cumbersome stainless steel bioreactors andseparate, airlocked clean rooms for the various manufacturing steps, the FlexFactory is extremely compact, flexible and mobile. It is also highly cost- andenergy-efficient, as the use of disposables eliminates the need for complicatedcleaning and sterilization of equipment between production batches.

 

What makes this ‘lean and green’innovation truly revolutionary, however, is that it transforms the approach toproduct development—in ways that reduce the risks inherent in biopharmaceuticalinnovation and the time required to bring a new product to market.

 

At present, biopharmaceuticalmanufacturers invest in equipment and a facility specifically designed for themanufacture of a new product long before that product reaches Phase III (thelast phase of testing in humans, and the final hurdle before regulatoryapproval for commercialization of a new product). This is necessary because theregulatory authorities require that Phase III clinical trial material ismanufactured in the same set-up—using the same process—that will be used formanufacturing the commercial product.

 

The Flex Factory breaks thistraditional paradigm. Because of its mobility and flexibility, the Flex Factorycan be recreated in any location. “Once you have a positive outcome with acandidate product in Phase III, you go to the final manufacturing site andinstall the same equipment used for Phase III manufacturing,” explains AlainPralong, Crucell’s Senior Director Process Development. “As well as saving alot of time, this continuity will allow us to develop a process that fits ourmanufacturing platform—the Flex Factory—rather than building expensivefacilities to fit a process.”

 

 

“This ‘lean and green’ innovationreduces the risks inherent in biopharmaceutical innovation.”

 

It is estimated that full implementationof the Flex Factory will substantially reduce capital expenditure, cutoperating costs and possibly shrink the average development time for a new,best-in-class compound to as little as eight years, compared to the current 11–15years.

 

45

 

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

In 2009, Crucell took an exciting,proactive step in anticipation of future development by starting to introduce arevolutionary approach to manufacturing called the Flex Factory. This is apioneering move: when the Flex Factory is fully implemented, Crucell will bethe first in the world to have a biotech manufacturing process that isconducted from start to finish using only disposable equipment. This approachwill significantly reduce development timelines for our pipeline products andslash energy consumption during manufacturing, compared to traditionalfacilities (see box about The Flex Factory on previous page).

 

“The disposables strategy brings downoperational costs so significantly that it enables us to consider makingtherapies for indications that we could not have considered before,” says ChiefExecutive Officer Ronald Brus. “And it is a perfect fit with our high-yield,cost-efficient PER.C6® human cell line technology, whichwas designed to make affordable and innovative new therapies possible.”

 

In recognition of the visionaryleadership that has made Crucell the world’s largest independent vaccine maker,Ronald Brus was named Biotech CEO of the Year at the Vaccine IndustryExcellence Awards, held in Washington in April, 2009.

 

** **

Designedto make affordable and innovative new therapies possible.

 

**Preventingillness and death**

 

In 2009, Crucell distributed morethan 115 million vaccine doses in more than 100 countries around the world,with the vast majority of doses (94.7%) going to developing countries, wherethe burden and impact of infectious diseases are greatest. Crucell’s currentportfolio of marketed vaccines provides protection against a total of 12 majordiseases. Based on the best available evidence regarding vaccine efficacy,disease incidence and case fatality, in 2009 Crucell’s ‘top five’ vaccines*prevented 3.6 million cases of infectious disease and 819,000 deaths that wouldhave been caused by these diseases in unvaccinated populations. Thiscalculation assumes a vaccine waste rate of 2%.

 

Comparison with previous-yearfigures demonstrates that Crucell has strengthened its impact on global healthin 2009 by expanding vaccine sales and markets. In 2008, we reported more than100 million vaccine doses had been distributed for the protection of people inmore than 80 countries. This translated into the prevention of an estimated 3.1million cases of infectious diseases and over 700,000 deaths among these casesin 2008.

 

**Quinvaxem****®**** and beyond**

 

Sales of Crucell’s lead productQuinvaxem® showed strong growth in 2009, continuing thetrend seen since the launch of this innovative pentavalent (five-in-one)vaccine towards the end of 2006 (see page 32 for details). Quinvaxem® combines the vaccinesagainst five deadly childhood diseases into a single injection. Developedspecifically to meet the needs of the world’s poorest communities, Quinvaxem® is making animportant contribution towards achieving the United Nations MillenniumDevelopment Goals, in particular the target of reducing the under-fivemortality rate by two-thirds between 1990 and 2015.

 

*Crucell’s top five vaccines in terms of sales are Quinvaxem®,Hepavax-Gene®, Epaxal®, Inflexal® V and Vivotif®.

 

46

 

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

 

“In 2009, Crucell distributed more than 115 million vaccine doses in morethan 100 countries. Crucell’s ‘top five’ vaccines prevented 3.6 million casesof infectious disease and 819,000 deaths.”

 

The initial success of Quinvaxem® owed much to itsinnovative formulation and presentation. It was the first fully liquid vaccineof its kind, ready for use without further preparation by healthcare workers inthe field, and its presentation in single-use vials reduces the risks ofvaccine contamination or waste. These are key considerations for communitiesstruggling to cope with hygiene problems and to make the best use of limitedhealthcare resources. Now that other manufacturers are starting to bringsimilar vaccines to market, Crucell’s outstanding track record for quality,productivity and reliability—all along the supply chain—is becomingincreasingly important for maintaining our competitive advantage. The newawards for supply of Quinvaxem® placed by supranationalorganizations in 2009*, confirm Crucell’s added value in this regard.

 

Throughout 2009, Crucell’s Koreanorganization achieved remarkable results in upscaling the production ofQuinvaxem® and Hepavax-Gene® while simultaneouslymaking rapid progress on the construction of a new manufacturing facility inthe Incheon Free Economic Zone. The new plant will enable further increases inproduction capacity and efficiency in order to meet anticipated growing demandfor Crucell’s pentavalent and hepatitis B vaccines.

 

Meanwhile, Crucell continued towork on life-cycle development of our existing products in order to maximizethe creation of value—measured in human and commercial terms. Examples are ourefforts to launch Epaxal®, Crucell’s hepatitis A vaccine, on the US market and to widen theindications (registered medical uses) of our vaccine Dukoral® in those countrieswhere it is only registered for the prevention of cholera. Dukoral® also has provenefficacy for preventing traveler’s diarrhea caused by ETEC, an *E. coli* bacterium common inresource-limited regions. We made important progress in both areas during 2009.

 

*Since the launch of Quinvaxem® in October 2006, Crucell has receivedawards of US$0.8 billion for the supply of Quinvaxem®; US$0.5billion for the tender period 2007-2009 and a further US$0.3 billion in thefirst round of awards for the 2010-2012 tender period. The supranationalorganizations have so far awarded approximately half of the volume for thistender period.

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

 

“The Healthy Ambition program delivered over €30 million in run-ratesavings.”

 

**Creatingvalue through operational excellence**

 

Crucell’s operational excellenceprogram, Healthy Ambition, headed by Cees de Jong, Chief Operating Officer, wassuccessfully completed in 2009, delivering valuable efficiency improvements andthe targeted run-rate savings of over 30 million Euros. All the money saved isbeing reinvested into building the business, with a key focus on investments inresearch & development (R&D). This is in line with our strategy touse strong operating cash flow to accelerate new product development.

 

However, this is only the beginningof Crucell’s efforts to create value through operational excellence. ThroughHealthy Ambition we have set in motion a program that is expected to gathermomentum for the years to come, as initiatives emerging from the program arefully implemented and trigger further improvements.

 

One of many examples is therestructuring of Crucell’s global business into three franchises (paediatric,travel & endemic, and respiratory), each with its own BusinessManager. This structure provides overview, facilitates planning and enablesprocesses to be managed more efficiently, with even closer cooperation betweenour scientists and our business people.

 

As an organization, we made a bigleap forward in development and implementation of global policies and globalsystems in 2009. These are essential tools for achieving further, sustainableimprovements in operational efficiency, information management, transparencyand strategic decision making. They lay the basis for embedding sustainabilityin our organization.

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

 

**Building aresponsible supply chain**

 

Crucell sees the continuousimprovement of its own operational processes as a key aspect of responsiblesupply chain management. We also recognize that optimal management of oursupply chain, from a CSR perspective, goes beyond this focus on operationalexcellence. Our ambition is to continue developing in this area, so that issuesrelating to CSR can be systematically incorporated into our choice of suppliersand our relationships with them in 2011.

 

Important progress towards thisgoal was achieved in 2009 through the professionalization of Crucell’sprocure-to-pay (P2P) organization. First, an in-depth analysis of Crucell’sglobal spending patterns was conducted, using an automated tool for datacollection and analysis. This provided an overview of all Crucell’s suppliers,together with the costs, volumes and categories of goods and services purchasedworldwide. It also highlighted opportunities for improvements, over and abovethose achieved in the first phase of our operational excellence program.

 

These insights formed the basis fora strategy aimed at achieving sustainable excellence in the way we purchaseequipment, supplies and services. A key focus was to leverage our power as aglobal organization by introducing common procurement practices throughout thecompany, rationalizing suppliers, bundling order volumes, aligning terms andconditions, and so on.

 

Crucell moved swiftly to implementthese improvements, starting with a global procurement policy incorporatingbest practices. This has been communicated to all employees worldwide. A toolfor monitoring P2P performance and promoting employees’ adherence to globalpolicies has been introduced. This system of ongoing data collection andcategory-based analysis, at the global level, is an essential prerequisite forgreening the supply chain.

 

We have also drawn up new generalterms and conditions for vendors, which specifically refer them to Crucell’sCode of Conduct and require that they comply with this code in their dealingswith Crucell. This is a first step in the continuous improvement of responsiblesupply chain management from a CSR perspective.

 

At our site in the Netherlands, atangible benefit of smarter procurement practices has been the reduction ofchemical waste. By centralizing the purchase and management of chemicals usedin the Leiden laboratories, the facilities group has significantly cut theamount of chemicals that are purchased and can make sure that supplies are usedbefore their expiry dates. The environmental, safety and efficiency gains areobvious.

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

**Dealing with CSR dilemmas**

 

Corporate social responsibilitylies at the heart of Crucell’s mission to bring innovation to global health andmake a meaningful difference to the lives of people worldwide. In general, whatis good for Crucell’s business is good for society. Nevertheless, we aresometimes confronted with difficult choices between opposing responsibilities.

 

What to do, for example, if we seethe opportunity to develop a life-saving product that does not look attractivefrom a purely commercial point of view? Crucell was faced with that dilemmaseveral years ago, when our scientists discovered a mix of monoclonalantibodies (mAbs) with the ability to neutralize the rabies virus. “Initially,the market for this rabies product appeared to be small and unprofitable,”recalls CEO Ronald Brus. “But with 55,000 people dying in terrible sufferingfrom rabies each year, and solid evidence that our rabies antibodies couldprevent these deaths, we decided to proceed with development, in partnershipwith sanofi pasteur.”

 

It soon became apparent that intaking this humane course, Crucell also made a sound business decision: thepotential commercial value of this innovative rabies product is significant.Using Crucell’s highly cost-effective production method based on PER.C6® technology, the rabies mAbs can be produced at much lowercost than the blood-derived antibody product now on the market. The costreduction is so substantial that many countries that cannot afford thecurrently available antibody treatment will be able to buy the mAb product.This will open up new markets, making our rabies program a profitable ventureas well as a humanitarian one.

 

The example of rabies illustratesthe ideal resolution of a dilemma: achieving the optimal balance betweendifferent responsibilities. More often, one responsibility must take priorityover another. For example, it is not always possible to give equal attention tooperational and environmental concerns.

 

The construction of Crucell’s newmanufacturing facility in Incheon, Korea, illustrates this sort of dilemma. Wehave a responsibility to get this new production plant for Quinvaxem® and Hepavax-Gene® up and running assoon as possible, in order to meet the growing demand for these vaccines andensure continuity of supply. Crucell therefore made the decision to design thenew plant along the lines of the old one—while incorporating efficiency and capacityimprovements—rather than starting from scratch to design a ‘green’ facility.This approach has enabled very fast progress on the construction of the newplant and should facilitate its approval by the regulatory authorities. At thesame time, Crucell is moving towards ‘lean and green’ manufacturing of itsfuture products by introducing the Flex Factory (see page 45), a revolutionaryapproach to biopharmaceutical production.

 

Packaging is another area where wehave to weigh up conflicting interests. See page 57 for an example.

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

Our Swedish organization haslaunched a very successful program for recycling cool boxes—thetemperature-controlled containers that keep vaccines in good condition duringtransport. Normally, customers throw the boxes away once they have unpacked thevaccines. Crucell employees in Sweden came up with the idea of asking theircustomers in the Nordic region to return the boxes for reuse. Crucell pays forthe return transport, which amounts to approximately half the cost ofpurchasing the cool box, and reuses each box up to four times before disposingof it in an environmentally responsible way. When the project started inSeptember 2009, the target return rate was 60%. The response has farexceeded expectations, reaching 94% within three months. Crucell is now lookinginto the feasibility of widening the program to include other regions.

 

Since the start of 2009, 100% ofthe electricity consumed at our Dutch site has been ‘green’ energy, generatedby sustainable sources. This is a good example of how our local managers arealready working on responsible sourcing. With the roll-out of the global CSRpolicy and reporting manual in 2010 we aim to build on this foundation.

 

**Animalwelfare.** Before any candidate medicalproduct can be given to humans, it must be rigorously tested in pre-clinical(non-human) models. Crucell performs animal testing to the minimum extent thatis required by law. We conduct essential safety studies in animals inaccordance with the highest international standards, which are designed toprevent or minimize any suffering of the animals tested. Simultaneously, weapply the 3R principles—Reduce, Refine and (ultimately) Replace—to pre-clinicalstudies involving animals. Crucell has been working over many years to replaceanimal tests with cell-based assays, and these efforts have already resulted inthe significant reduction of animal testing.

 

 

“What is good for Crucell’s business is good for society.”

 

 

Since the start of 2009, 100% ofthe electricity consumed at our site in the Netherlands has been ‘green’energy.

 

51

 

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

**People**

 

The category ‘People’ encompassesCrucell’s responsibilities regarding employees, health and safety, and businessconduct.

 

**Being aresponsible employer**

 

Crucell’s ability to make adifference to world health depends on the creativity, passion and drive of theemployees making up our global organization. We are working hard to attractpeople with these qualities and to create the sort of environment that willinspire, empower and challenge them.

 

Crucell is growing fast—in 2009 ourglobal workforce expanded by 11% compared to 2008—in line with our business andhealthcare ambitions. The majority of the recruitment was in Leiden, theNetherlands, where we are building our research and development capabilities,and in the United Kingdom, where we launched our own marketing & salesorganization in October. The experienced UK team will enhance the visibilityand strengthen sales of Crucell’s travel vaccines in this high-potentialmarket.

 

Staff turnover has decreasedmarkedly, from 18.44% in 2008 to 13.12% in 2009, suggesting that our focusedefforts in relation to people and organization development are bearing fruit.(Note that the human resources statistics reported in this section are based onthe available data from Crucell’s five main locations, employing over 90% ofthe total workforce. With the implementation of the Reporting Manual we aim toachieve full coverage in 2010).

 

In 2009 we completed the leadershipdevelopment program initiated in 2008: managers at all levels have nowparticipated in this program, which emphasizes self-insight as the startingpoint for good leadership. All managers receive full-circle feedback (fromdirect reports, peers, and their own managers) as an integral part of annualperformance assessments.

 

We intend to extend this approachto include all employees. The percentage of employees receiving regularperformance reviews increased to 95% in 2009, and we are aiming for fullcoverage in 2010.

 

Senior managers took part in aprogram to emphasize their responsibility as role models in the organization.We believe that adherence to the Crucell Values—Integrity, Respect,Complementarity, Reliability, Innovation, Passion and Drive— has to be led byexample from the top. These values were also reinforced company-wide in 2009through numerous activities initiated by our Corporate Communications and HumanResources departments. For example, all employees received a birthday calendarhighlighting the values.

 

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**Crucell’s commitment to corporate social responsibility**

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Our employees’ opinions matter tous. As in 2008, last year monthly questionnaires were sent to 100 randomlyselected employees, asking them for their views on a wide range of issuesrelating to The Crucell Ambition, Crucell’s corporate strategy for developing thebusiness. The surveys invite employees to comment on the progress being madeand further improvements needed in the organization. In addition, informallunch meetings between Crucell’s CEO Ronald Brus and small groups of employeeswere held on a regular basis, with the aim of sharing perspectives among abroad cross-section of our people.

 

During 2009, we placed strongemphasis on raising CSR awareness and participation among our employees. Youcan read more about these activities in the section on ‘Philanthropy’ (seepage 71).

 

Crucell sees the value of diversityand strives to foster this, both in its recruitment practices andorganizational development. Our Dutch and Swiss sites each employ people from20 different nationalities, and our approach to operational excellence is basedon teamwork across sites and functions. This cultural and functional mixgenerates new insights for improving our business processes and is vital forbuilding a unified, fully integrated global company.

 

We are seeing a growing sense ofbelonging and common purpose among our employees around the world, largelythanks to this approach. The energetic efforts of our Corporate Communicationsteam, supported by local members of our Global Communications Network, alsoplay a vital role.

 

The number of female employees inour workforce increased by 16% in 2009 compared to the previous year, bringingthe percentage of women in the organization to 45% (up from 43% in 2008). Therelatively low number of women in senior management positions is a point forattention. However, Crucell is committed to recruiting and promoting employeeson the basis of talent and ability, without negative or positive discriminationon the basis of gender, race or age.

 

In 2010 our global human resourcesteam will implement an ambitious learning and development program for allCrucell employees. The aim is to facilitate and encourage our people at alllevels of the organization to continuously develop their skills and knowledge.By supporting our people’s opportunities to learn and grow, we aim to become astronger company that attracts and retains the right people. Our ambition is tobecome an ‘employer of choice’.

 

**Health andsafety**

 

Protecting the health and safety ofour employees is a moral obligation and essential for achieving our businessgoals.

 

Improving safety awareness wasfirmly on Crucell’s agenda in 2009. In line with objectives, safety trainingwas improved at all Crucell sites and all local safety officers were sent toDuPont safety training, the gold standard in the chemicals andbiopharmaceutical industry. 

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

**Table 1**

 

We value both gender and ethnicdiversity and accordingly act as an equal opportunity employer. Thecharacteristics of our workforce are as follows:

 
| ** **                           | ** ** | **China**  | ** ** | **Italy**  | ** ** | **Korea**  | ** ** | **Netherlands** | ** ** | **Spain** | ** ** | **Sweden** | ** ** | **Switzerland** | ** ** | **UK**  | ** ** | **USA** | ** ** | **Total** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-----------------|------------|-----------|------------|------------|------------|-----------------|------------|---------|------------|---------|------------|-----------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| **2009**                             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| Number of male employees             |       | 9          |       | 10         |       | 169        |       | 181             |       | 33        |       | 43         |       | 218             |       | 6       |       | 12      |       | 681       |       |
| Number of female employees           |       | 41         |       | 8          |       | 50         |       | 177             |       | 40        |       | 78         |       | 151             |       | 15      |       | 7       |       | 567       |       |
| **Total  number of employees**       | ** ** | **50**     | ** ** | **18**     | ** ** | **219**    | ** ** | **358**         | ** ** | **73**    | ** ** | **121**    | ** ** | **369**         | ** ** | **21**  | ** ** | **19**  | ** ** | **1,248** | ** ** |
|                                 |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| Average age of employees             |       | 30         |       | 46         |       | 36         |       | 36              |       | 45        |       | 45         |       | 40              |       | 40      |       | 44      |       | 40        |       |
| Number of women in  management       |       | 1          |       | 2          |       | 5          |       | 27              |       | 3         |       | 4          |       | 14              |       | 0       |       | 2       |       | 58        |       |
| Number of nationalities  perlocation |       | 1          |       | 1          |       | 4          |       | 20              |       | 2         |       | 7          |       | 20              |       | 3       |       | 5       |       | n/a       |       |
| ** **                           |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| **2008**                             |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| Number of male employees             |       | 9          |       | 12         |       | 167        |       | 139             |       | 30        |       | 45         |       | 225             |       | n/a     |       | 11      |       | 638       |       |
| Number of female employees           |       | 26         |       | 10         |       | 44         |       | 114             |       | 39        |       | 88         |       | 159             |       | n/a     |       | 8       |       | 488       |       |
| **Total  number of employees**       | ** ** | **35**     | ** ** | **22**     | ** ** | **211**    | ** ** | **253**         | ** ** | **69**    | ** ** | **133**    | ** ** | **384**         | ** ** | **n/a** | *****      | **19**  | ** ** | **1,126** | ** ** |
|                                 |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| Average age of employees             |       | 31         |       | 44         |       | 35         |       | 36              |       | 46        |       | 45         |       | 42              |       | n/a     |       | 43      |       | 40        |       |
| Number of women in  management       |       | 3          |       | 3          |       | 4          |       | 23              |       | 2         |       | 10         |       | 10              |       | n/a     |       | 3       |       | 58        |       |
| Number of nationalities  perlocation |       | 2          |       | 1          |       | 3          |       | 19              |       | 2         |       | 4          |       | 10              |       | n/a     |       | 5       |       | n/a       |       |
| ** **                           |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| **2007**                             |       |       |       |       |       |       |       |            |       |      |       |       |       |            |       |    |       |    |       |      |       |
| **Total  number of employees**       | ** ** | **30**     | ** ** | **38**     | ** ** | **162**    | ** ** | **325**         | ** ** | **66**    | ** ** | **129**    | ** ** | **357**         | ** ** | **n/a** | ** ** | **19**  | ** ** | **1,126** | ** ** |

 

*Not applicable, as Crucell’s UKorganization was launched in October 2009

 
| ** **                                                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Percentage employee turnover                                   |       | 13.20    | %          | 18.44    | %          |
| Percentage of employees in collective bargaining               |       | 17       | %          | 20       | %          |
| Percentage of employees receiving regular performance  reviews |       | 95       | %          | 93       | %          |

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

The number of accidents reported tosafety officers at our five manufacturing and/or development sites (whichemploy over 90% of Crucell’s total workforce) showed a marked decrease of 21%in 2009 compared to the previous year (27 versus 34 accidents in 2008) despitea significant increase in both our production volume and total number ofemployees. The majority of these accidents were minor and generic in nature,although a number of potentially serious ‘near misses’ were reported. It isimportant to note that Crucell’s accident rate is low and that statisticalvariability has a large impact on the total figures. Therefore, these resultsmust be interpreted with caution. Significant conclusions cannot be drawn froma comparison of only two data points. Having said that, Crucell is committed toaccident prevention and is making ongoing efforts at all sites to continuouslyreduce the number of accidents.

 

The reliability of safety reportingalso improved in 2009, thanks to a more harmonized and centralized approach todata collection. Progress was made in developing a global EnvironmentHealth & Safety (EHS) policy in line with international standards andcertification schemes. We can also report improvements in terms of raisingsafety awareness, sharing knowledge, and introducing best practices across theorganization.

 

While these developments areencouraging, we see the need to further improve the way we manage EHS data atthe global level. Access to more detailed information, collected from all sitesusing the same definitions, will give us greater power to improve safety usinga ‘plan-do-check-act’ approach. The introduction of the CSR Reporting Manual,as described earlier in this chapter, will enable this next step in EHSdevelopment.

 

In the face of the emerginginfluenza pandemic (H1N1) 2009, Crucell took rapid action to protect employeesfrom infection and provide balanced information. Trained nurses in our Swedishorganization vaccinated more than 200 employees and family members against thepandemic virus, as part of a government mass vaccination campaign. Thegovernment had asked for help with this enormous task, calling on people withhealthcare qualifications to volunteer. Similar actions were taken at variousother Crucell sites.

 

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

“Crucell adheres to high standards of ethics and transparency in dealingwith all stakeholders.”

 

Crucell offers free vaccinationagainst seasonal influenza to employees and their families each year, incountries where this is feasible and appropriate. In the round of vaccinationsheld in the fall, more than 1770 people worldwide took advantage of this offer.The free shot was given to a total of 245 Crucell employees and their relativesin the Netherlands, 114 in Switzerland, 697 in Korea, 93 in Sweden, 521 inSpain, around 80 in China, and 23 in Italy. Crucell’s employees in Argentinawere eligible for free immunization under their health insurance scheme.Inflexal® V could not be offered to our people in theUnited States, as the product is not registered in that country.

 

**Goodbusiness conduct**

 

Crucell adheres to high standardsof ethics and transparency in dealing with all stakeholders. We take our legaland ethical obligations very seriously. During 2009 we invested significantlyin efforts to ensure compliance with these principles and requirements.

 

Crucell’s Code of Conduct waspresented and explained to all employees during interactive meetings led byrepresentatives of senior and local management. The Code of Conduct isCrucell’s commitment to business integrity. It guides employees in the highstandards of behavior expected of them and their obligation to act withintegrity at all times.

 

The Code of Conduct urges employeesto report any behavior or action that may be in breach of this code. In 2009, aprocedure for reporting non-compliance was implemented, and compliance officerswere appointed worldwide. They report that employees are increasingly seekinginformal advice if they are unsure about the ethical way to behave in a particularsituation—a positive sign that compliance awareness is increasing.

 

The Code of Conduct has beenincorporated into Crucell’s new general terms and conditions for suppliers.This lays the basis for enforcing compliance and responsible supply chain management.

 

These developments are part of ouroverall effort to improve enterprise risk management—which includes, but goesbeyond, the management of financial risks. In 2009 Crucell investedsignificantly in the analysis of potential business risks, the establishment ofrisk management procedures, and the training of relevant employees in policiesand procedures, for example anti-corruption strategies.

 

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**Crucell’s commitment to corporate social responsibility**

Expanding the scopeof our ambitions

 

**Planet**

 

Crucell is conscious of itsresponsibility to help conserve our planet’s precious resources. We want tointegrate environmental awareness into our strategic decision making androutine work practices, and we are making good progress towards this. With theimplementation of the CSR Reporting Manual in 2010 we will be able to startmeasuring our environmental footprint in a systematic and comprehensive way.

 

**Sustainableefficiency**

 

Crucell’s introduction of the FlexFactory (see page 45) has exciting implications for the planet, as well asfor our business of healthcare innovation. In this ‘lean and green’manufacturing setup, the use of disposable equipment eliminates the need forcomplicated cleaning and sterilization between production batches. Thistranslates into substantial environmental gains, compared to traditionalbiopharmaceutical manufacturing in stainless-steel bioreactors. Reductions of87% in water consumption and 25% in carbon footprint have been calculated.1

 

Less dramatic, but very worthwhile,examples of environmentally friendly initiatives are flourishing throughout thecompany. Local initiatives of interest include the switch to 100% ‘green’electricity in Leiden and the cold box recycling program in Sweden (see thesection on responsible supply chain management). The refurbishment of aredundant manufacturing facility in Switzerland is an example of recycling on alarge scale.

 

In other areas, Crucell isleveraging its global reach to achieve sustainable efficiency gains, withspin-off benefits for the environment. In 2009 we have successfully reducedfreight, despite growth in vaccine sales, by bundling deliveries andimplementing a minimal order policy. Global policies and tools, such as the newprocurement policy, will facilitate the choice for green suppliers andrationalize shipments. Crucell used to have a large base of suppliers for acompany of our size, which is environmentally wasteful as well as operationallyinefficient. This situation, a legacy of Crucell’s history as three separateorganizations, has successfully been addressed.

 

 

In 2009 we pursued our developmentof ‘green’ IT through virtualization and more efficient data storage. Use ofWebEx and teleconferences rather than travel was encouraged. Ourmarketing & sales teams made good use of Brand.net, an onlineplatform, to streamline communications with distributors and suppliers:marketing materials can be picked up from the website instead of being sent bypost or courier.

 

**Packaging**

 

As promised in last year’s CSRchapter, we have explored options for improving packaging and initiated changeswhere possible. For example, the 10-vaccine box of Epaxal®, our hepatitis A vaccine, has been reduced substantially insize. This means we can fit more vaccines on a pallet and make better use ofcold chain storage, which is always limited. For this reason, minimizing totalstorage volume is an important criteria when participating in tenders. Thisexample illustrates how the environment, society and Crucell’s business can allbenefit from smarter packaging.

 

1 Sinclair A, Leveen L, Monge M et al., TheEnvironmental Impact of Disposable Technologies,

 

*Biopharm International*, November 2008.

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

Environmental issues were carefullyconsidered when packaging was being changed in accordance with the Crucellglobal rebranding. This presented our Regulatory Affairs team with a dilemma,because of the stringent regulations governing healthcare products. Team leaderWolfram Schlimme explains: “We considered using recycled paper for the packageinserts, but we had to reject this idea on regulatory grounds. The paper has tobe very thin to fit in the smallest possible box, but not transparent as it isprinted on both sides. Recycled paper is not strong enough to guarantee that itwill not tear—which would lead to recall of the product. Using thicker recycledpaper would require a bigger box, and therefore larger cold storage andtransport facilities, increased costs and greater energy use. Net result: noenvironmental gain.” This dilemma is a good example of the complexity offactors that must be weighed up in our highly regulated industry. Recycledcarton will be used for the new product packaging.

 

**Energy andwater consumption**

 

The first graph on the right showsthe total energy consumption in killowatt-hours (kWh) at Crucell facilitiesinvolved in product manufacturing and development, which together employ over90% of our workforce. A 2.52% decrease in energy consumption in 2009 relativeto 2008 can be seen.

 

Energy use includes electricity,natural gas, oil, and other fuels such as gasoline and diesel, all of which areconverted to kWh. Electricity (from the grid) is Crucell’s primary source ofenergy. Crucell’s total energy consumption in 2009 is equivalent to that ofapproximately 3413 average households (which consume 17,906 kWh). In 2008Crucell’s total energy consumption was equivalent to 3502 average households.

 

The second graph shows the totalwater consumption in cubic meters at Crucell facilities involved in productmanufacturing and development, which together represent over 90% of our global workforce.A 4.54% decrease in water use in 2009 compared to 2008 can be seen. Dividingthe total water consumption by the number of employees allows comparison ofannual water use per employee: 194 m3 in 2009 compared to 221 m3 in 2008. Crucell’swater is sourced from the grid.

 
| **Total energy  consumption**

(in kWh) | **Total water  consumption**

(in m3) |
|-----------------------------------------|---------------------------------------|
|                                    |                                  |
|                                         |                                       |

 

 

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**Crucell’s commitment to corporate social responsibility**

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**Philanthropy**

 

Crucell contributes to society inways that go well beyond its responsibility to discover, develop and marketinnovative healthcare products. We work proactively and intensively to improvethe lives of people worldwide through a broad range of non-commercialactivities, which are in line with our core business.

 

**Communityoutreach**

 

 

We are particularly excited by anew Crucell CSR program initiated by our Corporate Communications team in 2009:Footprint. This CSR outreach program offers Crucell employees an opportunity tocontribute in a very direct and practical way to development activities indisadvantaged communities. Groups of Crucell volunteers will participate inprojects set up in cooperation with non-governmental organizations (NGOs) andinstitutions active in the local community.This will ensure that the help given is the help that is really needed. Weexpect the experience to be equally rewarding for the Crucell employees whotake part.

 

“Crucell has developed a very promising tuberculosis vaccine candidatewhich we hope will play a major role in combating the TB epidemic currentlyafflicting much of the developing world.”

 

Associate Professor Willem Hanekom, Co-Director SATVI

 

After talks with a number oforganizations, Crucell has chosen to work with two that are tackling majorhealth challenges in our area of expertise: infectious diseases. One is theSouth African Tuberculosis Vaccine Initiative (SATVI), which conducts clinicaltrials of the tuberculosis vaccine Crucell is co-developing with the AerasGlobal TB Vaccine Foundation. The other is Friendship, an NGO that is doingwonderful work to improve access to essential healthcare, such as immunization,in isolated and under-served communities in the Northern part of Bangladesh.

 

 

The Crucell footprint logo painted at a hospital entrance bya SATVI employee to commemorate Crucell’s visit.

 

Crucell employees have respondedenthusiastically to this special CSR initiative, and the first outreach teamwas selected from a large number of applicants. The seven participants—drawnfrom different Crucell sites and departments worldwide—went to South Africa inFebruary 2010. They helped out with a local SATVI community project inWorcester, near Cape Town, and observed child immunization programs in action.

 

“We as a TB vaccine trial site are honored to host an outstandinginternationally respected collaborator such as Crucell.”

 

Dr Hassan Mahomed, Co-Director SATVI

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

Enrique Rioperez, Crucell’sDirector Finance and Administration in Spain, was one member of the firstoutreach team. His reaction to that experience sums up the value of thisprogram for Crucell’s employees, as well as the communities themselves. “Takingpart in Crucell’s outreach program ‘Footprint’ gave me the opportunity to be intouch with the real mission of our organization, the real reason for ourexistence, the core of our business. It was a great and exciting chance toexpand my horizons by learning new things, meeting new people and othercultures. An experience I will never forget!”

 

 

 

**Runa Khan, ExecutiveDirector Friendship:**

 

Bangladesh is a ‘land of athousand rivers’. Scattered on these rivers are the ‘nomadic islands’ or Chars.These lands are migratory, shifting and reappearing across rivers that areoften 30 km in width. These islands are home to over eight million people, wholive below any documented poverty line. Every year the rivers overflow theirbanks, bringing 80% of the country under water. For those marooned on the Charsof the rivers Brahmaputra and the Ganges, **survival becomes the goal**.It becomes impossible for them to access the mainland even for food and relief.None have access to healthcare, for themselves or their children.

 

Here, thousands of children arenot receiving the vaccine protection prescribed by the national ExpandedProgram for Immunization (EPI). Time is running out for meeting the Bangladeshgovernment’s Millennium Development Goal target of making EPI services reach100% of the population by 2015.

 

Friendship, with the help ofCrucell, has made a commitment to ensure that every child on these islands getsthe fulfillment of their basic rights to have access to the EPI services. TheCrucell—Friendship EPI support program will assist the government of Bangladeshto provide awareness of the importance of the immunization program to each andevery household on these islands, and to carry the services to the population,dependably throughout the year.

 

The Crucell—Friendship programwill develop a river-based infrastructure, using safe boats for regular servicedelivery, which will be operated jointly with the government health workers. Ateam of 300 Friendship community medics will be deployed to mobilize thechildren in the various islands, to increase the acceptance and awareness ofinoculations amongst them, and to identify any drop-outs or non-proceduralcases. This public-private partnership program will be the first step towardsmeeting the vision to reduce the mortality and morbidity of vaccine-preventablediseases for children of the Chars—and to help them face their futures withhealth, strength and courage.

 

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

**Crucell andFriendship**

 

Friendship is a value-basednational organization dedicated to improving the lives of people living in theremote riverbank and Char areas of northern Bangladesh. The Chars (nomadicislands) are isolated from the mainland in terms of physical distance, accessto healthcare, and other basic resources. Outbreaks of infectious diseases arevery common, due to high population density, a continuous influx of new infectiousagents, and low levels of immunization coverage. Rates of morbidity andmortality due to vaccine-preventable diseases are high, especially amongchildren.

 

Friendship is endeavoring to helpthe government improve vaccination coverage in the region by providing supportwith logistics and infrastructure. Crucell has joined Friendship in thiseffort, pledging ongoing support for the development of a river-based healthservice delivery system with floating hospitals, satellite clinics andcommunity medics. Crucell will not only provide financial support fordeveloping this infrastructure and vaccine storage capacity, but also technicalexpertise and practical help in the field. For example, Crucell employees willprovide training in cold chain and vaccine management. “This direct involvementis a very important part of Crucell’s commitment, and perhaps the most excitingfrom the company’s point of view,” says Oya Yavuz, Crucell’s VP CorporateCommunications and Investor Relations.

 

**Supportinggovernment initiatives**

 

Crucell reaches out to communitiesin need in cooperation with both non-governmental organisations (NGOs) andgovernments. A good example of the latter comes from our Korean organization.In September 2009, Crucell Korea supplied 14,000 free doses of Inflexal® V, our virosomalinfluenza vaccine, for use in the national ‘Dream Start’ program. Dream Startis a government program targeting low-income families. It focuses on preventivehealthcare and welfare services in order to break the vicious cycle of povertyfrom one generation to the next. Children from six months to 12 years receivedthe influenza vaccine at their local Dream Start centre.

 

“We reach out to communities in need.”

 

The successful vaccination programtriggered the idea of finding other ways to help children attending the DreamStart centers, and involving Crucell employees in these activities. Many ofthese children live in urban squats and lack access to even basic amenitieslike hot water, so they do not bathe often. They tend to be rejected byclassmates as a result. When Crucell employees heard this, the idea for a fun ‘bathday’ was born. A group of 20 employees organized a trip to the public bathscombined with games, presents and a barbeque. The day was so enjoyable—forchildren and adults —that the Crucell bath day has become a regular event.

 

**Vaccinedonations**

 

In addition to the donation ofInflexal® V in Korea, Crucell donated 690,000 doses ofMoRu-Viraten® vaccine against measles and rubella to Unicefto assist earthquake victims in Haiti. The donation was made as part of theemergency aid campaign organized by the International Federation ofPharmaceutical Manufacturers & Associations (IFPMA), of which Crucell is amember. Crucell also offered 879,000 doses of Hepavax-Gene® to the disasterrelief campaign. The offer was under consideration when this report went topress.

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

 

Crucell Leiden employees gavegenerously to children’s projects supported by the *Stichting Kinderpostzegels* (Foundation for Children’sStamps).

 

**Raisingawareness**

 

The launch of Footprint is part ofa coordinated effort to raise awareness of corporate social responsibility(CSR) in our organization. Throughout 2009 this ambition was manifest in manyways. For example, our Christmas present for employees (see image below) was aresponsible choice: a leather-bound notebook designed and made exclusively forCrucell by local craftspeople in Dhaka, Bangladesh. We ran a global photocompetition linking the theme of CSR to The Crucell Ambition—and discovered howactive some of our employees are in local volunteer work. Our employees inLeiden gave generously to fundraisers for good causes, including the Red Crossfight against malaria and children’s projects supported by the *Stichting Kinderpostzegels*. Crucellmanagement doubled their contribution.

 

 

**Access tohealthcare**

 

Crucell’s work with Friendship isan example of a targeted local initiative to solve problems of access toessential healthcare. Crucell also works on this issue at the global,international and national level, through close and continuous engagement witha wide range of government and non-governmental organizations. Examples of ourinvolvement in 2009 are as follows.

 

·                  Crucell was the vaccine industry representative on the formal advisoryProgram & Policy Committee of the GAVI Alliance, a public-privatepartnership with the mission to improve access to vaccines in the world’spoorest countries. In 2009, this advisory committee focused on issues such assupport eligibility and continuity, strengthening health systems and buildingcapacity, the sustainability of established programs, and the conditions onwhich GAVI should accept vaccine donations.

 

·                  Crucell contributed, as a member of the International Federation ofPharmaceutical Manufacturers and Associations (IFPMA) Biologicals &Vaccines Committee, to discussions with the World Health Organization (WHO) ongeneral vaccination policies.

 

·                  Crucell served on the advisory group for Project Optimize, a WHO/PATHcollaboration aimed at developing innovative delivery systems to ensure thatvaccines get to the right place, at the right time, in the right condition.Crucell’s representative on the advisory group presented the issues of vaccinesand cold chain management to a broad audience at the GAVI Partners’ Forum inVietnam. Crucell’s participation in this advisory group is ongoing.

 

·                  Crucell is a member of the European Vaccine Manufacturers (EVM), part ofthe European Federation of Pharmaceutical Industries and Associations, which iscommitted to working in partnership with EU institutions to support vaccinepolicy development and promote vaccine innovation. Crucell representativesserve on the

 

62

 

 

 

**In 2009Crucell participated in 37 global scientific conferences and events.**

 

EVM boardand task forces. In 2009 this group focused on developing the concept oflife-course vaccination (vaccine policies for all ages, a highly relevant issuebecause of aging populations), pandemic influenza and market access in Europe.

 

·                  Crucell has been instrumental in bringing together the worldwidestakeholders in the field of typhoid fever with an ultimate goal of creating aCoalition against Typhoid (CaT) that will have its leadership in the SabinVaccine Institute in Washington, DC.

 

**Contributingto science**

 

Crucell contributes to theadvancement of science and healthcare by sharing knowledge and expertise. In2009 Crucell participated in 37 global scientific conferences and events, andmany more informal meetings and media presentations. As in previous years,Crucell organized symposia during 2009, to facilitate information exchangeamong key opinion leaders and public health officials. A total of 29 scientificpapers by Crucell researchers were published in peer-review journals in 2009.

 

As the pandemic (H1N1) 2009influenza virus emerged, Crucell was part of the expert community examining theevolving situation, in terms of viral transmission and pathology, and helpingto guide appropriate action. One way in which we did so was through our regularmeetings with SAGE (Strategic Advisory Group of Experts), the principaladvisory group to the World Health Organization (WHO) for development ofpolicies related to vaccines and immunization.

 

Crucell also assistednon-governmental organizations (NGOs) doing early research into the pandemic(H1N1) 2009 influenza virus strain. For example, we supplied serum samples fromseasonal flu vaccination campaigns in past years to assist research by theNational Institute for Biological Standards and Control (NIBSC) in the UK, oneof four WHO reference centers. The NIBSC wanted to determine whether antibodiesgenerated by vaccines against previous seasonal influenza strains providecross-protection against the pandemic virus. The finding that there is somedegree of cross-protection in older populations has helped to guide thinkingabout who should be vaccinated against the pandemic (H1N1) 2009 influenzavirus.

 

**Sectorsustainability initiatives**

 

As mentioned in section 2 of thisCSR chapter (Transparency: Developing our approach to CSR) Crucell has takensignificant steps to define and develop its commitment to sustainabilityissues. Crucell’s listing on the Dow Jones Sustainability Index in 2009 is oneobjective measure of this. Continuing this development is one of Crucell’s CSRambitions for the years ahead.

 

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

The way forward: Our CSRambitions, targets and tools

 

Crucell iscommitted to developing a systematic approach to CSR performance and reporting.We see the value of embedding a mature CSR mind-set and methodology in ourglobal organization, and we are taking concrete steps towards this goal. Inthis section we outline the contours of our ambitions for the coming years andour strategy for achieving these ambitions. An initial set of key performanceindicators and targets is presented.

 

**Better insight**

 

Improvingthe collection and analysis of CSR-related data is Crucell’s immediate priorityand one of our main ambitions for CSR development. Without a comprehensiveoverview of our impact on society, we cannot hope to maximize the good we dowhile minimizing any adverse effects. That is our overriding ambition relatingto CSR. Better information management is simply the means to that end.

 

Over thepast two years, Crucell has made important progress in the development ofglobal systems in many areas, including information management. This is adirect result of our intensive efforts to build a fully integrated, globalbiopharmaceutical company following the acquisition of the Swiss concern BernaBiotech and Swedish company SBL Vaccines in 2006. In the areas of environment,health and safety (EHS), for example, we now have access to solid data from ourfive main sites worldwide, representing over 90% of our workforce (comparablewith the reporting coverage in the 2008 Annual Report CSR chapter).

 

While these data give us asubstantial base for initial CSR target setting, they obviously do not providethe full picture needed for optimal CSR development. Achieving 100% informationcoverage (that is, data from all sites) is therefore one of Crucell’s mostimportant short-term ambitions. This is one of the targets set for 2010. At theend of the year we want to have a complete picture of information relevant toour CSR ambitions, collected in the same way, using the same criteria anddefinitions.

 

To achieve this goal, we arecurrently developing the infrastructure needed for centralized management ofall the information relevant to CSR. This ‘Reporting Manual’ with instructions,criteria and a reporting tool will be rolled out in 2010.

 

**Continuousimprovement**

 

Once we have established our CSRbaseline, with 100% coverage across sites, we will be able to performquantitative analyses to identify possible improvements—for example, in EHS andthe responsible management of our supply chain. This will enable quantitativetarget setting for the longer term. Table 2 gives an overview of our mainambitions relating to CSR.

 

Crucell’s Management Board hastaken the ambitious step of formulating longer-term objectives in severalareas. These are challenging targets: in 2020 a 15% reduction (from 2010baseline) in our CO2 footprint and a 10% reduction inwater use, and in 2015 reaching a high standard of CSR transparency as measuredby the Global Reporting Initiative

 

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**Crucell’s commitment to corporate social responsibility**

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**Table 2**

 
| **Ambition**                           | ** ** | **2010**                                                             | ** ** | **2011**                                             | ** ** | **Long term**            |
|----------------------------------------|------------|----------------------------------------------------------------------|------------|------------------------------------------------------|------------|--------------------------|
| CSR informationmanagement  improvement |       | Roll out Reporting Manual&  report based on 100%company coverage |       | Quantitative ambitionsetting  (EHS)                  |       |                     |
| Transparency objectives                |       | Remain in DJSI1 & improveCSR  webpage                       |       | Continuous improvement                               |       | 2015: GRI2 A rating |
| Responsible supply chain               |       | Extend globalprocurement  policy                                     |       | Training, 100% informationcoverage &  monitoring |       |                     |
| CO2 Footprint                     |       | Baseline setting                                                     |       | Quantitative ambition  setting                       |       | 2020: 15% reduction      |
| Water use                              |       | 100% company coverage(reporting)                                     |       | Quantitative ambition  setting                       |       | 2020: 10% reduction      |

 

1DJSI — Dow Jones SustainabilityInitiative; 2GRI — Global Reporting Initiative

 

 

“Crucell is committed to developing a systematic approach to CSRperformance and reporting.”

 

(GRI) A level. Based on datacollected within Crucell and comparison with others in the industry, we seethese as ambitious but achievable targets.

 

Ambitions and targets will bereviewed annually and finetuned as new information generates deeper insightinto the potential for improvement. Crucell’s Management Board will closelymonitor progress and expand Crucell’s CSR ambitions if opportunities to do sobecome apparent. Thus, Crucell’s approach to CSR development will follow theprinciple of continuous improvement, which is fundamental to our corporateculture and business strategy.

 

Crucell has defined KPIs andambitions in each of the four categories on which our CSR policy is based:Performance, People, Planet and Philanthropy. These are presented in thefollowing paragraphs.

 

65

** **

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

** **

**Performance**

 

The category ‘Performance’ coversthe four aspects of CSR that relate most directly to Crucell’s core business:innovation, saving lives, responsible supply chain and transparency. Table 3shows the qualitative or quantitative ambitions we have in these Performanceareas and the KPIs we have chosen to assess achievements in each of theseareas. The reasoning behind these choices is explained below.

 

**Preventingillness and death** caused byinfectious diseases is our core business, and the essence of our corporatesocial responsibility. The prevention of deaths is the most powerful measure ofthe human benefit generated by our business, and our ambition is tocontinuously increase this impact. The calculation is based on the bestavailable evidence regarding the efficacy of our vaccines, and the relevantdisease and death rates in unvaccinated populations.

 

**The numberof products in our research & development (R&D) pipeline** is a measure of the contribution we are making to people’slives through the advancement of healthcare. Crucell deliberately focuses onthe discovery and development of innovative products—vaccines andantibodies—that address significant unmet needs in global health.

 

**AnimalWelfare.**Crucell will continue to apply the3R principles — Reduce, Refine and (ultimately) Replace — and work closely withthe regulatory authorities to further minimize the experimental use of animalsin the course of bringing new vaccines and antibodies to the people who needthem.

 

“Improving CSR information management is a prerequisite for increasingthe contribution we can make to society.”

 

**R&Dexpenses.** The money Crucell spends on itsR&D programs is a measure of the company’s commitment to invest in bringinghealthcare innovations to market, and to do so as cost-effectively as possible.As announced in our financial guidance for 2010 (see press release on 2009financial results, 9 February 2010), Crucell is focusing strongly onaccelerating product development. Strong operating cash flow will be used toincrease research & development spending by more than one-third in 2010 comparedto the previous year.

 

**ImprovingCSR information management** is aprerequisite for increasing the contribution we can make to society. Havingaccess to comprehensive information on relevant KPIs in 2010 will enhancefurther target setting.

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

**Table 3**

 
| **Performance**                   | ** ** | **Qualitative** | ** ** | **Quantitative** | ** ** | **Ambition/Target**                      |
|-----------------------------------|------------|-----------------|------------|------------------|------------|------------------------------------------|
| Prevention of illness and  deaths |       | ·          |       | ·           |       | Continuous improvement, report  annually |
| Number of pipeline  products      |       | ·          |       |             |       | Report annually                          |
| Animal welfare                    |       | ·          |       |             |       | Continuous improvement 3Rs               |
| R&D expenses                  |       |            |       | ·           |       | Report annually                          |
| CSR information management        |       |            |       |             |       | ·                                   | In 2010 roll out reporting  manual |
| improvement                       |       | ·          |       |             |       | ·                                   | In 2010 report with 100%company  coverage |
|                              |       |            |       |             |       | ·                                   | In 2011 set action plans(quantitative  targets) |
| Responsible supply chain          |       |            |       |             |       | ·                                   | In 2010 incorporate PSCI1 principlesinto  procurement policy |
|                              |       |            |       | ·           |       | ·                                   | In 2011 train all relevant  employees |
|                              |       |            |       |             |       | ·                                   | In 2011 100% supplier  coverage & |
|                              |       |            |       |             |       |                                     | monitoring |
| Transparency objectives           |       |            |       |             |       | ·                                   | GRI A+ level CSR reporting  in 2015 |
| (e.g. DJSI2, CDP3, GRI4)          |       |            |       | ·           |       | ·                                   | Remain in DJSI |
|                              |       |            |       |             |       | ·                                   | In 2010 improve CSR  webpage |

 

1PSCI — Pharmaceutical Supply ChainInitiative, 2DJSI — Dow Jones SustainabilityInitiative; 3CDP — Carbon Disclosure Project; 4GRI — GlobalReporting Initiative

 

 

67

 

**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

**Responsiblesupply chain management.** Theprerequisite for progressive improvement in this area has been achieved in 2009with the professionalization of our procurement organization. The next step,for realization in 2010, is to incorporate industry best practices forresponsible supply chain management, as defined by the Pharmaceutical SupplyChain Initiative, into our global procurement policy. The ambition for 2011 isto train all relevant employees in this procurement policy and ensure that allsuppliers adhere to it. In addition, monitoring of relevant developments in thesector is targeted, so that ambitions and indicators can be refined, ifnecessary.

 

**Transparencyobjectives.** Crucell has recently madevery good progress on external benchmarks of CSR reporting, as described onpage 41. Our ambition is to continue this rapid improvement. We have set thechallenging target of reaching the Global Reporting Initiative ‘A’ level of CSRtransparency in 2015.

 

“Attracting and retaining talented employees is an ongoing priority.”

 

**People**

 

Crucell has made significantprogress over the past two years in the area of Human Resources (HR) managementand talent development. Global integration, leadership development andperformance assessment procedures have been given special attention during thisperiod, and turnover has decreased considerably (see page 67). Expanding careerand learning development opportunities for all employees will be a focus during2010.

 

In terms of CSR reporting, ourambition in 2010 is to formulate specific targets for each of the KPIs (seetable 4). The choice of these particular KPIs reflects Crucell’s commitment tobeing an employer of choice.

 

**Demographics.** We value and support diversity—of culture, gender andage—in our organization. The relatively low number of women in seniormanagement positions is a point for attention. However, Crucell is committed torecruiting and promoting employees on the basis of talent and ability, withoutnegative or positive discrimination on the basis of gender, race or age.

 

**Accidents.** The health and safety of our employees is of greatimportance to us, and we take proactive steps to enhance these. Achieving morecomprehensive and detailed information on accidents at work is a priority for2010 and a prerequisite for future target setting.

 

**Turnover.** Attracting and retaining talented employees is an ongoingpriority. We see turnover as a key indicator of how well we are doing in thisregard.

 

**Empowermentand fairness.** Crucell is committed tofair remuneration and the empowerment of employees, for example through regularperformance reviews.

 

68

** **

**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

 

**Table 4**

 
| **People**                     | ** ** | **Qualitative** | ** ** | **Quantitative** | ** ** | **Ambition/Target**      |
|--------------------------------|------------|-----------------|------------|------------------|------------|--------------------------|
| Number of employees by  gender |       | ·          |       |             |       | Formulate target in 2010 |
| Average age of employees       |       | ·          |       |             |       | Report annually          |
| Number of women in  management |       | ·          |       |             |       | Formulate target in 2010 |
| Number of nationalities        |       | ·          |       |             |       | Formulate target in 2010 |
| Total number of accidents      |       | ·          |       |             |       | Formulate target in 2010 |
| Employee turnover              |       | ·          |       |             |       | Formulate target in 2010 |
| % employees receiving  regular |       | ·          |       |             |       | Formulate target in 2010 |
| performance reviews            |       |            |       |             |       |                     |

 

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**Crucell’s commitment to corporate social responsibility**

 

**Expanding the scope of our ambitions continued**

 

**Planet**

 

Thanks to improved collection ofenvironmental data in2009, Crucell has been able to formulate long-termambitionsand targets for reducing water use and its CO2 footprint. Comprehensive measurement of these KPIs acrossall sitesin 2010 will establish the baseline against whichprogress will be measured insubsequent years and allowfinetuning of targets. Targets for health and safetymeasures(accidents and waste disposal) will be formulated in 2010 asbetter datamanagement enables meaningful analysis.

 

 

**Table 5**

 
| **Planet**                                              | ** ** | **Qualitative** | ** ** | **Quantitative** | ** ** | **Ambition/Target**                                |
|---------------------------------------------------------|------------|-----------------|------------|------------------|------------|----------------------------------------------------|
| Total water use                                         |       |            |       | ·           |       | ·                                             | Relative* of 10% by 2020 |
|                                                    |       |            |       |             |       | ·                                             | In 2010 achieve 100%  coverage(i.e. baseline) |
| Total energy use                                        |       |            |       | ·           |       | ·                                             | See CO2 Footprint |
|                                                    |       |            |       |             |       | ·                                             | In 2010 achieve 100%  coverage |
| CO2 Footprint                                           |       |            |       | ·           |       | ·                                             | Relative reduction* of 15%  by 2020 |
|                                                    |       |            |       |             |       | ·                                             | In 2010 set baseline |
|                                                    |       |            |       |             |       | ·                                             | In 2011 set action plans |
| Number, sort and impact of  accidents                   |       | ·          |       |             |       | Formulate target in 2010                           |
| Amount and characteristics  ofwaste and disposal method |       | ·          |       |             |       | Implement waste  minimizationprograms on all sites |

 

*Relative to number of FTEs

 

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**Crucell’s commitment to corporate social responsibility**

Expanding thescope of our ambitions

 

**Philanthropy**

 

As a company deeply committed toimproving human healthand well-being, Crucell actively seeks out opportunities todomore for society than it ‘needs’ to do from a business pointof view.These efforts span a wide range of activities, fromsharing scientific knowledge tosupporting the developmentof local communities. Improving access to healthcare,especiallyin the world’s poorest countries, is a high priority.We do thatby working with governments, non-governmentorganizations (NGOs), policymakers, industry groups andpublic—private partnerships such as the GAVI Alliance, aswellas local community groups. Our ambition is to continue ourinvolvementin a broad spectrum of philanthropic activities,and to report on these efforts in atransparent way.

 

 

**Table 6**

 
| **Philanthropy**              | ** ** | **Qualitative** | ** ** | **Quantitative** | ** ** | **Ambition/Target**                                  |
|-------------------------------|------------|-----------------|------------|------------------|------------|------------------------------------------------------|
| Number of doses donated       |       | ·          |       |             |       | Report annually                                      |
| Support of sector initiatives |       | ·          |       |             |       | Further Crucell  involvement                         |
| NGO partnerships              |       | ·          |       |             |       | Liaise with key NGOs and  evaluatepartnership yearly |

 

**CSRinfrastructure**

 

To support the embedding of CSR inthe organization, Crucell has established the following responsibilities and procedures.

 

·                  Ronald Brus, Chief Executive Officer, has final responsibility forCrucell’s CSR program and its ongoing development.

·                  Cees de Jong, Chief Operating Officer, has overall responsibility foroperational aspects of the CSR program.

·                  A CSR working group will be established to monitor and facilitate CSRdevelopment.

·                  Progress on the CSR program will be discussed at Management Boardmeetings.

·                  The CSR working group will meet at least two times a year to discuss CSRdevelopment and evaluate progress.

 

**Conclusion**

 

Corporate social responsibility(CSR) is an integral part of Crucell’s mission to conduct good business, forthe good of humanity. Crucell is committed to continuous development of itsapproach to CSR reporting and the engagement of stakeholders in dialogue aboutsustainability issues. We are pleased to have taken important steps in thisdirection during 2009.

 

Crucell welcomes feedback on thisreport or any issues related to our CSR activities. Your opinion matters to us.Reactions can be sent to csr@crucell.com.

 

71

 

 

**Forward-looking statements/Trademarks**

 

**Management report**

 

**Forward-lookingstatements**

This Annual Report containsforward-looking statements. All statements regarding our future financialcondition, results of operations and business strategy, plans and objectivesare forward-looking. Statements containing the words ‘believes’, ‘intends’, ‘expects’,and words of similar meaning are also forward-looking. In particular, thefollowing are forward-looking in nature: statements with regard to strategy andmanagement objectives; technology and product development efforts; our abilityto realize commercially valuable discoveries; our intellectual propertyportfolio; our ability to develop potential products and technologies suitablefor commercialization; the effects of changes or prospective changes inregulation; and trends in results, operations and overall market trends.

 

These forward-looking statementsinvolve risks, uncertainties and other factors, some of which are beyond ourcontrol, that may cause our results, performance or achievements or conditionsin the markets in which we operate to differ from those expressed or implied inthese forward-looking statements. We describe certain of these risks anduncertainties in the section ‘Risk factors’. We caution not to place unduereliance on these forward-looking statements, which reflect our Management’sview only as of the date of this document.

 

**Trademarks**

New trademarks for our products areregistered on a worldwide basis. Distribution and agency agreements normallyinclude a clause specifying that, at the termination of the agreement,trademark and product registration rights return to us. We are the owner ofover 150 registered trademarks. The most important of these are: CRUCELL®, BERNA®, SBL®, theBerna, SBL and Crucell logos, ChromaGenics®, EPAXAL®, Epaxal® Junior, INFLEXAL®, VIVOTIF®, FLAVIMUN®, DUKORAL®, HEPAVAX-GENE®, MoRu-Viraten®, PER.C6®, PER.C6® logo, AdVac®, MAbstract® and STAR®. In addition we hold rights to use certain trademarks thatare owned by our partners, such as Quinvaxem® from Novartis. 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.

 

72

 

**Management report**

Contents

 

**Contents**

 
| **Management  report**                                         |       |
|----------------------------------------------------------------|------------|
|                                                           |       |
| **Report of  the Management Board**                            | **74**     |
| ** **                                                     | ** ** |
| **Information  on the Company**                                | **79**     |
| ** **                                                     | ** ** |
| History and development of  Crucell                            | 79         |
| Overview                                                       | 80         |
| Industry, scientific and  regulatory overview                  | 80         |
| Overview of vaccines and antibodies                            | 80         |
| Regulations applicable to thebiopharmaceutical  industry       | 82         |
| Business drivers                                               | 83         |
| Strong R&D pipeline                                        | 83         |
| Licensing of cutting-edge technologies                         | 90         |
| Broad range of vaccine products                                | 94         |
| Additional information on  the Company                         | 97         |
| Partners, agreements, investmentsand other  collaborations     | 97         |
| Intellectual property                                          | 101        |
| Other information                                              | 103        |
|                                                           |       |
| **Risk  factors**                                              | **106**    |
| ** **                                                     | ** ** |
| **Operating  and financial review and prospects**              | **115**    |
| Results of operations                                          | 117        |
| Critical accounting  policies and estimates                    | 129        |
|                                                           |       |
| **Corporate  governance**                                      | **133**    |
| Corporate governance at  Crucell                               | 133        |
| Directors, senior  management and Board practices              | 135        |
| Remuneration report for  Management Boardand Supervisory Board | 143        |
| Controls and procedures                                        | 151        |
|                                                           |       |
| **Report of  independent registered public accounting firm**   | **154**    |
| ** **                                                     | ** ** |
| **Articles  of association and share capital**                 | **155**    |

 

All amounts set forth in thisAnnual Report, unless otherwise noted, are in thousands of Euro, except shareand option data.

 

73

 

**Management report**

 

**Report of the Management Board**

 

**Overview ofthe year**

 

The global financial crisis dominatedworld news in 2009, but for Crucell it was a year of record sales and profits.We exceeded our revenue targets and generated a strong operating cash flow in2009, building on our strong performance in 2008. Delivering on promises is animportant aspect of The Crucell Ambition, our corporate strategy, and we areexcited to have delivered even more than we promised at the start of the year.Highlights of our financial performance in 2009 are:

 

·                  Total revenues and other operating income increased 26% to € 358.0million.

·                  Operating profit increased more than four-fold to € 39.0 million.

·                  Net profit increased 68% to € 23.9 million.

·                  Undiluted earnings per share increased 55% to € 0.34.

·                  Year-end cash and cash equivalents totaled € 327.8 million in 2009,compared to € 171.0 million in 2008.

 

The single most important event ofthe year was the signing of a strategic agreement with affiliates of Johnsonand Johnson (JNJ) in September 2009. This agreement will enable us toaccelerate and expand our research and development (R&D) programs whilemaintaining Crucell’s independence and autonomy. This agreement with theaffiliates of JNJ is a strong endorsement of Crucell’s in-house capabilitiesfor medical innovation and discovery.

 

Crucell issued 14.6 million sharesto JHC Nederland B.V., an affiliate of JNJ, at a price of € 20.63 per share,for a total of € 301.8 million. This represents 18% of our outstanding sharecapital after issuance. As part of the agreement with Ortho-McNeil-JanssenPharmaceuticals, Inc, an affiliate of JNJ, we will jointly develop andcommercialize a novel monoclonal antibody product for the treatment andprevention of influenza, regardless of the causal strain. The collaborationalso involves new discovery programs aimed at the development andcommercialization of a universal influenza vaccine as well as innovativeproducts in up to three other disease areas.

 

The agreement with JNJ hassubstantially reduced the risks inherent in our business by providing a solidoperational framework with one of the largest pharmaceutical companiesworldwide. 

 

 

**Businessdrivers**

Our strategy is based on thefollowing business drivers:

 

·                  A strong R&D pipeline with promising products in a range of majordisease areas;

·                  Licensing of cutting-edge technologies that enable the discovery, developmentand production of biopharmaceutical products;

·                  A broad range of vaccine products that combat important infectiousdiseases. 

 

**StrongR&D pipeline**

During 2009, we made substantialprogress with our R&D programs, which are targeting innovative solutionsfor a number of major health challenges.

 

Crucell’s influenza antibodyresearch is still at an early stage but shows tremendous promise. As reportedpreviously, Crucell’s scientists have discovered a new class of humanmonoclonal antibodies with the unprecedented ability to combat a broad range ofinfluenza virus strains. The most powerful of these antibodies has been shownto prevent and cure illness in pre-clinical models exposed to potentiallylethal levels of H5N1 and H1N1 viruses. In comparative pre-clinical tests, thisantibody strongly outperformed oseltamivir (Tamiflu), the leading antiviraltreatment available today. The discovery and characterization of this uniqueclass of human influenza antibodies was reported in the online journal PloS ONEon 16 December 2008 and Science on 26 February, 2009.

 

The exciting therapeutic potentialof this discovery has attracted global leaders in healthcare innovation. Thedevelopment and commercialization of a universal antibody product againstinfluenza (flu-mAb) is the immediate focus

 

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of the collaboration betweenCrucell and JNJ, signed in September, 2009. The agreement followed anannouncement in August 2009 of an award from the National Institute ofAllergy and Infectious Diseases (NIAID), part of the US National Institutes ofHealth (NIH). The NIAID award, designed to support early development of Crucell’sinfluenza mAbs, provided initial funding of up to $40.7 million, withadditional options worth a further $28.4 million, bringing the potential totalfunding to $69.1 million.

 

Promising results from a Phase IIclinical study of Crucell’s rabies monoclonal antibody combination, conductedin healthy children and adolescents in the Philippines, were released in June 2009.As well as confirming that our candidate antibody product against rabies issafe and well-tolerated in the young—the group at greatest risk ofinfection—the study delivered strong evidence of efficacy. All studyparticipants achieved adequate levels of immunity and the same level ofprotection against rabies that is achieved with human immunoglobulins (HRIG),the current standard for inducing immediate, passive immunity. An additionalPhase II clinical study is scheduled to start in India during 2010. Therationale for this study is to collect data on the safety and efficacy of ourcandidate rabies product in a simulated setting of rabies post-exposureprophylaxis (prevention). This will pave the way for a Phase III trial in areal prophylactic situation.

 

The candidate tuberculosis vaccinewe are co-developing with Aeras Global TB Vaccine Foundation entered its firsttrial in infants in April 2009. The main objective of this Phase Iclinical trial is to test the safety of the candidate vaccine in infantspreviously vaccinated with BCG vaccine, currently the only licensed vaccineagainst tuberculosis. BCG vaccine shows limited efficacy when used alone. TheSouth African Tuberculosis Vaccine Initiative (SATVI) is conducting this PhaseI trial among infants in the Western Cape region of South Africa. The study isfully enrolled and dosing is ongoing, with no safety issues identified to date.In January 2010, a Phase I clinical trial was initiated in Portland,Oregon, USA. This trial involves the vaccination of healthy adults with a knownimmunogenic regimen of BCG and the candidate vaccine, followed by collection oflarge numbers of immune cells to enable more detailed analysis of the immuneresponse to candidate vaccine.

 

In July 2009, we announced anew collaboration with the US-based Malaria Vaccine Initiative (MVI) and the USAgency for International Development—Malaria Vaccine Development Program (USAIDMVDP) to accelerate development of a promising new type of malaria vaccine.Through funding from the USAID MVDP, the partners will conduct studies todetermine the effectiveness of Crucell’s novel prime—boost vaccine approachagainst the malaria parasite Plasmodium falciparum. Using Crucell’s AdVactechnology, with two different adenovirus vectors (Ad35 and Ad26) as deliverymechanisms, this approach seeks to elicit a protective immune response to thecircumsporozoite protein (CSP).

 

We are also pleased withdevelopments in our HIV research program. At the international AIDS vaccinecongress held in Paris in October 2009, we presented encouragingpreliminary results of a Phase I study of the novel HIV recombinant AdVac-basedvaccine Crucell is co-developing with the Beth Israel Deaconess Medical Center(Boston, Massachusetts, USA). This innovative vaccine uses adenovirus serotype26 as a vector in order to avoid pre-existing immunity to the more commonlyused adenovirus serotype 5. The Phase I clinical study is being conducted atthe Brigham and Women’s Hospital in Boston. The preliminary results indicatethat the candidate HIV recombinant AdVac-based vaccine is safe andimmunogenic—news that was received with enthusiasm by the international AIDScommunity.

 

In August 2009, Crucellobtained an exclusive license from Stanford University (Palo Alto, California,USA) for the development of antibodies against the hepatitis C virus (HCV).Crucell is evaluating a large panel of fully human monoclonal antibodiesagainst HCV in a proof of concept phase.

 

During 2009, we also advancedresearch aimed at developing a multivalent filovirus (Ebola and Marburg)vaccine based on Crucell’s innovative AdVac and PER.C6 technologies. An Ebolavaccine using adenovirus 5 (Ad5) as vector, which Crucell is developing inpartnership with the NIAID/NIH Vaccine Research Center, showed safety andimmunogenicity in a Phase I study. Based on these results, a second Phase Istudy of an Ebola and/or Marburg vaccine is anticipated. This will usealternative multivalent adenovirus vectors that are able to bypass pre-existingimmunity against Ad5.

 

Crucell’s yellow fever vaccineFlavimun was submitted for registration in Switzerland in the first quarter of2009. Registration submission in Germany is imminent.

 

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**Licensingof cutting-edge technologies**

License revenues in 2009 were €23.0 million, representing a decrease of € 7.2 million (23.7%) compared to theprevious year. The decrease is mainly due to € 14.0 million in one-offmilestone payments from sanofi pasteur in relation to our rabies developmentprogram in 2008. License revenues in 2009 include significant paymentsassociated with our JNJ collaboration and royalty payments from Shanta, anIndian vaccine manufacturer.

 

In 2009 Crucell signed 12 newlicensee/ vendor agreements pertaining to Crucell technology, includingagreements with Centocor Inc., Momotaro-Gene Inc., Patrys Ltd., TapImmune Inc.,Calmune Corporation, Cangene and Vivante GMP Solutions. Vendor NetworkAgreements were signed with Bioceros B.V. and KBI Biopharma Inc.

 

For further details on licenses andlicensees please see the ‘Appendix overview licensees andpartners’ in this Annual Report.

 

**Broad rangeof vaccine products**

Product sales for the full year2009 were € 304.4 million, representing sales of paediatric vaccines (59%),travel and endemic vaccines (18%), respiratory vaccines (12%) and otherproducts (11%). Compared to 2008, product sales grew by € 78.4 million (34.7%)in 2009. The increase is primarily due to growth in sales of our paediatricvaccines (increase of € 69.4 million or 62.5% compared to the previous year),respiratory vaccines (€ 5.6 million or 17.2% higher than 2008) and otherproducts (an increase of € 5.9 million or 22.0%).

 

Quinvaxem is our fully liquidvaccine against five major childhood diseases. In 2008 we more than doubledproduction of this life-saving vaccine and we were able to build on thatincrease in 2009. Sales of Quinvaxem have risen from 21.3 million units in 2007to 39.6 million units in 2008 and 64.3 million units in 2009.

 

Quinvaxem has been pre-qualified bythe World Health Organization (WHO) and is therefore available for purchase bysupranational organizations. These organizations are major customers forcombination vaccines, which are used in mass-vaccination programs around theworld. In August 2009, we announced a long-term arrangement with UNICEF tosupply up to $300 million worth of Quinvaxem for the period beginning 2010through 2012. The new arrangement is the largest ever received by Crucell. Withonly half of the tendered volume for the 2010—2012 period awarded to date.Revenues are expected to grow further during the contract period. The newarrangements are in addition to the $500 million received during the 2007—2009period.

 

In September 2009, we launchedour own marketing & sales operations in the United Kingdom byacquiring an experienced team of marketing & sales personnel. Thismove is in line with our targeted strategy for optimizing sales inhigh-potential markets. We expect that these operations will further strengthenour vaccine sales position in the United Kingdom, one of the largest travelvaccine markets in Europe. Marketing of our travel vaccines Epaxal, Vivotif andDukoral has commenced and is progressing well. Sales of our virosome vaccineagainst seasonal influenza will start prior to the beginning of the 2010 fluseason in the second half of the year.

 

In November 2009, we announcedthe launch of a consistent identity — a Global Brand - for our worldwideactivities and products. The rebranding reflects the successful integration ofthe historically separate companies making up today’s Crucell. It is designedto promote recognition of the Crucell name and what it stands for: bringingmeaningful innovation to global health, with a focus on combating infectiousdiseases. The establishment of a strong global brand will significantly supportthis mission.

 

*Operations*

We recruited more than 120 newemployees during 2009, mostly for our R&D departments in Leiden and Bern.Many of these new colleagues will be working in Switzerland, in the twobuildings that were modified in 2009 specifically for the development of ourcandidate tuberculosis vaccine and

 

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activities necessary to achieveregistration of our hepatitis A vaccine Epaxal in the United States.

 

Construction of our newmanufacturing facility for Quinvaxem and Hepavax-Gene in Korea has progressedextremely rapidly since we announced our intention to relocate from the Shingalsite in Yongin City to the Incheon Free Economic Zone. Building started in December 2008and the first test runs in the new plant are planned for the second quarter of2010. The new facility will enable further increases in productivity andefficiency, ensuring that production of our pentavalent and hepatitis Bvaccines continues to meet growing demand. The investments in the new facilityare expected to total approximately €50 million, with the majority of spendingmade in 2009.

 

All our facilities were auditedseveral times during the year by customers and/or regulatory authorities. Allaudits were successful, confirming our compliance with relevant rules andregulations. Our Vivotif production line in Bern, Switzerland, was inspectedand approved by the US Federal Drug Administration (FDA). In Madrid, Spain, weinstalled a new filling line for Epaxal and Inflexal V, bringing the totalcapacity of our dedicated fill/ finish center in Spain to approximately 100million syringes per annum. The new filling line was used to prepare syringesof Inflexal V for the 2009 flu campaign.

 

In August 2008, we announcedthe intention to move Dukoral and rCTB bulk production, formulation andfill/finish activities from Sweden to other Crucell sites. Following a study toreview the full scope of this move, we took the decision in May 2009 tomove only the formulation, filling and packaging activities to our Madrid site.

 

**Other**

On January 7, 2009, weannounced that we were in friendly discussions with Wyeth regarding a potentialcombination of the two companies. Wyeth’s withdrawal from these discussions wasannounced on January 26, 2009.

 

**Subsequentevents**

On March 8, 2010 Crucellannounced that Jerald C. Sadoff, MD was appointed Chief Medical Officer atCrucell and will be a member of Crucell’s Management Committee. Before joiningCrucell Dr. Sadoff worked at the Aeras Global TB Vaccine Foundation, werehe became President and Chief Executive Officer in June 2003. Throughouthis career, Dr. Sadoff has chaired or served on over 20 national andinternational task forces, initiatives, consulting groups and advisory boards.Currently, he is Chair of the USAID Malaria Vaccine Scientific ConsultantsGroup and Chairs several Scientific Advisory Boards for NIH sponsored HIVvaccine efforts.

 

On March 15, 2010 we announcedthat Mr. William (Bill) Burns, Mr. James Shannon and Mr. GeorgeSiber are nominated to join our Supervisory Board. The Supervisory Board ofCrucell has nominated Mr. Burns, Mr. Shannon and Mr. Siber asnew members of the Board, to be presented to our shareholders at the Company’sannual general meeting of shareholders on June 4, 2010.

 

Mr. Burns (1947), a Britishnational, has built a distinguished track record in the pharmaceutical industryover the last 40 years. Most recently Mr. Burns served as the CEO of thePharmaceuticals Division of Roche.

 

Mr. Shannon (1956), a Britishnational, with over 20 years of experience in senior development positions,most recently served as Head of Global Development at Novartis Pharma AG inBasel. At present Mr. Shannon holds the position of President and CEO ofCerimon Pharmaceuticals, Inc. and serves on the Boards of ArchTherapeutics; Endocyte Inc; Mannkind Corporation and Xanodyne Pharmaceuticals, Inc.

 

Mr. Siber (1944), an Americannational, is regarded to be one of the leading global authorities in vaccines. Mr. Sibercurrently serves on numerous advisory committees including those of the PATH’sPneumococcal Vaccine Project, MVI, the Gates Maternal Immunization Program, theStop TB Task Force and the Scientific Advisory Board of several vaccinecompanies, including Novartis Vaccines and Diagnostics, LigoCytePharmaceuticals, Inc. and Variation Biosciences.

 

On April 6, 2010,Crucell announced that it has signed a binding letter of agreement withGlaxoSmithKline Biologicals (GSK) to collaborate on developing a secondgeneration malaria vaccine candidate. Under the terms of the letter ofagreement, we will contribute our recombinant malaria vaccine candidate,Ad35-CS, based on our PER.C6 and AdVac technologies and GSK will contribute itslate stage malaria vaccine candidate RTS,S/AS.

 

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**Outlook2010**

Performance versus outlook

 

We met and exceeded all financialtargets set in our outlook for 2009.

 
| ** **        | ** ** | **Target 2009**        | ** ** | **Reported 2009**      | ** ** |
|-------------------|------------|------------------------|------------|------------------------|------------|
| Revenue and other |       |                   |       |                   |       |
| income1           |       | 20% growth             |       | 29% growth             |       |
| Operating profit  |       | significantly improved |       | € 39.0 million    |       |
| Cash flow         |       | Solid                  |       | + € 156.9 million |       |

 

The weakness of the global economyin 2009 was a challenge for many companies worldwide and has adversely affectedbusinesses in many industries and geographical areas all over the world.Despite this difficult economic climate, we not merely achieved but surpassedall targets we had set for the financial year 2009. Our resilience depends inpart on our solid customer base, which is relatively unaffected bydeterioration in the global economy, since many of our customers aregovernmental agencies or supranational organizations. It also reflectsadherence to the clear priorities set as part of The Crucell Ambition strategicprogram, which is designed to promote the development of our organization and people,operational excellence, strategic focus and delivery on promises.

 

**Outlook2010**

We confirm the outlook as providedto the market on February 9, 2010:

 

·                  Continued strong operating cash flow to accelerate product development;

·                  R&D spending to increase by over one-third;

·                  Maintaining a healthy operating profit;

·                  Revenues and other operating income broadly in line with 20092.

 

1 In guidance currencies = EUR/USD rate of 1.35

2 In guidance currencies = EUR/USD rate of 1.41

 

We can look back on 2009 as a yearof unprecedented success in terms of both financial performance and strategicalliances. In particular, our landmark agreement with JNJ is a springboard forachieving our ambition to become a world leader in healthcare innovation. Weembark on the new decade better equipped than ever to face the challenges andseize the opportunities of the future.

 

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**Information on the Company**

 

**History anddevelopment of Crucell**

We are a public limited liabilitycompany under Dutch company law, incorporated in Leiden, the Netherlands withthe legal and commercial name Crucell N.V. (the ‘Company’), registered undernumber 28087740. We were incorporated on October 9, 2000, as the holdingcompany for Crucell Holland B.V., formerly called IntroGene B.V., following thecombination of IntroGene B.V. and U-BiSys B.V. Our principal executive officeis located at Archimedesweg 4-6, 2333 CN Leiden, the Netherlands. Our telephonenumber is +31 (0)71 519 9100. Our registered agent in the US is CT Corporation,111 Eighth Avenue, New York, New York 10011. The Company and its subsidiariestogether constitute the Crucell Group, or the ‘Group’. The Company hassubsidiaries in the Netherlands, Switzerland, Spain, Italy, Sweden, the UK,Korea and the US.

 

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

 

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

 

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

 

In November 2006, we and ourtechnology partner DSM Biologics opened the PERCIVIA PER.C6 Development Centerin Cambridge, Massachusetts, US. The joint venture was conceived and designedto further develop the PER.C6 cell line and provide turnkey solutions for theproduction of monoclonal antibodies and recombinant proteins.

 

On June 5, 2009 the Groupestablished Crucell UK Ltd. On July 15, 2009 the Group purchased, via itssubsidiary Crucell UK Ltd., selected assets and liabilities of UK-based MastaLtd. The relevant assets acquired in the business combination pertained to thecustomer base and workforce of the UK fields activities of Masta Ltd.

 

In September 2009 JNJ, throughits subsidiary Ortho-McNeil-Janssen Pharmaceuticals, Inc., purchased 14.6million newly issued ordinary shares of Crucell, representing approximately 18%of the Company’s outstanding ordinary shares (after issuance), for an aggregatepurchase price of € 301.8 million. In addition we entered into a strategiccollaboration with JNJ focusing on the discovery, development andcommercialization of monoclonal antibodies and vaccines for the treatment andprevention of influenza and other infectious and non-infectious diseases.

 

In November 2009, Crucellannounced the launch of the global Crucell brand, a consistent identity for itsworldwide activities and products. The rebranding is designed to promoterecognition of the Crucell name and what it stands for: bringing meaningfulinnovation to global health, with a focus on combating infectious diseases. Aspart of this process the legal names of a number of our subsidiaries wererevised. See note 1.1 ‘Corporate information’ in the notes to the financialstatements for a complete overview of these changes.

 

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**Overview**

 

The chapter ‘Information on theCompany’ provides an overview of the market we operate in, our business driversand other essential elements of our organization.

 
| **Industry, scientific and regulatory  overview**           |
|-------------------------------------------------------------|
| Overview of vaccines and  antibodies                        |   | Vaccines and antibodies  are the biopharmaceutical areas in which we are predominantly active. |
| Regulations applicable to  the biopharmaceutical industry   |   | Overview of the general  regulatory environment of biopharmaceuticals, including market-authorization  and pre-qualification. |
|                                                        |   |   |
| **Business  drivers**                                       |   |   |
| Strong R&D pipeline                                     |   | We believe that each of  our pipeline products targets unmet medical needs, improves current  medication or is otherwise marketable due to predictive study models and/ or  favorable regulatory conditions. |
| Licensing our cutting-edge  technologies                    |   | We developed an array of  excellent technologies with applicability to vaccines, therapeutic proteins  and gene therapy. |
| Broad range of vaccine  products                            |   | We produce and sell  established paediatric, travel and respiratory vaccines against a broad range  of infectious diseases, focusing strongly — but not exclusively — on unmet  medical needs in developing countries. |
| ** **                                                  |   |   |
| **Additional information on the Company**                   |
| Partners, agreements,  investments and other collaborations |   | An overview of our  partners, agreements, investments and other collaborations relevant to our  operations. |
| Intellectual property                                       |   | Our success and ability to  compete depends in large part on registration of our proprietary technology. |
| Other information                                           |   | Other information on  topics relevant to the organization, which include legal proceedings,  property, plant and equipment, insurance, supply of materials, employees and  dividend policy. |

 

**Industry,scientific and regulatory overview**

 

The biotechnology field is one ofrapid change andinnovation. We expect that this industry will continue toexperiencesignificant technological changes in the yearsahead. We operate in highlycompetitive markets andexperience competition from companies that have similar orothertechnologies, and other products or forms oftreatment for the diseases wetarget. As these companiesdevelop their technologies, they may develop proprietarypositionsin the areas of our core technologies or obtainregulatory approval for alternativetechnologies orcommercial products.

 

**Overview ofvaccines**

 

*General*

Vaccines are designed to protectpeople against potentiallylife-threatening diseases. They are biological substancesthatstimulate an immune response that allows a vaccinatedindividualto resist future infections and disease. Theimmune system recognizes vaccineagents as foreign,destroys them, and ‘remembers’ them. When the virulentversion ofan agent comes along the body recognizes theprotein coat on the virus, and thusis prepared to respond byneutralizing the target agent before it can enter cells, andbyrecognizing and destroying infected cells before that agentcanmultiply to vast numbers.

 

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Vaccines have contributed to theeradication of smallpox, one of the most contagious and deadly diseases knownto man. Other diseases such as rubella, polio, measles, mumps, chickenpox, andtyphoid are nowhere near as common as they were a hundred years ago. As long asthe vast majority of people are vaccinated, it is much more difficult for anoutbreak of disease to occur or to spread. Significant developments include theintroduction of combination vaccines and the development of new vaccinetechnologies that may advance vaccine development.

 

A variety of vaccine formats are inuse today and others are evolving through ongoing research and developmentefforts. Some of the most common vaccine formats include live-attenuated virusvaccines, inactivated whole-killed virus vaccines, sub-unit vaccines, DNAvaccines, recombinant vector-based vaccines, synthetic vaccines andpeptide-based vaccines.

 

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

 

*Market andcompetition*

According to the “Global VaccineMarket Forecast to 2012” published by RNCOS, the compound annual growth for theglobal vaccine market will be over 13% and the global vaccine market isexpected to reach $ 34.0 billion by 2012. Vaccines, which were earlier thoughtas a low margin, low growth industry, have emerged as one of the most lucrativesegments in the pharmaceutical industry. The competitive landscape of theglobal vaccine market shows a highly concentrated structure, with the top fourplayers accounting for around 74% of the total market in 2008.

 

Segment-wise, paediatric vaccinespresently dominate the global vaccine market but adult vaccine segments coulddefine the future direction of growth. The cancer vaccine market is presentlyone of the most lucrative areas for vaccine manufacturers. Flu vaccines havehuge demand at present and all major vaccine manufacturers are seeking todevelop their own flu vaccines. Owing to lower margins and the mature nature ofthese markets, the basic and enhanced paediatric markets are expected to showstagnant growth in the future. On the other hand, launch of a number of newvaccines will make the addiction, cancer and proprietary paediatrics/adolescentvaccine market highly dynamic.

 

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

 

With respect to vaccines developedon Per.C6 technology, other companies use alternative non-human expressionplatform technologies. There are also other human expression technologies forlicensed and marketed vaccines, as well as human cell lines supporting productsin development.

 

**Overview ofantibodies**

 

*General*

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

 

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

·                  Block infectious agents; and

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

 

Antibodies may also be used to bindand neutralize toxic products, to develop diagnostic products to detect virusesor bacteria and as tools in scientific research such as genomics andproteomics.

 

Methods for generating monoclonalantibodies have evolved considerably over the last 25 years. The technologyoriginally involved immunizing mice with a target molecule and isolatingrelevant antibody-producing cells from the mice. Because monoclonal antibodiesof rodent origin are recognized as foreign proteins and are rapidly eliminatedwhen applied in humans, methods were developed to produce therapeuticantibodies that are of human origin. These antibodies can be developed eitherusing transgenic

 

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mice or by means of phageantibody-display technology. Transgenic mice are genetically engineered micethat carry human antibody genes. This allows the immune systems of mice togenerate human monoclonal antibodies in response to any administered antigenicmaterial. Phage antibody-display technology allows human antibody genes to becloned into bacteriophages, which are viruses that only infect bacteria. Phagesdisplaying antibody fragments that attach to specific molecules can beselected, enabling isolation of antibodies against targets and/or enabling theidentification of target molecules. Phage antibody-display libraries are largecollections of antibody-phages for use in identifying the targets and related antibodies.

 

*Market andcompetition*

Following the success ofrecombinant proteins, therapeutic monoclonal antibodies represent the secondwave of innovation in the biotechnology industry during the past twenty years.In 2009, market researcher Datamonitor forecasts a six year compound annualgrowth rate of 10.3 per cent over the period 2008-14 for monoclonal antibodiesto approach $60 billion sales by 2014.

 

Approximately thirty therapeuticmonoclonal antibodies have been approved around the world. A number of thesedrugs have attained blockbuster status, with sales reaching the coveted $1billion mark and beyond. Several products generated sales of over $4 billioneach in 2008, and global sales for this entire sector surpassed $ 30 billion in2008.

 

Other biotechnology companies,including UCB Celltech, Genentech and PDL BioPharma, currently generatehumanized antibodies, and Cenocor, Biogen IDEC, Medarex, Inc., GenMab, andRegeneron produce human monoclonal antibodies from transgenic mice. Abbott,MedImmune, MorphoSys AG and Dyax generate fully-human monoclonal antibodiesusing phage antibody-display libraries that are similar to ours. Companies suchas XOMA and SCA Ventures, Inc., a subsidiary of Enzon Corporation, arealso working in the field of phage display libraries and related technologies.

 

In the area of infectious diseaseantibodies, potential competitors include serum antibody companies such as CSLand Baxter, and monoclonal antibody companies like MedImmune.

 

**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 and clinical testingbefore approval will be granted. Our research and development and productionactivities involve the use of hazardous materials, including biologicalmaterials, many of which we need special approval to obtain and all of whichare subject to regulation regarding their handling and disposal. Environmental lawsand regulations and laws and regulations relating to safe working conditions,laboratory conditions, and laboratory and manufacturing practices also apply toour operations. We conduct our operations in a manner designed to comply withapplicable regulations and we believe that we have all the licenses and permitsrequired to carry out our current activities. In most countries, it isnecessary to obtain mandatory approval to market a pharmaceutical or medicalproduct. The granting of such approval is subject to a detailed evaluation ofdata submitted by the applicant related to the quality, safety and efficacy ofthe product.

 

Obtaining product approval is acostly and time-consuming process. Any products our licensees or we developwill require regulatory clearances prior to clinical trials and additionalregulatory clearances prior to being produced and distributed commercially.These regulatory processes are generally stringent and time consuming. Weexpect the European Medicines Agency (EMEA) in the European Union, the FDA inthe US, the College ter Beoordeling van Geneesmiddelen (CBG) in the Netherlandsand comparable agencies in other countries to subject new biopharmaceuticalproducts to extensive regulation. These regulatory requirements with which weand our licensees

 

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will have to comply will evolveover time due to the novelty of the biopharmaceutical products and therapiescurrently under development. Fortunately, the harmonization of theserequirements is promoted at an international level (International Conferenceson Harmonization (ICH)) to avoid unnecessary repetition of studies when seekingapproval in various countries. Under the current definitions, we believe thatproducts developed using our technologies will be regulated either asbiological products or as drugs.

 

To obtain regulatory approval fromthe relevant authorities, pre-clinical and clinical trials must be conducted todemonstrate the safety and efficacy of the product candidates. Clinical trialsare the means by which experimental drugs or treatments are tested in humanvolunteers. New therapies typically advance from laboratory research testingthrough pre-clinical testing and finally through several phases of clinicalhuman testing. Clinical trials are normally done in the following phases:

 

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

·                  **Phase II:**Clinicalstudies that test the safety and efficacy of the compound in patients with thetargeted disease with the goal of determining the appropriate doses for furthertesting and evaluating study design as well as identifying common side effectsand risks.

·                  **Phase III:**Large-scaleclinical studies with several hundred or several thousand patients to establishsafety and effectiveness for regulatory approval for indicated uses and toevaluate the overall benefit/risk relationship.

·                  **Phase IV:**(postcommercialization trials) these trials involve the safety surveillance andongoing technical support after market approval.

 

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 toits biological origin may result in the imposition of restrictions upon themanufacturing and sale of such products, including at worst withdrawal of theproduct from the market and/or the revocation of the relevant regulatoryapprovals.

 

**Pre-qualificationapplicable to the biopharmaceutical industry**

National and regional governmentsrely on the pre-qualification granted to biopharmaceutical products byevaluative bodies such as the WHO and, in some cases, simply elect not to purchaseproducts which have not been granted pre-qualification of approval.

 

The WHO Pre-qualification iscarried out to facilitate access to medicines that meet unified standards ofquality, safety and efficacy.

 

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

 

Any manufacturer wishing theirmedicines to be included in the pre-qualified 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 that assesses working procedures for compliancewith WHO Good Manufacturing Practices (GMP).

 

The pre-qualification does notintend to replace national regulatory authorities or national authorizationsystems for importation of medicines.

 

**Businessdrivers**

 

**StrongR&D pipeline**

 

Product pipeline programs includevaccines against yellow fever, influenza, tuberculosis, Ebola and Marburg,malaria, HIV, and antibodies against rabies, a broad range of influenza strainsand hepatitis C. Our R&D activities are concentrated in our headquarters inthe Netherlands, but we also have development facilities in Switzerland andKorea.

 

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**Overview of ourpipeline based on proprietary technologies**

 

Our PER.C6 technology, complementedby our AdVac and MAbstract technologies, drives the development of our productpipeline for vaccines and monoclonal antibodies. We continue to develop ourtechnologies while selecting product leads for further development based oncareful product selection criteria that support our long-term businessobjectives. We have in the past and may again in the future, enter intocollaborative and/or strategic alliance arrangements with third parties toco-develop and market products.

 

Our primary focus is thedevelopment of a range of novel vaccine and antibody products in the area ofinfectious diseases. We currently have a number of potential products that weare developing using our technologies:

 

·      Our candidate influenza, rabies and hepatitis C humanmonoclonal antibodies are generated and produced using our PER.C6 and MAbstracttechnologies;

·      An influenza vaccine, in collaboration with sanofi pasteuris being developed using our PER.C6 technology; and

·      Our malaria, TB vaccine and Ebola and Marburg candidates arerecombinant vaccines based on PER.C6 technology that also employ AdVactechnologies.

 

**Overview of ourvaccines in development**

 

**Yellow fevervaccine**

We developed our yellow fevervaccine, Flavimun, based on a well-established vaccine formerly produced by theRobert Koch institute in Germany. The product was submitted for registrationwith the Swiss authorities in the first quarter of 2009. A dedicatedteam is currently reviewing outstanding questions from the swiss authoritiesand will respond as soon as possible.

 

**Influenza**

***Epidemic(or seasonal) influenza vaccine***

In December 2003, we enteredinto a strategic agreement with sanofi pasteur to further develop andcommercialize novel influenza vaccines using our PER.C6 technology. A Phase IItrial of the cell culture-based seasonal influenza vaccine was initiated in theUS and started in the fourth quarter of 2007. In the third quarter 2008, wereceived a milestone payment for the progress of the Phase II trials involvinghealthy adult volunteers in the US. The trials focus on the safety profile andimmunogenicity of the cell-based vaccine. All data collected so far confirmthat the PER.C6 cell line supports the growth of all flu virus strains in highquantities.

 

***PANFLUVAC***

In July 2009, the PANFLUVACconsortium consisting of eight European research partners, including Crucell,completed the first stage of their Phase I clinical trial in healthyvolunteers, using a combination of virosome vaccines against A/H5N1 influenzaand an Immune Stimulating Complex (ISCOM) adjuvant. The results show that thevaccine is safe and tolerable. Furthermore, the vaccine is very immunogenic andfulfills all serological Committee for Proprietary Medicinal Products (CPMP)requirements for influenza vaccines.

 

***Influenzavaccine production technology***

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 thus easily scalable, permittingthe production of cost-efficient vaccines in large quantities. PER.C6 cellspossess the different receptors required for the production of vaccines againstboth human and animal strains of influenza that may present a pandemic threat.

 

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**About influenza**

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 humans do not have immunity. Typical symptoms of fluare usually relatively mild but can become life threatening in vulnerablepatient groups, such as the elderly and immunodeficient individuals. In agrowing number of countries, small children have been added to the list ofpreferred protection groups. Transmission of the flu virus occurs throughairborne particles and upon infection, the incubation period ranges from one tothree days. According to the World Health Organization an estimated 250,000 to500,000 people die annually from influenza-associated complications.

 

In addition to these annualepidemics, global pandemics may arise as a consequence of a major genetic shiftin the influenza virus leading to a deadly new virus strain to which the humanpopulation does not have immunity. The pandemic (H1N1) 2009 influenza virus isan example of a virus that has never circulated among humans before. Afteroutbreaks in North America early in 2009, the virus spread rapidly around theworld causing a pandemic. Mitigating its effects is a public health priority.Concerns still exist that a new avian influenza strain (i.e. H5N1 and H9N2)endemic among birds in Asia, and showing high pathogenicity for humans, couldpresent a genuine pandemic threat.

 

**Tuberculosis**

Crucell is developing a recombinanttuberculosis (TB) vaccine based on our AdVac and PER.C6 technology. Thedevelopment of this vaccine is being carried out in collaboration with theAeras Global TB Vaccine Foundation (AERAS). The Crucell-Aeras TB vaccine(AERAS-402/Crucell Ad35) program is focusing on an AdVac based vaccine that canboost the immune response against TB, initially induced by BacilleCalmette-Guérin (BCG) vaccine. BCG is currently the only vaccine licensed tohelp prevent TB.

 

A first Phase I clinical trial,launched in October 2006 in Kansas, USA, indicated that the vaccinecandidate is safe in healthy adults. Results of a second study with thecandidate vaccine that was launched in May 2007 showed that both criticalarms of the cellular immune system, CD4 and CD8 immune T-cells, were inducedand that in those participants who responded, CD8 immune responses wereconsiderably higher than had ever previously been seen in a TB vaccine study.

 

Two Phase I studies in healthyadults in St. Louis, Missouri, USA, focusing on the immunogenicity and safetyof two boost doses of the candidate vaccine administered at three to six monthintervals after BCG priming in healthy adults have been completed. Data fromthese studies specifically indicate that two injections of the candidatevaccine are immunogenic, with an acceptable safety profile, when used with aBCG prime in combination with the candidate vaccine in BCG vaccinated healthyadults, regardless of the boosting interval. This immune response is greaterthan that detected in the absence of BCG prime, supporting the possible utilityof the candidate vaccine as a booster vaccine. A follow-up study conducted inthe USA in healthy adults showed that the candidate vaccine had an acceptablesafety profile when an increased dose was administered.

 

A Phase I clinical trial in Kenyathat began in October 2008, to test the safety of the candidate vaccine inBCG-vaccinated adults with or without latent tuberculosis, was completed in2009. The study was conducted by the KEMRI/ Walter Reed Project-Kisumu at theirKombewa Clinical Trials Center near Kisumu, in Western Kenya. Analysis isongoing and no safety issues have been identified.

 

In April 2009, a Phase Iclinical trial in infants was started in South Africa. This is the firstclinical trial designed to test this candidate vaccine in infants. This Phase Istudy is being conducted by the South African Tuberculosis Vaccine Initiative(SATVI) in the Western Cape region of South Africa. The main objective of thestudy is to test the safety of the TB candidate vaccine in infants previouslyvaccinated with BCG vaccine. This study is fully enrolled and dosing is ongoingin the last cohort. No safety issues have been identified to date.

 

In January 2010, a Phase Iclinical trial was initiated in Portland, Oregon, USA. This trial is using aknown immunogenic regimen of BCG and the candidate vaccine in healthy adults,followed by collection of large numbers of immune cells for more detailedanalysis of the immune response to the candidate vaccine.

 

The first Phase II study of thevaccine candidate, started in October 2008, is being conducted by theUniversity of Cape Town Lung Institute, South Africa in conjunction with theSouth African Tuberculosis Vaccine Initiative. In this dose

 

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escalation study in adults who havehad active TB, no evidence of an unacceptable safety issue has been found inthe 72 subjects enrolled to date. Preliminary data indicate that the candidatevaccine induces CD8-cell immune responses in patients who have completed TBtreatment.

 

**About tuberculosis**

TB is a major cause of illness anddeath worldwide, especially in Asia and Africa, with over 9 million new casesdiagnosed in 2008. According to the World Health Organization (WHO), anestimated 1.3 million HIV-negative and 0.5 million HIV-positive people diedfrom TB in 2008. One third of the world’s population has been infected with theTB bacillus and current treatment takes 6-9 months. The current TB vaccine BCG,developed over 85 years ago, reduces the risk of severe forms of TB in earlychildhood but is not very effective in preventing pulmonary TB in adolescentsand in adults, the populations with the highest TB rates. As the disease ischanging and evolving, new vaccines are even more crucial to control anypandemic. TB is the leading cause of death for people living with HIV/AIDS,particularly in Africa. Multidrug-resistant TB (MDR-TB) and extensivelydrug-resistant TB (XDR-TB) are hampering treatment and control efforts. A needfor an alternative vaccination approach has emerged in the last two decades.

 

**Malaria**

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

 

The efficacy of our malaria vaccinecandidate was tested in pre-clinical models. Studies in a murine model showedthat a single administration of a prototype AdVac vaccine, provided protectionagainst the specific parasite. In partnership with the NIAID, Crucell’s malariavaccine entered a Phase I trial in the US in January 2007. The study isbeing carried out on two sites, Vanderbilt University in Tennessee and StanfordUniversity in California. All four cohorts have been enrolled and inDecember 2009 boost vaccinations for the final group of volunteers werecompleted. Ongoing safety monitoring has revealed no significant safety concernsto date. Preliminary examination of the blinded data from the first fourcohorts indicates that the vaccine is immunogenic. Detailed analysis of thedata is ongoing and unblinding is expected in the second quarter of 2010.

 

In July 2009, Crucellannounced a new collaboration with partners in the US-based MVI and USAID MVDPto accelerate development of a promising new type of malaria vaccine. Throughfunding from the USAID MVDP, the partners will conduct studies to determine theeffectiveness of Crucell’s novel prime—boost vaccine approach against themalaria parasite P. falciparum. This approach uses Crucell’s proprietaryrecombinant adenoviruses (a type of virus associated with the common cold andother mild respiratory infections), to deliver a malaria antigen to the immunesystem. Using Crucell’s AdVac technology with two different adenovirusvectors—Ad35 and Ad26—as delivery mechanisms, this approach seeks to elicit aprotective immune response obtained from delivering the CSP.

 

**About 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 iscurrently one of the most lethal communicable diseases. The disease currentlyrepresents one of the most prevalent infections in tropical and subtropicalareas causing severe illness and death worldwide. According to the World HealthOrganization’s latest report, 243 million malaria cases led to nearly 863,000deaths in 2008. Most of these deaths occur among children and pregnant women inthe 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

 

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populations. Although theoverwhelming majority of morbidity and mortality associated with malaria occurin the developing world, this disease also affects travelers.

 

**Multivalentfilovirus (Ebola and Marburg) vaccine**

Crucell is developing an Ebolavaccine in collaboration with the Vaccine Research Center (VRC) of the NIAID.The objective of the Collaborative Research and Development Agreement (CRADA)with the VRC is to jointly develop, test and manufacture an adenovirus-basedEbola vaccine. Under the terms of the agreement, we have an option forexclusive worldwide commercialization rights to the Ebola vaccine resultingfrom this collaboration.

 

In experiments conducted by the VRCtogether with the US Army Medical Research Institute of Infectious Diseases (USAMRIID) during the first half of 2004, our vaccine candidate confirmedsingle-dose protection in pre-clinical testing against Ebola. What set theresults of this trial apart from the earlier successful trial, whichestablished a proof-of-concept, was that the vaccine in this instance wasproduced on PER.C6 technology.

 

In March 2005, we extended theCRADA with the US NIH and continue to develop this vaccine and will use theEbola vaccine results in the development of Marburg and Lassa vaccines. Inaddition, we obtained an exclusive license to certain NIH patents to developand commercialize recombinant vaccines against Ebola.

 

In October 2008, we secured aNIAID/ NIH contract aimed at advancing the development of Ebola and Marburgvaccines, ultimately leading to a multivalent filovirus vaccine. The contractprovides funding of up to $30 million, with additional options that may beexercised at the discretion of the NIAID for an additional $40 million. ThePhase I study of an Ad5 and PER.C6-based Ebola vaccine that Crucell isdeveloping in partnership with the Vaccine Research Center (VRC) of theNIAID/NIH, showed safety and immunogenicity at the doses evaluated. Based onthese results, a second Phase I study of an Ebola and/or Marburg vaccine isanticipated. This will use alternative multivalent adenovirus vectors that areable to bypass pre-existing immunity against Ad5.

 

**About Ebola andMarburg**

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

 

**HIV**

In August 2005, Crucell, alongwith Harvard Medical School, was awarded a $ 19.2 million grant by the US NIHto develop new adenovirus vector-based vaccines against HIV/AIDS. TheInvestigational New Drug Application (IND) for Phase I of the trial withHarvard Medical School (supported by the NIH) was approved by the FDA inJanuary 2008. In April 2008, the Company announced the start of aPhase I clinical study of the novel HIV recombinant AdVac-based vaccine thatCrucell is jointly developing with the Beth Israel Deaconess Medical Center,using adenovirus serotype 26 (rAd26) as vector. The rAd26 vector isspecifically designed to avoid the pre-existing immunity to the more commonlyused adenovirus serotype 5 (Ad5). The Phase I clinical study is being conductedat the Brigham and Women’s Hospital in Boston, Massachusetts, USA and isfocused on assessing the safety and immunogenicity of the vaccine. Enrollmentis ongoing and involves 48 healthy volunteers. Dose escalation has proceededwithout difficulty and the third cohort has been fully enrolled. Boostvaccinations are ongoing. On 21 October 2009 preliminary results of thePhase I study were presented at La Conférence AIDS Vaccine 2009 in Paris,France. The preliminary results of this study show that this HIV candidatevaccine is safe and immunogenic.

 

**About HIV**

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

 

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

 

**Overview of ourhuman monoclonal antibodies in development**

 

**Rabies humanmonoclonal antibody combination (CL184)**

Although many experimentaltherapies have been utilized to try to save clinically ill rabies patients,there is no recognized treatment for rabies after symptoms of the disease haveappeared. However, an effective rabies vaccine and antibody regimen can provideprotection against rabies when administered immediately after an exposure.Post-exposure prophylaxis (PEP) is indicated for persons exposed to an animalproven or suspected to be rabid. PEP should begin as soon as possible after anexposure occurs. There have been almost no PEP failures reported when PEP wasgiven promptly and appropriately after an exposure to rabies. Current PEPtherapy for severe exposures (transdermal lesions) consists of administrationof human immunoglobulin (HRIG) or equine (ERIG) polyclonal immunoglobulin andrabies vaccine. For reasons of safety and availability, alternative products toHRIG or ERIG are advocated, and the development of rabies virus-specificmonoclonal antibodies has been recommended, by the WHO.

 

Crucell’s monoclonal antibodycombination against rabies is being developed in close collaboration withsanofi pasteur using Crucell’s PER.C6 technology.

 

This antibody combination isdesigned to be used in combination with a rabies vaccine for PEP against thisfatal disease.

 

The rabies human monoclonalantibody combination was granted a “Fast Track” designation by the FDA Departmentof Health and Human Services, ensuring priority handling of the regulatoryapplication. Under the terms of the collaboration agreement with sanofipasteur, Crucell will be responsible for manufacturing the commercial productand has retained exclusive distribution rights in Europe, co-exclusivedistribution rights in China and the rights to sell to supranationalorganizations such as UNICEF, while sanofi pasteur will have exclusivedistribution rights for all other territories and co-exclusive distributionrights in China.

 

Promising Phase I data in 2007showed no serious adverse effects and demonstrated the expected rabiesneutralizing activity upon administration.

 

Positive preliminary results of thePhase II US study were presented on October 1, 2008. A second Phase IIclinical study evaluating the monoclonal antibody combination together with arabies vaccine in healthy children and adolescents was conducted in thePhilippines from May to October 2008. In June 2009, Crucellannounced the results of the Philippines study, which showed that the antibodycombination was safe and well tolerated. Neutralizing activity levels insubjects given the antibody product were similar to those in subjects givenhuman immunoglobulin (HRIG), the current standard for inducing immediate,passive immunity. All study participants reached adequate immunity levels. Thisstudy in children further broadens the potential patient population forCrucell’s rabies monoclonal antibody combination. An additional Phase IIclinical study to be conducted in India is scheduled to start in 2010. Therationale for this study is to collect safety and neutralizing activity data ofthe CL184 antibody in combination with the vaccine in a simulated rabiespost-exposure prophylaxis setting to be used in Phase III.

 

**About rabies**

Rabies is a viral disease ofmammals most often transmitted through the bite of an infected animal. Thevirus infects the central nervous system, causing encephalopathy and ultimatelydeath if medical treatment is not sought before

 

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symptoms become more severe. Rabiesis prevalent in all the continental regions of Europe, Asia, America andAfrica. Globally, approximately 10 million people a year are treated afterexposure to rabies. More than 50,000 people are thought to die of the diseaseeach year, mainly in China and India.

 

**Human monoclonalantibodies against a broad range of influenza**

Crucell’s scientists discovered aset of human monoclonal antibodies that provides immediate protection andneutralizes the broadest range of H5N1 strains. When tested in pre-clinicalmodels for prevention or treatment of a potentially lethal H5N1 infection, thisantibody was shown to prevent death and cure the disease.

 

In another pre-clinical study,Crucell’s mAb CR6261 was compared with the most current anti-influenza drug,oseltamivir, in terms of its value for flu prevention and treatment. InDecember 2008, Crucell announced that its monoclonal antibody had stronglyoutperformed oseltamivir in these tests. The flu strains tested included the‘bird flu’ strain H5N1, which, experts fear, has the potential to cause apandemic, and H1N1, which is similar to the strain responsible for the devastatingpandemic in 1918. Importantly, the study showed that CR6261 provides immediateprotection against the influenza virus, suggesting that it will be able toprevent disease spread. In contrast, oseltamivir was less efficacious and insome cases not effective at all.

 

The characterization of theantibody was described in the online journal PLoS ONE on December 16,2008. An imaging study published in the prestigious journal Science on 26February 2009 described the mechanism that accounts for the broad-spectrumprotection afforded by the antibody by showing how it binds to a part of theinfluenza virus that is less likely to mutate from one viral strain to thenext. Antibodies produced by the body in response to influenza infection orvaccination, by contrast, bind to a part of the virus that tends to mutate morefrequently, thus limiting the efficacy of human monoclonal antibodies torapidly mutating influenza viruses.

 

In August 2009, Crucellreceived an award from the US National Institute of Allergy and InfectiousDiseases (NIAID) and US National Institutes of Health (NIH) for the developmentof monoclonal antibodies for the treatment of seasonal and pandemic influenza.The award provides funding of up to $40.7 million, with additional options thatmay be exercised at the discretion of the NIH worth a further $28.4 million,bringing the potential total award amount to $69.1 million.

 

In September 2009, JNJ,through its subsidiary Ortho-McNeil-Janssen Pharmaceuticals, Inc., andCrucell entered into a strategic collaboration focusing on the discovery,development and commercialization of monoclonal antibodies and vaccines for thetreatment and prevention of influenza and other infectious and non-infectiousdiseases. The immediate focus of the collaboration will be the development andcommercialization of a universal monoclonal antibody product (flu-mAb) for thetreatment and prevention of influenza. The focus of the long-term collaborationwill be on new discovery programs leading to the development and commercializationof a universal influenza vaccine as well as the development of monoclonalantibodies and/or vaccines directed against up to three other infectious andnon-infectious disease targets. See ‘Paediatric vaccine — About Influenza’ inthis section for more details on influenza.

 

**Hepatitis CAntibody Combination**

In February 2009 we obtainedan exclusive license from Stanford University for the development of amonoclonal antibody combination against the hepatitis C virus (HCV). A largepanel of fully human monoclonal antibodies against HCV is being evaluated by usin a proof of concept phase. The monoclonal antibodies have been found toneutralize HCV on a number of genotypes tested and each recognizes a differentpart of the HCV surface protein.

 

**About hepatitis C**

Hepatitis C is a contagious liverdisease that results from infection with the hepatitis C virus. It can range inseverity from a mild illness lasting a few weeks to a serious, lifelongillness. Hepatitis C is usually spread when blood from a person infected withthe hepatitis C virus enters the body of someone who is not infected. Today,most people become infected with the hepatitis C virus by sharing needles orother equipment to inject drugs. Before the widespread screening of the bloodsupply began hepatitis C was also commonly spread through blood transfusionsand organ transplants.

 

Hepatitis C can be either “acute”or “chronic.” Acute hepatitis C virus infection is a short-term illness thatoccurs within the first 6 months after someone is exposed to the hepatitis Cvirus. For most people (50-80%), acute infection leads to chronic infection.Chronic hepatitis C is a serious

 

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disease which in 10-20% of thecases will result in long-term health problems such as liver cancer, or evendeath. It is estimated that there are more than 170 million chronic carriers ofthe virus at risk of developing serious liver disease and/or liver cancer.There is no vaccine for hepatitis C. There has been a significant improvementin the treatment of hepatitis C in recent years. The drugs Interferon andRibavirin can successfully treat hepatitis C in some people, though the successof treatment depends on the genotype and the amount of virus in the blood.These drugs are usually taken for 6 to 12 months and can sometimes have seriousside effects.

 

**Blood CoagulationFactor V**

Pre-clinical work on this programwas not conclusive and has been discontinued.

 

**Licensing ofcutting-edge technologies**

 

**Licensing ourtechnologies to the market**

We generate a portion of ourrevenues and other operating income from licensing our proprietary technologiesto pharmaceutical and biotechnology companies. Our business developmentstrategy involves contacting prospective licensees and partners and assessingtheir interest in our technologies and products. If the prospective licensee orpartner indicates interest we negotiate a license and/or collaborationagreement pursuant to which we deliver the applicable technology to, orcollaborate with, the licensee or partner.

 

**Core proprietarytechnologies**

Our product portfolio is supportedthrough five core proprietary technology platforms.

 

**PER.C6 technology**

 

**Overview**

Our PER.C6 technology provides amanufacturing system that can be used to produce a variety of biopharmaceuticalproducts. Crucell’s PER.C6 cell line is derived from a single, humanretina-derived cell, which was purposely immortalized using recombinant DNAtechnology. As a result, PER.C6 cells can replicate indefinitely, allowing themto be cultured in single cell suspension under serum-free conditions inquantities appropriate for large-scale manufacturing.

 

The technology has beensuccessfully adapted to grow without the need for serum components or materialsthat allow cell attachment (micro carriers) and demonstrates excellent celldensities in bioreactors. These features are important because they allow us toproduce safe biopharmaceutical products in sufficient quantities.

 

In September 2008, DSMBiologics and Crucell announced that the high-titer-fed batch process developedat the PERCIVIA PER.C6 Development Center (PERCIVIA) joint venture in Boston,Massachusetts, USA was scaled up to 250 liters by DSM Biologics scientists. InJune 2008, the Company reported record-breaking protein yields of 27 gramsper liter using DSM’s innovative XDTM technology.

 

In January 2009, DSM andCrucell entered into an agreement with Bioceros B.V. based in Utrecht, TheNetherlands to join their vendor network. Under the terms of the agreement,Bioceros will be a preapproved cell line generation partner for licensees ofthe PER.C6 cell line located in the European Union.

 

In March 2009, DSM and Crucellentered into an agreement with KBI Biopharma Inc. based in Durham, NorthCarolina, USA, to provide cell line generation services of the PER.C6 cell linefor licensees of the technology. KBI Biopharma can provide services during thecrucial early phase of development for licensees.

 

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

 

**Vaccine production**

PER.C6 technology can be used as aproduction system for developing and manufacturing both classical andrecombinant vaccines.

 

·      Forclassical vaccine production, PER.C6 cells are infected with the virus againstwhich the vaccine is meant to protect. The virus is subsequently multiplied onPER.C6 cells to high virus titer, yielding a potent starting material that canbe processed and purified to produce a final formulation of a whole-killed,split or sub-unit vaccine; and

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

 

**Protein production**

PER.C6 technology can be used as aproduction system for developing and manufacturing both antibodies and otherproteins. DNA encoding for a particular protein of interest is inserted intoPER.C6 cells. These modified PER.C6 cells will secrete the desired antibody orother protein. We are further developing the application of PER.C6 for proteinproduction at PERCIVIA.

 

**Gene therapy**

The primary function of PER.C6technology in the field of gene therapy is the production of adenoviral vectorsa gene delivery mechanism based on a common cold virus that carries therapeuticgenes and facilitates the delivery of the gene into the cells. Since the PER.C6technology is the only available cell line that does not allow any formation ofclassical replication competent adenoviruses during the production ofreplication deficient vectors, the cell line may be applied across the entireadenovirus gene therapy field.

 

**Functionalgenomics**

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

 

**Key features andadvantages**

We believe that our PER.C6technology has the following key advantages over alternative manufacturingsystems:

 

·      PER.C6technology potentially offers a system for high yield, large-scalebiopharmaceutical product production. PER.C6 technology can be cultured at highdensities and engineered to produce large quantities of biopharmaceuticals andmay reduce production expense.

·      PER.C6cells can be cultured in a serum-free medium, without micro-carriers, using avariety of scaling systems, including bioreactors. This simplifies theexpansion from laboratory- to industrial-scale production, which may lead tothe production of cost-efficient biopharmaceuticals in large quantities. Theuse of a serum-free medium also offers the potential to significantly improvethe purification of biopharmaceuticals produced using the PER.C6 technology andmay facilitate regulatory approval.

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

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

·      We believethat antibody and other protein products based on the human based PER.C6technology may demonstrate enhanced biological properties, rendering thempotentially more efficacious. In addition, PER.C6 technology efficientlysupports the growth of certain human viruses for vaccine development.

 

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**AdVac technology**

 

**Overview**

Crucell is a key player in thedevelopment of adenoviral-based vaccines, resulting in the availability ofproprietary AdVac vectors. We have generated a wide variety of research and GMPclinical batches based on AdVac technology for diverse infectious diseases.

 

AdVac technology is based onvectors constructed from adeno viruses that do not regularly occur in the humanpopulation, such as Ad35. The technology supports the practice of inserting DNAcoding of pathogen-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 by Crucell andits licensees to develop vaccines against malaria, TB, HIV/AIDS, hepatitis C(HCV) and hemorrhagic fevers (Ebola, lassa, Marburg). While no adenovirus-basedrecombinant vaccines are currently licensed for human use, AdVac-based vaccinesfor malaria, HIV/AIDS, HCV, hemorrhagic fevers, and TB have been successfullyconstructed and are currently in clinical trials.

 

Crucell has generated a series ofadenoviruses including Ad35 and derivatives thereof as well as manufacturingplatforms for these vectors. The AdVac vectors can be produced to carry geneticinformation derived from viruses, parasites and bacteria, and thereby have thepotential to allow immunization against life-threatening diseases.

 

Crucell has laboratories to developpurification methods closely resembling an end-stage manufacturing process.With this facility we can manufacture Ad35 vaccine vectors for comprehensivepre-clinical programs. These products can be manufactured using PER.C6technology under serum-free conditions.

 

**Key features andadvantages**

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

 

·      Vectorsused with AdVac technology share the advantages of the commonly used adenoviralvectors such as: scalable production, high yields and the ability to mediate astrong T-cell immune response;

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

·      AdVacvectors can be engineered to contain small genetic fragments of differentviruses, parasites and bacteria. This makes possible the development of a widevariety of novel vaccines against a broad range of dangerous human pathogens.

 

**MAbstracttechnology**

 

**Overview**

Our MAbstract technology can beapplied to the discovery of novel drug targets and the identification of humanmonoclonal antibodies against those drug targets. MAbstract technology employsa bacteria-infecting virus called a bacteriophage, or phage, which expressespart of a human antibody on its surface. The technology employs a library ofphages that carry many different human antibodies. To identify and subsequentlyisolate relevant antibodies, the library is put in contact with pathogens, orcells suspected of carrying the drug target, or if the target is already knownin advance, the library may be put in contact with the target directly.Subsequently, phage antibodies binding to the diseased cells or the knowntarget are separated from phage antibodies that do not bind at all, or bind tohealthy cells added to eliminate irrelevant phage antibodies present in thelibrary. Since irrelevant phage antibodies for the target in question are oftenpresent in great abundance, the elimination step aids in enriching thephage-antibody population for potentially relevant, selectively binding phageantibodies.

 

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Once such phage antibodies havebeen isolated, they can either be used to subsequently identify the target or aspecific binding place on the target (referred to as epitope), or be used tosubsequently isolate the DNA coding for the binding part of the antibody. Thispart may genetically be combined with other parts of the antibody that have nobinding function but have accessory functions in the human immune system. Thus,different formats of antibodies with different modes of action or functions canbe made, but with the same specificity for the target.

 

We use our MAbstract technology toidentify antibodies reactive with whole pathogens, antibodies against proteinelements from pathogens or antibodies directed against targets already known tobe associated with disease.In addition MAbstract can be used to identify targets orepitopes on disease-causing agents that were previously unknown and may makesuitable candidates for antibody-based diagnosis, prevention or therapy of theassociated disease.

 

**Key features andadvantages**

MAbstract employs a human-basedantibody-display technology. We believe that MAbstract allows for the discoveryof therapeutic antibodies with several potential advantages over currenttechnologies. These advantages include the following:

 

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

·      MAbstracttechnology does not have inherent limitations on antibody specificity.

·      MAbstracttechnology has been used to isolate antibodies for numerous diseaseapplications. Selected antibody specificities can be directly reformatted intoantibodies for production using PER.C6 technology.

 

**STAR technology**

 

**Overview**

STAR technology is useful forincreasing production of recombinant antibodies and therapeutic proteins onmammalian cell lines. It is a two component system consisting of (a) STARelements that counteract gene silencing, resulting in increased levels ofproduction and improved stability of recombinant proteins, and(b) STAR-select, a very stringent selection system that is directlycoupled to the expression of the gene of interest, resulting in only a few celllines that all produce the recombinant protein at high levels.

 

We acquired STAR technology in 2004through the purchase of ChromaGenics B.V., a privately held biotechnologycompany based in Amsterdam. In connection with the purchase, we also enteredinto a contingent payment agreement with the former shareholders ofChromaGenics that could result in us making additional payments of up to € 7.0million, based upon our receipt of revenues generated from the STAR technology.In 2007, we paid € 2.0 million to the former shareholders under this agreement.No payments were made in 2009 and 2008.

 

**Key features andadvantages**

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

 

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

·      The STARtechnology allows for very rapid stable mammalian cell clone generation; and

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

 

**Virosometechnology**

 

**Overview**

One of the challenges in vaccinedevelopment is the creation of products that contain defined antigens of highpurity that efficiently induce a protective immune response. Many antigen preparationsare therefore supplemented with adjuvants to enhance the body’s immune responseto the specific antigens. The most commonly used and approved adjuvants forhuman use are aluminum salt derivatives, which are known to cause adversereactions such as irritation and inflammation at the injection site. Virosometechnology is used in the manufacture of several of Crucell’s registeredproducts where it has an excellent safety record. Virosomes are a broadlyapplicable adjuvant and carrier system with prospective applications in areasbeyond conventional antigen-based vaccines. Our virosome technology offers atool for developing novel, predominantly synthetic vaccines applicable toinfectious and chronic diseases. These vaccines offer additional benefitsbecause they are effective even in immune-suppressed patients and infants.

 

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**Key features andadvantages**

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

 

·      Virosometechnology provides a broadly applicable delivery system for antigens orDNA/RNA encoding specific immune stimulatory proteins;

·      Virosometechnology enables target-specific delivery of antigens and amplification ofthe immune response;

·      Virosomesstimulate both arms of the immune system, eliciting both antibody and cellularimmune responses, against inserted immune stimulatory proteins derived fromhuman pathogens;

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

 

**Other proprietarytechnologies**

 

In addition to our core proprietarytechnology platforms the Company employs numerous other technologies. Of theseother proprietary technologies we would like to highlight the following two.

 

**Hansenulapolymorpha**

 

**Overview**

The yeast expression technologyHansenula polymorpha provides us with a highly efficient production technologyfor proteins, which can be used as a basis for developing and manufacturing newvaccines. The yeast Hansenula polymorpha production system provides superiorcharacteristics for a wide range of industrial applications. In particular itslack of pyrogens, pathogens or viral inclusions, its ease of geneticmanipulation and its robustness in industrial scale fermentations add to itsattractiveness for the synthesis of pharmaceutical compounds. Our registeredHBV vaccine Hepavax-Gene is based on recombinant production in this yeast.

 

**Key features andadvantages**

We believe our Hansenula polymorphatechnology has the following key advantages over other yeast expressiontechnologies:

 

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

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

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

 

**RecombinantCholera Toxin B sub-unit technology**

Cholera Toxin B (CTB) sub-unit is apowerful inducer of immunity both systemically and mucosally. Numerousapplications have shown that coupling of antigen to CTB increases theimmunogenicity of the antigen. In some applications simple co-administration ofCTB with the antigen has been shown to be effective. This has been shown bothfor parenteral as well as mucosal (intranasal) applications.

 

CTB is an efficient mucosal carrierfor induction of peripheral immunological tolerance. Oral ingestion of antigencoupled with CTB suppresses peripheral T-cell reactivity to the coupledantigen. The Group has a GMP manufacturing facility for recombinant CTB. Theproduction system is designed so that CTB is produced completely devoid of thetoxins.

 

**Broad range of vaccine products**

 

**Overview**

 

Our products are marketed by ourown sales force as well as by our distribution partners. Our sales are subjectto seasonal variations. This is specifically the case for our influenza vaccinesas vaccination programs mainly take place in the second half of the year. Inaddition, our travel vaccines are also subject to seasonal travel patterns.

 

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**Vaccine markets**

Our core product portfoliocurrently consists of eight marketed vaccines in three areas of the vaccinemarket: paediatric vaccines, travel and endemic vaccines and respiratoryvaccines.

 

**Paediatricvaccines**

Our core paediatric vaccines are:

 

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

·      Hepavax-Gene,a recombinant hepatitis B vaccine;

·      EpaxalJunior, a low dosage aluminum-free hepatitis A vaccine (0.25 ml); and

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

 

Quinvaxem combines antigens forprotection against five important childhood diseases: diphtheria, tetanus,pertussis (whooping cough), hepatitis B and Haemophilus influenzae type b, oneof the leading causes of bacterial meningitis in children. It was the firstinternationally available fully-liquid vaccine containing all five of the aboveantigens, offering a major advantage in terms of convenience of use. Quinvaxemwas co-developed with Novartis, which provides four of the five components inbulk. The fifth component is our vaccine Hepavax-Gene.

 

We produce Quinvaxem together withour hepatitis B vaccine Hepavax-Gene in Korea. In October 2008 weannounced that an agreement was reached to relocate our Korean productionfacility from the Shingal site in Yongin City, Korea to the Incheon FreeEconomic Zone, Korea. Construction activities at the new site started inDecember 2008 and are progressing well. First test runs are planned forthe second quarter of 2010.

 

Because it has been pre-qualifiedby the World Health Organization (WHO), Quinvaxem is available for purchase bysupranational organizations. Supranational organizations are major customersfor combination vaccines, which are used in large vaccination programs aroundthe world. In August 2009 we announced a long-term arrangement with UNICEFto supply up to $300 million worth of Quinvaxem for the period beginning 2010through 2012. The new arrangement is the largest ever received by Crucell. Withonly half of the tendered volume for the 2010—2012 period awarded to date.

 

**Hepavax-Gene**

Hepavax-Gene is a recombinanthepatitis B (HBV) vaccine made using Crucell’s proprietary Hansenula polymorphaexpression system. It is one of the WHO’s pre-qualified vaccines for activeimmunization against HBV. A key competitive advantage for Hepavax-Gene is ourstable and efficient production system.

 

**About hepatitis B**

HBV is a viral infection of theliver that causes various complications if left untreated and may evenultimately cause death. Transmission of HBV occurs as a result of the exchangeof blood, the exchange of fluids during sexual intercourse or the exchange ofbodily fluids between an infected mother and a newborn baby at birth.

 

**Epaxal Junior**

Early in 2008, we launched EpaxalJunior, our low dosage unique aluminum-free hepatitis A vaccine. The vaccineinduces 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.

 

**About hepatitis A**

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

 

**MoRu-Viraten**

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

 

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**Aboutmeasles and rubella**

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

 

**Travel andendemic vaccines**

 

Our core travel and endemicvaccines are:

 

·             Epaxal, an aluminum-free hepatitis A vaccine (0.50 ml);

·             Vivotif, an oral typhoid vaccine; and

·             Dukoral, an internationally licensed oral vaccine againstcholera (and ETEC).

 

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

 

Our travel vaccines are alsoincreasingly used in expanded immunization programs. Vaccines used in countrieswith medium to high endemicity could also be characterized as routine orpaediatric vaccination. Furthermore, even in some European countries whereendemicity is low, childhood vaccination against hepatitis A virus (HAV) is recommended.This vaccine represents a large potential upside for vaccine manufacturers asthey can be targeted at multiple markets.

 

**Epaxal**

Epaxal is an aluminum-free andfully biodegradable HAV vaccine, offering significant advantages in terms oftolerability. It was the first product to be based on the virosome technologydeveloped and patented by Crucell. It induces protective antibody levels within10 days of primary vaccination, and provides seroprotection for at least 20years following the second (booster) dose. In most countries, the vaccine islicensed for adults and children over the age of one. It is currently licensedin more than 40 countries under the brands Epaxal, HAVpur and VIROHEP-A. See ‘Paediatricvaccine — About Hepatites A’ in this section for more details on Hepatites A.

 

**Vivotif**

Vivotif is a live attenuatedtyphoid fever vaccine for oral administration. The vaccine is indicated foradults and children over the age of five and has an excellent track record forsafety, having been on the market for more than 20 years. Protective efficacyis proven in several large-scale field trials including more than 500,000subjects. Vivotif is currently licensed in over 30 countries, including theUnited States. Data suggests that Vivotif may be unique in also protectingagainst paratyphoid A and B fever which is caused by Salmonella strains similarto Salmonella Typhi.

 

**Abouttyphoid fever**

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

 

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

 

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**Dukoral**

Dukoral is an oral vaccine thatprotects against cholera and the enterotoxigenic Escherichia coli (ETEC) and isregistered in more than 60 countries. The vaccine has demonstrated a protectiveefficacy against cholera of approximately 85% and 60% against ETEC. Dukoralacts by inducing antibodies against both the bacterial components and choleratoxin (CTB). The vaccine is suitable for travelers and is indicated for use inadults and children over two years of age. Pregnant and lactating women may useit.

 

**AboutCholera**

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

 

**Respiratoryvaccines**

 

Our core respiratory vaccine isInflexal V, a virosome adjuvanted influenza (all age groups).

 

**Inflexal V**

Inflexal V is a virosome adjuvantedInfluenza vaccine (subunit), based upon the virosome technology developed andpatented by the Crucell company, Berna Biotech AG. It is the only adjuvantedflu vaccine licensed for all age groups (from 6 months and up). The vaccine’santigen composition follows yearly WHO recommendations. Inflexal V wasoriginally introduced in 1997, is registered in 38 countries and has extensivemarket experience, with more than 41 million doses confirming its safetyprofile. The tolerability of Inflexal V is excellent due to itsbiocompatibility and purity. We refer to the ‘R&D pipeline — About inflenza’for more information on influenza.

 

**Additionalinformation on the Company**

** **

**Partners,agreements, investments and other collaborations**

 

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

 

**Johnson &Johnson**

We signed a strategic agreementwith affiliates of JNJ in September 2009. This partnership will enable usto accelerate and expand our research and development (R&D) programs andfacilitate our move into new markets for our existing products, withoutcompromising Crucell’s independence and autonomy. The agreement with affiliatesof JNJ is a strong endorsement of Crucell’s in-house capabilities for medicalinnovation and discovery, and a boost for these capabilities.

 

As part of this strategicagreement, we issued 14,626,984 shares to JHC Nederland B.V., an affiliate ofJNJ, at a price of € 20.63 totaling an amount of € 301.8 million. Thisrepresents 18% of our outstanding share capital after issuance. We also enteredinto a strategic collaboration for the development and commercialization of auniversal monoclonal antibody product (flu-mAb) for the treatment andprevention of influenza. In addition, the strategic collaboration involvesthree innovative discovery programs focusing on the development andcommercialization of a universal influenza vaccine as well as vaccines directedagainst three other infectious and non-infectious disease targets.

 

**Merck**

Since 2000, Crucell and Merck havedeveloped a close working partnership, entering into a number of agreements. InJune 2003, Merck and Crucell expanded an existing cooperation agreementand agreed to work closely on matters related to maintenance of the PER.C6 CellSubstrate BMF. 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 received 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 access to our AdVac vaccinetechnology in two infectious disease areas.

 

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**DSMBiologics**

In December 2002, we formed analliance with DSM Biologics to license our PER.C6 technology as a productionplatform for monoclonal antibodies and recombinant proteins. The combination ofthe PER.C6 technology and DSM’s manufacturing services provides companies witha turn-key biologic manufacturing solution reducing cost, risk and time tomarket. Furthering this commitment to the PER. C6 technology, Crucell and DSMestablished PERCIVIA in August 2006. The innovations resulting from thispartnership will be available to PER.C6 licensees to further enhance theirdevelopment capabilities.

 

**Sanofipasteur**

We have a strategic agreement withsanofi pasteur since 2003 to further develop and commercialize novel influenzavaccine products based on our PER.C6 technology. The agreement covers bothseasonal and pandemic influenza vaccines. Sanofi pasteur has the worldwiderights to develop, manufacture and commercialize PER.C6-based influenzavaccines. Crucell has the commercial rights for Japan.

 

In December 2007, we signed anexclusive collaboration and commercialization agreement with sanofi pasteur forour rabies monoclonal antibodies to be used in association with rabies vaccinefor post-exposure prophylaxis.

 

**Novartis**

Our largest selling vaccine isQuinvaxem. The vaccine is produced by Crucell’s subsidiary in Korea and wasco-developed with Novartis (formerly Chiron), which provides four of the fivevaccine components in bulk. We have a profit-sharing agreement with Novartisfor this product.

 

**Wyeth**

In March 2008, we entered intoan exclusive agreement with Wyeth pursuant to which we perform contractmanufacturing for Wyeth at our Swiss facilities. We will develop andmanufacture certain vaccine components that Wyeth will use in clinical studies.These activities take place in our facilities in Bern, Switzerland. Wyeth isresponsible for the overall clinical development of the vaccine.

 

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

 

**Othercollaborations and agreements**

 

**Manufacturingservice arrangements**

We have signed manufacturingservice agreements with a number of our licensees and partners. Under theseagreements, we have produced and may produce in the future clinical batches ofadenoviral materials, antibodies, or other materials using our PER.C6technology for the applicable licensee. We have received and may receive in thefuture initial fees upon signing and subsequent payments upon delivery of thebatches we produce in accordance with the terms of the agreement.

 

**Universitycollaborations**

We collaborate with a number ofuniversities worldwide in the areas of vaccines, antibodies, cell lines, genetherapy, cancer and cardiovascular disease. Some of our collaborations providefor royalty payments to be made to the universities in the event product salesarise out of the collaborations. Generally, these collaboration agreementsspecify that Crucell provides the applicable university with a specific amountof funding and the Group receives certain intellectual property rights andaccess to the results of the university research.

 

**Overviewlicensees and partners**

For an overview of our mostimportant licensees and partners subsidiaries please see the ‘Appendix overviewlicensees and partners’.

 

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**Our equityinvestments**

 

**Subsidiaries**

The following transaction changedthe scope of consolidation in 2009:

 

On June 5, 2009 the Groupestablished Crucell UK Ltd. On July 15, 2009 the Group purchased, via itssubsidiary Crucell UK Ltd. selected assets and liabilities of UK-Based Mastafor an amount of £ 105. The relevant assets acquired pertain to the customerbase and the workforce of the UK fields activities of Masta Ltd. In addition,Masta Ltd received monthly payments from March 1, 2009 to July 1,2009 for a total amount of £ 304 from the Group as consideration forpre-acquisition costs directly related to the business combination.

 

The Group recognized theidentifiable assets acquired and liabilities assumed at their respective fairvalues. The consideration allocated to the acquired customer contracts amountedto £ 405. No goodwill was recognized in the business combination.

 

The following transactions changedthe scope of consolidation in 2008:

 

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

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

 

For a complete overview of our mostsignificant subsidiaries please see note 1.1 ‘Corporate information — List ofconsolidated companies’ in the financial statements.

 

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

 

**Associatesand joint ventures**

At December 31, 2009, we hadone associate, ADImmune Corp and one joint venture partner, Percivia. Theresults of investments in these non-consolidated companies are accounted forunder the equity method and amount to a total gain in 2009 of € 2,147 (2008:loss of € 128)

 

On July 3, 2008 the Group soldall of the 2,625,000 shares it owned in Kenta Biotech AG to Ingro Finanz AG.Prior to this sale, our ownership interest had already been diluted from 37% in2006 to 22% by the end of 2007. We realized an accounting gain of € 1.6 millionon the sale in 2008.

 

For a complete overview of ourassociates and joint ventures including results please see ‘5.9 Investments inassociates and joint ventures’ in the financial statements.

 

**Otherequity investments**

Galapagos N.V. (Galapagos) is adiscovery company focused on the rapid identification of disease modifying drugtargets through the functional screening of human disease models, and thesubsequent progression of these targets into drug discovery. The company islisted on the NYSE Euronext Brussels and NYSE Euronext Amsterdam stockexchanges (ticker symbol: GLPG).

 

Galapagos holds a royalty freeexclusive license to use our PER.C6 technology for conducting activities in thefield of functional genomics research. Under the license, Galapagos uses PER.C6technology in conjunction with Tibotec’s bioinformatics technology to generateadenoviral gene libraries. We have agreed with Tibotec to not compete with theactivities of Galapagos, which holds the rights to the products andtechnologies that it develops. The Group owns 5.2% of Galapagos as of December 31,2009 (2008: 5.8%).

 

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**Marketing &sales partners**

 

We have established a globalmarketing & sales infrastructure in our markets in the Benelux,Switzerland, Italy, Spain, Scandinavia, the UK, the US, Canada, Argentina,China, Korea, Indonesia and Vietnam. This sales and marketing infrastructureincludes a dedicated sales force for supranational organizations. We have alsoestablished a strong network of partnerships to ensure broader market accessfor our products. The most significant collaborations are:

 
| Our Partners:             |   | Marketing, sales and distribution partner for:                                          |
|---------------------------|--------|-----------------------------------------------------------------------------------------|
| Zuellig                   |   | several vaccines in China.                                                              |
| Baxter International Inc. |   | several vaccines in  Austria, Germany, Greece and Russia.                               |
| Infectopharm Germany      |   | our flu vaccine in  Germany.                                                            |
| Novartis                  |   | our travel vaccines in  France and Germany.                                             |
| Sanofi pasteur            |   | Dukoral in Canada,  Australia and a number of othercountries outside Europe and the US. |
| Sanofi pasteur — MSD |   | our flu vaccine in the UK  (until 2010).                                                |
| Kedrion                   |   | our flu vaccine in Italy.                                                               |

 

In September 2009 we launchedour own dedicated marketing & sales organization in the United Kingdomby acquiring an experienced team, to strengthen our vaccine sales position inone of the largest travel vaccine markets in Europe. Previously we distributedour travel vaccines through the UK-based company Masta Ltd, and influenzavaccines through Sanofi Pasteur MSD. Our UK marketing & salesorganization will market and sell Epaxal, Vivotif, Dukoral and also Inflexal.The distribution of the travel vaccines started in the fourth quarter of 2009.The distribution of the influenza vaccines will start in 2010.

 

We also distribute and market othercompanies’ products, to strengthen our presence in vaccine or therapeuticprotein markets. The most significant collaborations are:

 
| Our partners:                         |   | Marketing, sales and distribution partner for:                          |
|---------------------------------------|--------|-------------------------------------------------------------------------|
| Sanofi pasteur — MSD             |   | part of the sanofi pasteur  — MSD portfolio in Sweden.             |
| Novartis Vaccines and  Diagnostics    |   | part of the Novartis  vaccine portfolio in Sweden.                      |
| Statens Serum Institute Denmark (SSI) |   | part of SSI’s product  portfolio in Spain and Sweden.              |
| Green Cross Corporation  Korea        |   | Green Cross Corporation’s  Japanese encephalitis vaccine inEurope. |
| Netherlands Vaccine  Institute (NVI)  |   | part of NVI’s product  portfolio in the Benelux                    |
| Talecris Biotherapeutics              |   | Talecris’s product  Prolastin in nine Western Europeancountries.   |

 

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**Intellectualproperty**

 

Our success and ability to competedepends in large part on our ability to protect our proprietary technology andinformation, and to operate without infringing on the intellectual propertyrights of others. We rely on a combination of patent, trademark and tradesecret laws, as well as confidentiality, assignment and licensing agreements, toestablish and protect our proprietary and intellectual property rights. Ourpolicy is to actively seek patent protection of our intellectual property inthe US and Europe, as well as in other jurisdictions as appropriate.

 

We engage European and Dutch patentattorneys that file, prosecute, defend and enforce patent rights as well asmanage our patent portfolio. Our patent portfolio comprised 1,901 active cases(i.e. granted patents in force or pending patent applications) as of December 31,2009. We aggressively protect our inventions and employ a proactive filingstrategy with respect to patent applications. Our portfolio management involvesactive commercialization and enforcement strategies combined with disposal ofcases that we no longer consider commercially attractive.

 

The following table reflects thetotal number of active cases (pending or granted) through December 31,2009, organized according to our different fields of operation. All figuresinclude acquired and jointly owned patent cases, but exclude patent positionslicensed-in from third parties.

 
| ** **   | ** ** | Pending |       | Granted   |       | Active    | ** ** |
|--------------|------------|---------|------------|-----------|------------|-----------|------------|
| Vaccines1    |       | 324     |       | 628       |       | 952       |       |
| Antibodies2  |       | 217     |       | 84        |       | 301       |       |
| Technology3  |       | 186     |       | 363       |       | 549       |       |
| Gene Therapy |       | 33      |       | 66        |       | 99        |       |
| **Total**    | ** ** | **760** | ** ** | **1,141** | ** ** | **1,901** | ** ** |

1 Vaccines patent filings relate toAdVac-based, live viral vector vaccines based on our proprietary measlestechnology, our virosome technology and classical whole inactivated virus,split and sub-unit vaccines.

2 Antibodies patent filings relate toantibodies and/or drug targets, excluding the enabling technologies that areclassified as technology.

3 Technology patent filings primarilyrelate to cell-based production technology, adenoviral vector technology,STAR-technology and related technology, functional genomics and target and antibodydiscovery technology.

 

**Patentfilings**

In 2009, we filed patentapplications for five new inventions, in the fields of vaccines, antibodies andtechnology. Our new filings in the vaccine field in 2009 reflect our efforts tofurther strengthen our patent portfolio in support of product developmentprograms in that area. The new filings in the technology area relate to ourcontinuing effort to protect and commercialize the PER.C6 technology andrelated uses of the PER.C6 cell lines, as well as our AdVac technology. Sincewe are not actively involved in gene therapy research and development, no newfilings were made in that area during 2009.

 

We maintain a geographicallydiversified filing strategy, depending on our technological and business needs,as well as our view on long-term economic trends and developments in legalsystems in various parts of the world. As of December 31, 2009, we had 73pending applications in the EU1, 115 pending applications in the US2, 7 international patent applications (so called PatentCooperation Treaty (PCT) applications3) and 565 applications in the rest of the world4.

 

A significant number of our pendingpatent applications are filed under the PCT, which offers a cost-effectivemethod to seek provisional worldwide protection in more than 100 countries andterritories for 30 or 31 months from the filing date. The decision to dividethe PCT application into territories in which a granted patent is desired maybe postponed 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 35 countriesbut is counted as one pending application. As soon as the European patentapplication is granted it may be validated for each of the designated countriesby filing a translation into the official language of that designated state.Once such a translation has been filed, we count each such patent as a separatepatent.

 

**Patents**

At December 31, 2009, we ownedor co-owned 66 granted patents in the European Union (EU) territory, 111patents in the US and 964 patents in the rest of the world.

 

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

2 US figures do not include US patentapplications designated in PCT applications while still in the internationalphase.

3 Figures reflect PCT applicationsstill in the international phase. Our PCT applications routinely designate allterritories and contracting states that are party to the PCT per theinternational 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 figuresdo not include PCT applications designating these countries while still in theinternational phase.

 

101

 

 

**Information on the Company continued**

 

The following is a summary of theintellectual property rights related to our major products and productdevelopments.

 

**Epaxal andInflexal V**

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

 

**Otherproducts**

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

 

We seek patent protection, wheneverpossible, commercially feasible and appropriate, in respect of any technologyor product development that is important to our business. Together with ouraffiliates in Switzerland, Sweden, Italy and Korea, we have several platformtechnologies and consequently our intellectual property (IP) activitiesconcentrate on protecting these technologies and any improvements thereof inthe main worldwide vaccine markets of Europe, the US, Canada, Japan andAustralia. However, because some vaccine markets are outside these countries,we have also sought protection in other countries, such as Korea, India andChina. The IP portfolio is constantly reviewed to decide on maintenance ofindividual patents or patent families considering parameters such as actualproduct performance, product development, patent term, options forcommercialization or out-licensing of non-core IP. Our IP tasks are coordinatedand patents are filed on a worldwide basis by specialized patent attorneys.

 

**Patentenforcement and proceedings**

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

 

**Oppositionsagainst patents of the Group**

The basic PER.C6 patent of Crucellis currently in opposition-appeal proceedings, with Crucell as the onlyappellant and CEVEC Pharmaceuticals, former opponent, as party as of right. Inthe absence of a cross-appeal by the former opponent, the outcome of appealproceedings can not lead to a narrower patent than as upheld during firstinstance proceedings.

 

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

 

**Oppositionsagainst patents of competitors**

In 2005, we filed oppositionagainst a European patent held by Novartis Vaccines and Diagnostics (formerly:Chiron) related to certain aspects of the production of influenza

 

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**Information on the Company**

 

viruses in cell culture. The patentwas revoked during oral proceedings. An appeal is currently pending. Should theoutcome of the appeal be such that the patent is fully re-instated, this mayadversely affect the development and the commercialization by Crucell or itslicensee of a cell based flu vaccine.

 

In addition, production ofQuinvaxem requires a particular vaccine component that may become the subjectof a patent dispute between either GSK and us or GSK and our supplier of thatcomponent. The patent on that particular component, held by GSK, could lead toinfringement proceedings between GSK and us or GSK and our supplier, althoughwe believe that neither we nor our supplier would be held to have infringed orbe infringing that patent. The outcome of legal disputes is invariablydifficult to predict with accuracy, but in the event GSK were to prevail ininfringement proceedings against us, this would adversely affect our business.

 

**Technologylicenses from third parties**

 

We licensed numerous technology andpatents for specific use as part of our technology platforms from a number ofthird parties.

 

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

 

We also hold a license under thephage antibody display patent portfolio owned or controlled by MedImmune(formerly Cambridge Antibody Technology) and MRC, a cross-license withTransgene S.A. under which we granted to Transgene a non-exclusive PER.C6license for the manufacture and sale of certain types of vectors for use ingene therapy, and a license for phage antibody-display technology and parthuman, or chimeric, binding proteins and molecules from Enzon Corporation’ssubsidiary, SCA Ventures, Inc.

 

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

 

The Group has licensed adjuvationtechnology called ISCOMS from Isconova AB for the development, manufacturingand commercialization of improved influenza vaccines.

 

In 2009, we entered into a licenseagreement with Massachusetts General Hospital Corp. (Mass General) for the useof certain gene expression technology owned by that company. Under theagreement, Mass General is eligible to receive a royalty on net sales byCrucell of product manufactured under the license.

 

In 2009, we acquired the patentportfolio of former Introgen Therapeutics related to adenovirus manufacturing,downstream processing and formulation. Under the agreement, the estate ofIntrogen Therapeutics is eligible to receive a royalty if we license theacquired patent assets to an unaffiliated third party.

 

**Technologylicenses to third parties**

 

We have issued certain licenses onan exclusive basis. These licenses generally state that we will not provide thelicensed technology to a party other than the exclusive licensee for use in thearea covered by the exclusive license. These licenses also generally providefor higher payments than non-exclusive licenses.

 

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

 

**Otherinformation**

 

**Property,plant and equipment**

 

Leiden, the Netherlands (leased andowned) 

 

Our corporate offices and researchactivities are located in a building of approximately 8,700 square meters (m2) in Leiden, the Netherlands. This building in Leidenincludes 3,500 m2 oflaboratories, with BioSafety Level (BSL) 1, BSL 2 and BSL 3 labs. The remainderof the main building is divided into 2,800 m2 of office space and 2,400 m2 for storage,

 

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technical areas, washrooms, wastedestruction and sterilization. In addition, we lease 1,200 m2 of office space adjacent to the corporate mainbuilding.

 

In 2008, the construction of theValerio building, which was named after Crucell co-founder Dinko Valerio, wascompleted. The Valerio building is a GMP Process Technology Center of 5,400 m2. This new facility can be operated as a BSL 3 facility, inwhich two concurrent products can be produced at the BSL 2 and/or BSL 3 safetylevels. The Valerio Building meets the highest environmental and safetystandards recommended for the development activities to be conducted there. Thefacility has received approval from the Dutch government to produce materialfor use in humans.

 

**Bern,Switzerland (owned)**

Crucell has two facilities locatedin the canton of Bern. These facilities are FDA/WHO/EMEA approved and are theprimary sites for the manufacturing of Inflexal V, Vivotif, MoRu-Viraten andEpaxal. The total floor space of is 45,000 m2 for the combined facilities, 33,000 m2 of which is manufacturing space. The facilities inBern have the technology to manufacture both viral and bacterial vaccines usingvarious manufacturing platforms within BSL 1 and BSL 2 environments. TheProcess Development group has a pilot plant of approximately 2,500 m2. This facility is GMP certified and allows for work to becarried out on BSL 2 products. The capabilities within this facility are cellbanking, up and downstream manufacturing, formulation, filling andlyophilisation for bacterial vaccine production. This facility is currentlybeing used for life cycle management activities and during 2009 was also usedto conduct contract manufacturing activity for one of Crucell’s partners.

 

**Seoul,Korea (leased and owned)**

Our manufacturing facilities inKorea are KFDA/WHO approved and are used primarily for the production ofQuinvaxem and Hepavax-Gene and for formulating and filling vials. Thefacilities include 3,200 m2 of production and development space, 1,300 m2 of storage space and 1,800 m2 of office space.

 

In October 2008, we announcedthat we will relocate the Korean production facility from Yongin City to theIncheon, Free Economic Zone. Construction activities at the new site started inDecember 2008 and are progressing well. First test runs are planned forthe first half of 2010. The investments in the new facility are expected tototal approximately € 50 million. The investment in the new production facilityin 2009 amounted to € 33.6 million. The total floor space of the new facilityis 19.000 m2.

 

**Madrid,Spain (owned)**

Crucell has its main centre forfilling and packaging operations in Madrid. Crucell’s Spanish subsidiary isalso responsible for distribution to the Spanish market. The facility is EMEAapproved and it has the capability to fill syringes on two filling lines,primarily used to fill Inflexal V and Epaxal. The total facility consists of2,100 m2 ofmanufacturing space, 1,000 m2 of office/laboratory space and 2,600 m2 of warehousing.

 

**StockholmSweden (leased)**

In Sweden, our manufacturingfacilities are EMEA/WHO approved and are used for the production of Dukoral andthe recombinant protein rCTB. The manufacturing capabilities consist of largescale cGMP manufacturing of bulk, comprising both bacterial and mammaliansystems, formulation and filling, visual inspection and packaging in vials. Thesite has a total of 4,900 m2 of GMP development and production space, 6,000 m2 storage space and 2,700 m2 of office space.

 

In August 2008, we announcedthe intention to move Dukoral and rCTB bulk production, formulation andfill/finish activities from Sweden to other sites within the Crucellorganization. Following a detailed study to review the full scope of this move,it was decided to only move the formulation and filling activities to ourMadrid site.

 

We also lease several offices atlocations in the UK, Argentina, China, Italy, Spain and the US.

 

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**Information on the Company**

 

**Legalproceedings**

 

In the ordinary course of business,we have been and may become involved in disputes. Neither we, nor any of our subsidiaries,has been party to any legal or arbitration proceedings that may have, or havehad during the 12 months preceding the date of this document, a significanteffect on our results of operations or any of our subsidiaries nor, as far aswe are aware, are any such legal proceedings pending or threatened, except forthose disclosed in ‘Intellectual Property — Patent Enforcement and Proceedings’in this section and those disclosed in section ‘5.19 Provisions, commitmentsand contingencies — legal proceedings’ in the financial statements.

 

**Investments**

 

In 2009, € 51,035 was invested inproperty, plant and equipment compared to € 15,787 in 2008. The investments in2009 mainly related to our new Korean production facility in the Incheon, FreeEconomic Zone.

 

In 2008, € 15,787 was invested inproperty, plant and equipment compared to € 27,156 in 2007. The investments in2008 mainly related to our new Korean production facility in the Incheon, FreeEconomic Zone, investments in our facilities in Bern, Switzerland that willimprove current production processes and allow in-house production of materialscurrently acquired from third parties and investments in our new filling linein Madrid, Spain.

 

**Rawmaterials**

 

We require a reliable supply ofmaterials for the production of our products, including starting materials,like the serum-free medium in which we grow our PER.C6 cells, and antigens thatare present in certain of our final products. Some of these materials areprovided by a limited number of third party suppliers. Our ability to conductresearch and to launch new products also depends on a steady supply of theseraw materials. Any adverse changes to our existing supplier relationships willthus likely adversely affect our overall results. Prices for our raw materialsare volatile and may change significantly over time. Some of our raw materialsare purchased in foreign currencies and are subject to foreign currencyexposures. We try to mitigate these exposures by entering in long termpurchasing arrangements and by hedging the foreign currency exposures on someof our purchases.

 

**Insurance**

 

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

 

**Employees**

 

For a breakdown of the employees byfunction and geography reference is made to note 5.1 ‘Personnel expenses’ inthe financial statements.

 

**Dividendsand dividend policy**

 

Crucell N.V. did not pay anydividends in 2009. We do not intend to pay dividends on our ordinary shares forthe coming years, and thereafter only on the condition that our financialperformance is adequate and it is in the shareholders’ interest to paydividends instead of investing the proceeds into the company. Any payment offuture dividends and the amounts thereof will depend upon earnings, statutoryand financial requirements and other factors deemed relevant by our ManagementBoard, and will be subject to withholding tax in the Netherlands. In the eventthat we pay dividends in the future, holders of our American Depository Shares(ADSs) will be entitled to receive payments in US dollars in respect ofdividends on the underlying ordinary shares in accordance with a depositagreement dated October 26, 2000 between The Bank of New York Mellon, asdepository, and us.

 

105

 

**Long-TermArrangement UNICEF**

 

OnDecember 18, 2009, we renewed our previous long-term arrangement with theUnited Nations Children’s Fund (UNICEF) relating to the purchase of ourchildhood vaccine, Quinvaxem (the “Long-Term Arrangement”). The Long-TermArrangement includes estimated amounts of Quinvaxem that UNICEF intends topurchase from the Group during the arrangement period (2010 through 2012) and amaximum aggregate purchase price for such Quinvaxem of nearly $300 million,though revenues are expected to grow further during the new arrangement periodas UNICEF solicits new tenders for the sale of Quinvaxem.  Actual purchases of Quinvaxem are madepursuant to individual purchase orders which may be delivered by UNICEF to the Groupfrom time to time during the arrangement period and which when accepted by the Groupconstitute binding purchase contracts between the Group and UNICEF. TheLong-Term Arrangement does not require UNICEF to purchase any minimum quantityof Quinvaxem from the Group nor is UNICEF restricted from sourcing Quinvaxemfrom any other supplier during the term of the arrangement.

 

Pursuantto the Long-Term Arrangement, the Group agrees to provide vaccines that areproduced and tested in conformity with the requirements of applicablelegislation and certain World Health Organization (WHO) standards. The Groupalso warrants to UNICEF that the vaccines delivered will be new, in accordancewith certain stated specifications, and fit for the particular purpose forwhich they are intended. The Group agrees to indemnify UNICEF, each governmentreceiving the vaccines from UNICEF, and any party making a financialcontribution to the purchase of the vaccines, for any losses or damages arisingfrom the purchase, distribution and use of the vaccines (unless attributable toany fault or negligence of UNICEF or any such government or other party). Ifeither party breaches its obligations under the Long-Term Arrangement, the otherparty may terminate the arrangement with 30 days’ prior written notice.

 

**Material contracts**

 

**Equity Investment by****JHCNederland B.V., an affiliate of Johnson & Johnson.**

 

OnSeptember 28, 2009 Crucell entered into several agreements with JHCNederland B.V., an affiliate of Johnson & Johnson, including an equitypurchase agreement, a registration rights agreement and a shareholderagreement.

 

***Equity purchaseagreement***

 

Pursuantto the equity purchase agreement, the Company issued 14,626,984 of its shares toJHC Nederland B.V., at a price of € 20.63, totaling an amount of € 301,754,680.The number of shares issued represents 18% of the outstanding share capital ofthe Company after issuance. The equity purchase agreement contained customaryrepresentations and warranties relating to Crucell, JHC Nederland B.V. and theacquired shares; certain standard conditions precedent, including entry intocertain collaboration agreements, the registration rights agreement and theshareholder agreement; as well as a pre-closing standstill provision which preventedJHC Nederland B.V. and its affiliates from acquiring any stock of the Companyfrom the date of the agreement until closing. During that time, Crucell wasrestricted from actively soliciting offers from other third parties for itsshares. It was, however, entitled to entertain unsolicited offers, subject to aright to match by JHC Nederland B.V. If Crucell had accepted an unsolicitedsuperior offer for its shares and if JHC Nederland B.V. had chosen not tomatch, a termination fee would have been payable by Crucell to JHC NederlandB.V.

 

105A

 

***Shareholderagreement***

 

Thefollowing is a summary of certain key terms of the shareholder agreementbetween Crucell and JHC Nederland B.V.:

 

*Standstill*****For a certain period beginning on the shareissuance date, JHC Nederland B.V. and its affiliates may not, without theCompany’s prior approval, purchase or acquire any shares or securities of theCompany convertible into, or exercisable or exchangeable for, or otherwisegiving the holder thereof any rights in respect of, shares or commence a publicoffer for the Company’s shares, if, in either case, the consummation of suchpurchase or acquisition or public offer would result in JHC Nederland B.V. andits affiliates in the aggregate beneficially owning (assuming the exercise,exchange or conversion of all our securities held by them), directly orindirectly, more than 18% of the issued and outstanding shares of the Company.Customary exceptions apply to the standstill.

 

*Anti-Dilution* If, within nine months from the date ofissuance, there is a change of control of the Company at a price per sharebelow the price the shares were issued to JHC Nederland B.V., JHC NederlandB.V. shall be entitled to receive a cash payment equal to the differencebetween the issue price and such lower price multiplied by the number of sharesacquired upon consummation of such transaction (not to exceed the number of14,626,984 new shares as acquired by JNJ on the issue date). This amount mustbe paid to JHC Nederland B.V. within five business days after the consummationof the relevant transaction by the counterparty to the change of controltransaction or, where it concerns a public offer or sale of all orsubstantially all of our assets, by the Company.

 

*DragAlong Right*****If the Company receives a bona fide public offer froma third party and (i) the Management Board and Supervisory Board haveendorsed, approved, recommended or otherwise supported such public offer,(ii) the holders of at least 70% of the issued and outstanding shares ofthe Company (including those held by JHC Nederland B.V. and/or its affiliates)have tendered their shares to the third party in connection with such publicoffer and (iii) JHC Nederland B.V. and/ or any of its affiliates do nothave a bona fide matching (x) counter public offer to the Company’sshareholders or (y) other proposal involving the acquisition by a thirdparty of more than 30% of the Company’s shares or assets pending, JHC NederlandB.V. and its affiliates shall agree to tender and sell all their shares in suchpublic offer. JHC Nederland B.V. shall in such event, if applicable, also havethe right to receive payment of the amount as described under ‘Anti-Dilution’in the preceding paragraph.

 

*Pre-EmptiveRight* Ifthe Company plans to issue any shares or any securities convertible into, orexercisable or exchangeable for, or otherwise giving the holder thereof anyrights in respect of, shares, JHC Nederland B.V. has the right to purchase insuch offer such number of shares to maintain its proportionate ownershipinterest in the Company on a fully diluted basis (disregarding equity basedawards under the Employee stock ownership plan (ESOP)) (subject to customaryexceptions). JHC Nederland B.V.’s pre-emptive right shall expire and no longerbe available upon JHC Nederland B.V. (together with its affiliates) ceasing tobeneficially own at least 12% of the Company’s issued and outstanding shares ofthe Company.

 

*ApprovalRights* TheCompany may not without the approval of JHC Nederland B.V.: (i) commence atender offer or repurchase of Shares if the consummation of such tender offeror repurchase would result in JHC Nederland B.V. holding more than 18% of theissued and outstanding shares of the Company, (ii) grant options or otherequity awards in excess of the amounts authorized under the ESOP, or(iii) amend the Articles of Association in a manner that would create anew class of securities, or make the current rights of the General Meeting subjectto proposals of the Management Board and/or Supervisory Board or subject toother limitations. JHC Nederland B.V.’s

 

105B

 

approvalright shall expire and no longer be available upon JHC Nederland B.V. (togetherwith its affiliates) ceasing to beneficially own at least 10% of the Company’sissued and outstanding shares.

 

**Novartis contract**

 

On April 30, 2001, NovartisVaccines and Diagnostics GmbH (formerly Chiron Behring) and Novartis Vaccinesand Diagnostics Srl (formerly Chiron S.p.A.) entered into a collaboration withRhein Biotech and Greencross Vaccine (currently wholly-owned subsidiaries ofthe Crucell) to jointly develop, register and market a fully liquid pentavalentvaccine against five childhood diseases, which was later called Quinvaxem.

 

The collaboration was memorializedin three related contracts that were filed together with the Commission onDecember 7, 2007 and appear as Exhibit 4.11 to Crucell’s annualreport for 2008 on form 20-F.

 

The first agreement (the“Collaboration Agreement”) describes the framework for the collaboration withNovartis with emphasis on the responsibilities of both companies for theresearch, development and manufacture (at Crucell’s production facilities inKorea) and registration (with both the local regulatory body and the WorldHealth Organization) of Quinvaxem. Novartis and Crucell are each obligated toprovide their respective vaccine components in sufficient quantities to fulfillthe minimum contract requirements as defined in the Collaboration Agreement.The parties agree that the development costs of Quinvaxem are shared betweenthem. The Collaboration Agreement also sets out the rights and obligations ofeach party with respect to marketing Quinvaxem. While each company owns its owntechnology utilized to produce its respective vaccine components, sharedbackground technology is owned jointly by both companies. Each party grants tothe other party a royalty free license to the other party’s technologies tomake, use and sell Quinvaxem.

 

The Collaboration Agreement alsosets out the conditions for marketing Quinvaxem within the scope assigned toCrucell, which originally covered sales to supranational organizations. Thisscope was expanded in 2008 by an amendment that grants Crucell the right tosell Quinvaxem through national tenders and direct sales in several specifiedcountries. The Collaboration describes the conditions for marketing Quinvaxemin the scope assigned to Novartis, which includes sales to all local governmentsthrough tenders as well as direct sales in all territories with the exceptionof sales to supranational organizations and the territories assigned to Crucellpursuant to the 2008 amendment described above.

 

The second agreement (the “BulkSupply Agreement”) sets out the terms and conditions pursuant to which Crucellpurchases four antigens for the production of its pentavalent vaccine fromNovartis, namely Diphtheria, Tetanus, whole cell Pertussis and HaemophilusInfluenzae Type-B. Built into the purchase price is a profit-sharing mechanismbetween the two companies. Crucell is obliged to provide a two-year forecast ofdemand for the vaccine components provided by Novartis, a certain percentage ofwhich constitutes a binding purchase commitment from Crucell. Crucell uses thefour Novartis antigens to combine with its own hepatitis B vaccine to produceQuinvaxem. The product must comply with World Health Organization (WHO)requirements and other requirements stipulated by Novartis. Risks relating tothe production and marketing of Quinvaxem are borne entirely by Crucell.

 

The third agreement (the “Supply andManufacturing Agreement”) sets out the terms and conditions pursuant to whichNovartis supplies the four Novartis antigens on a consignment basis to Crucellin order to manufacture Quinvaxem. Crucell receives a manufacturing fee, whichincludes a profit-sharing mechanism, for producing Quinvaxem at its facilitiesin Korea.

 

Novartis and Crucell meet twice ayear at a steering committee meeting to discuss the further development,manufacturing and marketing of Quinvaxem. While the agreements described aboveare of an indefinite term, they may be terminated by either party in the eventthat certain named competitors of the parties acquire a controlling interest inthe other party. No royalties or milestone payments are payable under any ofthe agreements described above.

 

105c

 

 

**Risk factors**

 

**Economicand industry-wide factors**

 

Various economic and industry-widefactors are relevant to the biotechnology industry. Biotechnology companiesoperate in a challenging market and are subject to high inherent business risk.A company’s ability to bring novel products to the market is essential tolong-term success. However, for a potential product the probability of reachingthe market is low and the average development period can take up to ten yearsor more. Development costs for a single potential product are high and canrange into the hundred of millions of Euro’s. As a potential product movesthrough more advanced stages of R&D, the losses associated with failurewill increase.

 

The biotechnology industry issubject to extensive government regulation, and companies must make significantexpenditures to comply with these regulations. The business success ofcompanies is dependent in a significant part on their ability to establishintellectual property rights, either internally or through licenses ofthird-party intellectual property rights, and protecting these intellectualproperty rights. For many biotechnology companies gathering the requiredcapital in this market provides a challenge.

 

The biotechnology industry isinternationally oriented and geographic boundaries have relatively limitedimpact on the development, distribution and marketing of products. Thisprovides a world of opportunities, but also a world of competitors. Investingin biotechnology companies is about taking risks. Investors continue to beattracted by the high return possibilities. On a total market level thefundamentals of product development are sound and the prospects of thebiotechnology industry are good.

 

**Our riskappetite**

 

The above circumstances are more orless equal to all biotechnology companies. What distinguishes Crucell are thechoices that we make in transforming these risks into business opportunities.Crucell has an entrepreneurial spirit and a ‘can-do’ mentality. We seek tomaximize profits for stakeholders, but not at the cost of taking unwarrantedrisks. That is one of the main reasons why we think that risk managementsystems are crucial.

 

In 2006 we started to diversify ourrisks by acquiring several biotechnology companies. This transformed Crucellfrom a start-up company exclusively geared towards developing technologies intoa fully integrated biotechnology company. This was the establishment of a Groupthat was able to generate cash to fund its research and development programswithout the need to seek external financing as we are less dependent on capitalmarkets.

 

Accelerated growth has been a themefor Crucell for several years and we have grown considerably over the years,but the Group considers the financial risks of expensive later phasedevelopment programs to be too high for a single company. We proactively seekpartnerships with ‘big pharma’ companies and by sharing the risks and profitswe believe that we can effectively reduce the jeopardy associated withfailures. With the expertise of ‘big pharma’ companies in the areas of latestage clinical development, regulatory approval and large-scale production andthe innovative power of Crucell, we expect these collaborations to besuccessful.

 

We consider the quality of ourproducts to be essential. Supply interruptions, product recalls or inventorylosses caused by unforeseen events such as manufacturing or distributioninterruptions or regulatory actions, may have an adverse impact on our businessas a whole. Therefore we have implemented a system of control measures toensure the quality of our products, as failures in this area may have a widepervasive impact on Crucell.

 

As the inherent business risks ofthe biotechnology industry are high, the Group seeks to mitigate financial riskswhere reasonably possible. Specifically, the Group has a conservative approachregarding its available cash. Our cash has been placed with solid financialinstitutions and has mainly short-term maturities. Consequently the Groupaccepts the marginal return on its cash resources. See note 3 ‘Financial

 

106

 

**Risk factors**

 

risk management’ for morequantitative and qualitative disclosures of our financial risks

 

**Ourstrategy, risk factors and risk management system**

 

It is our mission to protect humanlives by bringing meaningful innovation to global health. Our strategy todevelop products that address currently unmet medical needs, particularly inthe field of infectious diseases. We develop, manufacture and market medicalproducts combating a range of infectious diseases, focusing heavily—but notexclusively—on major health challenges in developing countries and emergingeconomies. The risk factors1 identified below could prevent us from executing our strategy andreaching our objectives.

 

To safeguard the properimplementation and execution of our strategy we have an internal riskmanagement and control system in place. Our Management Board is responsible fordesigning, implementing and operating the Company’s internal risk managementand control systems. The purpose of these systems is to manage in an effectiveand efficient manner the significant risks to which the Company is exposed. Fora more detailed description please see ‘Internal risk management and controlsystem’ in the Corporate Governance section of this Annual Report.

 

An integral part of our internalrisk management process is the identification of risks that could prevent usfrom reaching our objectives. To identify these risks we performed a corporaterisk assessment with the Disclosure Committee of the Company in 2009. Theoutcome has been discussed in the Audit Committee and was taken into account inthe risk factors described below. We have classified these risk factors inaccordance with the categories of objectives identified in the COSO model, anintegrated internal control framework established by the Committee ofSponsoring Organizations of the Treadway Commission.

 

**Strategicrisks**

 

**Concentrationof sales**

We are dependent on a limited numberof products and customers for a majority of our revenues and expect this dependenceto continue in the foreseeable future. Our core product portfolio consists ofeight vaccines, namely Quinvaxem, Hepavax-Gene, Epaxal Junior and MoRu-Viraten(paediatric vaccines), Inflexal V (influenza vaccine), Dukoral, Epaxal andVivotif (travel vaccines). The sales to our largest customers, which are in thepaediatric vaccines area, represented a considerable part of our net productsales in 2009. In particular, we are highly dependent on sales of Quinvaxem andInflexal V. If these products were to become subject to any problem such asunexpected side effects, product liability litigation, loss of patentprotection, supply interruptions, regulatory proceedings, publicity affectingdoctor or patient confidence or pressure from competitive products, or if a newmore effective treatment is introduced, we could experience a significantdecrease in revenues and an adverse effect on our financial results. Inaddition, although our largest customer, UNICEF, has renewed a long-termarrangement with the Group to purchase estimated quantities of Quinvaxem duringthe period 2010 through 2012, UNICEF is not obligated under that arrangement topurchase any minimum quantity of Quinvaxem from the Company.  Sales of Quinvaxem to UNICEF are madepursuant to individual purchase orders. If UNICEF were to significantlydecrease its purchases of Quinvaxem from us, this would result in a significantdecrease in revenues and have an adverse effect on our financial results.

 

Additionally, our results mayfluctuate as a result of seasonality in our business. In particular, the marketfor influenza vaccines is highly seasonal so a majority of our sales tends tooccur in the second half of the year. Delays in production or distributionprocesses could result in a significant sales reduction.

 

**Strategicalliances**

If our current or prospectivepartners or licensees do not use our products or technologies, we may not beable to continue to realize revenues related to those partners or licensees. Inparticular, our current or prospective licensees or partners may use or developalternative technologies or competing products, independently or incollaboration with others, including our competitors. If any of our licenseesor partners becomes involved in a business combination or other major corporatetransaction, this could cause a strategic shift in their business focus andlead them to discontinue the use of our products and technologies.

 

Furthermore, we may havedisagreements with our licensees over royalty payments owed to us and may havedifficulty collecting these payments. Our existing license arrangementsgenerally entitle us to receive royalty payments for any products developedusing our technology. We depend on our licensees to inform us when they developproducts using our technology. If our licensees fail to inform us of thesedevelopments, we may not otherwise learn of payments to which we are entitled.In addition, our licensees may have difficulties making payments to us giventhe current economic climate or other factors. We may also incur significantexpenses in collecting royalty payments,

 

1 Thematerial risk factors listed below should be considered carefully. The risks weface are not limited to the risks listed here. Some risks are not yet known tous and some of the risks that we currently do not believe to be material to ouroperations could prove to be material at a later date. All of these risks canmaterially affect our business, financial condition and results of operations.Compliance and other risks are mainly addressing risks that apply to ourShareholders.

 

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**Risk factors continued**

 

or in some instances, may notsucceed in collecting these payments at all.

 

**Competitionand pricing pressures**

We face competition from othercompanies in the development, marketing and licensing of new technologies andproducts. We operate in competitive markets and compete with companies thathave their own technologies, products or other forms of treatment for thediseases we target. Companies may develop proprietary positions in the areas ofour core technologies or obtain regulatory approval for alternativetechnologies or commercial products earlier than we or our licensees do. Othercompanies, including our own licensees, may already have or may in the futuredevelop products that are more effective or more effectively marketed and soldthan those based on our technologies. We may not be able to compete effectivelywith these companies, and such competition could hamper our ability to bringproducts to market or to license and derive revenue from our technologies.

 

Our existing products mayexperience price pressure from competition with similar or other products onthe market. Price pressure may further increase due to the introduction of newproducts, the expansion of production capacity, or decreases in demand. Wecannot predict with accuracy the impact of such events on our revenues. Productsthat compete with Quinvaxem have already been introduced to the market andstill others may yet be introduced increasing competition and price pressure onQuinvaxem.

 

Public markets for our productstypically operate via a tender system. In a tender system, national governmentsor supranational organizations request proposals for the terms under which avaccine manufacturer will provide a large quantity of one or more vaccines. Theawarding of the contract is typically based on a number of factors, includingprice, supply reliability and product quality. Failure to win one of thesepublic contracts may cause us to be ineligible to supply a national governmentor supranational organization for a period of time, resulting in a negativeimpact on our revenues.

 

**Operationalrisks**

 

**Productdevelopment and clinical trials**

All of our products and those ofour licensees and partners may fail at any stage of development or even aftermarket introduction due to factors beyond our control. Such failures could havea material adverse effect on our business and prospects.

 

Pre-clinical testing, clinicalresearch and regulatory approval of a pharmaceutical or medical product is avery lengthy and costly process, and there is a significant risk of failure ateach stage of the process should issues arise with respect to the efficacy orsafety of a product. In particular, because pre-clinical and early clinicalstudies cannot ensure efficacy for humans, actual human studies are requiredfor vaccine development. Such studies may, however, fail to prove the efficacyof the product candidates and are at constant risk of suspension for posingunreasonable health risks. There can be no assurance that any product candidatein our product pipeline will reach or successfully complete the clinicalresearch phase of product development. Although a product that reaches a laterstage of development offers a reasonably high probability of success relativeto products in earlier stages, the chances of failure remain significantthroughout the development process. We have had products fail at later stagesof development in the past. Any or all of our current later-stage productscould fail to be sufficiently safe or effective to be brought to market, orcould otherwise fail to receive necessary regulatory approvals.

 

Even if the products currently inlater-stage development are introduced to the market, there can be no assurancethat demand for such products will develop or be sustained. If a market doesdevelop, there can be no assurance that our existing facilities and resourceswill be sufficient to meet demand. Accordingly, there can be no assurance thatwe will realize any potential benefits that may be associated with ourlater-stage development product portfolio.

 

Our success depends on a sufficientpipeline of new products and technologies. We therefore commit

 

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**Risk factors**

 

substantial resources and effortstowards research and development. We have no assurance that these efforts willsucceed. Failure to maintain a healthy flow of new products through ourpipeline could result in higher costs without a proportional increase inrevenues.

 

To continue to develop our coretechnologies and new products, we will need access to biological materials suchas virus and tissue samples, which may be in limited supply. If we lose or donot obtain access to these biological materials, or if tighter restrictions areimposed on their use or on the information generated from their study, we couldbe restricted or prevented from conducting certain research and productdevelopment.

 

**Interruptedproduct supply**

Supply interruptions, productrecalls or inventory losses caused by unforeseen events such as manufacturingor distribution interruptions or regulatory actions, may reduce sales, delaythe launch of new products and adversely affect our operating results andfinancial condition.

 

We require a reliable supply ofmaterials for the production of our products, including starting materials,like the serum-free medium in which we grow our PER.C6 cells, and antigens thatare present in certain of our final products. Some of these materials areprovided by a limited number of third party suppliers. Our ability to conductresearch and to launch new products also depends on a steady supply of thesematerials. Any adverse changes to our existing supplier relationships will thuslikely adversely affect our overall results.

 

For Quinvaxem, four of the fiveantigen components are supplied to us by a third party. For Inflexal, we arefully dependent upon third party supply for the antigen. In the case of a flupandemic, our suppliers may be forced to meet the requirements of certaingovernments, and therefore be unable to supply flu antigen to Crucell. ForEpaxal, we currently rely on a third party for the supply of one of the vaccinecomponents.

 

Our products are manufactured anddistributed using technically complex processes requiring specializedfacilities, highly specific raw materials and other production constraints. Thecomplexity of these processes as well as strict Group and government standardsfor the manufacture of our products may expose us to risks affecting ourproduction process. Defects in the manufacturing process, including equipmentmalfunction, labor problems, regulatory action, power outages, naturaldisasters and environmental factors may all affect production output. The EUregulation (EC 1907/2006, REACH), requiring registration of all chemicalmaterials by us and our suppliers, may cause supply interruptions of rawmaterials that may in turn cause production delays if we need to change oursources of certain raw materials. This regulation could further cause marketingdelays as a result of complying with burdensome requirements to validate newsuppliers. Our vaccine products in particular are subject to the risks ofmanufacturing problems and inventory loss because of the difficulties inherentin the manufacture of biological materials, whether in our own facilities or inthe facilities of our suppliers. Vaccine components cannot be sterilized norcan preservatives be added to the manufactured vaccine. Contamination of ourproducts could result in the loss of entire batches of finished vaccine, whichcould lead to lost sales, damage to customer relations, a significant outlay oftime and money to investigate the cause of the contamination and possibly acostly product recall if contaminated vaccines have already been shipped tocustomers. A disruption in the supply of certain key products or our failure toaccurately predict the demand for those products could have a material adverseeffect on our results.

 

We generally rely on a separatefacility for the manufacture of each of our products. The marketing andregulatory authorization of biological products, in particular vaccines, isstrongly linked to the production facility and equipment that are used tomanufacture those products. If an event occurs that interrupts production atone of our facilities we may have to transfer production to a new site, whichwould be costly and time consuming. Because of the short shelf life ofbiological products, our existing stocks of product may not be sufficient tosupply our customers during such a transition period. For example, ourmanufacturing facility in Korea is our sole production source of the Quinvaxemvaccine. As such, we are vulnerable to any event that interrupts, reduces orslows production of Quinvaxem at that facility. We intend to relocate ourQuinvaxem operations to another site in Korea and preparations for

 

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**Risk factors continued**

 

such a move are ongoing. Therelocation of the Quinvaxem operations is a complex process, which includes theinherent risk of the new facility not coming online before the old one has shutdown. We agreed on the time line and conditions of this relocation with partiesinvolved, which should permit an efficient transition to the new productionfacility; however there can be no assurance that there will not be productiondelays as a result of the transition process.

 

**Regulatoryapproval**

We may be unable to obtainregulatory approval to manufacture and market our new products or may haveregulatory approval for the manufacture and marketing of our existing productsrevoked by regulatory bodies such as the US Food and Drug Administration (FDA),the European Medicines Agency (EMEA), the European Commission or othernon-governmental bodies such as the World Health Organization (WHO).

 

These various regulatoryauthorities have substantial discretion and may impose different conditionsupon the marketing of a given product or may refuse to grant, or requireadditional data before granting, an approval to market a product even thoughthe product may have already been approved by another regulatory authority.National and regional governments rely on the (pre)qualification and/orapproval of biopharmaceutical products by evaluative bodies such as the WHOand, in some cases, simply elect not to purchase products which have not beengranted (pre) qualification or approval.

 

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

 

Regulators have granted certain ofour products provisional or conditional marketing approval, requiring us to dofollow-up studies to assess the safety and efficacy of the product in all orpart of the target population. Poor results in any of these studies may giverise to the withdrawal of market authorization for some or all indications, inpart or in all of the targeted population.

 

If regulatory authorities do notapprove our new products or other products developed using our technologies, orif they subsequently revoke their approval, that may impact our revenuesgenerated from the sale of products and/or the licensing of our technologies,which may in turn have a material adverse impact on our business, financialcondition, results of operations and prospects.

 

**Intellectualproperty**

Our efforts to protect ourintellectual property rights or to defend ourselves against any claims ofinfringement of third party intellectual property may be costly and, ifunsuccessful, we may be barred from using or licensing our technologies, andfrom developing and commercializing our new products.

 

Our commercial success depends inpart on our ability to obtain and maintain adequate protection of ourintellectual property rights, including patents, in our technologies andproducts in Europe, the US and elsewhere. Our patent-related activities do notafford complete protection to our intellectual property rights. Patents oftechnology-based enterprises like ours are subject to complex factual and legalissues that may give rise to uncertainty as to the validity, scope and priorityof a particular patent. There can be no assurance that we will develop productsthat are patentable, that patents will be granted under pending or future

 

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**Risk factors**

 

applications or that patentsgranted to us or our collaborators will be of sufficient breadth to protectagainst competitors with similar technologies or products. A patent that isissued to us may be narrower than our application or found to be invalid.Others may make attempts to copy, reverse engineer or design around aspects ofour technology, or to obtain and use information that we regard as proprietary.In addition, our patent filings may be subject to challenges. Our inability toadequately protect our products and technologies in emerging economies, such asIndia and China, may give rise to competition in those countries frommanufacturers operating in low-cost economies. Due to compulsory licensingregimes currently in place in many of these underdeveloped and developingjurisdictions, we may not be able to use our intellectual property rights toprevent the low-cost manufacture of competing products. Such competition mayadversely affect our ability to maintain viable pricing levels and to sellproducts in those countries.

 

In addition, production ofQuinvaxem requires a particular vaccine component that may become the subjectof a patent dispute between either GSK and us or GSK and our supplier of thatcomponent. Although we believe that neither we nor our supplier would be heldto have infringed or be infringing that patent, the outcome of legal disputesis invariably difficult to predict with accuracy, but in the event GSK were toprevail in infringement proceedings against us, this could materially adverselyaffect our business.

 

For a more detailed discussion ofissues surrounding our patent enforcement and related proceedings, see ‘Intellectualproperty – Patent enforcement and proceedings’.

 

We also endeavor to protect ourproprietary technologies, processes, know-how and data by entering intoconfidentiality agreements with our employees, consultants, partners andcertain contractors.

 

Our commercial success also dependson not infringing on the patents and other proprietary rights of third parties.As our activities in the biotechnology and biopharmaceutical markets expand andas more patents are issued in the field, the risk that our technologies andproducts may give rise to claims of alleged infringement increases. Licensingor other arrangements for addressing these infringements or violations may notbe available, or may not be available on commercially acceptable terms if we orour licensees are unable to obtain licenses from third parties for the use oftheir intellectual property in the manufacture of our products, we or ourlicensees may be unable to develop or market those of our products which arebased in part on the intellectual property of others.

 

**Productliability exposure**

We may be exposed to productliability and other claims if third parties allege that our technologies orproducts have caused some harm.

 

If a third party sues us for aninjury caused by our products or by products developed using our technologies,our liability could exceed our total assets. Because our vaccines thatconstitute our core products are administered to healthy individuals, anyadverse health consequences associated with such administration may be moreapparent and perceived as less tolerable than similar side effects associatedwith the treatment of disease.

 

Lawsuits against us arising out ofclinical trials may increase as more and more licensees utilize ourtechnologies, thereby reducing our control over the manner of their use. Wemaintain product liability insurance in respect of all of our marketedproducts. We may seek to obtain additional product liability insurance in thefuture, though such additional insurance may be prohibitively expensive, or maynot cover all of our potential liabilities. If we are unable to obtainsufficient insurance coverage at an acceptable cost or if we are otherwiseunable to protect ourselves against potential product liability claims, weand/or our licensees may be prevented or inhibited from commercializing newproducts.

 

Product liability cases, claims andeven relatively minor potential health risks associated with our products maygive rise to adverse regulatory action, and/or a negative market perception ofus and our products, resulting in a material adverse effect on our business,financial condition, results of operations and prospects. Though we believe wehave strong defenses in these and other cases, including patent infringementcases, the outcome of these matters could be negative and we could incurjudgments or enter into settlements of claims that could have a materialadverse effect on our results of operations.

 

111

 

 

**Risk factors continued**

 

**Qualifiedpersonnel**

We may not be able to continue torecruit and retain highly qualified management, scientific, manufacturing,sales and marketing and finance personnel. Competition for qualified personnelcould be intense and may limit our ability to attract and retain qualifiedpersonnel on acceptable terms and may therefore significantly increase ourlabor costs. The inability to attract and retain highly skilled personnel onacceptable terms could have a material adverse effect on our business,financial condition, results of operations and prospects.

 

**Hazardousbiological materials**

Our manufacturing, research anddevelopment processes involve the controlled use of hazardous biologicalmaterials. Certain of our laboratory facilities are qualified up to BiosafetyLevel III (BSL-III), which allows us to work on-site with hazardous biologicalmaterials. Our operations may also produce hazardous biological waste. Giventhe inherently dangerous nature of certain biological materials we may workwith in our BSL-III laboratory facilities, in spite of our best efforts wecannot eliminate the risk of accidental contamination or discharge or anyinjuries that result therefrom. Various laws and regulations govern the use,manufacture, storage, handling and disposal of these materials. We could besubject to civil damages and significant adverse publicity in the event of animproper or unauthorized release of, or exposure of individuals to, hazardousmaterials.

 

**Competitionlaws**

We cannot be certain that ourlicensing or other agreements are not in breach of applicable competition lawsand will not be rendered void by the relevant competition authorities. 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 current or future licensing or otheragreements of ours could be found to infringe applicable competition regulations.If so, among other things, we may be subject to fines and claims of damages andthese agreements may be considered void and unenforceable. Under the EuropeanUnion’s 2004 Technology Transfer Block Exemption Regulation, we may be requiredto review and possibly amend existing license and technology transferagreements in the future. For example, if certain market share thresholds willbe or have been reached in the relevant markets by those third parties that useour technologies to produce their products, the Regulation may require us torevise our agreements with those parties to ensure the agreements are incompliance with applicable European competition law.

 

**Financialrisks**

 

**Substantialuse of capital**

In the past, we have had to raiseadditional funds to acquire other companies and assets while continuing toresearch and develop our technologies and products. Although the Company generatedpositive cash flow in each of 2008 and 2009, we may have cash outflows and netoperating losses in the future due to the occurrence of events that wouldconsume our available capital resources. We may seek additional funding throughpublic or private financing (including debt or equity financing), strategicalliances or other arrangements. We may not have access to additional financingand, if we do, it may not be on favorable terms. If we fail to raise sufficientfunds, we may have to forego acquisitions, reduce our capital expenditures,scale back our product development, reduce our workforce and/or licenseproducts or technologies to others that we might otherwise commercializeourselves.

 

**Weakness inthe global economy could negatively affect our business**

The weakness of the global economy,which started in 2008 was a challenge for many companies worldwide. The ongoingfinancial crisis became prominent in September 2008 with the failure ornear-failure of several United States and European based financial institutionsand the resulting deterioration in financial and market conditions spreadaround the globe. The financial crisis has adversely affected

 

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**Risk factors**

 

businesses in many industries andgeographical areas all over the world. The weakness of the global economy hasnot had a significant impact on our liquidity or on our ability to deriverevenues from our operations. However, our liquidity may be affected by changesin global financial markets and global economic conditions.

 

Financial distress and bankruptciesexperienced by our customers and suppliers resulting from the global economicslowdown could impair their ability to purchase our products, pay for productspreviously purchased or meet their obligations to us under supply agreements,as the case may be. This could lead to a material adverse effect on ourrevenues.

 

We do not know how long the currentfinancial crisis will continue nor how severe it will ultimately be. In the longrun, we may be affected if governmental agencies or supranational organizationsdecide to realign priorities and allocate fewer funds to public healthinitiatives. The financial crisis has had a negative effect on travel patterns,which is the key driver of sales of our travel vaccines. If that effectpersists or worsens, it could have a material adverse effect on an importantsource of our revenues.

 

**Foreigncurrency risk**

The majority of our total revenuesin 2009 were in currencies other than our functional currency, the Euro.Currency fluctuations may cause significant economic foreign currency exposureand transactional foreign currency exposure. Fluctuations in the currencies inwhich we do business relative to the Euro have affected our results in the pastand, given the current economic climate and the substantial fluctuations ininterest rates and currency exchange rates, may do so again in the future.Notwithstanding our efforts to foresee and mitigate the effects of changes infiscal circumstances, we cannot predict with certainty changes in currency andinterest rates, inflation or other factors affecting our business. Because ofthe variability of currency exposures and the potential volatility of currencyexchange rates, we may suffer significant foreign currency losses in thefuture, particularly if the Euro strengthens relative to currencies in which asignificant number of our operations are conducted. We engage on a limitedbasis in derivative transactions to hedge our foreign currency exposure. Seesection 3.2 ‘Foreign currency risk’ in the financial statements for furtherdetails on our foreign currency risk.

 

**Taxation**

We are subject to the tax laws ofthe countries in which we operate as well as to European tax law. We may incuradditional tax charges, including penalties, resulting from changes in tax lawsor the interpretation of tax laws or from failure to comply with obligationsrequired by relevant tax authorities. Disputes with tax authorities may arisewith regard to the interpretation and application of tax laws. If any of theserisks materializes, leading to tax costs associated with particulartransactions being greater than anticipated, it could affect the profitabilityof our business as a whole. See note 5.4 ‘Income tax’ in the financialstatements for further details on our taxation.

 

**Complianceand other risks**

 

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

The use of genetic technology andmaterials derived from human fetal tissue, such as our PER.C6 technology, mayraise ethical, legal and/or social issues that could hinder regulatoryapproval, patentability or market acceptance of our technologies and theproducts developed using them. If these risks materialize they could haveadverse consequences for our business since they could reduce or eliminatealtogether potential markets for our own or our licensees’ products.

 

**Protectivemeasures included in articles of association**

Protective measures included in ourarticles of association, in accordance with Dutch law, may prevent corporateaction and/or shareholder transactions that might be in the best interests ofour Company or the shareholders. Among other things, our articles ofassociation provide that our Supervisory Board may make binding nominations forthe election of its members. Only a shareholders’ resolution approved by anabsolute majority of the votes cast, representing more than one-third of ourtotal outstanding shares, can override those nominations. Furthermore, underDutch law, we may issue preference shares to a foundation, Stichting PreferenteAandelen Crucell, or the Preferred Foundation, giving it preferred dividendrights, which may dilute the voting rights held by the holders of other classesof shares. The Preferred Foundation has an option to acquire a number ofpreference shares equal to the number of our total outstanding shares. Thechairman of our Supervisory Board, Jan Oosterveld, and four independent memberscomprise the board of the Preferred Foundation. These and other provisions inour articles of association may have the

 

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**Risk factors continued**

 

effect of delaying, deterring orpreventing corporate action that might be in the best interest of the Companyor our shareholders and/or preventing our shareholders from selling theirordinary shares or ADSs at a premium to the market price. See ‘Otherinformation’ and ‘Articles of Association and Share Capital’ for additionalinformation regarding the preference shares and our articles of association.

 

**US andother non-Dutch holders of our ordinary shares may not be able to exercisepre-emption rights**

In the event of an increase in ourshare capital, holders of our ordinary shares are generally entitled to certainpre-emption rights unless these rights are excluded by a resolution of theGeneral Meeting of Shareholders or a meeting of the Management Board if sodelegated by the General Meeting of Shareholders. However, US holders of ourordinary shares may not be able to exercise pre-emption rights unless aregistration statement under the Securities Act is declared effective withrespect to the shares issuable upon exercise of such rights or an exemptionfrom the registration requirements is available. No assurance can be given thatany registration statement will be filed or, that if filed, it will be declaredeffective or that any exemption from registration would be available to enablethe exercise of a US holder’s pre-emption rights.

 

**Shareholdersmay have difficulty protecting their interests as shareholders as we are aDutch limited liability company**

Dutch law and our articles ofassociation govern issues regarding the legal organization, internalconstitution, corporate authority and liability of members of our Management Boardand Supervisory Board. Most of our offices and assets are located outside theUS. In addition, a majority of the members of our Supervisory Board, all of themembers of our Management Board and management team are residents of, and mostof their assets are located in, jurisdictions outside the US. As a result, itmay be difficult to serve process on these persons within the US. It may alsobe difficult to enforce a US court judgment against them in a US court or in aDutch court or to enforce a Dutch court’s judgment against them in a US court.This can include actions under the US securities laws. In addition, it may bedifficult to enforce, in original actions brought in courts in jurisdictionslocated outside the US, claims under US securities laws. For a more completediscussion of potential difficulties in protecting your rights, see ‘Articlesof Association and Share Capital – Enforcement of Civil Liabilities’.

 

**Share pricevolatility**

Our ordinary shares and ADSs mayhave a highly volatile trading price. Shareholders may not be able to reselltheir ordinary shares or ADSs at or above the price they pay for them, the ADSsmay vary in value and our share price may render us vulnerable to a takeoverbid. The trading prices of ordinary shares of biotechnology companies ingeneral have experienced significant volatility in the past and are likely tocontinue to be volatile. In addition, any negative change in the public’sperception of the prospects of biotechnology companies could depress ourordinary share or ADS price regardless of our results of operations. Otherbroad market and industry factors, such as discussions on business combinationsand a weak global economy may affect the trading price of our ordinary sharesand ADSs, regardless of our performance.

 

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**Operating and financial review and prospects**

 

**Operating and financial review and prospects**

 

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

 

**General**

 

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

 

**Summary ofthe full year financial results**

 

Total revenues and other operatingincome for the year ended December 31, 2009 were € 358,002, whichrepresented a 26.4% increase over the € 283,309 in revenues and other operatingincome reported in 2008. The increase was mainly attributable to increasedsales of paediatric vaccines and respiratory vaccines.

 

Total operating expenses amountedto € 124,377 (2008: € 130,119). R&D expenses of € 70,176 (2008: € 70,229)reflected our continued focus on lifecycle management of existing products andbringing our pipeline products to market.

 

We achieved profitability for thefull year 2009, reporting a net profit of € 23,938, compared to a net profit of€ 14,250 in 2008. This amounted to € 0.34 net profit per share in 2009,compared to a net profit per share of € 0.22 in 2008.

 

Cash and cash equivalents at December 31,2009 amounted to € 327,837 (2008: € 170,969).

 

Our operating cash flow was €76,866 positive in 2009, compared to a negative operating cash flow of € 254 in2008. The increase was mainly due to the premium of € 68,455 allocated to thedevelopment programs as part of the strategic collaboration with JNJ. Inaddition, profit before tax increased by € 32,118. The increase was partlyoffset by an increase in working capital in an amount of € 27,749.

 

**Strategiccollaboration with affiliates of Johnson & Johnson (JNJ)**

The most important event of theyear was the strategic agreement with affiliatesof JNJ that we signed on September 28, 2009. Pursuant to the equitypurchase agreement the Company issued 14,626,984 shares to JHC Nederland B.V.,an affiliate of JNJ, at a price of € 20.63, totaling an amount of € 301,755.The number of shares issued represents 18% of the outstanding share capital ofthe Company after issuance.

 

Under IFRS the fair value of theequity investment corresponds with a total value of € 233,300. The fair valueper share was equal to the price of a NYSE Euronext listed share of the Companyat the date of issuance. Costs directly attributable to the issuance of sharesamount to € 1,241 and are deducted from share premium, a component of equity.The premium over the fair value of € 68,455 has been allocated to thedevelopment programs that are part of the strategic

 

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**Operating and financial review and prospectscontinued**

 

collaboration with JNJ affiliates,and is presented as deferred income in the statement of financial position.This deferred income is recognized ratably over the period that the Group hascontinuing performance obligations during the development programs.

 

**Segments**

 

We operate in one reportablesegment, which comprises the development, production and marketing of productsthat combat infectious diseases. The Management Board is identified as the ‘chiefoperating decision maker’. The Management Board reviews the consolidatedoperating results regularly to make decisions about resources and to assessoverall performance.

 

**Retrospectiveapplication of newly adopted accounting policies**

 

As of January 1, 2009, wechanged our accounting policy of recognizing actuarial gains and losses for ourdefined benefit pensions plans. The new policy requires that all actuarialgains and losses are recognized in other comprehensive income in the period inwhich they occur. Prior to this change all actuarial gains and losses arisingfrom experience-based adjustments and changes in actuarial assumptions wereaccounted for in line with the ‘corridor’ method, which allowed deferral ofthese results. The new policy provides more relevant and timely information,because it requires an employer to recognize all transactions and events of adefined benefit postretirement plan in comprehensive income in the period inwhich they occur. The Group believes that this view is confirmed by recentdevelopments in the International Accounting Standards Board (IASB) and currentaccounting regulations as issued by the Financial Accounting Standards Board(FASB), which propose to eliminate the smoothing and deferral mechanism of the “corridor”method.

 

In addition, the amount recognizedin the statement of financial position can be reconciled more easily to thefunded status of the defined benefit pension funds. For Crucell the onlyremaining difference between the funded status and the amount in the statementof financial position is the limitation on the defined benefit assetsrecognized due to the ‘asset ceiling’.

 

The Group adjusted comparativeamounts disclosed for each prior period presented as if the new accountingpolicy had always been applied. See note 1.5.1 ‘New adopted accounting policiesin the financial year 2009’ in the financial statements for further details onthe change in accounting policy.

 

116

 

 

**Operating and financial review and prospects**

 

**Result ofoperations**

 

**Revenues**

 

The table below shows our revenuesfor each of the years in the three-year period ended December 31, 2009 andthe percentage change between these periods.

 

In thousands of Euro

 
| ** **         | ** ** | Year ended December 31, |       | % Change    |       |
|--------------------|------------|------------------------------|------------|-------------|------------|
| ** **         | ** ** | **2009**                     | ** ** | 2008        |       | 2007 |   | 09 vs. 08 |   | 08 vs. 07 |   |
| Product sales      | ** ** | **304,439**                  |       | 226,055     |       | 177,569 |   | 34.7 |   | 27.3 |   |
| License revenues   | ** ** | **23,049**                   |       | 30,202      |       | 12,211 |   | (23.7 | ) | 147.3 |   |
| Service fees       | ** ** | **10,675**                   |       | 10,900      |       | 14,006 |   | (2.1 | ) | (22.2 | ) |
| **Total revenues** | ** ** | **338,163**                  | ** ** | **267,157** | ** ** | **203,786** | ** ** | **26.6** |   | **31.1** | ** ** |

 

In 2009, total revenues increasedby € 71,006 or 26.6% from € 267,157 in 2008 to € 338,163 in 2009. The increaseis attributable to an increase in product sales of € 78,384 or 34,7%. Theincrease is partly offset by a decrease in license revenues of € 7,153 or 23.7%and revenue from service fees of € 225 or 2.1%.

 

In 2008, total revenues increasedby € 63,371 or 31.1% from € 203,786 in 2007 to € 267,157 in 2008. The increaseis attributable to an increase in product sales of € 48,486 or 27.3% andlicense revenues of € 17,991 or 147.3%. The increase was partly offset by adecrease in revenue from service fees of € 3,106 or 22.2%.

 

Export product sales constitute themajority of our total product sales. In 2009, domestic product sales amount to€ 3,553 or 1.2% (2008: € 3,743 or 1.7% and 2007: € 717 or 0.4%). Almost all ofour license revenues and service fees are billed to foreign parties.

 

Reference is made to note 4.4 ‘Geographicalsegments’ in the financial statements for the breakdown of our revenues bygeographic area.

 

**Productsales**

Our product sales by type ofproduct in 2009, 2008 and 2007, as well as the percentage change between theperiods, are shown below:

 

In thousands of Euro

 
|                        |       | Year ended December 31, |       | % Change    |       |
|-----------------------------|------------|------------------------------|------------|-------------|------------|
|                        |       | **2009**                     |       | 2008        |       | 2007 |   | 09 vs. 08 |   | 08 vs. 07 |   |
| Paediatric vaccines         | ** ** | **180,389**                  |       | 111,039     |       | 77,371 |   | 62.5 |   | 43.5 |   |
| Respiratory vaccines        | ** ** | **38,070**                   |       | 32,474      |       | 33,188 |   | 17.2 |   | (2.2 | ) |
| Travel and endemic vaccines | ** ** | **53,078**                   |       | 55,572      |       | 47,282 |   | (4.5 | ) | 17.5 |   |
| Other products              | ** ** | **32,902**                   |       | 26,970      |       | 19,728 |   | 22.0 |   | 36.7 |   |
| **Total product sales**     | ** ** | **304,439**                  | ** ** | **226,055** | ** ** | **177,569** | ** ** | **34.7** |   | **27.3** | ** ** |

 

*2009compared to 2008*

In 2009, product sales grew by €78,384 or 34.7%. The increase was primarily attributable to increased sales ofpaediatric vaccines of € 69,350 or 62.5%, respiratory vaccines of € 5,596 or17.2% and other products of € 5,932 or 22.0%.

 

·                  The increase in sales of paediatric vaccines was mainly attributable toQuinvaxem. In 2009 we were able to continue to build on the growth achieved in2008. Sales of Quinvaxem were 21.3 million units in 2007, 39.6 million units in2008, and 64.3 million units in 2009. In August 2009 we announced along-term arrangement with UNICEF to supply up to $300 million worth ofQuinvaxem for the period beginning 2010 through 2012. This is in addition tothe $ 500 million received during the period 2007 through 2009.

 

117

 

**Operating and financial review and prospectscontinued**

 

·                  The increase in sales of respiratory vaccines was principally a resultof a strong flu season in 2009. Heightened awareness of influenza caused by theglobal ‘swine flu’ pandemic triggered an increase in the numbers of fluvaccinations administered worldwide, including vaccinations for seasonalepidemics.

·                  The increase in the other product sales categories was partially offsetby a decrease in travel and endemic vaccines of € 2,494 or 4.5%. The financialcrisis has had a negative effect on travel patterns, which is the key driver ofsales of our travel vaccines.

·                  ‘Other products’ include vaccinesand proteins products that we distribute on behalf of third parties and salesof conjugate products to Wyeth. The increase in sales of other products wasmainly a result of increased sales of conjugates to Wyeth and increased salesof Prolastin under our distribution agreement with Talecris.

 

Our core product portfolio consistsof eight vaccines: Quinvaxem, Hepavax-Gene, Epaxal Junior and MoRu-Viraten(paediatric vaccines), Inflexal V (respiratory), Dukoral, Epaxal and Vivotif(travel and endemic vaccines). The aggregate revenues for our core productportfolio amounted to € 265,384 in 2009 (2008: € 191,631, 2007: € 151,791) andrepresented 87.2% (2008: 84.8%, 2007: 85.5%) of our total product sales.

 

In 2009, sales to our two largestcustomers, which are in the paediatric vaccines area, amounted to € 148,072 or48.6% and € 21,013 or 6.9% of net product sales. In 2008, sales to thesecustomers accounted for € 85,142 or 37.6% and € 18,390 or 8.1% of net productsales, respectively.

 

*2008compared to 2007*

In 2008, product sales grew by €48,486 or 27.3% compared to 2007. The increase is primarily attributable toincreased sales of paediatric vaccines of € 33,668 or 43.5%, travel and endemicvaccines of € 8,290 or 17.5% and other products of € 7,242 or 36.7%.

 

·                  Paediatric vaccines grew mainly due to increased Quinvaxem sales. In2008, supranational organizations awarded us additional contracts for Quinvaxemand Hepavax Gene amounting to $ 270 million for the period 2008-2009, inaddition to the initially received award of $ 230 million in December 2006.

·                  Travel and endemic vaccines showed considerable growth on an overallbasis.

·                  The increase in other products by € 7,242 or 36.7% mainly relates toincreased sales under our distribution agreement with Talecris as 2008 includesa whole year of sales under this agreement for the first time.

 

**Licenserevenues**

In 2009, license revenues decreasedby € 7,153 or 23.7% to € 23,049, compared to 2008. License revenues include amilestone and partial amortization of the deferred income in connection withour strategic collaboration with JNJ and royalty payments received from Shanta,an Indian manufacturer of vaccines. The decrease compared to last year ismainly due to one-off milestone payments, in the amount of € 14.0 million fromsanofi pasteur relating to our rabies development program in 2008.

 

118

 

**Operating and financial review and prospects**

 

In 2008, license revenues increasedby € 17,991 or 147.3% to € 30,202 compared to 2007. This increase mainlyresults from milestone payments related to the rabies and influenza programsfrom sanofi pasteur and upfront fees received from Talecris for the exclusiveproduction rights of two specific proteins.

 

**Servicefees**

In 2009, service fees amounted to €10,675, a decrease of € 225 or 2.1% compared to 2008. Total revenue streamsrelating to service fees were relatively stable for the year. Service feesinclude revenues relating to various collaboration agreements of the Company.Typically we do not retain any residual interest on products developed underthese agreements.

 

In 2008, service fees amount to €10,900, a decrease of € 3,106 or 22.2 % compared to 2007. In 2008, service feeson the sanofi pasteur influenza project were less compared to 2007. Servicefees include revenues relating to various collaboration agreements.

 

**Cost ofsales**

The following table shows our costof sales for each of the years in the three-year period ended December 31,2009 and the percentage change between these periods.

 

In thousands of Euro

 
|                                  |       | Year ended December 31, |       | % Change    |       |
|---------------------------------------|------------|------------------------------|------------|-------------|------------|
|                                  |       | **2009**                     |       | 2008        |       | 2007 |   | 09 vs. 08 |   | 08 vs. 07 |   |
| Cost of product sales                 | ** ** | **185,599**                  |       | 138,790     |       | 124,557 |   | 33.7 |   | 11.4 |   |
| Cost of service fees and license fees | ** ** | **9,014**                    |       | 6,965       |       | 10,327 |   | 29.4 |   | (32.6 | ) |
| **Total cost of sales**               | ** ** | **194,613**                  | ** ** | **145,755** | ** ** | **134,884** | ** ** | **33.5** | ** ** | **8.1** |   |

 

**Cost ofproduct sales**

Costs of product sales comprisedirect labor, materials, and overhead costs incurred in performing work undervarious collaboration agreements directly related to product sales.

 

The cost of product sales increasedin 2009 mainly due to an increase in product sales of 34.7%. The gross margin onproduct sales amounted to 39.0% in 2009 (2008: 38.6%). There were two distinctdevelopments in the gross margin percentage. Positive gross margin effects werecaused by larger scale production efficiencies and improved yields in theproduction process. These positive effects were almost fully offset by negativecurrency effects in 2009. The strengthening of the functional currencies inproduction countries increased our local cost-base (Korean Won and SwissFranc).

 

The cost of product sales increasedin 2008 mainly due to an increase in product sales of 27.3%. This increase waspartly offset by the reduction in purchase price allocation charges in 2008.The 2008 cost of product sales includes additional expenses of € 3,473 (2007: €10,191) relating to the purchase price allocations of the businesses acquiredby the Group. The gross margin on product sales amounts to 38.6% (2007: 29.9%).The percentage increase in gross margin is mainly due to the strengthening ofthe US Dollar in the second half of 2008, product-mix changes, improvements inproduction performance and a reduction of the purchase price allocation chargesin 2008.

 

**Cost ofservice fees and license fees**

Cost of service fees comprisesdirect labor, materials and overhead costs related to work under variouscollaboration agreements. We do not retain the residual interest on productsdeveloped under the agreements and will normally not have ownership of intellectualproperty rights on these products. Service contracts include different types ofcontractual relationships; consequently margins may vary significantly fromyear to year.

 

119

 

**Operating and financial review and prospectscontinued**

 

In 2009, the cost of service feesincreased by € 2,049 or 29.4 % compared to 2008. The increase was mainly causedby a limited number of contracts. The gross margin on service fees was 15.6% in2009 compared to 36.1% in 2008. The reduction is mainly caused by lower marginson the above contracts. The margin can vary significantly as the service feesinclude a wide range of services with different risk profiles and correspondingrewards.

 

In 2008, the cost of service feesdecreased by € 3,362 or 32.6 % compared to 2007. The decrease reflects thelower level of service fee revenues, which reduced our expenses. The grossmargin on service fees was 36.1% in 2008 compared to 26.3% in 2007.

 

**Otheroperating income**

 

The following table shows our otheroperating income for each of the years in the three-year period ended December 31,2009 and the percentage change between these periods.

 

In thousands of Euro

 
|                             |       | Year ended December 31, |       | % Change   |       |
|----------------------------------|------------|------------------------------|------------|------------|------------|
|                             |       | **2009**                     |       | 2008       |       | 2007 |   | 09 vs. 08 |   | 08 vs. 07 |   |
| Government grants                | ** ** | **6,870**                    |       | 5,380      |       | 7,086 |   | 27.7 |   | (24.1 | ) |
| Other income                     | ** ** | **12,969**                   |       | 10,772     |       | 2,244 |   | 20.4 |   | 380.0 |   |
| **Total other operating income** | ** ** | **19,839**                   | ** ** | **16,152** | ** ** | **9,330** | ** ** | **22.8** | ** ** | **73.1** |   |

 

**Governmentgrants**

In 2009, revenue from governmentgrants increased by € 1,490 or 27.7% compared to 2008. This was mainly due toadditional funding from the NIH in relation to our influenza antibodiesprogram, our program to develop a new adenovirus vector-based vaccine againstHIV/AIDS, as well as our Ebola and Marburg development program.

 

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

 

**Otherincome**

Other income mainly consists of thereimbursement of development costs and funding received from non-governmentalagencies and/or our program partners. Other income also includes non-corebusiness transactions such as the sale of property, plant and equipment andincome generated from training courses. Other income increased by € 2,197 or20.4% to € 12,969 in 2009 (2008: € 10,772) mainly due to increased fundingreceived from sanofi pasteur in relation to our rabies program as well as increasedfunding from MVI/ PATH in relation to our malaria program.

 

In 2008, other income increased by€ 8,528 or 380.0% mainly due to reimbursement of development costs on therabies program, for which the partnership with sanofi pasteur started in 2008,and increased funding from non-governmental agencies in 2008.

 

120

 

**Operating and financial review and prospects**

 

**Otheroperating expenses**

 

The following table shows our otheroperating expenses for each of the years in the three-year period ended December 31,2009 and the percentage change between these periods.

 

Inthousands of Euro

 
|                                |       | Year ended December 31, |   | %-Change    |       |
|-------------------------------------|------------|------------------------------|--------|-------------|------------|
|                                |       | **2009**                     |   | 2008        |       | 2007 |   | 09 vs. 08 |   | 08 vs. 07 |   |
| Research and development            | ** ** | **70,176**                   |   | 70,229      |       | 63,995 |   | (0.1 | ) | 9.7 |   |
| Selling, general and administrative | ** ** | **61,400**                   |   | 64,778      |       | 63,566 |   | (5.2 | ) | 1.9 |   |
| (Reversal of) Impairment            | ** ** | **(7,199**                   | **)**  | (4,888      | )          | 171 |   | 47.3 |   | (2,958.5 | ) |
| **Total other operating expenses**  | ** ** | **124,377**                  |   | **130,119** | ** ** | **127,732** | ** ** | **(4.4** | **)** | **1.9** | ** ** |

 

**Researchand development expenses**

Research and development expensesconsist of personnel expenses, laboratory expenses, technology purchases,patent related fees, technology license fees, depreciation of property, plantand equipment and amortization of intangible assets related to research anddevelopment, and lease expenses for lab space and equipment lease. Research anddevelopment expenses also include fees we pay to third parties who conductresearch on our behalf.

 

Research and development expensesremained stable on total level as the expenses decreased by € 53 or 0.1%.

 

·                  Innovation and discovery expenses decreased in an amount of € 1,228 orby 5.3%. The decrease is the result of a more selective focus on early-stageprograms. The decrease was partially offset by increased in researchexpenditures for our flu-mAb program, which was accelerated following ourcollaboration with JNJ.

·                  Development expenses decreased by € 175 or 0.8%. The expenses remainedstable on total level, but there was a shift in expenditures between programs.Rabies expenditures were lower due to reduced expenditure on clinical trialscompared to 2008. Development expenditures on, among others, malaria andtuberculosis increased.

·                  The remaining costs in research and development expenses increased by €1,350. These costs include among others quality control expenses, lifecyclemaintenance and general research and development support.

 

Research and development expensesincreased in 2008 by € 6,234 or 9.7% compared to 2007. This increase is mainlyattributable to increased expenditures on the rabies program for which twoPhase II clinical trials were performed.

 

Research and development expensescomprised 54.0% of total other operating expenses in 2008 (2007: 50.1%). Weexpect that research and development expenses will continue to be a significantportion of our overall expenses in the future.

 

**Selling,general and administrative expenses**

Selling, general and administrativeexpenses consist of personnel expenses and other operating expenses inmarketing & sales, finance, human resources, investor relations, legaland general management.

 

These expenses decreased in 2009 by€ 3,378 or 5.2% to € 61,400 in 2009 compared to € 64,778 in 2008. This decreasewas primarily due to lower selling expenses resulting from our Healthy Ambitionprogram, which targeted among others sales and marketing efficiency gains.

 

These expenses increased in 2008 by€ 1,212 or 1.9% to € 64,778 in 2008 compared to € 63,566 in 2007. This increaseis primarily due to the overall growth of the Group as a whole. Specific itemsare the increased distribution and sales expenses as a result of increasedrevenues, annual salary increases and the recognition of specific provisions.The increase in selling, general and administrative programs is partly offsetby cost reductions realized through our Healthy Ambition program.

 

121

 

**Operating and financial review and prospectscontinued**

 

**Impairment**

In the third quarter of 2009, theGroup reversed an impairment of € 8,084 relating to two buildings in Bern,Switzerland. The buildings were impaired in the fourth quarter of 2006 as therewas no direct use for them. The buildings are now being used as developmentproduction sites for Epaxal and our tuberculosis program. The buildings havebeen adapted to the specific needs of the development programs, which avoidedmajor spending in the construction of new development facilities.

 

In 2009, there were several smallerimpairments in Switzerland, Sweden, the Netherlands and Korea for individualitems of property, plant and equipment totaling to an amount of € 885.

 

In the first quarter of 2008, wereversed € 5,219 of previously impaired property, plant and equipment. In 2008,we entered into an exclusive agreement with Wyeth Pharmaceuticals in which wedeveloped and manufactured certain components of a vaccine for use by Wyeth inclinical studies. The contract manufacturing takes place in one of the twobuildings that were originally impaired in 2006. We reassessed the recoverableamount of the asset and as the outcome exceeded the carrying value of nil, wepartially reversed the previously recognized impairment loss on this building.

 

In the fourth quarter of 2008, werecognized an impairment charge of € 331 for the animal housing facility inBern, Switzerland that was not in use anymore. As there was no alternative usefor this building for any of the Group’s other activities and the buildingcannot be sold directly to other parties as it is on our campus, the Group impairedthe carrying value to zero.

 

**Operatingprofit/ (loss)**

 

The following table shows ouroperating profit/ (loss), for each of the years in the three-year period ended December 31,2009 and the percentage change between these periods.

 

In thousands of Euro

 
|                          |       | Year ended December 31,  |       | % Change  |       |
|-------------------------------|------------|------------------------------------|------------|-----------|------------|
|                          |       | **2009**                           |       | 2008      |       | 2007  |   | 09 vs. 08 |   | 08 vs. 07 |   |
| **Operating profit / (loss)** | ** ** | **39,012**                         | ** ** | **7,435** | ** ** | **(49,500)** | ** ** | **424.7** | ** ** | **(115.0** | **)** |

 

The movements in operating profit/(loss) are explained by the operating results discussed above.

 

122

 

 

**Operating and financial reviewand prospects**

** **

**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, 2009 and the percentagechange between these periods.

 

In thousands of Euro

 
|                                            |       | Year ended  December 31, |       |       | % Change |      |
|-------------------------------------------------|------------|-------------------------------|------------|------------|----------|-----------|
| ** **                                      | ** ** | **2009**                      | ** ** | 2008       |     | 2007      |   |   | 09 vs. 08 |   | 08 vs. 07 | ** ** |
| Financial income  and expenses                  | ** ** | **(3,193**                    | **)**      | (2,662     | )        | 1,378     |   |   | (19.9 | ) | (293.2 | ) |
| Results investments  non-consolidated Companies | ** ** | **2,147**                     |       | (128       | )        | (996      | ) |   | 1,777.3 |   | 87.1 |   |
| Gain on disposal of  non-consolidated Companies | ** ** | **—**                    |       | 1,570      |     | 2,186     |   |   | (100.0 | ) | (28.2 | ) |
| Disposal of  subsidiaries                       | ** ** | **—**                    |       | (367       | )        | —    |   |   | — |   | — |   |
| **Total  financial income and expenses**        | ** ** | **(1,046**                    | **)**      | **(1,587** | **)**    | **2,568** | ** ** | ** ** | **34.1** | ** ** | **(161.8** | **)** |

** **

**Financial income and expenses**

Financialincome and expenses mainly consist of interest income and expenses, foreignexchange losses and other financial expenses.

 

In2009, the negative result in net financial income and expenses totaled € 3,193in 2009 (2008: € 2,662), consisting of interest income of € 2,429, net foreignexchange losses of € 2,324, interest expenses of € 2,949 and other financialexpenses of € 349.

 

Thenet financial expenses increased in 2009 by € 531 or 19.9 % compared to 2008.The increase in financial expenses was primarily attributable to reducedinterest income in an amount of € 2,592 caused by lower interest rates in 2009.

 

Theincrease was partly offset by reduced foreign exchange losses of € 1,602 as theGroup adopted a more proactive approach on hedging foreign currency transactionexposures. (See note 3.2 ‘Foreign currency risk’ in the financial statementsfor more details on foreign currency risk management including the use ofhedging instruments by the Group); and reduced other financial expenses of €689 as a result of our decision not to factor trade receivables in 2009.

 

In2008, the negative result on net financial income and expenses totaled € 2,662and consists of interest income of € 5,021, foreign exchange losses of € 3,926,interest expenses of € 2,719 and other financial expenses of € 1,038.

 

Thenet financial income and expenses decreased by € 4,040 or 293.2 % compared to2007. The decrease is primarily attributable to:

 

·                  Foreign exchange losses of € 3,926. These losses mainlyresulted from a weaker Euro in conjunction with Euro receivables inSwitzerland, as the Swiss Franc is the functional currency of our Swisssubsidiary. In addition, foreign exchange losses were realized on Euroliabilities and losses on US Dollar transactions in Korea;

·                  Reduction of interest income by € 690, mainly caused by alower average cash balance in 2008 compared to 2007;

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

·                  Increase other financial expenses of € 292 primarily due tofactoring arrangements engaged in during 2008.

** **

**Results investments non-consolidated companies**

AtDecember 31, 2009, we had one associate, ADImmune Corp and one jointventure partner, Percivia. The results of investments in non-consolidatedcompanies are accounted for under the equity method and amounted to a totalgain in 2009 of € 2,147 (2008: loss of € 128). The increase of € 2,275 comparedto 2008 year is mainly due to the positive results of ADImmune Ltd. in 2009.

 

123

 

**Operating andfinancial review and prospects continued**

 

InJuly 2008, we sold our investment in Kenta Biotech AG. The results ofinvestments in non-consolidated companies include the results of Kenta BiotechAG up to the moment of the sale. In 2008, the results of investments innon-consolidated companies amount to a total loss of € 128 (2007: € 996). Thedecrease of € 868 or 87.1% compared to 2007 year is mainly due to the reducedlosses on Kenta Biotech AG.

** **

**Results on disposal non-consolidated companies**

Nonon-consolidated companies were sold in 2009.

 

OnJuly 3, 2008 the Group sold all of the 2,625,000 shares it owned In KentaBiotech AG to Ingro Finanz AG. Prior to this sale, our ownership interest hadalready been diluted from 37% in 2006 to 22% by the end of 2007. We realized anaccounting gain in 2008 of € 1,570 on the sale.

** **

**Disposal of subsidiaries**

Nosubsidiaries were sold in 2009.

 

InNovember 2008, we sold our fully-owned subsidiary Etna Biotech Srl toZydus Cadila. The sale resulted in net proceeds of € 182 and an accounting losson disposal of € 367.

** **

**Income tax**

 

Thetable shows our income tax for each of the years in the three-year period endedDecember 31, 2009 and the percentage change between these periods.

 

Inthousands of Euro

 
|            |       | Year ended  December 31, |   |      | % Change   |      |
|-----------------|------------|-------------------------------|--------|-----------|------------|-----------|
|            |       | **2009**                      |   | 2008      |       | 2007      |   |   | 09 vs. 08 |   | 08 vs. 07 |   |
| **Income  tax** | ** ** | **(14,028**                   | **)**  | **8,402** | ** ** | **2,598** | ** ** | ** ** | **(267.0** | **)** | **223.4** | ** ** |

* *

*2009*

In2009, the tax charge amounted to € 14,028 compared to a tax income of € 8,402in 2008. The increase of the tax charge in an amount of € 22,430 was mainlycaused by:

 

·                  Increased profitability of our subsidiaries in Switzerlandand Korea in 2009;

·                  Recognition of carry forward losses by our Swiss subsidiaryin 2008 that were previously unrecognized; and

·                  A reduction of the expected tax realization rate on ourdeferred tax liabilities in Korea in 2008.

 

TheGroup had an effective tax rate of 36.9% in 2009. Our effective tax rate wasimpacted by numerous items. The effective tax reconciliation starts with ourIFRS profit/ (loss) per subsidiary multiplied by the domestic rate of tax inthe country in which our subsidiaries are domiciled. Based on this calculationthe 2009 tax charge would have been € 2,764. The difference between the actualtax charge of € 14,028 and the calculated tax charge of € 2,764 is mainlyexplained by the following transactions:

 

124

 

**Operating and financial reviewand prospects**

 

·                  In the Netherlands, under IFRS, we realized losses in theamount of € 44,368 (excluding dividends from subsidiaries). No deferred taxassets were recognized for these losses and on other temporary differences betweenvaluation for tax purposes and IFRS purposes. Not recognizing deferred taxassets in the Netherlands had a negative impact on taxation of € 9,719.

·                  Non-deductible stock-option expenses are recognized in theNetherlands in a net amount of € 1,837 in 2009 (2008: € 1,251).

 

Seenote 1.4 ‘Use of estimates and judgments’ in the financial statements sectionfor a description of estimates and management judgments in determining the taxposition and note ‘5.4 Income tax’ in the financial statements for a numericalreconciliation of our effective tax rates.

* *

*2008*

In2008, our total profit under IFRS of € 5,848 had a negative correlation withour total taxes based on domestic rates of € 820. This negative correlation wasmainly caused by a loss under IFRS in our Dutch operation at a tax rate of25.5% and a profit of our Korean subsidiary at a lower average tax rate of21.0%.

 

Inaddition, the following transactions significantly affected our effective taxrate reconciliation:

 

·                  In the Netherlands, under IFRS, we generated loss in anamount of € 29,710 (excluding dividends from subsidiaries). No deferred taxassets were recognized for these losses and on other temporary differencesbetween valuation for tax purposes and IFRS purposes. Not recognizing deferredtax assets in the Netherlands had a negative impact on taxation of € 6,103;

·                  We reassessed the valuation of our carry forward losses andrecognized previously unrecognized carry forward losses in our subsidiary BernaBiotech AG, which resulted in a taxation gain of € 8,585;

·                  As of the year 2012, we will benefit from a tax holiday toour investment in the Incheon, Free Economic Zone, Korea, which willsignificantly reduce the effective Korean income tax rate for a period of 5years. The reduced expected realization rate for our deferred tax liabilitiesin Korea resulted in a taxation gain of € 3,384;

·                  In 2008, we benefited in Korea from a research anddevelopment tax credit for an amount of € 2,916; and

·                  Non-deductible stock-option expenses are recognized in theNetherlands in a net amount of € 1,251 in 2008.

** **

**Liquidity**

Wehave a strong cash position, which we believe makes it possible to continuefinancing important development programs. Our cash and cash equivalentsamounted to € 327,837 and € 170,969 as of December 31, 2009 and 2008,respectively. We believe that our liquidity is sufficient for our presentrequirements.

 

OnSeptember 28, 2009 we entered into a strategic agreement with JNJ thatresulted in net proceeds of €301,755 in return for 18.0% of the Company’soutstanding ordinary shares (after issuance) and the strategic collaboration onseveral development programs. An amount of € 100,000 was invested in short termdeposits with maturities over 3 months. These deposits are classified ascurrent financial assets instead of cash.

** **

**Day sales outstanding**

Theday sales outstanding (DSO) calculated on the basis of year-end accountsreceivable and full year product sales indicated that the average DSO increasedfrom 64 days as at December 31, 2008 to 93 days as at December 31,2009. We note that there have been no material changes to our payment terms orto our payment collection processes. The increase was mainly due to the absenceof factoring arrangements in 2009. Following the collaboration with JNJ our cashposition improved significantly. Given these circumstances we made the choicenot to enter in relatively expensive non-recourse factoring arrangements. In2008, we entered into factoring arrangements in an amount of € 25,993, asdiscussed below. Without these factoring arrangements the DSO would have been105 as at December 31, 2008.

 

125

 

**Operating andfinancial review and prospects continued**

 

In2008, the calculated average DSO decreased from 96 days as at December 31,2007 to 64 days as at December 31, 2008. The decrease was mainly due to anincrease in derecognition of accounts receivable related to factoringarrangements:

 

·                  In 2008, we entered into factoring arrangements relating tocertain Italian customers that allowed derecognition of accounts receivable inan amount of EUR 11,107. This factoring arrangement resulted in a decrease of18 days in the calculation of the DSO. In 2007, we also entered into factoringarrangements with respect to Italian customers for an amount of EUR 5,653.However, these 2007 factoring arrangements did not lead to derecognition as weassessed that not all risks and rewards were transferred. The 2007 cashreceipts were accounted for as short term financial liabilities.

·                  Prior to the end of 2007 and 2008, we entered into factoringarrangements with a third party to sell a portion of our receivables fromDecember’s product sales to a supranational organization. Consequently accountsreceivables outstanding from this customer were relatively low as at the end ofthe years 2007 and 2008. The increase in revenues in 2008 compared to 2007attributable to sales to this supranational organization did not lead to asignificant increase of trade accounts receivable outstanding as at year-end,but did cause the average DSO to decrease by 19 days.

** **

**Cash flows**

Thefollowing table shows our statement of cash flow for each of the years in thethree-year period ended December 31, 2009 and the percentage changebetween these periods.

 

In thousands of Euro

 
| ** **                                                 | ** ** | **2009**     | ** ** | 2008       |       | 2007        |       | 09 vs. 08     |       | 08 vs. 07  | ** ** |
|------------------------------------------------------------|------------|--------------|------------|------------|------------|-------------|------------|---------------|------------|------------|------------|
| Profit/ (loss) of  the period                              | ** ** | **23,938**   |       | 14,250     |       | (44,334     | )          | 68.0          |       | 132.1      |       |
| Adjustments for  non-cash items                            | ** ** | **33,121**   |       | 19,137     |       | 46,017      |       | 73.1          |       | (58.4      | )          |
| Changes in net  working capital                            | ** ** | **(27,749**  | **)**      | (29,814    | )          | 25,170      |       | 6.9           |       | (218.5     | )          |
| Receipt from  (payments of) deferred income and provisions | ** ** | **54,167**   |       | (567       | )          | (962        | )          | 9,653.3       |       | 41.1       |       |
| Interest and taxes  paid                                   | ** ** | **(6,611**   | **)**      | (3,260     | )          | (3,697      | )          | 102.8         |       | 11.8       |       |
| **Net  cash flows from/ (used in) operating activities**   | ** ** | **76,866**   | ** ** | **(254**   | **)**      | **22,194**  | ** ** | **>9,999** | ** ** | **(101.1** | **)**      |
| **Net  cash flows from/ (used in) investing activities**   | ** ** | **(154,387** | **)**      | **(8,907** | **)**      | **(24,241** | **)**      | **(1,633.3**  | **)**      | **63.3**   | ** ** |
| **Net  cash flows from financing activities**              | ** ** | **231,512**  | ** ** | **16,626** | ** ** | **11,244**  | ** ** | **1,292.5**   | ** ** | **47.9**   | ** ** |
| Total cash flow                                            | ** ** | **153,991**  |       | 7,465      |       | 9,197       |       | 1,962.8       |       | (18.8      | )          |
| Effect of exchange  rates on cash and cash equivalents     | ** ** | **2,877**    |       | 256        |       | (3,786      | )          | 1,023.8       |       | 106.8      |       |
| **Net  increase/ (decrease) in cash and cash equivalents** | ** ** | **156,868**  | ** ** | **7,721**  | ** ** | **5,411**   | ** ** | **1,931.7**   | ** ** | **42.7**   | ** ** |
| Cash and cash  equivalents at beginning of period          | ** ** | **170,969**  |       | 163,248    |       | 157,837     |       | 4.7           |       | 3.4        |       |
| Cash and cash  equivalents at end of period                | ** ** | **327,837**  |       | 170,969    |       | 163,248     |       | 91.8          |       | 4.7        |       |

** **

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

*2009*

In2009, our operating cash flow was € 76,866 positive, compared to a negativeoperating cash flow of € 254 in 2008. This positive cash flow resulted fromnumerous cash flows. In 2009, the most significant cash flows from operatingactivities resulted from:

 

126

 

**Operating and financial review andprospects**

 

·                  the premium in an amount of € 68,455 over the fair value ofthe shares on the 18% equity investment by JNJ allocated to the developmentprograms. The non-current amount of € 51,341 is included in the ‘Receipt(payments) deferred income and provisions’ and the current amount of € 17,114is included in the ‘Changes in net working capital’;

·                  the Group’s profit before tax increased by € 32,118 comparedto 2008; and

·                  cash flows related to inventories were € 15,646 lowercompared to 2008.

 

Theincrease was partly offset by increased trade accounts receivable. Cash flowsrelated to trade accounts receivable were € 42,021 higher in 2009 compared to2008. In 2009, we did not enter into factoring arrangements, whereas in 2008 wesigned factoring arrangements with a value of € 25,993. Furthermore, productsales increased by 19% during the fourth quarter of 2009 compared to the samequarter prior year, which also caused the accounts receivable to increase.

* *

*2008*

In2008, our net cash flow from operating activities decreased by € 22,448 or101.1% compared to 2007. The decrease resulted from an increase of our workingcapital by € 54,589 and a reduction in the adjustments for non-cash items by €26,880. The decrease is partly offset by € 58,584 due to improved results in2008 compared to 2007.

 

In2008, the decrease in changes in the net-working capital compared to 2007amounted to € 54,589. The year 2008 had relatively stable cash flows on themonetary working capital items compared to positive cash flows in 2007. Thedecrease in 2008 compared to 2007 mainly resulted from inventories for € 30,993due to build-up of Quinvaxem inventory for 2009 sales, and other currentliabilities for € 22,327.

 

In2008, adjustments for non-cash items were reduced by € 26,880. This reductionwas mainly caused by:

 

·                  One-off cash receipts in 2007 in the amount of € 11,500 in2007 relating to the non-current deferred revenue on the ADImmune technologylicense and the rabies program;

·                  Non-cash revenues realized in 2008 for an amount of € 4,728that related to the above transactions; and

·                  Partial reversal of the impairment loss on one of ourbuildings in Switzerland in 2008 for an amount of € 5,219 as we now performcontract manufacturing at this location.

** **

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

*2009*

Ourcash flow used in investing activities amounted to € 154,387 in 2009, comparedto € 8,907 in 2008.

 

In2009, the most significant cash flows used in investing activities resultedfrom:

 

·                  an amount of € 100,000 was invested in deposits with amaturity over 3 months.

·                  investments made in property, plant and equipment for anamount of € 51,035. These investments mainly related to our new Koreanproduction facility and investments in our facilities in Bern, Switzerland thatwill improve current production processes and allow in-house production ofmaterials currently sourced from third parties.

·                  investments made in intangible assets in an amount of €5,925.

 

In2009, the most significant cash flows from investing activities were frominterest received on cash and cash equivalents and other financial assets of €2,254 in 2009 (2008: € 4,395).

 

127

 

**Operating andfinancial review and prospects continued**

* *

*2008*

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

 

In2008, the most significant cash flows used in investing activities resultedfrom:

 

·                  investments made in property, plant and equipment for anamount of € 15,787. These investments mainly related to our new Koreanproduction facility, investments in our facilities in Bern, Switzerland thatwill improve current production processes and allow in-house production ofmaterials currently acquired from third parties, as well as investments in ournew filling line in Madrid, Spain.

 

In2008, the most significant cash flows from investing activities were from thefollowing transactions:

 

·                  Interest received of € 4,395 in 2008 (2007: € 5,274);

·                  The sale of all shares owned by the Group in Kenta BiotechAG for € 1,570 to Ingro Finanz AG; and

·                  Restricted deposits that were transferred to cash and cashequivalents for € 1,500.

** **

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

*2009*

In2009, the total cash flow from financing activities amounted to € 231,512 in2009, compared to € 16,626 in 2008.

 

In2009, the most significant cash flows from financing activities resulted from:

 

·                  the issuance of 14,626,984 shares to JHC Nederland B.V. anaffiliate of JNJ, at a price of € 20.63 totaling an amount of € 301,755. Foraccounting purposes the Group determined the fair value of the shares to be €233,300. Net proceeds, after deducting directly attributable transaction costs,amounted to 232,059 (gross: € 233,300);

·                  cash proceeds resulting from share based paymenttransactions, mainly the exercise of options by employees, amounted to 9,206 in2009;

·                  an amount of € 2,884 was drawn under a KRW denominatedmortgage loan facility by the Group’s Korean subsidiary in connection with thenew production facility.

 

Theincrease in the cash flows from financing activities was partly offset by thefollowing cash flows used in financing activities:

 

·                  Redemption of an unsecured Euro-denominated loan by BernaBiotech Corp. in Korea for € 2,909;

·                  A partial redemption of a KRW denominated flexible loan,also in Korea, for € 6,757; and

·                  Repayment of finance lease liabilities in the aggregateamount of € 2,984.

* *

*2008*

In2008, the total cash flow from financing activities amounted to € 16,626 in2008, compared to € 11,244 in 2007.

 

In2008, the most significant cash flows from financing activities resulted from:

 

·                  Additional short-term financing facilities in Korea for anamount of € 22,222; and

·                  Finance leases with proceeds of € 12,368 relating to our GMP-facilityin Leiden, the Netherlands and our Spanish filling-line.

 

128

 

 

**Operating and financial reviewand prospects**

 

Themost significant cash flows used in financing activities mainly related to:

 

·                  Redemption of a Korean Won-denominated privately placed bondin Korea for € 11,869 and a partial redemption of a short-term Euro loan alsoin Korea for € 1,455;

·                  Settlement of financial liabilities relating to factoredItalian trade accounts receivable by € 5,653 for which the Group did notsubstantially transfer all the risks and rewards in 2007; and

·                  Repayment of finance lease liabilities for an amount of €1,922.

** **

**Critical accounting policies and estimates**

 

Themethods, estimates and judgments we use in applying our most criticalaccounting policies have a significant impact on the results we report in ourfinancial statements. Please see note 1.4 ‘Use of estimates and judgments’ inthe financial statements for further details on our most critical policies andthe methods, estimates and judgments used.

 

Inaddition to the critical accounting policies and estimates, the Group choosesto disclose the impact of discounts, rebates and returns.

** **

**Discounts, rebates and returns**

 

Atthe time sales revenue is recognized, we also record estimates for revenuedeductions, including discounts, rebates and product returns. We report netsales after deducting all sales deductions from gross sales revenue. Thefollowing table identifies the items that reduced our gross product revenue asat the end of the periods ended December 31, 2009, 2008 and 2007.

 

In thousands of Euro

 
|                                  | ** ** | **2009**    |       | 2008        |       | 2007        |       |
|---------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Product sales,  gross                 | ** ** | **305,758** |       | 227,791     |       | 179,395     |       |
| Discounts and  rebates                | ** ** | **719**     |       | 945         |       | 626         |       |
| Returns                               | ** ** | **600**     |       | 791         |       | 1,200       |       |
| Total discounts,  rebates and returns | ** ** | **1,319**   |       | 1,736       |       | 1,826       |       |
|                                  | ** ** | ** **  |       |        |       |        |       |
| **Product  sales, net**               | ** ** | **304,439** | ** ** | **226,055** | ** ** | **177,569** | ** ** |

** **

**Discounts and rebates**

Discountsinclude prompt payment discounts and charge backs. In 2009, our discounts andrebates amounted to € 719 (2008: €945).

 

Wegenerally offer our US wholesalers a prompt-pay cash discount as an incentiveto remit payment in full within one month after the date of an invoice.Prompt-pay discount calculations are based on the gross amount of each invoice.We account for these discounts by reducing product sales by the estimateddiscount amount when the product is sold.

 

Wholesalercharge backs, customary in our industry, are arrangements that relate tocontractual agreements to sell products to Group Purchasing Organizations(GPOs) in the US at fixed prices that are lower than the list prices we chargewholesalers. When the GPOs purchase our products through wholesalers at thesereduced prices, the wholesaler charges us for the difference between the pricethe wholesaler paid to us and the price at which they sold the products to theGPO. Accruals for wholesaler charge backs closely approximate actual resultsbecause charge back amounts are fixed at the date of purchase by the GPOs. Asthe charge backs are settled within a short time of incurring the liability,the outstanding accruals are relatively low.

 

129

 

**Operating andfinancial review and prospects continued**

 

Weoffer rebates primarily in connection with attainment of sales targets bywholesalers and large retailers in contractually agreed percentages. Therebates are accrued as the underlying sales transactions are recognized and arebased on reasonable estimates on the attainment of the sales targets.

** **

**Returns**

Returnsthat reduce our gross product revenue may arise from the following:

 

·                  Customers return of products defective upon delivery;

·                  Specific right of return in accordance with contractualterms; and

·                  Returns via the normal distribution channels if the productis in good condition, pursuant to local law in certain jurisdictions.

 

TheCompany normally does not accept returns of non-defective product in the formof an exchange but generally issues a cash refund or a credit instead.

 

In2009, returns amounted to € 600 (2008: € 791) or approximately 0.2% (2008:0.4%) of our net product sales.

 

Thefollowing table shows the percentage of products returned as a percentage ofthe gross product sales per country during 2009 based on the country from whichthe products were originally sold.

 
| Country     | ** ** | **Returns 2009** |   | Returns 2008 |   | Returns 2007 |   |
|-------------|------------|------------------|--------|--------------|--------|--------------|--------|
| Spain       | ** ** | **1.7%**         |   | 3.0%         |   | 2.5%         |   |
| Italy       | ** ** | **0.1%**         |   | 1.1%         |   | 1.4%         |   |
| Switzerland | ** ** | **0.0%**         |   | 0.1%         |   | 0.1%         |   |
| US          | ** ** | **5.4%**         |   | 2.1%         |   | 1.9%         |   |
| Sweden      | ** ** | **0.1%**         |   | 0.1%         |   | 0.1%         |   |
| Korea       | ** ** | **0.1%**         |   | —       |   | —       |   |
| UK          | ** ** | **0.0%**         |   | —       |   | —       |   |
| Netherlands | ** ** | **—**       |   | —       |   | —       |   |

 

**Roll-forward information**

The table belowshows the roll-forward information of our discounts, rebates, and productreturns:

 

Inthousands of Euro

 
|                                           |       | Accrual for  discounts  and rebates |   | Provision  for  returns |   | Total    |   |
|------------------------------------------------|------------|-------------------------------------|--------|-------------------------|--------|----------|--------|
| **January 1,  2009**                      | ** ** | **(189**                            | **)**  | **(675**                | **)**  | **(864** | **)**  |
| Additions — current  period               |       | (733                                | )      | (924                    | )      | (1,657   | )      |
| Actual returns/  credits — current period |       | 710                                 |   | 205                     |   | 915      |   |
| Actual returns/  credits — prior period   |       | 15                                  |   | 464                     |   | 479      |   |
| Release of accruals  — current period     |       | 14                                  |   | —                  |   | 14       |   |
| Release of accruals  — prior period       |       | —                              |   | 324                     |   | 324      |   |
| Effect of movements  in exchange rates         |       | (1                                  | )      | 17                      |   | 16       |   |
| **December 31,  2009**                    | ** ** | **(184**                            | **)**  | **(589**                | **)**  | **(773** | **)**  |

 

130

 

**Operating and financial reviewand prospects**

** **

**Discounts and rebates**

Webase our estimates for discounts and rebates primarily on historical experienceand contractual agreements, supplemented by management’s judgment. In 2009, ourestimates for rebates based on historical experience did not differ materiallyfrom actual results. With respect to discounts, we have limited uncertaintiesin determining our estimates, because these deductions generally occur within ashort time frame of incurring the liability.

 

Forcalculating our rebates estimates we make use of quantifiable contractualrebates data. In general, our rebates are based on fixed rebate percentages onproduct sales to customers that have been granted rebates.

** **

**Returns**

Webase our estimates of product returns on the percentage of returns that we haveexperienced historically. We may adjust these return estimates if we are awareof other factors 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 generally result in alower accrual for returned influenza vaccines, because it becomes more unlikelythat vaccines 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.

 

Inaddition, in our estimates of returns, we take into account other information,such as media coverage of vaccination programs, estimates of inventory levelsof our product in the distribution channel, vaccine shelf life and known salesand market trends. These are reflected in the accruals by means of management’sjudgment.

 

Increasedmedia coverage of vaccination programs, either by advertising campaigns orcoverage of flu outbreaks, results in an increased public awareness.Consequently, this may lead to an increased number of flu vaccinations andfewer unsold doses with our customers, which limits the level of accruals forproduct returns.

 

Relativelyhigh levels of inventory of our product in the distribution channel and shortshelf life of product sold can be indicators for an increased level of returns.

 

Salesand market trends are taken into account by reference to the life cycle phaseof products. If product sales show a decreasing revenue pattern over time, thiscan be an indicator of an increased level of returns. We do not rely onquantitative externally sourced information in our calculation of returnsestimates. We are not aware of any available external quantitative informationor other quantifiable data that would provide us the benefit of a more reliableestimate.

 

Therate of product returns is quantifiable. We monitor returns primarily on a percountry basis based on the country from which the product was sold because ouraccruals are determined at this level. Within the individual countries, wemonitor the returns on a product-by-product basis. In 2009, our estimates forreturns did not differ materially from actual results.

** **

**Tabular disclosure of contractual obligations**

 

Seenote 5.24 ‘Financial instruments — Maturity analysis contractual undiscountedcash flows’ in the financial statements for the tabular disclosure ofcontractual obligations.

 

131

 

**Operating andfinancial review and prospects continued**

 

**Off-balance sheet arrangements**

 

Asof December 31, 2009, we have no unconsolidated special purpose financingor partnership entities or other off-balance sheet arrangements that have orare reasonably likely to have a current or future effect on our financialcondition or lead to changes in financial condition, revenues or expenses,results of operations, liquidity, capital expenditures or capital resources,that is material to investors.

 

TheGroup has investments in one associate and in one joint venture that are bothnon-consolidated companies. Details are provided in note 5.9 ‘Investments inassociate and joint venture’ in the financial statements.

 

Furtherdetails on our off-balance sheet arrangements such as our guarantees andcovenants are disclosed in note 3 ‘Financial risk management’ and note 5.26‘guarantees’ in our financial statements.

 

**Quantitative and qualitative disclosure about market risk**

 

Marketrisk is the risk of loss related to adverse changes in market prices, includingcurrency risk, interest rate risk and risk of financial instruments. During theordinary course of business, the Group is exposed to various financial marketrisks, primarily from foreign exchange, interest rates and credit risk. Detailson our market risks are disclosed in note 3 ‘Financial risk management’ in thefinancial statements.

 

**Impact of inflation**

Crucelldoes not operate subsidiaries in countries with hyperinflation. Sales tocustomers in hyperinflationary countries are made in hard currency, mainlyEuro, US Dollar, Swiss Franc and Swedish Crown.

 

132

 

**Operating and financial reviewand prospects**

 

**Corporategovernance**

 

**Corporate governance at Crucell**

 

Corporategovernance concerns the relationship between management and the shareholders,and more generally the stakeholders, of the Company. It is the formalcodification 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 votes can be exercised, play animportant role.

 

Asa Dutch corporation, Crucell is subject to the Dutch Corporate Governance Code(the ‘Code’). As a foreign private issuer whose ADSs trade on NASDAQ GlobalSelect Market (NASDAQ), we are also subject to US securities laws (includingthe provisions of the Sarbanes-Oxley Act of 2002) and the NASDAQ rules.

 

Asa foreign private issuer Crucell may follow its home country practice in lieuof the requirements of certain rules of NASDAQ. Our Annual Reportdiscloses those requirements that are not followed and describes the homecountry practice that is followed instead, see ‘Exemptions from certain NASDAQCorporate Governance Rules’ in this section.

 

Alsounder the rules of the SWX Swiss Exchange, where Crucell has a secondarylisting, it is allowed to apply the Dutch Corporate Governance Code.

 

**Corporate governance developments**

 

Wemonitor and assess applicable corporate governance rules, includingrecommendations and initiatives regarding principles of corporate governance.These include those that have been developed in the US, both by NASDAQ and bythe SEC pursuant to the Sarbanes-Oxley Act of 2002, as well as in theNetherlands, through the revised Dutch Corporate Governance Code, which cameinto effect as of the financial year starting on or after January 1, 2009.

 

**Dutch Corporate Governance Code**

 

TheCode has 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 one or more of the principles and best practice provisions,it must explain its motivation in the annual report. According to the Code,substantial amendments to the Company’s existing corporate governance structureand compliance with the Code should be submitted for discussion to the GeneralMeeting of Shareholders.

 

OnDecember 10, 2008, the Dutch Corporate Governance Code MonitoringCommittee (the Monitoring Committee) published the revised Code. This Codeamends the original Code and brings it in line with recent corporate governancedevelopments. The revised Code entered into force with effect from thefinancial year starting on or after January 1, 2009 and can be found atwww.corpgov.nl. The Monitoring Committee recommends that listed companiesinclude a chapter in their annual report 2009 on the broad outline of theircorporate governance structure and compliance with the revised Code and presentthis chapter to the general meeting in 2010 for discussion in a separate agendaitem.

 

Importantprinciples of the Code are:

 

·                  Strengthening the role of the Supervisory Board and itscommittees and increasing its independence, quality and expertise;

·                  Strengthening the role of the shareholders with respect tocontrol of the functioning of the Management Board and the Supervisory Board,as well as with respect to nomination and remuneration of members of theManagement Board and the Supervisory Board;

·                  Facilitating and stimulating shareholders to use theirvoting power and to actively participate in the General Meeting of Shareholders;

 

133

 

**Corporategovernance continued**

 

·                  Defining the role ofthe external auditor vis-à-vis the Supervisory Board as its principal contact;and

·                  Maintaining anappropriate internal risk and control system.

 

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

 

·                  By-laws of theManagement Board;

·                  Remuneration policyManagement Board;

·                  By-laws of theSupervisory Board; and

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

 

Wehave adopted a code of business conduct and ethics (Code of Conduct) thatapplies to all employees of the Company, including our principal executiveofficer and principal financial officer, and reflects that we are a fullyintegrated company that operates in numerous countries. The Code of Conductunderlines that one of the most valuable assets of Crucell is its integrity. Nowaivers of the Code of Conduct were granted during 2009.

 

Wehave a whistle blower policy in place, which encourages employees to reportabuses and non-compliance with our Code of Conduct, anonymously if necessary.

 

**Compliance with the Code**

InJune 2005, the General Meeting of Shareholders approved our currentcorporate governance structure. Except for the four provisions of the Codereferenced below Crucell has fully implemented the recommendations set forth inthe Code and incorporated them into its corporate governance policies.

 

**Exceptions to compliance with the Code**

TheCode contains a ‘comply-or-explain’ principle, offering the possibility todeviate from the Code as long as any such deviations are explained. Crucellcomplies with all of the principles and best practice provisions of the Code,except for the following:

 

**Remuneration of Management Board members**

 

Underthe Code, the maximum severance pay for a Management Board member should be nomore than one year’s salary, unless this is manifestly unreasonable. We do notapply this principle in the event of a dismissal arising from an unwantedchange of control for Management Board members. The employment contracts ofthose members of the Management Board that were already in place as at 1January 2004 (the date on which the Code took effect) remain unchanged. Inother cases, agreed severance payments can be higher than one year’s salary ifotherwise this would obstruct the recruitment of the right person for aManagement Board position.

 

**Loans to the Company’s management**

 

Wedo not apply the provision in the Code that no personal loans shall be grantedto a company’s Management Board member because, prior to the Code’s developmentand passage of similar legislation in the US, loans were made to ManagementBoard members and one such loan currently remains outstanding. Reference ismade to the Remuneration report in this section. We have not granted additionalloans to Management Board members since 2002.

 

**Claw Back of Variable Remuneration**

 

Wedo not apply the provision in the Code that the Supervisory Board may recoverfrom the Management Board members any variable remuneration awarded on thebasis of incorrect financial or other data (claw back clause). In 2010, thesupervisory board of Crucell will investigate the possibility to implement sucha claw back clause.

 

**Remuneration of Supervisory Board members**

 

Wedo not apply the provision that remuneration of the members of the SupervisoryBoard should not include share grants. Crucell deems this form of remunerationadequate because this is customary among biotechnology companies operatinginternationally, and it helps attract well-qualified 

 

134

 

**Corporate governance**

 

supervisorydirectors with specific expertise in biotechnology and international businessfields.

 

**Exemptions from certain NASDAQ corporate governance rules**

 

NASDAQrules provide that NASDAQ may provide exemptions from the NASDAQ corporategovernance standards to a foreign issuer when those standards are contrary to alaw, rule or regulation of any public authority exercising jurisdictionover such issuer or contrary to generally accepted business practices in theissuer’s country of domicile. We are exempt 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 fromNASDAQ’s quorum requirements applicable to meetings of shareholders. In keepingwith Dutch law and generally accepted business practice, our articles ofassociation provide that there are no quorum requirements for the GeneralMeeting of Shareholders.

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

·                  NASDAQ requiresshareholder approval prior to the issuance of securities when a stock option orpurchase plan is to be established or materially amended or other equitycompensation arrangement made or materially amended, pursuant to which stockmay be acquired by officers, directors, employees, or consultants. Under DutchCompany law and the Code shareholder approval is only required for equitycompensation plans (or changes thereto) for members of the Management Board andSupervisory Board, and not for equity compensation plans for other groups ofemployees. Our articles of association provide that a resolution of the GeneralMeeting of Shareholders to amend our articles of association, to dissolve theCompany, or to merge or demerge the Company shall only be adopted on a proposalof the Supervisory Board.

·                  We do not distributeAnnual Reports to all of our shareholders in accordance with NASDAQ rules. Asour shares are bearer shares, according to Dutch law we are not required todistribute copies of annual and interim reports to all shareholders. Copies ofsuch reports are available to shareholders at our corporate headquarters, andare filed with NASDAQ and the Bank of New York Mellon as depositary under ourdepositary agreement relating to our ADSs. Upon request the Bank of New YorkMellon distributes our Annual Reports to holders of our ADSs.

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

·                  Dutch law requiresthat the external auditors be appointed at the General Meeting of Shareholdersand not by the Audit Committee.

 

**Directors, senior management and board practices**

 

Crucellhas a ‘two-tier’ governance structure, in which executive and supervisoryresponsibilities are clearly segregated. Our Management Board is responsiblefor managing the Company’s daily affairs and business and, as such, isresponsible for achieving Crucell’s goals, strategy, policy, and results.

 

135

 

**Corporategovernance continued**

 

**Supervisory Board**

 

TheSupervisory Board, which consists solely of independent directors, supervisesthe Management Board. In the execution of their duties, the members of theSupervisory Board must be guided by the best interests 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.

 

Theprincipal duty of the Supervisory Board is to supervise the policies of theManagement Board and to provide advice. The Supervisory Board oversees thecorporate strategy, the risks inherent in the Company’s activities and supervisesthe structure and operation of the internal risk management and controlsystems, the financial reporting process and the Company’s compliance withrelevant legislation and regulations.

 

OurSupervisory Board must approve certain categories of resolutions of ourManagement Board, which categories are specified in our articles ofassociation. In addition, our Supervisory Board may give our Management Boardwritten notice of other corporate actions that it wishes to approve. Thedivision of duties and the procedures within the Supervisory Board are setforth in the by-laws of the Supervisory Board and can be found on Crucell’swebsite (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.

 

Themembers of our Supervisory Board are appointed for terms ending on the date ofthe first General Meeting of Shareholders that is held four years after thedate of their appointment. They may be reappointed for two additionalconsecutive terms of four years each. Our Supervisory Board nominates its ownmembers and aims for an international and adequate composition reflecting theglobal activities of Crucell, as well as for an adequate level of experience infinancial, economic, medical, scientific, technological, social and legalaspects of international business. To be binding, there must be at least twonominees for each vacancy on the Supervisory Board. The nominee earning thehighest number of votes of Supervisory Board members becomes a bindingnomination. The General Meeting of Shareholders can override these bindingnominations by a vote of an absolute majority of the votes cast. This vote mustrepresent more than one third of our total issued and outstanding sharecapital. If the Supervisory Board does not make any nominations within threemonths after a vacancy has occurred, our General Meeting of Shareholders canfill Supervisory Board vacancies. If the Supervisory Board makes a non-bindingnomination (i.e., only one nominee is presented to the Supervisory Board forany particular vacancy), then such nomination can only be overturned by aresolution of the General Meeting of Shareholders taken by an absolute majorityof the votes cast, representing at least one third of the Company’s totalissued and outstanding share capital. The Supervisory Board members retireaccording to a rotation plan established by the Supervisory Board itself.

 

ASupervisory Board member can be suspended or dismissed at any time by a resolutionof a General Meeting of Shareholders passed by an absolute majority of thevotes cast. This vote must represent more than one third of our total issuedand outstanding share capital if the resolution to suspend or dismiss aSupervisory Board member is not proposed by the Supervisory Board itself.Within three months after a suspension, a General Meeting of Shareholders musteither dismiss the Supervisory Board member, terminate or extend thesuspension. The total suspension may not exceed three months.

 

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**Corporate governance**

 

Our Supervisory Board appoints itsown chairman and vice-chairman. The chairman of the Supervisory Board isprimarily responsible for the functioning of the Supervisory Board and itscommittees. He acts as the spokesman of the Supervisory Board and is the maincontact for the CEO and the Management Board as a whole. The CEO and thechairman of the Supervisory Board meet on a regular basis. As a general rule,the chairman of the Supervisory Board presides over General Meetings of Shareholders.The vice-chairman replaces, and assumes the powers and duties of, the chairmanin the latter’s absence.

 

The Supervisory Board must adopt rules forits own internal governance, including the creation of committees. TheSupervisory Board must, in any event, establish an Audit Committee, aRemuneration Committee and a Nomination Committee. Passing Supervisory Boarddecisions requires a majority of the votes cast at a meeting of our SupervisoryBoard, unless otherwise provided for in the articles of association or theby-laws of the Supervisory Board. The Company Secretary assists the SupervisoryBoard.

 

The General Meeting of Shareholdersdetermines the Supervisory Board members’ compensation. We pay our SupervisoryBoard members in ordinary shares and cash, or cash only, at the member’sdiscretion. We also reimburse Supervisory Board members for their expensesincurred in work relating to Crucell. The remuneration policy is intended to beable to attract and retain qualified and expert Supervisory Board members. Itis in line with what is customary in the US biotechnology industry and is inline, as much as possible, with the best practice provisions of the Code.

 

According to the best practiceprovisions of the Code, an individual may hold a maximum of five SupervisoryBoard memberships in Dutch listed companies, with the chairmanship of aSupervisory Board counting as two memberships. All members of our SupervisoryBoard comply with this provision.

 

All members of the SupervisoryBoard comply with the criteria for independence as set out in the NASDAQ rules,the Code and the requirements of applicable EU and Swiss rules.

 

The business address of eachSupervisory Board member is the address of our principal executive office inLeiden, the Netherlands.

 

**2009Supervisory Board activities**

The Supervisory Board held thirteenmeetings with the Management Board in 2009, of which eight were in the form ofconference calls. The meetings were arranged in such a way that, on severaloccasions, the Supervisory Board could meet immediately after the departure ofthe Management Board; so called closed sessions. There were also a number ofmore informal contacts between Supervisory Board Members and the ManagementBoard.

 

The Supervisory Board was closelyinvolved in all developments affecting the Company in terms of strategy,tactics and operations in the financial year 2009. The Board’s meeting schedulenot only reflects its commitment to the Company’s affairs, but also to thedynamic way in which the Company is rapidly consolidating its position in thebiotech industry. Thanks to the well-documented information provided by, andto, the frequent discussions with the Management Board, the Supervisory Boardwas able to acquire a comprehensive perspective on all aspects of the Company’sstrategy. Where Supervisory Board approval of proposals was required, it wasable to arrive at decisions based on solid facts and coherent arguments.

 

All Supervisory Board meetings andconference calls were well attended. Regular items on the agenda included theCompany’s financial performance, based on quarterly reports, its budget and itsbusiness, including the research & development portfolio, intellectualproperty matters and operational updates. Importantly the Board also discussedthe Company’s strategy and its near-; mid- and long-term risks, the current andfuture strategic objectives, planned acquisitions, the JNJ strategiccollaboration, sanofi pasteur and DSM collaborations and the reports from theAudit Committee, the Remuneration Committee, Research & DevelopmentCommittee and Nomination 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.

 

The Supervisory Board alsodiscussed its own performance, reviewing its function and its individualmembers; and the performance of the Management Board and its individualmembers. The design of the strategic collaboration between Crucell and JNJ wasdiscussed frequently and in detail with the Management Board and its financialadvisors. In particular, the legal and financial consequences of such

 

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strategic collaboration werereviewed with Crucell’s in-house and outside legal advisors.

 

**CompositionSupervisory Board**

As of December 31, 2009 theSupervisory Board of Crucell consisted of:

 
| Name              |   | Age |   | Position      |   | End of  current  term |   |
|-------------------|--------|-----|--------|---------------|--------|-----------------------|--------|
| Jan Oosterveld    |   | 65  |   | Chairman      |   | 2010                  |   |
| Phillip Satow     |   | 68  |   | Member        |   | 2013                  |   |
| Claes Wilhelmsson |   | 70  |   | Member        |   | 2011                  |   |
| Seán Lance   |   | 62  |   | Vice-Chairman |   | 2011                  |   |
| Arnold Hoevenaars |   | 60  |   | Member        |   | 2013                  |   |
| Steve Davis       |   | 52  |   | Member        |   | 2012                  |   |
| Floris Waller1    |   | 51  |   | Member        |   | 2013                  |   |

 

1 Mr. Wallerwas appointed as member of the Supervisory Board at the Company’s GeneralMeeting of Shareholders on June 5, 2009.

 

**Mr. Jan Oosterveld** has served as chairman of our Supervisory Board since June 2006and as a member of the Supervisory Board since his appointment at the GeneralMeeting of Shareholders on June 3, 2004. In 2004 he retired as a member ofthe Group Management Committee from Royal Philips Electronics N.V. after aninternational career of 32 years. At his retirement he was in charge ofCorporate Strategy, Alliances, Restructuring and Redesign and the regionalorganizations; he was also the CEO of Philips Asia Pacific. In addition, he wasthe Chairman of the board of LG. Philips, a 50-50 joint venture between LGE andPhilips, at the time the world’s largest LCD company. He holds a masters degreein mechanical engineering from the Technical University Eindhoven and an MBAfrom the Instituto de Estudios Superiores de la Empresa (IESE) in Barcelona. Hebecame a professor at IESE in 2004. Mr. Oosterveld is a member of theBoard of Barco, Belgium; Cookson Group, U.K.; and Candover Investments, U.K. Heis also a member of the Supervisory Board of the University of Groningen andthe Chancellor of the International Academy of Management. Mr. Oosterveldis a Dutch citizen.

 

**Mr. Phillip Satow** has served as a member of our Supervisory Board since ourincorporation. He worked 14 years with Pfizer, Inc. where his lastposition was Vice President, Pfizer Europe. From 1985 to 1997, he was ExecutiveVice President Marketing at Forest Laboratories, Inc. From 1998 to 1999 hewas President of Forest Pharmaceuticals, and Executive Vice President of ForestLaboratories Inc. In addition to the Forest Laboratories board, which he servedon from 1999 to 2005, Mr. Satow is a former board member of EyetechPharmaceuticals Inc. and Noven Pharmaceuticals Inc. Mr Satow also co foundedand served as Chairman and CEO of JDS Pharmaceuticals LLC, a privately heldcompany that was sold to Noven Pharmaceuticals Inc. in 2007. Mr Satow is a UScitizen.

 

**Mr. Claes Wilhelmsson**has served as a member of our Supervisory Board since May 2003.He was previously the Executive Director of Research and Development ofAstraZeneca plc from 1999 to July 2002, responsible for AstraZeneca’sglobal R&D. He joined Astra in 1985 and held various positions until thecompany merged with Zeneca in 1999. Prior to working for Astra, he was alecturer and researcher at the University of Göteborg in Sweden, where he alsocompleted his medical education and PhD. He currently serves on the boards of anumber of biotechnology and start-up companies. Dr. Wilhelmsson previouslyserved on the board of AstraZeneca plc. Mr. Wilhelmsson is a Swedishcitizen.

 

**Mr. Seán Lance** has served as a member of our Supervisory Board since January 2004.Mr. Lance is a former Chairman of Chiron Corporation. He joined Chiron asPresident and Chief Executive Officer in 1998. From 1985 to 1998 he wasemployed at Glaxo Holdings where his last position was group Chief OperatingOfficer and CEO designate. He is a former President of the InternationalFederation of Pharmaceutical Manufacturers Association. Mr. Lance is achartered company secretary and administrator and also holds a post-graduatedegree in Advanced Financial Management. Mr. Lance is a South Africancitizen.

 

 

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**Corporate governance**

 

**Mr. Arnold Hoevenaars** has served as a member of our Supervisory Board since June 2005.Mr. Hoevenaars is a chartered accountant in the Netherlands and hisprevious positions include, among others, Chairman of the Management Board ofthe Achmea Group; Chairman of the Board of Directors and Chairman/CEO of theExecutive Board of Eureko B.V.; and Member of the Management Board and CFO ofRoyal Boskalis Westminster N.V. Currently Mr. Hoevenaars serves on severalSupervisory Boards of companies and cultural, educational and social welfareinstitutions. He also is a consultant to several companies. Mr. Hoevenaarsis a Dutch citizen.

 

**Mr. Steve Davis** has served as a member of our Supervisory Board since June 2008.Mr. Davis is a Senior Advisor to McKinsey & Company’s SocialSector Office based in Seattle, Washington, US. He is also a Senior Fellow inIntellectual Property at the University of Washington School of Law. Herecently served as the interim CEO of the Infectious Disease Research Institute(IDRI). Previously, Mr. Davis was CEO of Corbis Corporation, a globaldigital media company. He has held positions with the United Nations HighCommission for Refugees and several refugee resettlement programs. Currently,he is a member of the Board of Trustees for PATH, a non-profit organizationfocused on improving public health in the developing world, and the FredHutchinson Cancer Research Center, one of the world’s leading cancer centers,where he is Vice-Chair. He also holds board positions with The SeattleFoundation and Global Partnerships, and is a member of the Council on ForeignRelations. Mr. Davis holds a Bachelor of Arts from Princeton University, aMaster of Arts from the University of Washington and a Doctorate in Law fromColumbia University School of Law. Mr. Davis is a US citizen.

 

**Mr. Floris Waller** was appointed as a member of our Supervisory Board at theannual general meeting of shareholders on June 5, 2009. He was CFO andboard member at Corporate Express N.V. (previously Buhrmann) from 1999 until2008. Mr. Waller was a member of the Supervisory Board and Audit Committeeof Univar N.V. from 2005 until 2007. From 1984 until 1999, Mr. Waller heldvarious senior finance and operational positions at Unilever N.V./Plc.Currently he is CFO and board member of Pon Holdings B.V. and is a member ofthe Supervisory Board of Klaverblad, a local insurance company in the Netherlands.Mr. Waller holds a Master of Science degree in Business Economics fromErasmus Universiteit of Rotterdam and is a chartered accountant. Mr. Walleris a Dutch citizen.

 

**Committees**

 

The Supervisory Board appoints fromits members an Audit Committee, a Remuneration Committee, a NominationCommittee and a Scientific Advisory Committee. The function of these committeesis to advise and assist the Supervisory Board to make decisions.

 

**AuditCommittee**

Arnold Hoevenaars (chairman), SeánLance and Floris Waller.

 

In 2009, the Audit Committee metnine times, of which four were conference calls. The Audit Committee currentlyconsists of three Supervisory Board members who are independent within themeaning of the NASDAQ listing rules and the Code. The Audit Committee isresponsible for, among other things, reviewing our annual and interim reportsand accounts, for securing and monitoring our external auditors’ involvement inthat process, and supervising the internal control system and internal auditfunction. The Audit Committee is the first point of contact of the externalauditor when irregularities are found in the contents of the financial reports.Ultimate responsibility for reviewing our Annual-Report and interim financialreporting lies with our Supervisory Board. At the request of the AuditCommittee, the chairman of the Supervisory Board may be invited to attend itsmeetings.

 

Our Audit Committee is incompliance with all of the relevant rules and regulations of theNetherlands. We believe that the members of our Audit Committee have sufficientfinancial and other experience to perform their responsibilities on theCommittee. Mr. A. Hoevenaars is a ‘financial expert’ as defined in the rules promulgatedunder the Sarbanes-Oxley Act of 2002.

 

**RemunerationCommittee**

Phillip Satow (chairman), ClaesWilhelmsson and Jan Oosterveld. Mr. Satow meets the requirements asoutlined in best practice provision III. 5.1.1 of The Dutch CorporateGovernance Code.

 

In 2009, the remuneration Committeemet four times.

 

The Remuneration Committee adviseson policies and reviews and determines objectives relevant to the compensationof the members of the Management Board and members of the Management Committee.The Remuneration Committee evaluates the performance of

 

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**Corporate governance continued**

 

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

 

Crucell maintains stock optionplans whereby the Remuneration Committee may grant options to employees andmembers of the Management Board and Supervisory Board as well as non-employeesin exchange for consulting services, subject to approval by the shareholders.

 

In addition, the RemunerationCommittee reviews the general compensation and benefit policies for all of ouremployees.

 

The Supervisory Board of Crucellhas been assisted by an independent external remuneration consultant. TheRemuneration Committee ensures that the consultant reporting to the SupervisoryBoard acts independently from the Company and does not provide advice to membersof the Management Board or Management Committee.

 

**NominationCommittee**

The Nomination Committee consistsof all of the Supervisory Board members and as such met four times in 2009.This committee (a) draws up selection criteria and appointment proceduresfor members of the Supervisory Board and the Management Board, (b) periodicallyassesses the size and composition of the Supervisory Board and the ManagementBoard and makes proposals of nominees to 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.

 

**ScientificAdvisory Committee**

Claes Wilhelmsson (chairman), SteveDavis

 

This committee is responsible for,among other things, reviewing progress in our research and developmentactivities. The committee held two meetings with R&D management to discussissues around protein production and various infectious diseases. They alsocovered R&D budgets and organizational matters. The committee reports tothe Supervisory Board on a regular basis.

 

**ManagementBoard**

Our Management Board manages ourgeneral affairs and business, under the supervision of our Supervisory Board.Under our articles of association, the Management Board requires prior approvalof the Supervisory Board to:

 

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

·             Participate, sell an interest, change its participation, or otherwisetake an interest in, or assume the management of, another business enterprise;

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

·             Acquire fixed assets exceeding price limits set by the SupervisoryBoard; and

·             Enter into financial commitments, other then in the ordinary course ofbusiness and/ or exceeding price limits set by the Supervisory Board or forlonger than a year.

 

Under Dutch law, in certaincircumstances, Management Board actions may require the approval of the GeneralMeeting of Shareholders.

 

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**Corporate governance**

 

Our Supervisory Board determinesthe size of our Management Board after consultation with our Chief ExecutiveOfficer. The General Meeting of Shareholders appoints the members of ourManagement Board from a list of candidates nominated by our Supervisory Board.If the list of members contains the names of at least two persons it shall bebinding. However, the general meeting of shareholders may at any time, byresolution passed with an absolute majority of the votes cast representing morethan one third of the Company’s issued capital, resolve that such list shallnot be binding. If our Supervisory Board does not nominate anyone for aspecific position within three months after a vacancy occurs, our GeneralMeeting of Shareholders can appoint a member at its own discretion. If theSupervisory Board makes a non-binding nomination (i.e., only one nominee ispresented to the Supervisory Board for any particular vacancy), then suchnomination can only be overturned by a resolution of the General Meeting of Shareholderstaken by an absolute majority of the votes cast, representing at least onethird of the Company’s total issued and outstanding share capital. A member ofthe Management Board may be appointed or reappointed for a term of not morethan four years at a time.

 

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

 

Each member of the Management Boardmay be suspended or removed by the General Meeting of Shareholders at any time.A resolution to suspend, remove or revoke the suspension of a member of theManagement Board other than at the proposal of the Supervisory Board may onlybe passed by the General Meeting of Shareholders with an absolute majority ofthe votes cast representing at least one third of the Company’s total issuedand outstanding share capital.

 

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. Any suspension may be extended one or moretimes, but may not last longer than three months in the aggregate. If at theend of that period no decision has been taken on termination of the suspension,or on removal, the suspension shall cease.

 

Our Supervisory Board determinesthe compensation and benefits of the members of our Management Board, based ona proposal by the Remuneration Committee, within the scope of the remunerationpolicy adopted by the General Meeting of Shareholders. The business address ofthe members of our Management Board is the same as the address of our principalexecutive office in Leiden, the Netherlands.

 

Pursuant to the Code, members ofthe Management Board are allowed to hold a maximum of two Supervisory Boardpositions in other listed companies.

 

The name, date of appointment andposition of the members of our Management Board are:

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

 

**ManagementCommittee**

For its day-to-day operationsCrucell has established a Management Committee that is responsible for thedesign, implementation and management of long and short-term strategy under theultimate responsibility of the Management Board. The Management Boarddetermines the number of members of the Management Committee. Members of theManagement Committee are appointed and dismissed by the Management Board, withthe approval of our Supervisory Board. The Management Committee generally meetsonce a month, and works closely with other members of our management. OurManagement Board may establish rules governing its relationship with ourManagement Committee. Our Supervisory Board must approve the adoption of andany changes to these rules.

 

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**Corporate governance continued**

 

The following table sets forth thename, age and position of each of the members of our Management Committee:

 
| Name/position                                                                   |   | Age    |   |
|---------------------------------------------------------------------------------|--------|--------|--------|
| Ronald Brus                                                                     |   |   |   |
| Chairman of Management  Committee,President and Chief Executive  Officer        |   | 46     |   |
| Leonard Kruimer                                                                 |   |   |   |
| Chief Financial Officer                                                         |   | 51     |   |
| Cees de Jong                                                                    |   |   |   |
| Chief Operating Officer                                                         |   | 48     |   |
| Jaap Goudsmit                                                                   |   |   |   |
| Chief Scientific Officer                                                        |   | 58     |   |
| René Beukema                                                               |   |   |   |
| General Counsel and  Corporate Secretary                                        |   | 45     |   |
| Arthur Lahr                                                                     |   |   |   |
| Chief Strategy  Officer & Executive VicePresident Business Development |   | 41     |   |

 

The following paragraphs containbrief biographies of the members of our Management Board and the members of ourManagement Committee:

 

**Mr. Ronald Brus** is chairman of the Management Board and President and ChiefExecutive Officer since January 2004, and has been a member of ourManagement Committee since incorporation. He was Executive Vice President,Business Development at IntroGene from 1997 to 2000 and Chief Operating Officerat Crucell from March 2003 until his appointment as President and ChiefExecutive Officer. From 1994 to 1996, he was product-planning physician atForest Laboratories (New York) and from 1990 to 1994 he was medical directorfor Zambon B.V. He holds a medical degree (MD) from the University ofGroningen. Mr. Brus is a Dutch citizen.

 

**Mr. Leonard Kruimer**became a member of the Management Board in January 2005.He has been our Chief Financial Officer and a member of our ManagementCommittee since incorporation. He held the same position at IntroGene from 1998to 2000. From 1996 to 1998 he was an independent consultant with companies suchas Pepsico and Royal Boskalis Westminster N.V. From 1988 to 1995, he heldsenior executive positions at Continental Can Europe, GE Capital/TIP Europe andKwik-Fit Europe B.V. He was a consultant at McKinsey & Co. and hasworked with Price Waterhouse & Co. He holds a Masters in BusinessAdministration from the Harvard Business School, a degree from the Universityof Massachusetts, Amherst, and is a CPA in New York State. Mr. Kruimer isa Dutch citizen.

 

**Mr. Cees de Jong** joined Crucell as Chief Operating Officer in 2007. Prior tojoining Crucell Mr. de Jong was with Quest International in Naarden, theNetherlands as a member of the Board and responsible for the Flavours Division.Mr. de Jong has also worked as Managing Director of DSM Anti-infectives.In 1989 Mr. de Jong started his career at Gist Brocades, holding a varietyof roles in business development, strategy and general management before thecompany’s acquisition by DSM in 1998. Mr. de Jong is Chairman of theSupervisory Board of GreenChem Holding International B.V. Mr. de Jongholds a Medical Degree from the Erasmus University of Rotterdam and an MBA fromthe RSM Erasmus University. Mr. de Jong is a Dutch citizen.

 

**Mr. Jaap Goudsmit** is a member of the Management Board since January 2004.He was Senior Vice President Vaccine Research from September 2001 until July 2002and member of the Management Committee from July 2002 as Executive VicePresident Vaccine R&D. In September 2002 he was appointed ChiefScientific Officer. He chaired the Academic Medical Center of the University ofAmsterdam, the Research Institute for Infectious Diseases and the Institute forScience Education. He was the founding Chairman of the Scientific AdvisoryCommittee of the International AIDS Vaccine Initiative (IAVI) and the foundingco-Chairman of the European Vaccine Effort against HIV/AIDS (EuroVac). Since1989, he has been a professor at the University of Amsterdam and the AcademicMedical Center. He holds a medical degree (MD) and a PhD from the University ofAmsterdam. Mr. Goudsmit is a Dutch citizen.

 

**Mr. René Beukema** has been our General Counsel and Company Secretary sinceour incorporation. He held the same position at IntroGene from 1999 to 2000.From 1994 to 1999 Mr. Beukema was senior legal counsel for GE Capital/TIPEurope. From 1991 to 1994, he was legal counsel for TNT

 

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**Corporate governance**

 

Express Worldwide N.V. He has aMasters in Law from the University of Amsterdam. Mr. Beukema is a Dutchcitizen.

 

**Mr. Arthur Lahr** is Crucell’s Chief Strategy Officer and Executive VicePresident Business Development. He joined Crucell in April 2001 asExecutive Director Business Development, was appointed Vice President BusinessDevelopment in December 2003, a member of the Management Committee in January 2004;Executive Vice President in January 2006; and assumed responsibility forEuropean marketing and sales and company strategy in 2006. From 1994 to 2001,he was a consultant with McKinsey & Co. Prior to that, he worked withUnilever. He holds a Masters in Business Administration from INSEAD and aMasters in Science, Applied Physics, from the University of Delft.

 

**DisclosureCommittee**

The Disclosure Committee isdesigned to help senior management, particularly the Chief Executive Officerand Chief Financial Officer, in the maintenance and evaluation of ourdisclosure controls and procedures. The Disclosure Committee gathers allrelevant financial and non-financial information and assesses materiality,timeliness and necessity of disclosure of such information. The DisclosureCommittee is comprised of the members of the Management Committee and selectedsenior managers. Members of the Disclosure Committee have direct access to ourexternal legal counsel and our external auditor. The Disclosure Committeereports to the Chief Executive 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 takento further improve disclosure and internal control are intended to help uscomply with the requirements of the Sarbanes-Oxley Act of 2002 and regulationspromulgated by the Securities and Exchange Commission under that Act.

 

**Remunerationreport for Management Board and Supervisory Board**

 

The Remuneration report forManagement Board and Supervisory Board contains required disclosures on keymanagement personnel compensation, as meant in IAS 24. These disclosures aredeemed to be part of the financial statements, specifically note 5.30 ‘Relatedparties – Remuneration report for Management Board and Supervisory Board’.

 

**Remunerationstructure**

The remuneration policy for theManagement Board and Supervisory Board was first adopted by the General Meetingof Shareholders in 2005. An amended version of this remuneration policy wasadopted by the General Meeting of Shareholders in 2008. The remuneration policyis based on the following principles:

 

·             Overall remuneration levels need to be sufficient to attract, retain andmotivate top management given the dynamic business environment in which Crucellcompetes for talent;

 

·             Base salaries should be broadly in line with average market levels,whereas short- and long-term incentive levels should reflect an upsidepotential in case of outstanding performance;

 

·             To enhance the effectiveness of the short-term incentive, clearlymeasurable and challenging targets are set, which reflect Crucell’s strategicfocus in the short-term; and

 

·             The long-term incentive plan should ensure a focus on longer-termstrategic performance targets, which aim for shareholder alignment andmotivation and retention of qualified executives.

 

The Management Board membersreceive fixed remuneration in the form of a base salary as well asperformance-based compensation in the form of a short-term incentive (STI) planand a long-term incentive (LTI) plan. Variable pay makes up a substantial partof the pay package, with a large part of variable pay being conditional onmeeting targets that are derived from Crucell’s long-term strategic agenda.

 

The structure of the short-term andlong-term variable pay elements has been set up in such a way that itcontributes to keeping Crucell with its risk profile. This is assured byamongst others:

 

·             Conducting scenario analyses before drawing up the remuneration policyand determining the remuneration of individual Management Board members: theSupervisory Board analyzes the possible outcomes of the variable remunerationcomponents and how they may affect the remuneration of the Management Boardmembers;

·             Operating a discretionary authority for the Supervisory Board – theshort-term incentive can be adjusted upwards or downwards by 25 percent.

 

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**Corporate governance continued**

 

The STI and LTI plans are describedin further detail below. The incentive for achieving target performance for theChief Executive Officer equals 115% of base salary (65% in short-term incentiveand 50% in long-term incentive). For other Management Board members theincentive is 90% of base salary (50% in short-term incentive and 40% inlong-term incentive). For the Chief Executive Officer, this breaks down to46.5% of salary in fixed compensation and 53.5% of salary in performance-basedcompensation. For the other three Management Board members, the breakdown is52.6% fixed compensation compared to 47.4% performance-based compensation.

 

**ManagementBoard service contracts**

The contracts for the ManagementBoard members have been entered into for an indefinite period and provide for anotice period of up to six months upon termination by the Company and a noticeperiod of three months upon termination by the individual. Nominations for aseat on the Management Board are for a period of four years.

 

A dismissal arising from anunwanted change of control will result in a severance arrangement limited to amaximum of two years’ worth of base salaries for the Management Board members.

 

The contracts of the ManagementBoard members contain non-compete provisions that would apply for a period ofone year after the end of their employment with us.

 

**Base salary**

The Supervisory Board regularlyconsiders whether base salary levels should be adjusted according to externaland internal business factors. In order to ensure that the pay package that isoffered to the Management Board of Crucell is competitive, the SupervisoryBoard has assessed pay levels against a reference market consisting ofcompanies that are comparable in size an complexity (during an assessment thatwas conducted in 2009, the Supervisory Board has taken account of AMX listedcompanies).

 

In 2009, base salary levels for theManagement Board were increased by an average of four percent in order to keepup with inflation.

 

**Short-termincentive**

At the General Meeting ofShareholders in 2008, our shareholders approved the implementation of anamended short-term cash-based incentive plan (STI). In the approved policy,payment of the bonus begins upon 70% achievement of certain milestones. Inorder to compensate higher achievement of certain milestones, the payment limitwas increased from 100% to 130%.

 

The STI bonus is linked to theachievement of predetermined collective and individual milestones. Milestoneslinked to the STI bonus plan are revised annually and approved by ourSupervisory Board.

 

The collective milestones are basedon predetermined annual goals for research, development, business development,finance, intellectual property and corporate legal affairs. Examples of thecollective performance measures that have been used during 2009 are amongstothers: revenues and profitability. We do not disclose specific targets thathave been set as these qualify as commercially sensitive information.

 

The individual milestones depend onthe specific responsibilities of the individual Management Board member and arein most cases derived from the company milestones. Examples of individualperformance measures for 2009 were revenues and development milestones.

 

The table below shows the relativeweight of the collective and individual milestones in the STI bonus planstructure:

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

 

144

 

**Corporate governance**

 

The Supervisory Board monitorsperformance every quarter and measures performance based on both a quantitative(formulaic) approach and qualitative approach (discretionary judgement / testof reasonableness). The type of performance measuring that takes place dependson the specific performance measure. The internal and external auditors areinvolved to make sure that the agreed-upon procedures for performance measuringand determination of pay out are being followed.

 

**One-off awards**

The Supervisory Board has decidedto allocate members of the Management Board and certain other employees aone-off special cash award in recognition of the successful negotiation andclosing of the agreement with affiliates of Johnson and Johnson, especially inlight to transformational nature of the agreement and the substantial savingsof associated transaction costs. In total a cash bonus of € 1,206 was paid tomembers of the Management Board. The cash bonus was allocated as follows: theCEO received € 384 and the other Management Board members each € 274.

 

**Long-termincentive**

Target LTI compensation levelsamount to 50% of base salary for the Chief Executive Officer and 40% for theother Management Board members. The LTI compensation can be increased up to200% of the target award when achieving maximum performance.

 

Under the terms of the LTI plan,options are conditionally granted and vest at the end of a three-yearperformance period. The number of LTI options that vests depends on thefulfillment of the LTI performance condition. As a performance condition thetotal shareholders return (TSR) is compared to the NASDAQ Biotech index afterthree years of granting the conditional options.

 

On a vesting date Crucell’s TotalShareholder Return (TSR) performance is measured against the performance of theNASDAQ Biotechnology Index during the applicable performance period. The periodused to calculate the TSR performance will be the average of the first threemonths of year one and the average of the last three months of year three.Vesting of the options takes place on January 1 of year four.

 

The positive difference in percentages,if any, between Crucell’s TSR compared to the performance of the NASDAQBiotechnology Index, determines the number of LTI options which vest, inaccordance with the table set out below:

 

NASDAQ Biotech Index Vesting Scheme

 
| Positive difference betweenTSR performance Crucell andthe NASDAQ Biotech Index |   | Vesting as% of target award |   |
|--------------------------------------------------------------------------------|--------|-----------------------------|--------|
| > 50                                                                        |   | 200%                        |   |
| > 35 and < 50                                                            |   | 150%                        |   |
| > 20 and < 35                                                            |   | 100%                        |   |
| > 10 and < 20                                                            |   | 50%                         |   |
| > 0 and < 10                                                             |   | 25%                         |   |
| < 0                                                                         |   | 0%                          |   |

 

At the forthcoming General Meetingof Shareholders the following adjustments to the remuneration policy will besubmitted for approval. The target LTI compensation level for the ChiefExecutive Officer will be increased from 50% of base salary to 65% and for theother Management Board members target LTI compensation levels will be increasedfrom 40% of base salary to 50%.

 

**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.

 

145

 

**Corporate governance continued**

 

Total contribution rates for ourManagement Board members are:

 
|     |   | Contribution |   |
|----------|--------|--------------|--------|
| Age      |   | rate         |   |
| 25 to 30 |   | 8.4%         |   |
| 30 to 35 |   | 10.2%        |   |
| 35 to 40 |   | 12.5%        |   |
| 40 to 45 |   | 15.2%        |   |
| 45 to 50 |   | 18.7%        |   |
| 50 to 55 |   | 23.0%        |   |
| 55 to 60 |   | 28.6%        |   |
| 60 to 65 |   | 36.1%        |   |

 

**ManagementBoard**

The total remuneration and relatedcosts (excluding share-based payments – see information below on stock optionsand performance stock) of the members of the Management Board over the past twoyears, is as follows:

 

In thousands of Euro

 
| Year ended December 31, |       | **2009**  |       | 20081     |       |
|------------------------------|------------|-----------|------------|-----------|------------|
| Salaries                     | ** ** | **1,447** |       | 1,259     |       |
| Bonuses and one-off awards   | ** ** | **2,032** |       | 782       |       |
| Option costs                 | ** ** | **1,212** |       | 406       |       |
| Pension costs                | ** ** | **316**   |       | 260       |       |
| Other                        | ** ** | **44**    |       | 39        |       |
|                         | ** ** | **5,051** | ** ** | **2,746** | ** ** |

 

1 Cees de Jong’s remuneration for the year 2008is included pro rata as of May 31, 2008.

 

The remuneration of the individualmembers of our Management Board during 2009, excluding stock options, was asfollows:

 
|        |   |     |   |     |   | One-off |   | Option |   | Pension |   | Other  |   |   |   |
|-------------|--------|----------|--------|----------|--------|---------|--------|--------|--------|---------|--------|--------|--------|--------|--------|
| Name        |   | Salaries |   | Bonuses1 |   | awards  |   | costs2 |   | costs3  |   | costs4 |   | Total  |   |
| R.H.P. Brus |   | 455      |   | 308      |   | 384     |   | 451    |   | 95      |   | — |   | 1,693  |   |
| L. Kruimer  |   | 300      |   | 157      |   | 274     |   | 230    |   | 75      |   | 13     |   | 1,049  |   |
| C. de Jong  |   | 331      |   | 173      |   | 274     |   | 289    |   | 49      |   | 12     |   | 1,128  |   |
| J. Goudsmit |   | 361      |   | 188      |   | 274     |   | 242    |   | 97      |   | 19     |   | 1,181  |   |
| Totals      |   | 1,447    |   | 826      |   | 1,206   |   | 1,212  |   | 316     |   | 44     |   | 5,051  |   |

 

1  Bonusexpense includes the STI Plan to which the Management Board is entitled as at December 31,2009.

2  Theoption costs are the costs recognized under IFRS and are not equal to the amountsinvolved in option exercises. In 2009, 250,000 options with an exercise priceof € 9.4 and 20,000 options with an exercise price of € 3.49 were exercised byRonald Brus with a total market value of € 1,801 and 85,000 options wereexercised by Jaap Goudsmit with an exercise price of € 9.4 with a market valueof € 538.

3  PensionCosts’ include pensions, social security costs and disability insurance.

4  Othercosts’ include company cars.

 

146

 

**Corporate governance**

 

Pension, retirement and similararrangements for our Management Board members consist of the definedcontribution plan, and we do not have further pension obligations beyond theannual premium contribution.

 

The Company’s Management Boardmembers held the following options for the period ended December 31, 2009:

 
|                     |       | Options       |   |          |   |                   |   |         |   |         |   |     |       |       |       |          |   | Options       |   |
|--------------------------|------------|---------------|--------|---------------|--------|------------------------|--------|--------------|--------|--------------|--------|----------|------------|------------|------------|---------------|--------|---------------|--------|
|                     |       | held at  |   |          |   | Fair value        |   |         |   |         |   |     |       |       |       |          |   | held at  |   |
|                     |       | December      |   | Present       |   | per share at |   | Year of |   | Year of |   | Exercise |       | Granted    |       | Exercised     |   | December      |   |
| Name of holder |       | 31, 2008 |   | status        |   | grant-date             |   | grant        |   | expiration   |   | price    |       | 2009       |       | 2009          |   | 31, 2009 |   |
| R.H.P. Brus              |       | 250,000       |   | Unconditional |   |                   |   | 2004         |   | 2009         |   | 9.40     |       | —     |       | (250,000)     |   | —        |   |
|                     |       | 200,000       |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 3.49     |       | —     |       | (20,000)      |   | 180,000       |   |
|                     |       | 90,000        |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 2.64     |       | —     |       | —        |   | 90,000        |   |
|                     |       | 125,000       |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 5.94     |       | —     |       | —        |   | 125,000       |   |
|                     |       | 300,000       |   | Conditional   |   | 3.40                   |   | 2008         |   | 2013         |   | 12.23    |       | —     |       | —        |   | 300,000       | 1      |
|                     |       | —        |   | Conditional   |   | 9.23                   |   | 2009         |   | 2016         |   | 10.82    |       | 36,170     |       | —        |   | 36,170        | 2      |
| L. Kruimer               |       | 30,000        |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 3.49     |       | —     |       | —        |   | 30,000        |   |
|                     |       | 125,000       |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 5.94     |       | —     |       | —        |   | 125,000       |   |
|                     |       | 150,000       |   | Conditional   |   | 3.40                   |   | 2008         |   | 2013         |   | 12.23    |       | —     |       | —        |   | 150,000       | 1      |
|                     |       | —        |   | Conditional   |   | 9.23                   |   | 2009         |   | 2016         |   | 10.82    |       | 19,490     |       | —        |   | 19,490        | 2      |
| C. de Jong               |       | 185,000       |   | Conditional   | 3      | 5.15                   |   | 2007         |   | 2012         |   | 14.58    |       | —     |       | —        |   | 185,000       |   |
|                     |       | 200,000       |   | Conditional   |   | 3.40                   |   | 2008         |   | 2013         |   | 12.23    |       | —     |       | —        |   | 200,000       | 1      |
|                     |       | —        |   | Conditional   |   | 9.23                   |   | 2009         |   | 2016         |   | 10.82    |       | 20,655     |       | —        |   | 20,655        | 2      |
| J. Goudsmit              |       | 85,000        |   | Unconditional |   |                   |   | 2004         |   | 2009         |   | 9.40     |       | —     |       | (85,000)      |   | —        |   |
|                     |       | 125,000       |   | Unconditional |   |                   |   | 2003         |   | 2011         |   | 5.94     |       | —     |       | —        |   | 125,000       |   |
|                     |       | 150,000       |   | Conditional   |   | 3.40                   |   | 2008         |   | 2013         |   | 12.23    |       | —     |       | —        |   | 150,000       | 1      |
|                     |       | —        |   | Conditional   |   | 9.23                   |   | 2009         |   | 2016         |   | 10.82    |       | 23,388     |       | —        |   | 23,388        | 2      |
| **Totals**               | ** ** | **2,015,000** |   |          |   |                   |   |         |   |         |   |     | ** ** | **99,703** | ** ** | **(355,000)** |   | **1,759,703** |   |

 

1  At the annual General Meeting of Shareholdersin 2008, the shareholders of the Company approved an additional option grant tothe Management Board of 800,000 options. The options are conditionally grantedand vest at the end of a three-year performance period starting June 2,2008. The conditionally granted options include a market condition that istaken into account when estimating the fair value of the equity instrumentsgranted. The market condition is an absolute total shareholder return of plus50% share value measured three years after the grant.

2  All options granted to the Management Board in2009, are conditionally granted LTI options. At the annual General Meeting ofShareholders in 2008, the shareholders of the Company approved the revised LTIplan for the Management Board. Under the terms of the LTI plan, options areconditionally granted and vest at the end of a three-year performance period.The conditionally granted options include a market condition that is taken intoaccount when estimating the fair value of the equity instruments granted. Thenumber of LTI options that vest are based on the fulfillment of the LTIperformance condition. On the vesting date, the Company’s Total ShareholderReturn (‘TSR’) performance is measured against the performance of the NASDAQBiotechnology Index during the performance period. The positive difference inpercentages, if any, between the Company’s TSR compared to the performance ofthe NASDAQ Biotechnology Index, determines the number of LTI options that veston the vesting date. Depending on the level of achievement of these marketmeasures, at the end of three years, the number of shares vesting could be0%-200% of the number of options originally granted.

3  The option tranch granted to Cees de Jong on September 1,2007 was not granted in his capacity as Board Member. The average fair value ofthe options was € 5.15. The vesting period of these options is four years andevery year 25% of the options vest. The corresponding compensation costs of theoptions are recognized in accordance with the accelerated method. As at January 1,2009 a number of 46,250 options were unconditional. The remaining 138,750 werestill subject to non-market vesting conditions.

 

147

 

 

**Corporate governance continued**

 

The Company’s Management Boardmembers held the following shares in the Company at December 31, 2009:

 
| Name of  holder |   | Ordinary  shares held at  December 31,  2009 |   | % of total  ordinary  shares |
|-----------------|--------|---------------------------------------------------|--------|------------------------------|
| R.H.P Brus      |   | 239,202                                           |   | 0.29%                        |
| L. Kruimer      |   | 28,195                                            |   | 0.03%                        |
| C. de Jong      |   | 5,406                                             |   | 0.01%                        |
| J. Goudsmit     |   | 169,276                                           |   | 0.21%                        |
|            |   | 442,079                                           |   | 0.54%                        |

 

The following table describes loansgranted to the Group’s Management Board and senior management since January 1,2001. The Company has not granted any loans to any Supervisory Board members.The Company sets interest rates on these loans in relation to Dutch income taxlaw. The loans were granted to the persons listed below in connection withoptions granted to them on the Company’s ordinary shares. These loans becomepayable at the time shares received on exercise of the related options are soldor immediately in case the employee ceases to work for the Company before thistime. The Company funded the loans prior to July 30, 2002, the datelegislation was passed in the US prohibiting the granting of additional loansto company officers.

 
| Name            |   | outstanding  since  January 1,  2001 |   | Largest  amount  of loan at  December 31,  2009 |   | Amount of  loan  outstanding at   2009 interest  rate in % |
|-----------------|--------|------------------------------------------------|--------|------------------------------------------------------|--------|------------------------------------------------------------|
| R.H.P. Brus     |   | 132                                            |   | 87                                                   |   | 3.5%                                                       |
| Other personnel |   | 61                                             |   | 47                                                   |   | 3.5%                                                       |

 

The Group is not a party to anymaterial transactions, or proposed transactions, in which any director, anyexecutive officer, any spouse or relative of any of the foregoing, or anyrelative of any such spouse had, or was to have, a direct or indirect materialinterest other than those transactions disclosed in these financial statements.

 

**SupervisoryBoard**

Due to the fact that the Groupoperates on a global scale with many of its supervisory directors used to theinternational arena, Crucell offers compensation to its supervisory directorsin accordance with customary practice in the biotechnology sector.

 

Compensation for all SupervisoryBoard members consists of a fixed fee in cash and an annual share grant. Thefixed fee in cash ranges from € 34 to € 44 per Supervisory Board member. Inaddition, the chairman of the Supervisory Board is awarded annually a netallowance of € 5 that is grossed up for taxation purposes. The annual sharegrant awarded to each member of the Supervisory Board equals 2,500 ordinaryshares. The amounts will be revised on a triennial basis. The shares should beheld for as long as an individual is a member of the Supervisory Board.

 

148

 

**Corporate governance**

 

During 2009 and 2008, theindividual members of the Supervisory Board were entitled to receive thefollowing remuneration (excluding share-based payments — see information belowon stock options and performance stock):

 
|             |       | Year ended  December 31,2009 |       |      | Year ended  December 31, 2008 |       |
|------------------|------------|-----------------------------------|------------|-----------|------------------------------------|------------|
| Name             |       | Shares4                           |       | Cash fee  |                               |       | Shares4 |   | Cash fee |   |
| J.P. Oosterveld1 |       | 2,500                             |       | 54.2      |                               |       | 2,500 |   | 54.2 |   |
| A. Hoevenaars    |       | 2,500                             |       | 35.0      |                               |       | 2,500 |   | 35.0 |   |
| S.Lance          |       | 2,500                             |       | 34.0      |                               |       | 2,500 |   | 34.0 |   |
| Ph. Satow        |       | 2,500                             |       | 35.0      |                               |       | 2,500 |   | 35.0 |   |
| C. Wilhelmson    |       | 2,500                             |       | 35.0      |                               |       | 2,500 |   | 35.0 |   |
| S. Davis         |       | 2,500                             |       | 34.0      |                               |       | 2,500 |   | 34.0 |   |
| F. Waller2       |       | 2,500                             |       | 34.0      |                               |       | — |   | — |   |
| D.S. Koechlin3   |       | —                            |       | —    |                               |       | 1,250 |   | 12.5 |   |
|             | ** ** | **17,500**                        | ** ** | **261.2** | ** **                         | ** ** | **16,250** | ** ** | **239.7** |   |

 

| 1 | Mr. J.P. Oosterveld was appointed Chairman on  June 2, 2006.                                                                                                                                               |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Mr. F. Waller was appointed member of the  Supervisory Board on June 5, 2009, but has attended meetings since  January 2009.                                                                          |
| 3 | Mr. D.S. Koechlin resigned from the Supervisory  Board on May 30, 2008.                                                                                                                                    |
| 4 | Instead of the share grant, a Supervisory Board  member may also choose to receive a cash amount equaling the value of 2,500  shares at the date of grant minus 25%. No Supervisory Board member chose this  option. |

 

The Company’s Supervisory Boardmembers held the following options for the period ended December 31, 2009:

 
| Name of Holder   |       | Options  held per  December 31,  2008 |   | Year of  expiration |   | Exercise  price € |       | Granted  2009 |       | Exercised  2009 |       | Forfeited  2009 |       | Options  held per  December 31,  2009 |
|------------------|------------|--------------------------------------------|--------|---------------------|--------|------------------------|------------|---------------|------------|-----------------|------------|-----------------|------------|-------------------------------------------------|
| 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**                                |   |                |   |                   | ** ** | **—**    | ** ** | **55,000**      | ** ** | **10,000**      | ** ** | **52,000**                                      |

 

Crucell’sSupervisory Board members held the following shares in the Company per December 31,2009:

 
| Name of  holder  |   | Ordinary  shares  held per  December 31,  2009 |   | % of total  ordinary  shares |
|------------------|--------|----------------------------------------------------------|--------|-----------------------------------|
| J.P. Oosterveld  |   | 12,000                                                   |   | 0.01%                             |
| A. Hoevenaars    |   | 10,000                                                   |   | 0.01%                             |
| S.P. Lance       |   | 12,500                                                   |   | 0.02%                             |
| P.M. Satow       |   | 75,210                                                   |   | 0.09%                             |
| C.E. Wilhelmsson |   | 10,000                                                   |   | 0.01%                             |
| S. Davis         |   | 5,000                                                    |   | 0.01%                             |
| F. Waller        |   | —                                                   |   | 0.00%                             |
|             |   | 124,710                                                  |   | 0.15%                             |

 

149

 

**Corporate governance continued**

 

Pursuant to Dutch law, each memberof Crucell’s Supervisory Board and Management Board is responsible to theCompany 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 the Company’s Supervisory Board orManagement Board. The Company’s articles of association provide that Crucell’sManagement Board members and Supervisory Board members are discharged fromliability for their actions as board members, if the Company’s General Meetingof Shareholders adopts a resolution to that effect.

 

This discharge extends only toactions or omissions disclosed in or apparent from the adopted annual accountsor otherwise communicated to the Company’s General Meeting of Shareholders.

 

Mandatory provisions of Dutch lawmay limit this discharge of liability, for example in the case of bankruptcy.Under Dutch law, the Company’s Supervisory Board members and members of theCompany’s Management Board generally cannot be held personally liable fordecisions made exercising their reasonable business judgment.

 

The Company’s articles ofassociation provide that the Company shall generally indemnify any person whois or was a member of the Company’s Supervisory Board or of the ManagementBoard or one of the Company’s employees, officers or agents, and suffers anyloss as a result of any action in connection with their service to the Company,provided they acted in good faith in carrying out their duties.

 

This indemnification generally willnot be available if the person seeking indemnification acted with grossnegligence or willful misconduct in the performance of his or her duties to theCompany. A court in which an action is brought, may however determine thatindemnification is appropriate nonetheless.

 

**Shareholdingsof the Management and Supervisory Board at most practicable date**

 

As of March 29, 2010 membersof our Management Board and Supervisory Board held the following ordinaryshares and options.

 
| Name of  Holder  |       | Ordinary  shares held  per  March 29,  2010 |       | Options  held per  March 29,  2010 |   | Year of  expiration |   | Exercise  price (€) |
|------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|--------|--------------------------|--------|-------------------------------|
| R.H.P. Brus      |       | 239,202                                               |       | 140,000                                           |   | 2011                     |   | 3.49                          |
|             |       |                                                  |       | 90,000                                            |   | 2011                     |   | 2.64                          |
|             |       |                                                  |       | 125,000                                           |   | 2011                     |   | 5.94                          |
|             |       |                                                  |       | 300,000                                           |   | 2013                     |   | 12.23                         |
|             |       |                                                  |       | 36,170                                            |   | 2016                     |   | 10.82                         |
|             |       |                                                  |       | 29,358                                            |   | 2017                     |   | 13.96                         |
| L. Kruimer       |       | 28,195                                                |       | 10,000                                            |   | 2011                     |   | 3.49                          |
|             |       |                                                  |       | 75,000                                            |   | 2011                     |   | 5.94                          |
|             |       |                                                  |       | 150,000                                           |   | 2013                     |   | 12.23                         |
|             |       |                                                  |       | 19,490                                            |   | 2016                     |   | 10.82                         |
|             |       |                                                  |       | 15,550                                            |   | 2017                     |   | 13.96                         |
| C. de Jong       |       | 5,406                                                 |       | 185,000                                           |   | 2012                     |   | 14.58                         |
|             |       |                                                  |       | 200,000                                           |   | 2013                     |   | 12.23                         |
|             |       |                                                  |       | 20,655                                            |   | 2016                     |   | 10.82                         |
|             |       |                                                  |       | 17,102                                            |   | 2017                     |   | 13.96                         |
|             |       |                                                  |       | 150,000                                           |   | 2015                     |   | 14.01                         |
| J. Goudsmit      |       | 169,276                                               |       | 125,000                                           |   | 2011                     |   | 5.94                          |
|             |       |                                                  |       | 150,000                                           |   | 2013                     |   | 12.23                         |
|             |       |                                                  |       | 23,388                                            |   | 2016                     |   | 10.82                         |
|             |       |                                                  |       | 18,660                                            |   | 2017                     |   | 13.96                         |
| **Totals**       | ** ** | **442,079**                                           | ** ** | **1,880,373**                                     |   |                     |   |                          |
|             |       |                                                  |       |                                              |   |                     |   |                          |
| J.P. Oosterveld  |       | 14,500                                                |       | —                                            |   | —                   |   | —                        |
| A. Hoevenaars    |       | 12,500                                                |       | —                                            |   | —                   |   | —                        |
| S.P. Lance       |       | 15,000                                                |       | 10,000                                            |   | 2011                     |   | 7.86                          |
| P.M. Satow       |       | 77,710                                                |       | 22,000                                            |   | 2011                     |   | 3.49                          |
|             |       |                                                  |       | 10,000                                            |   | 2011                     |   | 6.48                          |
| C.E. Wilhelmsson |       | 12,500                                                |       | 10,000                                            |   | 2011                     |   | 6.48                          |
| S. Davis         |       | 7,500                                                 |       | —                                            |   | —                   |   | —                        |
| F. Waller        |       | 2,500                                                 |       | —                                            |   | —                   |   | —                        |
|             |       |                                                  |       |                                              |   |                     |   |                          |
| **Totals**       | ** ** | **142,210**                                           | ** ** | **52,000**                                        |   |                     |   |                          |

 

150

 

**Corporate governance**

 

**Principalaccountant fees and services**

 

Deloitte Accountants B.V. auditedthe accompanying consolidated statements of financial position of Crucell N.V.and subsidiaries (the ‘Group’) as of December 31, 2009 and 2008 and therelated consolidated statements of income, comprehensive income, changes inequity equity, and cash flows for each of the 3 years in the period ended December 31,2009.

 

The Sarbanes-Oxley Act of 2002requires that Audit Committees pre-approve all services provided by the Company’sexternal auditor. This process is critical to the auditor maintainingindependence. Our process requires that all services provided by the externalauditor are pre-approved by the Audit Committee.

 

During 2009 and 2008, we paid thefollowing amounts to our external auditors for audit services, audit relatedservices and tax services.

 
| Year ended  December 31,                             | ** ** | **2009**   |       | 2008    |
|-----------------------------------------------------------|------------|------------|------------|---------|
| Audit fees                                                | ** ** | **825**    |       | 840     |
| Audit related fees                                        | ** ** | **149**    |       | 75      |
| Fees for services related toConsultations  on tax matters |       | **—** |       | —  |
| **Total**                                                 | ** ** | **974**    | ** ** | **915** |

 

Audit fees include fees associatedwith the annual audit, interim reviews,required statutory audits and services that only theexternal auditor canreasonably provide, such as services associated withdocuments issued inconnection with securities offerings.

 

Audit-related fees includeaccounting consultations on financial and accounting reporting standards.

 

**Responsibilitystatement**

 

Crucell’s Management Board, asrequired by section 5.25c paragraph 2c of the Dutch Act on Financial Supervision(Wet op het Financieel Toezicht), confirms that to the best of their knowledge:

 

·                  The financial statements of 2009 give a true and fair viewof the assets, liabilities, financial position and the profit or loss of theGroup;

·                  The Annual Report gives a true and fair view of the positionas per December 31, 2009 and the developments during 2009 of the Group;and

·                  The Annual Report contains a description of the principalrisks that the Group faces.

 

**Controlsand procedures**

 

**Internalrisk management 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 theCommittee of Sponsoring Organizations of the Treadway Commission. The Company’sinternal risk management and control systems are designed to provide reasonableassurance that strategic objectives can be met. Such systems can never provideabsolute assurance regarding achievement of Company objectives, nor can theyprovide an absolute assurance that material errors, losses, fraud, and theviolation of laws or regulations will not occur. A summary of the risks thatcould prevent Crucell from realizing its objectives is included in the section ‘RiskFactors’ of this report.

 

Our internal risk management andcontrol systems make use of various measures including:

 

·                  Annual strategic evaluations of our business;

·                  Periodic operational review meetings of the Management Boardwith the Management Committee;

·                  Quarterly financial planning meetings of the ManagementBoard with the Supervisory Board;

·                  A planning and control cycle consisting of annual, quarterlyand monthly procedures, including subsequent follow-up on achievements oftargets set;

·                  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 area of responsibility based upon their knowledge:

–    An effectivesystem of internal controls and procedures is maintained; and

–    The financialreports fairly present the financial position, results of operations and cashflows;

 

151

 

 

**Corporate governance continued**

 

·                  Management letters and audit reports provided by ourexternal auditor;

·                  Internal Audit function which monitors the effectiveness ofour internal risk management and control system. The Internal Audit functionperforms risk based systematic and ad hoc audits. The main findings arereported to the CFO and Audit Committee. The Internal Auditor regularly meetswith the external auditor to discuss planning and findings of the internalaudits performed;

·                  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;

·                  A Global crisis management policy, which was established in2009. Crisis management and in particular crisis communications are key topicsto Crucell in light of its size, growth potential and varied businessdivisions. By means of having clear procedures and responsibilities we ensurethat the proper actions are taken whenever possible and that the Company’sreputation is protected by timely, clear and consistent messaging to internaland external audiences; and

·                  The Crucell Code of Conduct.

 

The Management Board has discussedthe internal risk management and control system with the Audit Committee andthe Supervisory Board.

 

As a result of its listing atNASDAQ, Crucell is also obliged to comply with Section 404 of theSarbanes-Oxley Act of 2002 and related regulations (Section 404). Section 404addresses the responsibility of the Management Board for establishing andmaintaining an adequate system of internal control over financial reporting.Internal control over financial reporting is a process to provide reasonableassurance regarding the reliability of our public financial reporting.

 

**Evaluationof disclosure controls and procedures**

We have evaluated, with theparticipation of our Chief Executive Officer and Chief Financial Officer, theeffectiveness of our disclosure controls and procedures as of December 31,2009. There are inherent limitations to the effectiveness of any system ofdisclosure controls and procedures, including the possibility of human errorand the circumvention or overriding of the controls and procedures.Accordingly, even effective disclosure controls and procedures can only providereasonable assurance of achieving their control objectives. Based upon ourevaluation, our Chief Executive Officer and Chief Financial Officer concludedthat the disclosure controls and procedures as of December 31, 2009 wereeffective to provide reasonable assurance that information required to bedisclosed in the reports we file or submit under the US. Securities ExchangeAct of 1934, as amended, is recorded, processed, summarized and reported,within the time periods specified in the applicable rules and forms, andthat it is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure.

 

**Management’sReport on Internal Control over Financial Reporting**

Management of the Company isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) underthe US Securities Exchange Act of 1934. The Company’s internal control overfinancial reporting is designed to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. The Company’s internal control over financial reporting includesthose policies and procedures that:

 

·                  Pertain to 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 of financial statements in accordance withgenerally accepted accounting principles, and that receipts and expenditures ofthe Company are being made only by authorized employees in accordance withdocumented 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.

 

152

 

**Report of independent registeredpublic accounting firm**

 

Because of its inherentlimitations, internal control over financial reporting may not prevent or detectmisstatements. Also, projections of any evaluation of effectiveness for futureperiods are subject to the risk that controls may become inadequate because ofchanges in conditions, or that the degree of compliance with policies orprocedures may deteriorate.

 

As required by Section 404 ofthe Sarbanes-Oxley Act of 2002, Management assessed the effectiveness of theCompany’s internal control over financial reporting as of December 31,2009. 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 on its assessment and thosecriteria, Management concluded that the Company maintained effective internalcontrol over financial reporting as of December 31, 2009.

 

Deloitte Accountants B.V., theindependent registered public accounting firm that audited the financialstatements included in this Annual Report, has issued an attestation report onthe effectiveness of the Company’s internal control over financial reporting asof December 31, 2009 as stated in their report beginning on page 154of this report.

 

**Changes ininternal control over financial reporting**

There has not been any change inthe internal controls over financial reporting of the Company that occurredduring the period covered by this report that has materially affected, or isreasonably likely to materially affect, such internal controls  over financial reporting.

 

153

 

**Report of independent registered public accountingfirm**

 

**To theSupervisory Board and Shareholders of Crucell N.V. Leiden, the Netherlands**

 

We have audited the internalcontrol over financial reporting of Crucell N.V. and subsidiaries (the ‘Company’)as of December 31, 2009, based on criteria established in Internal Control— Integrated Framework issued by the Committee of Sponsoring Organizations ofthe Treadway Commission. The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’sinternal control over financial reporting based on our audit.

 

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects. Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, and testing and evaluatingthe design and operating effectiveness of internal control based on theassessed risk, and performing such other procedures as we considered necessaryin the circumstances. We believe that our audit provides a reasonable basis forour opinion.

 

A Company’s internal control overfinancial reporting is a process designed by, or under the supervision of, theCompany’s principal executive and principal financial officers, or personsperforming similar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples. A company’s internal control over financial reporting includesthose policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions 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 of the inherent limitationsof internal control over financial reporting, including the possibility ofcollusion or improper management override of controls, material misstatementsdue to error or fraud may not be prevented or detected on a timely basis. Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

In our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of December 31, 2009, based on the criteria established inInternal Control — Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the consolidated financial statements as of and for the year ended December 31,2009 of the Company and our report dated April 6, 2010 expressed an unqualifiedopinion on those financial statements and included an explanatory paragraphregarding the change in the accounting policy adopted by the Company.

 

Deloitte Accountants B.V.

Amsterdam, The Netherlands

April 6, 2010

 

154

 

**Articles of association and share capital**

 

**Articles of association and share capital**

 

**Memorandumand Articles of Association**

 

Set out below is a summary ofmaterial information concerning our shares, which are our ordinary sharestogether with our preference shares, and related material provisions of ourarticles of association and of Book 2 of the Dutch Civil Code (Boek 2 van hetBurgerlijk Wetboek). This summary is not complete and is qualified in itsentirety by reference to our articles of association and to Dutch law.

 

**General**

We were incorporated as a limitedliability company (naamloze vennootschap) on October 9, 2000 by deedexecuted before Mr. R.J.J. Lijdsman, civil law notary. Our corporate seatis in Leiden, the Netherlands, and we have offices at Archimedesweg 4-6, 2333CN Leiden, the Netherlands. We are registered in the trade register of theChamber of Commerce and Industry for Leiden under number 28087740. Thestatement of no objection of the Minister of Justice in respect of our deed ofincorporation was issued on October 9, 2000 under number N.V. 1133178. Ouragent in the US is CT Corporation, 111 Eighth Avenue, New York, New York 10011.Our articles of association were last amended on June 12, 2009 before Mr. R.J.J.Lijdsman, civil law notary.

 

**Corporatepurpose**

The objects of the Company are setout in Article 3 of the articles of association. Our objects includeacquiring, establishing and managing companies in our field, controlling andusing intellectual property, and funding of our operations as well as to do allthat is connected therewith or may be conducive thereto.

 

**Limitationof liability and indemnification matters**

Pursuant to Dutch law, each memberof our Supervisory and Management Boards is responsible to us for the properperformance of his or her assigned duties. They are also responsible for takingmeasures to prevent the consequences of any improper performance of duties byanother member of our Supervisory Board or our Management Board. Our articlesof association provide that our Management Board members and our SupervisoryBoard members are released from liability for the exercise of their duties asboard members, if our General Meeting of Shareholders adopts a resolution tothat effect. This discharge extends only to the exercise of the dutiesreflected in the annual accounts or otherwise disclosed to our General Meetingof Shareholders prior to the adoption of the annual accounts.

 

This release of liability may belimited by virtue of Dutch law, such as in the case of bankruptcy. Under Dutchlaw, our Supervisory Board members and members of our Management Boardgenerally cannot be held personally liable for actions taken in their capacityas such, provided, however, that the foregoing shall not eliminate or limit theliability (1) for any breach of such individual’s duty of loyalty to theCompany or its shareholders, (2) for acts or omissions not in good faithor which involve intentional misconduct or a knowing violation of law, (3) forany transaction from which the member derived an improper personal benefit or (4) forpersonal liability which is imposed by Dutch law, as may be amended from timeto time.

 

Our articles of association providethat we shall generally indemnify any person who is or was a member of ourSupervisory Board or our Management Board, and suffers any loss as a result ofany action in connection with the execution of his duties for us, provided heacted in good faith and in a manner he reasonably believed to be in or notopposed to our best interests, and with respect to criminal action orproceeding, had no reasonable cause to believe his conduct was unlawful orbeyond his mandate.

 

This indemnification generally willnot be available if the person seeking indemnification was adjudged liable foracting with gross negligence or willful misconduct in the performance of hisduties to us, unless the court in which the action was brought, determines thatindemnification is appropriate nonetheless.

 

155

 

**Articles of association and share capital continued**

 

**Sharecapital**

Our authorized share capitalamounts to € 75,000,000 divided into: 156,250,000 ordinary shares and156,250,000 preference shares, each with a par value of € 0.24.

 

At December 31, 2009, therewere 81,446,295 ordinary shares issued and outstanding. No preference sharesare currently issued and outstanding. The ordinary shares can be issued inbearer or registered form. The preference shares can only be issued inregistered form. Only bearer ordinary shares can trade on NYSE EuronextAmsterdam. No share certificates will be issued for shares in registered form.

 

**Ordinaryshares**

Our ordinary shares may be inregistered or bearer form and will be in bearer form unless the shareholderindicates otherwise in writing.

 

**Bearerordinary shares**

All of our bearer ordinary sharesare embodied in a single global share certificate which will not be exchangedfor single or multiple physical securities and which we will deposit with theDutch Securities Depository (NECIGEF) for safekeeping on behalf of the partiesentitled to the ordinary shares in bearer form.

 

The ordinary shares represented bythe single global share certificate may only be transferred through thebook-entry system maintained by NECIGEF. A participant in the collectivedeposit (verzameldepot) of a securities institution admitted to NECIGEF may, athis own expense, require conversion of one or more of his bearer ordinaryshares into ordinary shares in registered form.

 

**Registeredordinary shares**

We enter holders of registeredordinary shares in the register of shareholders. We do not issue sharecertificates. However, the shareholder may request an extract from theshareholders’ register regarding the ordinary shares registered in his name. Weare required to provide this free of charge. Dutch law requires that transfersof registered ordinary shares be recorded in a written instrument to which weare a party or which is served on us, or that the transaction is acknowledgedby us.

 

**Preferenceshares**

As of the date of this AnnualReport, we have not issued any preference shares. On October 25, 2000, weestablished a foundation called Stichting Preferente Aandelen Crucell, alsoreferred to as the Preferred Foundation. The Preferred Foundation’s objectiveis to safeguard our interests, our business and parties connected therewith byblocking any influences that may threaten these interests, which interests mayinclude the continuity of the Company, 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.

 

The Preferred Foundation has anoption to acquire preference shares up to 100% of the number of our outstandingshares, necessary to match the total number of statutory votes on all of theordinary shares outstanding at the time of an acquisition. The PreferredFoundation must pay at least 25% of the nominal value of the preference sharesit acquires from us. If we acquire any preference shares, they may becancelled.

 

A board of governors of up to fivepersons directs the Preferred Foundation. Jan Oosterveld, in his capacity aschairman of our Supervisory Board, and Pieter Bouw, Mick W. den Boogert, Swedervan Wijnbergen and Gerard P. Krans, have been appointed to the board ofgovernors. A majority of these members may not be members or former members ofour Management or Supervisory Board, or an employee of any of our advisers, anyof our banks or us. These independent members are appointed by the board ofgovernors. The non-independent members are appointed by our Supervisory Boardafter consultation with our Management Board.

 

156

 

**Articles of association and share capital**

 

Membership of the board ofgovernors of the Preferred Foundation terminates upon:

 

·                  Voluntary retirement, reaching the age of 72, death orbankruptcy;

·                  For our non independent members, resignation, or dismissalby the members of our Supervisory Board;

·                  For our independent members, if they cease to beindependent;

·                  Dismissal by the complete board of the Preferred Foundation;or

·                  Periodic retirement in accordance with a rotation plan to bedrawn up by the Preferred Foundation’s board of governors, however, thesemembers may be reappointed.

 

**Issue ofshares and pre-emptive rights**

Our General Meeting ofShareholders, or our Management Board if the General Meeting of Shareholdershas delegated the power to it, has the authority to decide on any furtherissuance of shares or rights to subscribe for shares and on the terms andconditions of such issuance. Our Management Board is the authorized corporatebody (orgaan) for this purpose until November 30, 2010, and theauthorization may at any time be extended by the General Meeting ofShareholders for periods of up to five years. Our Management Board’s authorityto issue shares is limited to a maximum of 10% of the issued share capital atthe time of issue, plus a further issue up to 10% of the issued share capitalat the time of issue in case the issue takes place in relation to a merger oran acquisition.

 

Our Management Board can issueshares of any class if it has the approval of our Supervisory Board. Withoutspecific authorization from our General Meeting of Shareholders our ManagementBoard may not issue preference shares or grant options for such shares if, as aresult, more preference shares than ordinary shares will or could becomeoutstanding.

 

Each holder of ordinary shares haspre-emptive rights to subscribe for any ordinary shares that we issue and haspre-emptive rights to subscribe if we grant rights to subscribe for ordinaryshares. Pre-emptive rights are in proportion to the percentage of our outstandingordinary shares that the holder owns. Pre-emptive rights do not apply toordinary shares issued for a non-cash contribution, to ordinary shares issuedto our employees or ordinary shares issued to a person who exercises apreviously acquired right to subscribe for ordinary shares. Holders ofpreference shares do not have pre-emptive rights if we issue ordinary shares,and holders of ordinary shares have no pre-emptive rights to purchasepreference shares if we issue preference shares.

 

If our Management Board has beendelegated the authority to issue shares, it can limit or exclude anypre-emptive rights as long as the general meeting of shareholders has grantedit that power and our Supervisory Board approves. At present, our ManagementBoard is authorized to do this. This authorization is valid until November 30,2010 and the General Meeting of Shareholders may at any time extend thisauthorization for periods of up to five years.

 

Our shares cannot be issued belowpar. The ordinary shares must be fully paid up upon issue. Preference sharesmay be issued without being fully paid up, but at least one-quarter of thenominal amount must be paid up upon subscription, and each issue of preferenceshares must have the same amount paid up. Our Management Board may determinethe day and the amount of a further call for payment on preference shares.

 

**Acquisitionby us of shares in our own capital**

We may acquire our own fully paidup shares if the following conditions are met:

 

·                  Our General Meeting of Shareholders has authorized ourManagement Board to acquire the shares;

·                  The authorization specifies the number of shares that we mayacquire, the manner in which they may be acquired and the limits within whichthe price must be set;

·                  Our shareholders’ equity, after deduction of the price ofacquisition, is not less than the sum of the paid and called up portion of theshare capital and the reserves that provisions of Dutch law or our articles ofassociation require us to maintain; and

·                  The aggregate par value of the shares to be acquired,together with the shares in our share capital that we already hold directly,indirectly or as pledgee, does not equal more than one-tenth the aggregate parvalue of our total issued share capital.

 

An authorization by the General Meetingof Shareholders for a term of a maximum of 18 months is needed in the event ofan acquisition for valuable consideration. Currently an authorization isgranted to the Management Board by the General Meeting of Shareholders torepurchase fully paid up ordinary shares up to 10% of our outstanding sharecapital until November 30, 2010. The repurchase price lies between thenominal value of the shares and an amount equal to

 

157

 

**Articles of association and share capitalcontinued**

 

110% of the highest priceofficially quoted on the NASDAQ National Market and the NYSE Euronext Amsterdamstock exchange on any of five (5) banking days preceding the date of therepurchase.

 

We and our subsidiaries may notvote shares that we or they hold. We may acquire shares to transfer them to ouremployees or the employees of our group companies under designated stock optionplans without authorization.

 

**Capitalreduction**

If our Management Board proposes,our Supervisory Board approves and Dutch law permits, the General Meeting ofShareholders can reduce our issued share capital by cancellation of shares orreduction of the nominal value of shares.

 

**Other keyprovisions of our articles of association**

 

**Votingrights and shareholders’ meetings**

We must hold annual generalmeetings of shareholders within six months of the end of our financial year.The annual meeting is held, among other things, to adopt our annual accounts.We must hold extraordinary general meetings of shareholders whenever:

 

·                  Shareholders and holders of American depositary receipts forshares together representing at least one-tenth of our outstanding sharecapital request it in writing, listing the topics to be discussed; and

·                  Our Management Board or our Supervisory Board deemsappropriate.

 

General meetings of shareholdersmay only be held in the municipalities of Leiden, Amsterdam, Haarlemmermeer(including Schiphol Airport and Schiphol-Rijk), Utrecht, Rotterdam and TheHague.

 

Each shareholder can attend generalmeetings in person or by proxy, address the meeting and vote. Each share,whether ordinary or preference, confers one vote on the shareholder. TheManagement Board must be notified in writing of a registered shareholder’sintention to attend the General Meeting of Shareholders. The holders of bearerordinary shares can vote if a NECIGEF participant sends a written statement asto their shareholdings to our offices. Resolutions are passed by absolutemajority of votes cast unless stated otherwise in Dutch law and our articles ofassociation.

 

Shareholders representing alone, orin aggregate, at least one percent (1%) of our issued capital or — according tothe Euronext Official Price List — at least a value of 50 million Euro, havethe right to request the Management Board and the Supervisory Board to placeitems on the agenda of the General Meeting of Shareholders. These requestsshall be honoured on the condition:

 

·                  That the shareholders have a reasonable interest in theitems to be considered;

·                  That the placing on the agenda is not in conflict with theorderly course of the meeting and that there shall be no material interestagainst placing the item on the agenda; and

·                  That the request has been filed in writing with theManagement Board or the Chairman of the Supervisory Board at least 60 daysprior to the date of the General Meeting of Shareholders.

 

The General Meeting of Shareholderscan amend our articles of association, dissolve us, merge us or demerge us onlyif proposed by the Supervisory Board.

 

Dutch law and our articles ofassociation do not impose any limitations on non-Dutch ownership or voting ofour ordinary shares.

 

**Approvalrights of the Supervisory Board**

Our Supervisory Board must approvecertain resolutions of our Management Board, which are specified in ourarticles of association.

 

158

 

**Articles of association and sharecapital**

 

**AnnualReport**

We have a calendar financial year.Dutch law requires that within four months after the end of our financial year,unless the general meeting of shareholders has extended this period for amaximum of six months, our Management Board must make available to theshareholders a report with respect to that financial year. This report mustinclude the financial statements and a report of an independent accountant. TheAnnual Report is submitted to the annual General Meeting of Shareholders foradoption. See ‘Information for Shareholders and Investors — Limitation ofLiability and Indemnification Matters’.

 

**Dividends**

Annual dividends may only be paidout of profits as shown in the adopted annual financial statements. We may notmake distributions if the distribution would reduce our shareholders’ equitybelow certain reserves required by Dutch law or by our articles of association.The profits must first be used to set up and maintain reserves required byDutch law and must then be set off against certain financial losses. Thedividends for the preference shares will be a certain percentage of theirnominal value. These will be paid first. With Supervisory Board approval, ourManagement Board then decides whether and how much of the remaining profit theywill reserve. Any profits remaining shall be paid as a dividend on the ordinaryshares, if the retained earnings are negative or are to be used to form astatutory reserve no dividend will be paid out. With the approval of ourSupervisory Board and subject to Dutch law, our Management Board can pay aninterim dividend.

 

We can make distributions toshareholders at the charge of one or more of our reserves. Holders of sharesare entitled to the full dividend for the financial year 2000 and subsequentfinancial years. Any dividends that are not claimed within five years of theirdeclaration revert to us.

 

**Amendment ofour articles of association and liquidation rights**

The General Meeting of Shareholdersmay only resolve to amend our articles of association or to dissolve, merge ordemerge us on the proposal of our Supervisory Board. The class of shareholdersaffected must approve a resolution to amend the articles of association tochange the rights of the class. If we are dissolved and liquidated, after wepay all debts and liquidation expenses, the holders of preference shares havefirst rights to payment of any dividends not fully paid to them in previousyears and of the nominal value of their preference shares. Any remaining assetswill be distributed to the holders of ordinary shares.

 

**Enforcementof civil liabilities**

We are incorporated under the lawsof the Netherlands, and the majority of the members of our Supervisory Board,all of the members of our Management Board and management team and all of theexperts named in this document are residents of, and most of our and theirassets are located in, jurisdictions outside the US. As a result, it may not bepossible for you to effect service of process within the US upon us or thesepersons, or to enforce against us or these persons in courts in the US,judgments of these courts predicated upon the civil liability provisions of USsecurities laws. In addition, it is not clear whether a Dutch court wouldimpose civil liability on us, members of our Management Board or SupervisoryBoard or management team or any of the experts named in this document in anoriginal action based solely upon the federal securities laws of the US broughtin a court of competent jurisdiction in the Netherlands. Dutch law,furthermore, does not recognize a shareholder’s right to bring a derivativeaction on behalf of a corporation.

 

Our legal counsel in theNetherlands, Allen & Overy, has advised us that because there is notreaty on the reciprocal recognition and enforcement of judgments in civil andcommercial matters between the US and the Netherlands, courts in theNetherlands will not automatically enforce a final judgment rendered by a UScourt. In order to obtain a judgment enforceable in the Netherlands, claimantsmust litigate the relevant claim again before a Dutch court of competentjurisdiction. Under current practice, however, a Dutch court will recognize afinal and conclusive judgment rendered by a US court if the Dutch court findsthat:

 

·                  The US court assumed jurisdiction on grounds that areacceptable from an international law perspective;

·                  The final judgment results from proceedings compatible withDutch concepts of due process; and

·                  The final judgment does not contravene public policy of theNetherlands.

 

If the Dutch court recognizes thefinal US judgment, that court generally will grant the same judgment withoutthe parties having to litigate again on the merits.

 

159

 

**Articles of association and share capitalcontinued**

 

**Obligationsof shareholders to disclose holdings under Dutch law**

Under the Financial Supervision Actany person who, directly or indirectly, acquires, or disposes of, an interestin the capital and/or the voting rights of a public limited liability companyincorporated under Dutch law with an official listing on a stock exchangewithin the European Economic Area must immediately give written notice to theDutch securities regulator AFM by means of a standard form, of such acquisitionor disposal if, as a result of such acquisition or disposal, the percentage ofcapital interest and/or voting rights held by such person meets, exceeds orfalls below the following thresholds: 5%, 10%, 15%, 20%, 25%, 30%, 40%, 50%,60%, 75% and 95%.

 

The notification requirement alsoapplies if a person’s capital interest or voting right meets, exceeds or fallsbelow the above mentioned thresholds as a result of a change in the sharecapital or voting rights, and the notification must be made no later than thefourth trading day after the AFM has published the notification as described inthe following sentence. Crucell is required to notify the AFM immediately ifits share capital or voting rights change by 1% or more since the previousnotification. Other changes must be notified periodically.

 

In addition, the members of theManagement Board and Supervisory Board are required to immediately notify theAFM of any change in the number of Crucell shares or options they hold orvoting rights in respect of these shares. The AFM will disclose thisinformation in a public register on its website. Non-compliance with theobligations of the Financial Supervision Act can lead to criminal prosecution.In addition, a civil court can issue orders against any person who fails tonotify or incorrectly notifies in accordance with the Financial Supervision Act,including suspension of the voting rights in respect of such person’s ordinaryshares.

 

160

 

** **

**Contents**

** **

**Contents**

 
| **Report of  independent registered public accounting firm** | ** ** | **162**    |
|--------------------------------------------------------------|------------|------------|
| ** **                                                   | ** ** | ** ** |
| **Financial  statements**                                    | ** ** | **163**    |
| ** **                                                   | ** ** | ** ** |
| Consolidated statements  of income                           |       | 163        |
| Consolidated statements  of comprehensive income             |       | 164        |
| Consolidated statements  of financial position               |       | 165        |
| Consolidated statements  of changes in equity                |       | 166        |
| Consolidated statements  of cash flows                       |       | 167        |
| Notes to the consolidated  financial statements              |       | 168        |
| Company financial  statements                                |       | 218        |
| Notes to the Company  financial statements                   |       | 219        |
|                                                         |       |       |
| **Other information**                                        | ** ** | **222**    |
| ** **                                                   | ** ** | ** ** |
| **Auditor’s  report**                                   | ** ** | **223**    |
| ** **                                                   | ** ** | ** ** |
| **Information  for shareholders and investors**              | ** ** | **224**    |
| ** **                                                   | ** ** | ** ** |
| **Appendix  overview licensees and partners**                | ** ** | **234**    |
| ** **                                                   | ** ** | ** ** |
| **Cross-reference  to Form 20-F**                       | ** ** | **236**    |
| ** **                                                   | ** ** | ** ** |
| **Exhibits**                                                 | ** ** | **238**    |

 

161

 

**Report of independent registered public accounting firm**

 

**Report of independent registeredpublic accounting firm**

 

**To theSupervisory Board and Shareholders of Crucell N.V. Leiden, the Netherlands**

 

We have audited the accompanyingconsolidated statements of financial position of Crucell N.V. and subsidiaries(the ‘Group’) as of December 31, 2009, 2008 and January 1, 2007 andthe related consolidated statements of income, consolidated statements ofcomprehensive income, consolidated statements of changes in equity, and consolidatedstatements of cash flows for each of the three years in the period ended December 31,2009. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the financialstatements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, such consolidatedfinancial statements present fairly, in all material respects, the financialposition of the Group as of December 31, 2009, 2008 and January 1, 2007 andthe results of their operations and their cash flows for each of the threeyears in the period ended December 31, 2009, in conformity with InternationalFinancial Reporting Standards as issued by the International AccountingStandards Board.

 

As discussed in note 1.5.1 to thefinancial statements as of January 1, 2009, the Group changed its methodof accounting for defined benefit pension plans to recognize actuarial gainsand losses directly in the period in which they occur in other comprehensiveincome, and retrospectively, adjusted the 2008 and 2007 financial statementsfor the change.

 

We have also audited, in accordancewith the standards of the Public Company Accounting Oversight Board (UnitedStates), the Company’s internal control over financial reporting as of December 31,2009, based on the criteria established in Internal Control — IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission and our report dated April 6, 2010 expressed an unqualifiedopinion on the Company’s internal control over financial reporting.

 

Deloitte Accountants B.V.

Amsterdam, The Netherlands

April 6, 2010

 

162

 

**Financial statements**

Consolidatedstatements of income

 

**Consolidated statements of income**

 
| **Year ended December 31,**                                   |       | Notes   | ** ** | **2009**     |       | 2008         |       | 2007         |       |
|--------------------------------------------------------------------|------------|---------|------------|--------------|------------|--------------|------------|--------------|------------|
| (Amounts in  thousands of Euro, except per share data)             |       |    |       |         |       | As adjusted  |       | As adjusted  |       |
|                                                               |       |    |       |         |       |         |       |         |       |
| Product sales                                                      | ** ** |    |       | **304,439**  |       | 226,055      |       | 177,569      |       |
| License revenues                                                   | ** ** |    |       | **23,049**   |       | 30,202       |       | 12,211       |       |
| Service fees                                                       | ** ** |    |       | **10,675**   |       | 10,900       |       | 14,006       |       |
| **Total revenues**                                                 |       | 4       | ** ** | **338,163**  | ** ** | **267,157**  | ** ** | **203,786**  | ** ** |
| ** **                                                         |       |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| Cost of product sales                                              | ** ** |    |       | **(185,599** | **)**      | (138,790     | )          | (124,557     | )          |
| Cost of service and license fees                                   | ** ** |    |       | **(9,014**   | **)**      | (6,965       | )          | (10,327      | )          |
| **Total cost of sales**                                            | ** ** |    | ** ** | **(194,613** | **)**      | **(145,755** | **)**      | **(134,884** | **)**      |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| **Gross margin**                                                   | ** ** |    | ** ** | **143,550**  | ** ** | **121,402**  | ** ** | **68,902**   |       |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   |       |
| Government grants                                                  | ** ** |    |       | **6,870**    |       | 5,380        |       | 7,086        |       |
| Other income                                                       | ** ** |    |       | **12,969**   |       | 10,772       |       | 2,244        |       |
| **Total other operating income**                                   | ** ** |    | ** ** | **19,839**   | ** ** | **16,152**   | ** ** | **9,330**    |       |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   |       |
| Research and development                                           | ** ** |    |       | **(70,176**  | **)**      | (70,229      | )          | (63,995      | )          |
| Selling, general and administrative                                | ** ** |    |       | **(61,400**  | **)**      | (64,778      | )          | (63,566      | )          |
| Reversal of impairment/ (impairment)                               |       | 5.6/5.7 | ** ** | **7,199**    |       | 4,888        |       | (171         | )          |
| **Total other operating expenses**                                 | ** ** |    | ** ** | **(124,377** | **)**      | **(130,119** | **)**      | **(127,732** | **)**      |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| **Operating profit/(loss)**                                        | ** ** |    | ** ** | **39,012**   | ** ** | **7,435**    | ** ** | **(49,500**  | **)**      |
| Financial income                                                   |       | 5.2     | ** ** | **9,020**    |       | 6,935        |       | 13,190       |       |
| Financial expenses                                                 |       | 5.3     | ** ** | **(12,213**  | **)**      | (9,597       | )          | (11,812      | )          |
| Results investments non-consolidated companies                     |       | 5.9     | ** ** | **2,147**    |       | (128         | )          | (996         | )          |
| Results disposal of non-consolidated companies                     |       | 5.9     | ** ** | **—**   |       | 1,570        |       | 2,186        |       |
| Disposal of subsidiaries                                           |       | 1.1     | ** ** | **—**   |       | (367         | )          | —       |       |
| **Profit/ (loss) before tax**                                      | ** ** |    | ** ** | **37,966**   | ** ** | **5,848**    | ** ** | **(46,932**  | **)**      |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| Income tax                                                         |       | 5.4     | ** ** | **(14,028**  | **)**      | 8,402        |       | 2,598        |       |
| **Profit/ (loss) for the year**                                    | ** ** |    | ** ** | **23,938**   | ** ** | **14,250**   | ** ** | **(44,334**  | **)**      |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| Attributable to:                                                   |       |    |       |         |       |         |       |         |       |
| Equity holders of the parent                                       | ** ** |    |       | **23,938**   |       | 14,250       |       | (44,334      | )          |
|                                                               | ** ** |    |       | ** **   |       |         |       |         |       |
| **Profit/ (loss) per share – basic**                          |       | 5.5     | ** ** | **0.34**     | ** ** | **0.22**     | ** ** | **(0.68**    | **)**      |
| **Profit/ (loss) per share – diluted**                        | ** ** |    | ** ** | **0.33**     | ** ** | **0.21**     | ** ** | **(0.68**    | **)**      |
| ** **                                                         | ** ** |    | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** |
| Weighted average shares outstanding – basic (in thousands)    | ** ** |    |       | **70,266**   |       | 65,593       |       | 65,103       |       |
| Weighted average shares outstanding – diluted (in  thousands) | ** ** |    |       | **71,685**   |       | 66,315       |       | 65,103       |       |

 

Following the accounting policyadoption to recognize actuarial gains and losses in other comprehensive incomeas of January 1, 2009, the entries for defined benefit post-employmentplans were adjusted starting January 1, 2007. The impact of thisretrospective application is provided in note 1.5.1. The accompanying notes arean integral part of these financial statements.

 

163

 

**Financial statements**

 

**Consolidated statements of comprehensive income**

 
| **Year ended December 31,**                           | ** ** |   |       | **2009**   |       | 2008        |       | 2007        |       |
|------------------------------------------------------------|------------|--------|------------|------------|------------|-------------|------------|-------------|------------|
| (Amounts in  thousands of Euro)                            |       | Notes  |       |       |       | As adjusted |       | As adjusted |       |
|                                                       |       |   |       |       |       |        |       |        |       |
| **Profit/(loss) for the period**                           | ** ** |   | ** ** | **23,938** | ** ** | **14,250**  | ** ** | **(44,334** | **)**      |
| ** **                                                 | ** ** |   | ** ** | ** ** | ** ** | ** **  | ** ** | ** **  | ** ** |
| Foreign currency translation                               |       |   |       | 13,266     |       | (4,556      | )          | (20,363     | )          |
| Unrealized result on available for sale securities         |       | 3.5    |       | 5,219      |       | (5,086      | )          | (2,330      | )          |
| Unrealized results on cash flow hedges                     |       | 5.13   |       | 742        |       | (685        | )          | —      |       |
| Actuarial gains and losses on pensions                     |       | 5.10   |       | (8,217     | )          | (842        | )          | 1,804       |       |
| Income tax                                                 |       | 5.4    |       | 1,786      |       | 257         |       | (388        | )          |
| **Other comprehensive income for the  period, net of tax** | ** ** |   | ** ** | **12,796** | ** ** | **(10,912** | **)**      | **(21,277** | **)**      |
| ** **                                                 | ** ** |   | ** ** | ** ** | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Total comprehensive income for the period**              | ** ** |   | ** ** | **36,734** | ** ** | **3,338**   | ** ** | **(65,611** | **)**      |
| Attributable to:                                           |       |   |       |       |       |        |       |        |       |
| Equity holders of the parent                               |       |   |       | 36,734     |       | 3,338       |       | (65,611     | )          |

 

Following the accounting policyadoption to recognize actuarial gains and losses in other comprehensive incomeas of January 1, 2009, the entries for defined benefit post-employmentplans were adjusted starting January 1, 2007. The impact of this retrospectiveapplication is provided in note 1.5.1. The accompanying notes are an integralpart of these financial statements.

 

164

 

 

**Financial statements**Consolidated statements of financial position

 

**Consolidated statements of financial position**

 
|                                                | ** ** |   |       | **December 31,** |       | December 31, |       | January 1, |   |
|-----------------------------------------------------|------------|--------|------------|-----------------------|------------|-------------------|------------|-----------------|--------|
|                                                | ** ** |   |       | **2009**              |       | 2008              |       | 2007            |   |
| (Amounts in  thousands of Euro)                     |       | Notes  |       |                  |       | As adjusted       |       | As adjusted     |   |
| **Assets**                                          |       |   |       |                  |       |              |       |            |   |
| **Non-current assets**                              |       |   |       |                  |       |              |       |            |   |
| Property, plant and equipment                       |       | 5.6    |       | 192,615               |       | 151,206           |       | 138,018         |   |
| Intangible assets                                   |       | 5.7    |       | 75,398                |       | 79,004            |       | 113,077         |   |
| Goodwill                                            |       | 5.8    |       | 46,824                |       | 46,076            |       | 47,419          |   |
| Investments in associates and joint ventures        |       | 5.9    |       | 11,433                |       | 9,239             |       | 5,998           |   |
| Pension asset                                       |       | 5.10   |       | 2,923                 |       | 8,612             |       | 3,301           |   |
| Available-for-sale investments                      |       | 3.5    |       | 10,441                |       | 4,922             |       | 12,339          |   |
| Deferred tax asset                                  |       | 5.4    |       | 208                   |       | —            |       | 308             |   |
| Other financial assets                              |       | 5.11   |       | 16,218                |       | 14,920            |       | 16,430          |   |
|                                                | ** ** |   | ** ** | **356,060**           | ** ** | **313,979**       | ** ** | **336,890**     |   |
| Current assets                                      |       |   |       |                  |       |              |       |            |   |
| Cash and cash equivalents                           |       | 5.12   |       | 327,837               |       | 170,969           |       | 157,837         |   |
| Derivative financial instruments                    |       | 5.13   |       | 286                   |       | 1,761             |       | 68              |   |
| Trade accounts receivable                           |       | 5.14   |       | 87,031                |       | 40,108            |       | 58,563          |   |
| Inventories                                         |       | 5.15   |       | 118,420               |       | 91,847            |       | 75,519          |   |
| Other current assets                                |       | 5.16   |       | 121,497               |       | 17,633            |       | 25,084          |   |
|                                                | ** ** |   | ** ** | **655,071**           | ** ** | **322,318**       | ** ** | **317,071**     |   |
| **Total assets**                                    | ** ** |   | ** ** | **1,011,131**         | ** ** | **636,297**       | ** ** | **653,961**     |   |
| ** **                                          | ** ** |   | ** ** | ** **            | ** ** | ** **        | ** ** | ** **      |   |
| Liabilities and equity                              |       |   |       |                  |       |              |       |            |   |
| Equity attributable to equity holders of the parent |       | 5.17   |       | 738,265               |       | 452,534           |       | 497,683         |   |
| Non-current liabilities                             |       |   |       |                  |       |              |       |            |   |
| Long-term provisions                                |       | 5.19   |       | 6,853                 |       | 5,876             |       | 5,380           |   |
| Long-term financial liabilities                     |       | 5.20   |       | 33,533                |       | 35,297            |       | 26,945          |   |
| Deferred tax liabilities                            |       | 5.4    |       | 18,830                |       | 16,644            |       | 33,701          |   |
| Other non-current liabilities and deferred income   |       | 5.21   |       | 55,484                |       | 7,645             |       | —          |   |
|                                                | ** ** |   | ** ** | **114,700**           | ** ** | **65,462**        | ** ** | **66,026**      |   |
| Current liabilities                                 |       |   |       |                  |       |              |       |            |   |
| Short-term provisions                               |       | 5.19   |       | 739                   |       | 1,581             |       | 2,874           |   |
| Short-term financial liabilities                    |       | 5.20   |       | 18,767                |       | 26,333            |       | 19,468          |   |
| Other current liabilities and deferred income       |       | 5.21   |       | 47,512                |       | 28,405            |       | 29,132          |   |
| Income tax payable                                  |       |   |       | 12,049                |       | 2,777             |       | 266             |   |
| Trade accounts payable                              |       | 5.22   |       | 79,099                |       | 59,205            |       | 38,512          |   |
|                                                | ** ** |   | ** ** | **158,166**           | ** ** | **118,301**       | ** ** | **90,252**      |   |
| **Total liabilities**                               | ** ** |   | ** ** | **272,866**           | ** ** | **183,763**       | ** ** | **156,278**     |   |
| **Total liabilities and equity**                    | ** ** |   | ** ** | **1,011,131**         | ** ** | **636,297**       | ** ** | **653,961**     |   |

 

Following the accounting policyadoption to recognize actuarial gains and losses in other comprehensive incomeas of January 1, 2009, the entries for defined benefit post-employmentplans were adjusted starting January 1, 2007. The impact of thisretrospective application is provided in note 1.5.1. The accompanying notes arean integral part of these financial statements.

 

165

 

**Financial statements**

 

**Consolidated statements of changes in equity**

 
| ** **                                   |       | Issued  capital |       | Share  premium |       | Net  unrealized  gains reserve |   | Hedging  reserve |       | Actuarial  gains /  (losses) on  pensions |   | Translation  reserve |   | Accumulated  deficit |   | Total  equity |       |
|----------------------------------------------|------------|-----------------|------------|----------------|------------|--------------------------------|--------|------------------|------------|-------------------------------------------|--------|----------------------|--------|----------------------|--------|---------------|------------|
| **At January 1, 2007**                  | ** ** | **15,553**      | ** ** | **726,869**    | ** ** | **10,670**                     |   | —           |       | —                                    |   | **(7,933**           | **)**  | **(247,273**         | **)**  | **497,886**   | ** ** |
| Change in accounting policy                  |       | —          |       | —         |       | —                         |   | —           |       | 383                                       |   | —               |   | (586                 | )      | (203          | )          |
| **At January 1, 2007 (As  adjusted)**   | ** ** | **15,553**      | ** ** | **726,869**    | ** ** | **10,670**                     |   | **—**       | ** ** | **383**                                   |   | **(7,933**           | **)**  | **(247,859**         | **)**  | **497,683**   | ** ** |
| Issue of shares                              |       | 132             |       | 2,185          |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 2,317         |       |
| Cost of share-based payments                 |       | —          |       | 6,524          |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 6,524         |       |
| Total comprehensive income                   |       |            |       |           |       |                           |   |             |       |                                      |   |                 |   |                 |   |          |       |
| for the period                               |       | —          |       | —         |       | (2,330                         | )      | —           |       | 1,416                                     |   | (20,363              | )      | (44,334              | )      | (65,611       | )          |
| **At December 31, 2007 (As  adjusted)** | ** ** | **15,685**      | ** ** | **735,578**    | ** ** | **8,340**                      |   | **—**       | ** ** | **1,799**                                 |   | **(28,296**          | **)**  | **(292,193**         | **)**  | **440,913**   | ** ** |
| Issue of shares                              |       | 115             |       | 3,115          |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 3,230         |       |
| Cost of share-based payments                 |       | —          |       | 5,053          |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 5,053         |       |
| Total comprehensive income                   |       |            |       |           |       |                           |   |             |       |                                      |   |                 |   |                 |   |          |       |
| for the period                               |       | —          |       | —         |       | (5,086                         | )      | (685             | )          | (585                                      | )      | (4,556               | )      | 14,250               |   | 3,338         |       |
| **At December 31, 2008 (As  adjusted)** | ** ** | **15,800**      | ** ** | **743,746**    | ** ** | **3,254**                      |   | **(685**         | **)**      | **1,214**                                 |   | **(32,852**          | **)**  | **(277,943**         | **)**  | **452,534**   | ** ** |
| Issue of shares                              |       | 3,747           |       | 237,518        |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 241,265       |       |
| Cost of share-based payments                 |       | —          |       | 7,732          |       | —                         |   | —           |       | —                                    |   | —               |   | —               |   | 7,732         |       |
| Total comprehensive income for               |       |            |       |           |       |                           |   |             |       |                                      |   |                 |   |                 |   |          |       |
| the period                                   |       | —          |       | —         |       | 5,219                          |   | 742              |       | (6,431                                    | )      | 13,266               |   | 23,938               |   | 36,734        |       |
| **At December 31, 2009**                | ** ** | **19,547**      | ** ** | **988,996**    | ** ** | **8,473**                      |   | **57**           | ** ** | **(5,217**                                | **)**  | **(19,586**          | **)**  | **(254,005**         | **)**  | **738,265**   | ** ** |

 

Following the accounting policyadoption to recognize actuarial gains and losses in other comprehensive incomeas of January 1, 2009, the entries for defined benefit post-employmentplans were adjusted starting January 1, 2007. The impact of thisretrospective application is provided in note 1.5.1. The accompanying notes arean integral part of these financial statements.

 

166

 

**Financial statements**

Consolidatedstatements of cash flows

 

**Consolidated statements of cash flows**

 
| **Year ended December 31,**                              | ** ** | **Notes** | ** ** | **2009**     | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|---------------------------------------------------------------|------------|-----------|------------|--------------|------------|-------------|------------|-------------|------------|
| (Amounts in  thousands of Euro)                               |       |      |       |         |       | As adjusted |       | As adjusted |       |
|                                                          |       |      |       |         |       |        |       |        |       |
| **Cash flows from (used in) operating  activities**           |       | 5.27      |       |         |       |        |       |        |       |
| Profit/ (loss) before tax                                     | ** ** |      |       | **37,966**   |       | 5,848       |       | (46,932     | )          |
|                                                          | ** ** |      |       | ** **   |       |        |       |        |       |
| Adjustments                                                   |       |      |       |         |       |        |       |        |       |
| Results of investments in associates and joint ventures       |       | 5.9       | ** ** | **(2,147**   | **)**      | 128         |       | 996         |       |
| Financial income and expenses                                 |       | 5.2/ 5.3  | ** ** | **(814**     | **)**      | 3,963       |       | (1,378      | )          |
| Amortization                                                  |       | 5.7       | ** ** | **11,107**   |       | 11,674      |       | 11,894      |       |
| Depreciation                                                  |       | 5.6       | ** ** | **20,393**   |       | 16,629      |       | 14,453      |       |
| (Reversal of impairment)/impairment                           |       | 5.6/ 5.7  | ** ** | **(7,199**   | **)**      | (4,888      | )          | 171         |       |
| Change in pension assets                                      |       | 5.10      | ** ** | **5,658**    |       | (750        | )          | (3,871      | )          |
| Non-cash change in long-term deferred income and  provisions  |       | 5.19/5.20 | ** ** | **(15,722**  | **)**      | (4,131      | )          | 13,276      |       |
| Stock-based compensation                                      |       | 5.18      | ** ** | **7,732**    |       | 5,053       |       | 6,817       |       |
| Other non-cash items                                          | ** ** |      |       | **85**       |       | (139        | )          | 6,257       |       |
|                                                          | ** ** |      |       | ** **   |       |        |       |        |       |
| Changes in net working capital                                |       |      |       |         |       |        |       |        |       |
| Trade accounts receivable and other current assets            | ** ** |      |       | **(44,527**  | **)**      | 4,191       |       | 7,968       |       |
| Inventories                                                   | ** ** |      |       | **(21,475**  | **)**      | (37,121     | )          | (6,128      | )          |
| Trade accounts payable and other current liabilities          | ** ** |      |       | **38,253**   |       | 3,116       |       | 23,330      |       |
|                                                          | ** ** |      |       | ** **   |       |        |       |        |       |
| Interest paid                                                 | ** ** |      |       | **(2,934**   | **)**      | (2,684      | )          | (2,152      | )          |
| Income taxes paid                                             | ** ** |      |       | **(3,677**   | **)**      | (576        | )          | (1,545      | )          |
| Receipts from / (payments of) deferred income and  provisions | ** ** |      |       | **54,167**   |       | (567        | )          | (962        | )          |
| **Net cash flows from (used in) operating  activities**       | ** ** |      | ** ** | **76,866**   | ** ** | **(254**    | **)**      | **22,194**  |       |
| ** **                                                    | ** ** |      | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  |       |
| **Cash flows from (used in) investing  activities**           |       | 5.28      |       |         |       |        |       |        |       |
| Purchase of property. plant and equipment                     |       | 5.6       | ** ** | **(51,035**  | **)**      | (15,787     | )          | (27,156     | )          |
| Proceeds from sale of equipment                               |       | 5.6       | ** ** | **371**      |       | —      |       | 113         |       |
| Acquisition of intangible assets (including goodwill)         |       | 5.7/ 5.8  | ** ** | **(5,477**   | **)**      | (237        | )          | —      |       |
| Acquisition of business                                       |       | 5.8       | ** ** | **(453**     | **)**      | —      |       | —      |       |
| Proceeds from / (investments) non-consolidated companies      |       | 5.9       | ** ** | **—**   |       | 182         |       | (2,472      | )          |
| Proceeds from / (investments in) financial assets             | ** ** |      |       | **(100,047** | **)**      | 2,540       |       | —      |       |
| Interest received                                             |       | 5.2       | ** ** | **2,254**    |       | 4,395       |       | 5,274       |       |
| **Net cash flows (used in) investing  activities**            | ** ** |      | ** ** | **(154,387** | **)**      | **(8,907**  | **)**      | **(24,241** | **)**      |
| ** **                                                    | ** ** |      | ** ** | ** **   | ** ** | ** **  | ** ** | ** **  | ** ** |
| **Cash flows from financing activities**                      |       | 5.29      |       |         |       |        |       |        |       |
| Proceeds from issue of share capital                          |       | 5.17      | ** ** | **241,265**  |       | 3,230       |       | 2,281       |       |
| Proceeds from financial liabilities                           |       | 5.20      | ** ** | **3,316**    |       | 35,732      |       | 10,309      |       |
| Repayment of financial liabilities                            |       | 5.20      | ** ** | **(13,069**  | **)**      | (22,336     | )          | (1,346      | )          |
| **Net cash flows from financing activities**                  | ** ** |      | ** ** | **231,512**  | ** ** | **16,626**  | ** ** | **11,244**  |       |
| **Total cash flow**                                           | ** ** |      | ** ** | **153,991**  | ** ** | **7,465**   | ** ** | **9,197**   |       |
| Effect of exchange rates on cash and cash equivalents         | ** ** |      |       | **2,877**    |       | 256         |       | (3,786      | )          |
|                                                          | ** ** |      |       | ** **   |       |        |       |        |       |
| **Net increase in cash and cash equivalents**                 | ** ** |      | ** ** | **156,868**  | ** ** | **7,721**   | ** ** | **5,411**   |       |
| Cash and cash equivalents at beginning of the year            |       | 5.12      | ** ** | **170,969**  |       | 163,248     |       | 157,837     |       |
| **Cash and cash equivalents at end of the  year**             |       | 5.12      | ** ** | **327,837**  | ** ** | **170,969** | ** ** | **163,248** | ** ** |

 

Following the accounting policyadoption to recognize actuarial gains and losses in other comprehensive incomeas of January 1, 2009, the entries for defined benefit post-employmentplans were adjusted starting January 1, 2007. The impact of thisretrospective application is provided in note 1.5.1. The accompanying notes arean integral part of these financial statements.

 

167

** **

**Financial statements**

 

**Notes to the consolidated financial statements**

(Amounts in thousands of Euro,except per share data or as otherwise noted)

 

**1****                ****General information**

 

**1.1**      **Corporate information**

 

**General**

Crucell N.V. (the ‘Company’) isincorporated and domiciled in Leiden, the Netherlands. Its shares are publiclytraded on NYSE Euronext Amsterdam (CRXL), and SWX Swiss Exchange Zurich (CRX).Its American Depositary Shares (ADSs) are publicly traded on NASDAQ New York(CRXL). The Company and its subsidiaries together constitute the Crucell Group,or the ‘Group’. The Company has subsidiaries in the Netherlands, Switzerland,Spain, Italy, Sweden, Korea, the United Kingdom and the US. The Group employed1,248 people at December 31, 2009 (2008: 1,126).

 

Crucell is a fully integratedbiopharmaceutical company, focused on developing, producing and marketing productsto combat infectious diseases. Its core vaccine portfolio includes Inflexal V,a vaccine against influenza, paediatric vaccines Hepavax-Gene, Quinvaxem,Epaxal junior and MoRu-Viraten, and travel vaccines Vivotif, Dukoral, andEpaxal. In addition to these portfolio vaccines, the Group has a broad pipelineof new potential vaccines and proteins. The Group has developed variousproprietary technologies such as PER.C6, MAbstract, AdVac, STAR andvirosome-adjuvanted technologies. The Group licenses these proprietarytechnologies to other companies in the biopharmaceutical industry.

 

**Changes inthe scope of consolidation**

The consolidated financialstatements include the results of the acquired companies for the period fromthe date of acquisition unless mentioned otherwise. There has been thefollowing change in the scope of consolidation in 2009. On June 5, 2009the Group established Crucell UK Ltd. On July 15, 2009 the Grouppurchased, via its subsidiary Crucell UK Ltd., selected assets and liabilities ofUK-based Masta Ltd. See note 5.8 ‘Goodwill and business combinations’ for moreinformation on this acquisition.

 

In 2008, the most significantchange in the scope of consolidation was the sale of the Group’s fully-ownedsubsidiary Etna Biotech Srl (Catania, Italy) to Zydus Cadila (Ahmadabad,India). The sale resulted in net proceeds for Crucell of € 182.

 

168

 

 

**Financial statements**

Notes to theconsolidated financial statements

 

**List of consolidated companies**

The Company’s most significantsubsidiaries as of December 31, 2009 were:

 
| Name                                                    |   | Legal seat  ownership |   | Country        |   | 2009  ownership |   | 2008  ownership |   | 2007  ownership |   |
|---------------------------------------------------------|--------|-----------------------|--------|----------------|--------|-----------------|--------|-----------------|--------|-----------------|--------|
| Crucell Holland B.V.                                    |   | Leiden                |   | Netherlands    |   | 100%            |   | 100%            |   | 100%            |   |
| U-BiSys B.V.                                            |   | Utrecht               |   | Netherlands    |   | 100%            |   | 100%            |   | 100%            |   |
| ChromaGenics B.V.                                       |   | Amsterdam             |   | Netherlands    |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Switzerland AG  (prior: Berna Biotech AG)       |   | Bern                  |   | Switzerland    |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Spain SA (prior:  Berna Biotech España SA) |   | Madrid                |   | Spain          |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Italy Srl (prior:  Berna Biotech Italia Srl)    |   | Milano                |   | Italy          |   | 100%            |   | 100%            |   | 100%            |   |
| Etna Biotech Srl                                        |   | Catania               |   | Italy          |   | —          |   | —          |   | 100%            |   |
| Berna Rhein B.V.                                        |   | Leiden                |   | Netherlands    |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell UK Ltd.                                         |   | Shipley, Bradford     |   | United Kingdom |   | 100%            |   | —          |   | —          |   |
| Berna Biotech Korea corp.                               |   | Seoul                 |   | Korea          |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Holding Inc.                                    |   | Wilmington, DE        |   | United States  |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Vaccines Inc.                                   |   | Wilmington, DE        |   | United States  |   | 100%            |   | 100%            |   | 100%            |   |
| Crucell Biologics Inc.                                  |   | Wilmington, DE        |   | United States  |   | 100%            |   | 100%            |   | 100%            |   |
| SBL Vaccin Holding AB                                   |   | Stockholm             |   | Sweden         |   | —          |   | —          |   | 100%            |   |
| Crucell Sweden AB (prior:  SBL Vaccin AB)               |   | Stockholm             |   | Sweden         |   | 100%            |   | 100%            |   | 100%            |   |
| Vitec AB                                                |   | Stockholm             |   | Sweden         |   | —          |   | —          |   | 100%            |   |

 

Joint venture and associatedcompanies (not consolidated)

 
| Name              |   | Joint venture/associate  ownership |   | Legal seat  ownership |   | Country           |   | 2009  ownership |   | 2008  ownership |   | 2007  ownership |   |
|-------------------|--------|------------------------------------|--------|-----------------------|--------|-------------------|--------|-----------------|--------|-----------------|--------|-----------------|--------|
| Percivia LLC      |   | Joint venture                      |   | Cambridge, MA         |   | United States     |   | 50.0%           |   | 50.0%           |   | 50.0%           |   |
| ADImmune corp.    |   | Associated company                 |   | Taipei                |   | Republic of China |   | 11.8%           |   | 11.8%           |   | 20.0%           |   |
| Kenta Biotech AG* |   | Sold                               |   | Bern                  |   | Switzerland       |   | —          |   | —          |   | 22.0%           |   |

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

 

**1.2 Basisof preparation**

 

The consolidated financialstatements of the Group have been prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as issued by the International AccountingStandards Board (IASB) and are prepared on a historical cost basis unlessstated otherwise. There are no differences between IFRS applied by the Groupand IFRS as endorsed by the EU.

 

As permitted by article 362 of Book2 of the Netherlands Civil Code, the company financial statements have beenprepared applying the same IFRS accounting policies as used in the consolidatedfinancial statements. In conformity with article 402, Book 2 of the Dutch CivilCode, the Company statement of income is presented in abbreviated form.

 

The financial statements for theyear ended December 31, 2009 were authorized for issue in accordance witha director’s resolution on April 6, 2010.

 

**Foreigncurrency translation**

The functional and presentationcurrency of the Company is the Euro. All values are rounded to the nearestthousand (€ 000) unless indicated otherwise.

 

Each entity in the group determinesits own functional currency based on the primary economic environment in whichthe entity operates. Items included in the financial statements of each entityare measured using that functional currency. Transactions in foreign currenciesare initially recorded in the functional currency rate ruling at the date ofthe transaction. Monetary assets and liabilities denominated in foreigncurrencies are retranslated at the functional currency rate of exchange rulingat the year-end. All differences are taken to the statement of income.Non-monetary items that are measured in terms of historical cost in a foreigncurrency are translated using the exchange rates as at the dates of the initialtransactions. Non-monetary items measured at fair value in a foreign currencyare translated using the exchange rates at the date when the fair value wasdetermined.

 

169

 

**Financial statements**

** **

**Notes to the consolidated financial statements continued**

 

At the reporting date, the assetsand liabilities of subsidiaries with different functional currencies aretranslated into Euro at the rate of exchange ruling at the year-end and theirstatements of income and statements of cash flows are translated into Euro atthe weighted average exchange rates for the year. The exchange rate differencesarising on the translation are taken directly to the translation reserve, aseparate component of equity.

 

**1.3 Basisof consolidation**

 

The consolidated financialstatements comprise the financial statements of the Company and itssubsidiaries per December 31 and for the period then ended. The financialstatements of the subsidiaries are prepared for the same reporting year as theGroup, using consistent accounting policies. All intra-group balances andtransactions are eliminated in full.

 

**Subsidiaries**

Subsidiaries are entitiescontrolled by the Company. Control is achieved where the Company has the powerto govern the financial and operational policies of an enterprise so as toobtain benefits from its activities. Subsidiaries are fully consolidated fromthe date of acquisition, which is the date on which the Group obtains control,and continue to be consolidated until the date such control ceases.

 

**Jointventures**

A joint venture is a contractualarrangement whereby two or more parties undertake an economic activity that issubject to joint control. A jointly controlled entity is a joint venture thatinvolves the establishment of a separate entity in which each venture has aninterest. The Group recognizes its interest in joint ventures using the equitymethod. Under the equity method, the investment in the joint venture is carriedin the statement of financial position at cost plus post-acquisition changes inthe Group’s share of net assets of the joint venture. The statement of incomereflects the share of the results of operations of the joint venture.Periodically the Group determines whether it is necessary to recognize an impairmentloss with respect to the Group’s net investment in the joint venture. Thereporting dates of the joint ventures are the same as those of the Group andthe accounting policies of the joint ventures conform to those used by theGroup.

 

**Associates**

The Group’s investments inassociates are accounted for under the equity method of accounting and areinitially recognized at cost. An associate is an entity in which the Group hassignificant influence and which is neither a subsidiary nor a joint venture.The reporting dates of the associates are the same as those of the Group andthe associates’ accounting policies conform to those used by the Group.

 

**1.4 Use ofestimates and judgments**

 

The preparation of financialstatements requires Management to make judgments, estimates and assumptionsthat affect the application of accounting policies and the reported amounts ofassets, liabilities, income and expenses. Actual results may differ from theseestimates.

 

Estimates and underlyingassumptions are reviewed on an ongoing basis. Revisions to accounting estimatesare recognized in the period in which the estimate is revised and in any futureperiods affected. In particular, information about significant areas ofestimation uncertainty and use of critical judgments in applying accountingpolicies that have the most significant effect on the amount recognized in thefinancial statements are described below.

 

**Revenuerecognition**

Sales transactions concluded by theGroup may be complex as the underlying sales agreements can contain multiplecomponents whose accounting treatment may be affected by the other components.Reviewing these agreements requires due care and a degree of management’sjudgment. Revenue is not recognized before it is assessed that significant risksand rewards of ownership have been transferred and that the Group retains nocontinuing managerial involvement or effective control over the goods

 

170

 

**Financial statements**

Notes to theconsolidated financial statements

 

sold. For some transactions thiscan result in cash receipts being initially recognized as deferred income andthen released to income over subsequent periods on the basis of the performanceof the conditions specified in the agreement. The Group is also subject tovarious licensing agreements that contain milestones, which may only berecognized if they are ‘substantive’.

 

On September 28, 2009 theGroup entered into a strategic collaboration with affiliates of Johnson andJohnson (“JNJ”), which included among others an equity purchase agreement andtwo collaboration agreements. Management determined that the strategiccollaboration should be viewed as one overall agreement as the commercialeffect of the full transaction cannot be understood without reference to theseries of agreements as a whole. This affects primarily the accountingtreatment of the premium paid by JNJ over the shares issued. Managementdetermined that, for accounting purposes, the premium on the shares is notwarranted by the share issuance itself as it considered the price of the NYSEEuronext listed shares of the Company at the date of issuance to be the bestfair value indicator. Hence the full premium in an amount of € 68,455 wasallocated to the development programs. The premium was classified as deferredincome and will be amortized over the duration of the continuing performanceobligations of the development programs.

 

**Valuationof deferred tax assets and liabilities**

Determination of income taxes injurisdictions in which the Group operates requires exercising judgment. Thisinvolves estimating the actual current tax exposure together with assessing thevaluation of carry forward losses and temporary differences. The temporarydifferences mainly relate to intangible assets, property, plant and equipment,inventories and pension assets.

 

In assessing the valuation of thedeferred tax assets and liabilities the following items are considered: thefuture taxable profit projections, historical results, tax planning strategies,changes (substantively) enacted in tax laws and the specific timing of therecovery of deferred tax positions. In the event that actual results differfrom these estimates due to future changes in income tax law or after finalreview of tax returns by tax authorities, the Group may need to adjust thevaluation of its deferred tax assets and liabilities, which could materiallyimpact the financial position and results of operations. Management believesthat the estimates are reasonable.

 

As at December 31, 2009, theGroup had unrecognized tax carry forward losses of € 180,261 (2008: € 172,732,2007: € 254,511) that are available, with certain restrictions in time, foroffset against future taxable profits of the companies in which the lossesarose. Management assesses periodically the likelihood that the carry forwardlosses will be recovered from future taxable profit. If Management determinesthat recovery of carry forward losses is probable, a deffered tax asset isrecognized. In 2008, a deferred tax asset of € 8,585 was recognized for carryforward losses of Crucell Switzerland AG, which was previously unrecognized dueto lack of evidence of future taxable income. In 2009 this deferred tax assetwas reduced by € 3,762 due to taxable profits. At the end of 2009 the totaldeferred tax assets for carry forward losses amounted to € 5,488 (2008: €9,060, 2007: € 678)). To the extent the likelihood of deferred tax assetschanges, an expense or a gain within the tax charge in our statement of incomefor the relevant period will be included.

 

**Impairmentreviews**

An impairment test on goodwill, andother assets that are not amortized, is performed annually and when there is anindication that the related CGU may be impaired. Other assets are tested whenthere is an indication that the asset is impaired.

 

For the purpose of impairmenttesting, assets are allocated to a cash generating unit (CGU). A CGU’srecoverable amount is the higher of the CGU’s fair value less costs to sell andits value in use. The Group starts its impairment reviews by determining theCGU’s recoverable amount based on the fair value less costs to sell of anasset. If the fair value less costs to sell does not exceed the carryingamount, the Group will also consider the value in use before an impairment isrecognized. The best evidence of a CGU’s fair value less costs to sell is aprice in a binding sale agreement in an arm’s length transaction, adjusted forincremental costs that would be directly attributable to the disposal of theCGU. However for most of the Group’s CGUs there are typically no observablemarket prices as the CGUs have a level of specificity for which no activemarket exists. The fair values less costs to sell are based on discounted netpresent value calculations that use assumptions applicable in the currentmarket. Where applicable, the forecasted cash flows for pre-clinical programsare adjusted for the risk of failure of the program. See note 5.8 ‘Goodwill andbusiness combinations’ for more information on key assumptions.

 

171

 

**Financial statements**

** **

**Notes to the consolidated financial statementscontinued**

 

In December, 2006, an impairmentloss of € 19,568 was recognized for two buildings, including installedequipment. Both buildings are located in Switzerland. Crucell Switzerland AGperformed contract manufacturing and conducted a candidate vaccine developmentprogram in those buildings. The development of the candidate vaccine and thecontract manufacturing were phased out during 2007. Consequently, the fullcarrying value of € 19,568 for the two buildings was impaired.

 

In the first quarter of 2008, theGroup entered into an exclusive agreement with Wyeth Pharmaceuticals. The Groupdeveloped and manufactured certain components of a vaccine for use by Wyeth inclinical studies. The contract manufacturing takes place in one of the twobuildings that were impaired in 2006. The Group reassessed the recoverableamount of the building and reversed € 5,219 of the previously recognized impairmentloss. The depreciable life of the assets to which we reversed impairments was18 months. The depreciable life was equal to the life assigned to the Wyethcontract.

 

In the third quarter of 2009, theGroup reversed an impairment of € 8,084 relating to the buildings in Bern,Switzerland as alternative usages for both buildings were found. The buildingsare now being used as development production sites for Epaxal and tuberculosisvaccines. The buildings have been adapted to the specific needs of the developmentprograms, which avoided major spending in the construction of new developmentfacilities. The Group reassessed the recoverable amount of the asset andreversed € 8,084 of the previously recognized impairment loss. This reversalwas the maximum amount that could be reversed as the reversal of an impairmentloss cannot be increased above the asset’s carrying amount had no impairmentloss been recognized in prior periods.

 

In 2009, there were several smallerimpairments in Switzerland, Sweden, the Netherlands and Korea for individualitems of property, plant and equipment totaling to an amount of € 885.

 

**Valuationof defined benefit plans**

The pension liability recognized inthe statement of financial position is the present value of the defined benefitobligation at the end of the financial year, less the fair value of the planassets after adding or subtracting unrecognized past-service costs. 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.

 

The assumptions used in theactuarial calculation can have a significant impact on the outcome. See note 5.10‘Retirement benefit obligations’ for more information on the Group’s principalassumptions used in determining the employee benefit obligations for thedefined benefit plans. Changes in these key assumptions can have a significantimpact on the defined benefit obligations, funding requirements and periodiccosts incurred. The Group consults at least annually with external actuariesregarding these assumptions.

 

**Share-basedpayments**

*Optionplans*

The Company operates share-basedpayment programs, whereby in consideration for equity instruments bothemployees and non-employees render services.

 

The cost of equity-settledshare-based option programs are measured by reference to the fair value at the dateon which they are granted. The Company accounts for its stock options under thefair value method. See note 5.18 ‘Share-based payment plans’ for moreinformation on the Group’s weighted average assumptions that were used indetermining the fair value of the stock options.

 

Expected volatilities are based onhistorical volatilities of the Company’s stock measured over a periodcommensurate with the expected term of the grants. The expected term used isbased on the anticipated exercise behavior. Dividend yields used are based onhistorical information as to

 

172

 

**Financial statements**

Notes to theconsolidated financial statements

 

dividends declared by the Company.Risk-free interest rates used are equal to the implied yield available onzero-coupon government bonds with a remaining term equal to the expected termof the share-based instrument.

 

Some of our share-based optionprograms include specific market-based conditions that are estimated at thetime of the grant. Estimates of market based conditions that have an effect onthe fair values of any shares or options allocated in our share based paymentplans are share price growth on the stock markets and our Total ShareholderReturn (‘TSR’) compared to an index of biotech companies. TSR reflects thereturn received by a shareholder, taking into account both the change in shareprice and dividends received, while assuming dividends are re-invested in theCompany.

 

**Recognitionof provisions for litigations and claims**

Provisions are recognized when theGroup has a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and a reliable estimate can be madeof the amount of the obligation. Management uses judgment in determining theprovision for litigations and exposure to contingent liabilities related topending litigation or other outstanding claims. Judgment is used in assessingthe likelihood that a pending claim will succeed or a liability will arise andin quantifying the possible range of the final settlement.

 

The Group is subjected to(potential) lawsuits and other legal proceedings, resulting from the ordinarycourse of business. The current status of pending proceedings has been reviewedwith legal counsel. Upon consideration of known relevant facts andcircumstances, provisions were recognized for losses that are considered to bemore likely than not and that can reasonably be estimated at the year-end.

 

**1.5**      **Changes in accounting policies**

 

**1.5.1**                   **New adopted accounting policies in the financial year 2009**

 

**Change inaccounting policy**

In 2009, the Group changed itspolicy in accounting for actuarial gains and losses of defined benefit pensionsplans. Starting 2009, the Group recognizes actuarial gains and losses in theperiod in which they occur in other comprehensive income. Previously the Groupaccounted for its actuarial gains and losses arising from experience-basedadjustments and changes in actuarial assumptions in line with the ‘corridor’method as described in IAS 19.92.

 

Recognition of actuarial gains andlosses when they occur provides more relevant and timely information, becauseit requires an employer to recognize all transactions and events of a definedbenefit postretirement plan in comprehensive income in the period in which theyoccur. The Group believes that this view is confirmed by recent developments inthe IASB and current accounting regulations as issued by the FASB, whichpropose to eliminate the smoothing and deferral mechanism of the “corridor”method.

 

In addition, the amount recognizedin the statement of financial position can be reconciled more easily to thefunded status of the defined benefit pension funds. The Group’s only remainingdifference between the funded status and the amount in the statement offinancial position is the limitation on the recognized defined benefit assetsrecognized due to the ‘asset ceiling’.

 

173

 

 

**Financial statements**

** **

**Notes to the consolidated financial statements continued**

 

The Group adjusted comparativeamounts disclosed for each prior period presented as if the new accountingpolicy had always been applied. The impact on the December 31, 2009, 2008and 2007 financial statements are as follows:

 
| In thousands of Euro                                | ** ** | ** **     | ** ** | ** ** | ** ** | **2009**      | ** ** | ** **     | ** ** | ** ** | ** ** | **2008**    | ** ** | ** **     | ** ** | ** ** | ** ** | **2007**      | ** ** |
|-----------------------------------------------------|------------|----------------|------------|------------|------------|---------------|------------|----------------|------------|------------|------------|-------------|------------|----------------|------------|------------|------------|---------------|------------|
| **Year ended  December 31,**                   |       | Before  change |       | Impact     |       | After  Change |       | Before  change |       | Impact     |       | AfterChange |       | Before  change |       | Impact     |       | After  Change | ** ** |
| **Statement of income**                             |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |       |       |          |       |
| Gross margin                                        |       | 143,550        |       | —     |       | 143,550       |       | 121,402        |       | —     |       | 121,402     |       | 68,902         |       | —     |       | 68,902        |       |
| Operating expenses                                  |       | (132,084       | )          | 7,707      |       | (124,377      | )          | (129,691       | )          | (428       | )          | (130,119    | )          | (125,918       | )          | (1,814     | )          | (127,732      | )          |
| Profit (loss) before tax                            |       | 30,259         |       | 7,707      |       | 37,966        |       | 6,276          |       | (428       | )          | 5,848       |       | (45,118        | )          | (1,814     | )          | (46,932       | )          |
| Income Tax                                          |       | (12,367        | )          | (1,661     | )          | (14,028       | )          | 8,310          |       | 92         |       | 8,402       |       | 2,208          |       | 390        |       | 2,598         |       |
| Profit/(loss) for the year                          |       | 17,892         |       | 6,046      |       | 23,938        |       | 14,586         |       | (336       | )          | 14,250      |       | (42,910        | )          | (1,424     | )          | (44,334       | )          |
|                                                |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |       |       |          |       |
| **Statement of comprehensive income**               |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |
| Recognized income and  (expense)                    |       | 37,202         |       | (468       | )          | 36,734        |       | 4,106          |       | (768       | )          | 3,338       |       | (65,624        | )          | 13         |       | (65,611       | )          |
|                                                |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |       |       |          |       |
| As of December 31,                             | ** ** | ** **     | ** ** | ** ** | ** ** | **2009**      | ** ** | ** **     | ** ** | ** ** | ** ** | **2008**    | ** ** | ** **     | ** ** | ** ** | ** ** | **2007****1** | ** ** |
| **Statement of financial position**                 |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |       |       |
| Provisions                                          |       | 5,671          |       | 1,921      |       | 7,592         |       | 6,158          |       | 1,299      |       | 7,457       |       | 5,334          |       | 233        |       | 5,567         |       |
| Deferred tax liabilities                            |       | 19,325         |       | (495       | )          | 18,830        |       | 16,985         |       | (341       | )          | 16,644      |       | 29,267         |       | (43        | )          | 29,224        |       |
| Equity attributable to  equityholders of the parent |       | 739,691        |       | (1,426     | )          | 738,265       |       | 453,492        |       | (958       | )          | 452,534     |       | 441,103        |       | (190       | )          | 440,913       |       |
|                                                |       |           |       |       |       |          |       |           |       |       |       |        |       |           |       |       |       |          |       |
| Profit (loss) per share —  basic               |       | 0.25           |       | 0.09       |       | 0.34          |       | 0.22           |       | (0.00      | )          | 0.22        |       | (0.66          | )          | (0.02      | )          | (0.68         | )          |
| Profit (loss) per share —  diluted             |       | 0.25           |       | 0.08       |       | 0.33          |       | 0.22           |       | (0.01      | )          | 0.21        |       | (0.66          | )          | (0.02      | )          | (0.68         | )          |

1 The impact ofthe change in the accounting policy as at January 1, 2007 is presentedseparately in the consolidated statements of changes in equity and the relevantnotes to the financial statements.

 

When an entity applies an accountingpolicy retrospectively, IFRS requires that as a minimum, three statements offinancial position, and two of each of the other statements, and related notesare presented. An entity should present the statements of financial position asat the end of the current period, the end of the previous period and as at thebeginning of the earliest comparative period. Security Exchange Commissionregulations require that all registrants should give two years of comparatives(to the current year) for all statements except for the statement of financialposition, which requires one comparative year. Consequently the earliestcomparative period presented is the statement as at the beginning of thefinancial year starting January 1, 2007. The Group chose not to disclosethe statement of financial position as at December 31, 2007.

 

**1.5.2Accounting policies effective for the financial year 2009**

The following (amendments toexisting) standards and interpretations were effective for the financial year2009.

 

·                  IFRS 8, ‘Operating segments’ is effective from January 1, 2009.IFRS 8 requires a ‘management approach’, under which segment information ispresented on the same basis as that used for internal reporting purposes. TheGroup early adopted IFRS 8 as of January 1, 2007.

·                  IAS 23 (Amendment), ‘Borrowing costs’. The amendment requires an entityto capitalize borrowing costs directly attributable to the acquisition,construction or production of a qualifying asset. Adoption of the amendment hadno impact on the Group’s financial statements as borrowing

 

174

 

**Financial statements**

Notes to theconsolidated financial statements

 

costsdirectly attributable to qualifying assets are already capitalized in line withthe allowed alternative treatment of IAS 23.

·                  IAS 1 (Revised), ‘Presentation of financial statements. The revisedstandard requires the presentation of items of income and expenses (‘non-ownerchanges in equity’) to be shown in a performance statement. Entities couldchoose to present one performance statement (the statement of comprehensiveincome) or two separate statements (the statement of income and statement ofcomprehensive income). The Group chose to present two separate statements. Therevised standard also introduced a number of terminology changes, includingrevised titles for the statements included in the financial statements. TheGroup chose to adopt these terminology changes.

·                  IFRS 7, the amendments to IFRS 7 expand the disclosures required in respectof fair value measurements and liquidity risk. In particular, the amendmentrequires disclosure of fair value measurements by level of a fair valuemeasurement hierarchy. As the change in accounting policy only results inadditional disclosures, there is no impact on earnings per share.

 

Not all amendments to existingstandards and interpretations that effective for the year 2009 have been listedabove as they may not be applicable to the operations of the Group or do nothave a significant impact on the financial statements of the Group.

 

**1.5.3 Othernew accounting pronouncements**

The following amendments toexisting standards and interpretations were not effective for the financialyear 2009 and were not early adopted by the Group:

 

·                  IFRS 3 (Revised), ‘Business combinations’. The revised standardcontinues to apply the acquisition method to business combinations, with somesignificant changes. All payments to purchase a business are to be recorded atfair value at the acquisition date, with contingent payments classified as debtsubsequently re-measured through the statement of income. There is a choice onan acquisition-by-acquisition basis to measure the non-controlling interest inthe acquiree either at fair value or at the non-controlling interest’s proportionateshare of the acquiree’s net assets. All acquisition-related costs should beexpensed. The Group will apply IFRS 3 (Revised) prospectively to businesscombinations from January 1, 2010.

·                  IAS 27 (revised), ‘Consolidated and separate financial statements’. Therevised standard requires the effects of all transactions with non-controllinginterests to be recorded in equity if there is no change in control and thesetransactions will no longer result in goodwill or gains and losses. Thestandard also specifies the accounting when control is lost. Any remaininginterest in the entity is remeasured to fair value, and a gain or loss isrecognised in profit or loss. The Group will apply IAS 27 (revised)prospectively to transactions with non-controlling interests from January 1,2010.

·                  IAS 38 (amendment), ‘Intangible Assets’. The amendment is part of theIASB’s annual improvements project published in April 2009 and the Groupwill apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The amendmentclarifies guidance in measuring the fair value of an intangible asset acquiredin a business combination and it permits the grouping of intangible assets as asingle asset if each asset has similar useful economic lives. The Group willapply IFRS 38 (amendment) from 1 January 2010. The new guidance is notexpected to have a material impact on the Group’s financial statements.

·                  IFRS 5 (amendment), ‘Measurement of non-current assets (or disposalgroups) classified as held-for-sale’. The amendment is part of the IASB’sannual improvements project published in April 2009. The amendmentprovides clarification that IFRS 5 specifies the disclosures required inrespect of non-current assets (or disposal groups) classified as held for saleor discontinued operations. It also clarifies that the general requirements ofIAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation)and paragraph 125 (sources of estimation uncertainty) of IAS 1. The Group willapply IFRS 5 (amendment) from 1 January 2010. The new guidance is notexpected to have a material impact on the Group’s financial statements.

·                  IFRS 2 (amendment), ‘Group cash-settled and share-based paymenttransactions’. In addition to incorporating IFRIC 8, ‘Scope of IFRS 2’, andIFRIC 11, ‘IFRS 2 — Group and treasury share transactions’, the amendmentsexpand on the guidance in IFRIC 11 to address the classification of grouparrangements that were not covered by that interpretation. The Group will applyIFRS 2 (amendment) from 1 January 2010. The new guidance is not expectedto have a material impact on the Group’s financial statements.

·                  IAS 39 (Amendment), ‘Eligible Hedged Items’. The amendment clarifies howthe principles that determine whether a risk or portion of cash flows that iseligible for designation should be applied in particular situations. The Groupwill apply IAS 39 (amendment) from 1 January 2010. The Group is in processof assessing the impact of the amendment on the Group’s financial statements.

 

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**Financial statements**

** **

**Notes to the consolidated financial statementscontinued**

 

Not all amendments to existingstandards and interpretations that are not yet effective and not early adoptedby the Group have been listed above as it is not expected that these will beincluded in IFRS in the foreseeable future or are not likely to have asignificant impact on the financial statements of the Group.

 

**2 Summaryof significant accounting policies**

 

**2.1 Revenuerecognition**

 

**General**

In general, revenue is recognizedto the extent that it is probable that the economic benefits will flow to theGroup and the amount of revenue and the costs (to be) incurred in thetransaction can be measured reliably. Revenue is measured at the fair value ofthe consideration received excluding discounts, rebates, value added taxes andduties.

 

Revenues are recognized on a grossbasis when the Group acts as the principal in an arrangement, and recognized ona net basis when the Group acts as agent.

 

Goods or services traded for itemsof 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:

 

·                  Significant risk and rewards of ownership of the products have passed tothe 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 costs (to be) incurred in the transactioncan be measured reliably; and

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

 

Products could include a specificright to return, either pursuant to the sales contract or local law. Revenuefrom that sale is recognized at time of sale only if all of the followingconditions are met in addition to the general revenue recognition termsdescribed above:

 

·                  The customer is obligated to pay and that obligation is not contingenton resale of the product;

·                  The customer’s obligation to pay will 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 the Group, e.g. the customer sells other productsbesides the products the Group delivers to it;

·                  The Group does not have significant future performance obligations todirectly ensure resale of the product by the buyer; and

·                  The amount of future returns can be reasonably estimated.

 

Revenue and cost of sales that arenot recognized at the time of the sale because the foregoing conditions werenot met are recognized on the earlier of either the substantial expiration ofthe customer’s right to return the product or the subsequent satisfaction ofthose conditions.

 

**Licenserevenues**

The Group recognizes initial feesto the licensing of the technology as revenues over the period of thesignificant continuing performance obligations, if any, and upon transfer ofthe significant risks and rewards to the buyer.

 

Under certain arrangements, theGroup has no continuing performance obligations after delivery of theassociated technology under the license agreement or any other arrangement withthe licensee. In such arrangements, initial license fees are recognized asrevenue when significant risks and rewards pass to the buyer, which is themoment the transfer of developed technology is completed. The Group’sarrangements provide for optional continuing support of its technology atstandard consulting rates. Revenues derived

 

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**Financial statements**

Notes to theconsolidated financial statements

 

from aforementioned consultingservices that are not essential to licensee’s ability to use the Group’stechnology, are recognized as earned during the period that the consultingservices are performed.

 

In certain arrangements, the Groupcollaborates with third parties to develop novel products or processes usingits proprietary technology. These arrangements generally include an initiallicense fee upon the delivery of the proprietary technology and additional feesfor providing ongoing research and development activities. The research anddevelopment activities performed are substantive and critical to the licensees’exploitation of the delivered technology. When significant risks and rewardspass to the buyer, initial fees from these arrangements are recognized asrevenues over the period of continuing performance obligations. Additional feesfrom research and development activities are recognized as revenues earned overthe period of the development collaboration or the manufacturing obligation.All fees received under collaboration agreements are non-refundable.

 

Certain of the Group’s licenseagreements provide for additional non-refundable fees to be paid to the Groupupon the achievement of milestones by the licensee. These milestone paymentsmay be included in license agreements regardless of whether the Group hascontinuing performance obligations under a particular agreement.

 

For license agreements where thereare no continuing performance obligations, milestone revenue is recognized whenthose amounts become due and payable upon achievement of the milestone. Thelicensee has to confirm the achievement of a milestone in writing before therevenue is recognized.

 

The Group also has licenseagreements with continuing performance obligations. License revenues from theachievement of these research and development milestones, if deemed substantive(as described below), are recognized as revenue when the milestones areachieved, and the milestone payments are due and collectible under the terms ofthe agreement.

 

Milestones are 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 is 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 paymentand the first milestone payment as well as between each subsequent milestonepayment.

 

If any of these conditions are notmet, the Group would recognize the proportionate amount of the milestonepayment upon receipt as revenue that corresponds with the percentage of workalready completed. The remaining portion of the milestone payment would bedeferred and recognized as revenue as performance obligations are completed.

 

In addition to the initial fee, theGroup’s arrangements generally provide that the licensee makes semi-annual orannual payments (called ‘license maintenance fees’) to maintain the license fora subsequent term. Generally, licensees may terminate the license and relatedmaintenance fees upon 30 to 90 days’ notice. License maintenance fees arerecognized pro rata over the duration of the license maintenance period. Theaggregate of license maintenance fees paid are generally deductible from anyearned royalty payments which may be due on future product sales of thelicensee, if any, under the license agreement. Royalties are recognized on anaccrual basis in accordance with the substance of the relevant agreement.

 

**Servicefees**

As part of various collaborationagreements, the Group receives service fees for work performed under suchagreements. The Group does not retain the residual interest on productsdeveloped under the agreements and will normally not have ownership ofintellectual property rights on these products. When the outcome of atransaction involving the rendering of services can be estimated reliably,revenue shall be recognized by reference to the stage of completion of thetransaction. When the outcome of the transaction involving the rendering ofservices cannot be estimated reliably, revenue shall be recognized only to theextent of the expenses recognized that are recoverable.

 

177

 

 

**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

**2.2 Cost ofproduct sales and cost of service fees**

 

Cost of product sales and cost ofservice fees both comprise direct labor, materials and overhead costs, incurredin performing work under various collaboration agreements that directly relateto revenues earned.

 

**2.3 Otheroperating income**

 

**Government grants**

The Group receives certaingovernment grants that support research efforts in defined projects. Thesegrants generally provide for reimbursement of approved costs incurred asdefined in various grants. Income associated with these grants is recognizedwhen costs under each grant are incurred in accordance with the terms andconditions of the grant and the collectibility of the receivable is deemedprobable and there is reasonable assurance that attaching conditions will beachieved. Where the grant relates to an expense item, it is recognized asincome over the period necessary to match the grant on a systematic basis to thecosts that it is intended to compensate.

 

**Other income**

Other income mainly consists of thereimbursement of development costs and funding by non-governmental agencies,but also includes non-core business transactions such as the sale of property,plant and equipment and income generated from training courses.

 

**2.4 Research andDevelopment expenses**

 

Expenditure on research activitiesis recognized as an expense in the period in which it is incurred. Internallygenerated intangible assets arising from the Group’s development activities arerecognized if all of the recognition criteria for internally generatedintangible assets are met, including:

 

·     An asset is created that canbe identified;

·     It is probable that theasset created will generate future economic benefits; and

·     The development cost of theasset can be measured reliably.

 

Product registration fees will, inprinciple, meet these recognition requirements. Where no internally generatedintangible asset can be recognized, development expenditure is recognized as anexpense in the period in which it is incurred. Research and developmentexpenses consist of personnel expenses, laboratory expenses, technologypurchases, patent related fees, technology license fees, depreciation andamortization of tangible and intangible assets related to research anddevelopment, and lease expenses for lab space and equipment leases. Researchand development expenses also include fees paid to third parties who conductresearch on behalf of the Group.

 

**2.5 Taxes**

 

**Current tax**

Current tax assets and liabilitiesfor the current and prior periods are measured at the amount expected to berecovered from or paid to the tax authorities. The tax rates and tax laws usedto compute the amount are those that are enacted, or substantively enacted, atthe year-end. Current income tax relating to items recognized directly inequity is recognized in equity and not in the statement of income. 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**

Deferred income tax is calculatedusing the asset and liability method on temporary differences at the year-endbetween the tax bases of assets and liabilities and their carrying amountsunder IFRS. Deferred tax liabilities are recognized for all taxable temporarydifferences, except:

 

·      Where thedeferred tax liability arises from the initial recognition of goodwill or of anasset or liability in a transaction that is not a business combination and, atthe

 

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**Financial statements**

Notes to the consolidatedfinancial statements

** **

time of thetransaction, affects neither the accounting profit nor taxable profit or loss;and

·      In respectof taxable temporary differences associated with investments in subsidiaries,associates and interests in joint ventures, where the timing of the reversal ofthe temporary differences can be controlled and it is probable that thetemporary differences will not reverse in the foreseeable future.

 

Deferred income tax assets arerecognized for all deductible temporary differences and carry-forwards ofunused tax credits and unused tax losses, to the extent that it is probablethat taxable profit will be available against which the deductible temporarydifferences, and the carry-forwards of unused tax credits and unused taxlosses, can be utilized.

 

The unrecognized deferred incometax assets are reassessed at each year-end and are recognized to the extentthat it has become probable that future taxable profit will allow the deferredtax asset to be recovered. Deferred income tax assets and liabilities aremeasured at the tax rates that are expected to apply to the year when the assetis realized or the liability is settled, based on tax rates (and tax laws) thathave been enacted or substantively enacted at the year-end.

 

Income tax relating to itemsrecognized directly in equity is recognized in equity and not in the statementof income. Deferred tax assets and deferred tax liabilities are offset, if alegally enforceable right exists to set off current tax assets against currenttax liabilities and the deferred taxes relate to the same taxable entity andthe same taxation authority.

 

**2.6 Profit/ (loss)per share**

 

Basic net profit/ (loss) per shareis computed based on the weighted average number of ordinary shares outstandingduring the period. Diluted net profit/ (loss) per share is computed based onthe weighted average number of ordinary shares outstanding, including thedilutive effect of stock options, if any.

 

**2.7 Cash and cashequivalents**

 

Cash and cash equivalents includecash in hand and all highly liquid investments with maturities of three monthsor less that are convertible to a known amount of cash and bear aninsignificant risk of change in value.

 

**2.8 Financialassets**

 

The Group classifies its financialassets in the following categories: at fair value through profit or loss, loansand receivables, and available for sale. The Group has no held-to-maturityinvestments. The classification depends on the purpose for which the financialassets were acquired. Management determines the classification of its financialassets at initial recognition.

 

**Financial assetsat fair value through profit or loss**

Financial assets at fair valuethrough profit or loss are financial assets held for trading. A financial assetis classified in this category if acquired principally for the purpose ofselling in the short-term. Derivatives are also categorized as held for tradingunless they are designated as formal hedges. Assets in this category areclassified as current assets.

 

**Loans andreceivables**

Loans and receivables are non-derivativefinancial assets with fixed or determinable payments that are not quoted in anactive market. They are included in current assets, except for maturitiesgreater than 12 months after the year-end. These are classified as non-currentassets. The Group’s loans and receivables comprise cash and cash equivalents,trade accounts receivable, other financial assets and other current assets inthe statement of financial position.

 

**Trade accountsreceivable, other current assets and other financial assets**

Trade accounts receivable, othercurrent assets and other financial assets are recognized initially at fairvalue and subsequently measured at amortized cost using the effective interestmethod, less provision for impairment. A provision for impairment of tradereceivables is established when there is objective evidence that the group willnot be able to collect all amounts due according to the original terms of thereceivables.

 

**Available-for-salefinancial assets**

Available-for-sale investments arethose non-derivative financial assets that are designated asavailable-for-sale. After initial measurement, available-for-sale financialassets are measured at fair value with unrealized gains or losses beingrecognized directly in equity in the net unrealized gains reserve. When theinvestment is disposed of, the cumulative gain or loss previously recorded inequity is recognized in the statement of income. Available-for-sale investmentsare included in non-current assets unless

 

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**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

management intends to dispose ofthe investment within 12 months of the year-end.

 

**Derecognition offinancial assets**

A financial asset is derecognizedwhen:

 

·      The rightsto receive cash flows from the asset have expired;

·      The Groupretains the right to receive cash flows from the asset, but has assumed anobligation to pay them in full without material delay to a third party under a ‘passthrough’ arrangement; or

·      The Grouphas transferred its rights to receive cash flows from the asset and either hastransferred substantially all the risks and rewards of the asset, or hasneither transferred nor retained substantially all the risks and rewards of theasset, but has transferred control of the asset.

 

**2.9 Derivativefinancial instruments and hedging**

 

Derivative financial instrumentsare initially recognized at fair value on the date a derivative contract isentered into and are subsequently remeasured at fair value. The fair value isbased on the market prices of the instruments. Derivatives are carried asassets when the fair value is positive and as liabilities when the fair valueis negative. To the extent that no formal hedge accounting is applied, any gainsand losses arising from changes in the fair value of the instruments arerecognized in the statement of income during the period in which they arise.

 

The Group applies formal hedgeaccounting for specific forward derivative instruments that are designated ascash flow hedges. At the inception of derivative instruments, the relationshipbetween the derivative and the underlying financial instrument, as well as theobjective of the risk management and the strategy for undertaking transactionsare documented. In the documentation it is also stated whether the hedgerelationship is expected to be highly effective (prospective and retrospective)and how the effectiveness is tested.

 

Changes in the fair value of aneffective derivative, that is designated and qualifies as a cash flow hedge,are recorded in equity for the effective part, until the profit or loss isaffected by the variability in cash flows of the designated hedged item. Theineffective part of the cash flow hedge is recognized in the statement ofincome.

 

**2.10 Inventories**

 

Inventories are stated at the lowerof cost or net realizable value. The cost of inventories includes expendituresfor materials acquired, directly attributable costs and related productionoverhead expenses. Net realizable value is determined using the estimatedselling price in the ordinary course of business, less estimated costs ofcompletion and the estimated costs necessary to make the sale. Allowances aremade for obsolete inventory and are included in cost of goods sold.

 

**2.11 Property,plant and equipment**

 

Property, plant and equipment isstated at cost, excluding the costs of day-to-day servicing, less accumulateddepreciation and accumulated impairment in value. The cost of replacing a partof a plant or equipment is capitalized if the recognition criteria are met.Where an item of property, plant and equipment comprises major componentshaving different useful lives, they are accounted for as separate items ofproperty, plant and equipment. Depreciation is charged to the statement ofincome on a straight-line basis over the estimated useful life of the assets:

 

·      Freeholdland is not depreciated;

·      Buildings:20 to 50 years;

·      Computerequipment: three years;

·      Furnitureand laboratory equipment: five years; and

·      Leaseholdimprovements: the shorter of the lease term and ten years.

 

An item of property, plant andequipment is derecognized upon disposal or when no future economic benefits areexpected from its use. Any gain or loss arising on

 

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**Financial statements**

Notes to theconsolidated financial statements

 

derecognition of the asset isincluded in the statement of income. The asset’s residual values, useful livesand methods are reviewed, and adjusted if appropriate, at each financialyear-end.

 

**Borrowing costs**

Borrowing costs directlyattributable to the acquisition, construction or production of qualifyingassets are added to the cost of these assets until they are substantially readyfor their intended use. Qualifying assets are those assets that necessarilytake a substantial period of time to be completed for their intended use. Allother borrowing costs are recognized as an expense in the statement of incomewhen incurred.

 

**2.12 Intangibleassets**

 

Intangible assets acquired aremeasured at cost on initial recognition. The cost of intangible assets acquiredin a business combination is the fair value at the date of acquisition.Following initial recognition, intangible assets are carried at cost less anyaccumulated amortization and accumulated impairment losses. Internallygenerated intangible assets are not capitalized if the recognition requirementsare not met, in which case the expenses associated with generating theintangible asset are recognized in the statement of income. The useful lives ofintangible assets are assessed to be either finite or indefinite. Intangibleassets with finite lives are amortized over their useful lives. Theamortization period and the amortization method are reviewed at least at eachfinancial year-end. Changes in the expected useful life or the expected patternof consumption of future economic benefits embodied in the asset are accountedfor by changing the amortization period or method, and treated as changes inaccounting estimates. The amortization expense on intangible assets with finitelives is recognized in the statement of income consistent with the function ofthe intangible asset.

 

The estimated useful life of theassets is as follows:

 

·      Patents andlicenses (including trademarks): one year to 20 years;

·      Customerlists: three years;

·      Developedtechnology: five years to 20 years; and

·      Assetsunder development are not depreciated until completion of the asset.

 

**2.13 Goodwill andbusiness combinations**

 

Business combinations are accountedfor using the purchase method. This involves recognizing identifiable assets(including previously unrecognized intangible assets) and liabilities(including contingent liabilities, but excluding future restructuring) of theacquired business at fair value.

 

Goodwill is measured as the excessof the total consideration over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed. Goodwill includesintangible assets acquired in a business combination, which were notidentifiable because the assets were either not separable or did not arise fromcontractual or legal rights. Goodwill recognized can significantly affectoperating results of both current and future periods as goodwill is subject to anannual impairment review and not to periodic amortization.

 

Goodwill and fair value adjustmentsarising on the acquisition of a foreign operation are treated as assets andliabilities of the foreign operation and, if necessary, translated into Euro atthe rate of exchange ruling at the year-end.

 

**2.14 Impairment ofnon-financial assets**

 

The Group assesses non-financialassets at each reporting date to determine whether there is an indication thatan asset may be impaired. If any such indication exists, or when annualimpairment testing for an asset is required, the Group estimates the asset’srecoverable amount. An asset’s recoverable amount is the higher of the asset’sfair value less costs to sell and its value in use. The recoverable amount isdetermined for an individual asset, unless the asset does not generate cashinflows that are largely independent of those from other assets or groups ofassets. Where the carrying amount of an asset exceeds its recoverable amount,the asset is considered impaired and is written down to its recoverable amount.

 

An impairment loss recognized inprior periods for an asset other than goodwill shall be reversed if, and onlyif, there has been a change in the estimates used to determine the asset’srecoverable amount since the last impairment loss was recognized. If this isthe case, the carrying amount of the asset shall be increased to itsrecoverable amount, but

 

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**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

so that the increased carryingamount does not exceed the carrying amount that would have been determined hadno impairment loss been recognized for the asset in prior years.

 

Goodwill is reviewed for impairmentannually or more frequently if events or changes in circumstances indicate thatthe carrying value may be impaired. Impairment is determined for goodwill byassessing the recoverable amount of the cash-generating unit to which thegoodwill has been allocated. Where the recoverable amount of thecash-generating unit is less than the carrying amount of the cash-generatingunit to which goodwill has been allocated, an impairment loss is recognized.Impairment losses relating to goodwill cannot be reversed in future periods.

 

**2.15 Employeebenefits**

 

**Pensions**

The Group operates both definedbenefit plans and defined contribution plans. For defined contribution plans,obligations for contributions are recognized as an expense when they are due.The Group has no obligation to pay further contributions into a definedcontribution plan if the fund does not hold sufficient assets to pay all planbenefits.

 

Under defined benefit plans, thepension entitlements are calculated using the projected unit credit actuarialmethod. The pension liability recognized in the statement of financial positionis the present value of the defined benefit obligation at the end of thefinancial year, less the fair value of the plan assets after adding orsubtracting any unrecognized past-service costs.

 

The defined benefit obligation iscalculated separately for each plan by estimating the amount of future benefitthat employees have earned in return for their service in the current and priorperiods. The defined benefit obligation 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 past-service costs and the presentvalue of any future refunds from the plan or reductions in future contributionsto the plan (the ‘asset ceiling’). The economic benefit available as areduction in future contributions is determined as the present value of theestimated future service cost in each year less the estimated minimum fundingcontributions required in respect of the future accrual of benefits in thatyear. All actuarial gains and losses are recognized in the period in which theyoccur as a component of other comprehensive income.

 

**Share-basedpayment transactions Stock option plans**

The Group operates a number ofequity-settled, share-based compensation plans, under which the Group receivesservices from employees as consideration for equity instruments (options) ofthe Group. The cost of equity-settled transactions with employees is measuredby reference to the fair value at the date on which the options are granted.The maximum amount to be expensed is determined by reference to the fair valueof the options granted, excluding the impact of any non-market service andperformance vesting conditions. The impact of market conditions on the fairvalue of options under these plans is estimated on the date of grant using alattice-based option valuation model. The model calculates the likelihood ofachievement of the market-based measures at various levels.

 

Non-market vesting conditions areincluded in assumptions about the number of options that are expected to vest.The cost of equity-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 statement of income charge or credit for a periodrepresents the movement in cumulative expense recognized as at the beginningand end of that period with the offsetting entry

 

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** **

**Financial statements**

Notes to the consolidated financialstatements

 

recorded in share premium inequity. Every option that is exercised results in the issuance of one ordinaryshare.

 

At each end of the financial year,the estimates of the number of options that are expected to vest based on thenon-marketing vesting conditions are revised. The Group recognizes the impactof the revision to original estimates, if any, in the statement of income, witha corresponding adjustment to equity.

 

**Share-basedincentive plans**

The fair value of share grants isestimated on the date of grant by multiplying the number of shares available tobe granted by the fair value of the Company’s shares on the grant date.

 

**Options granted tonon-employees**

The cost of options granted tonon-employees is recognized at the fair value of the goods or servicesreceived, together with a corresponding increase in equity, unless that fairvalue of the goods or services received cannot be estimated reliably, in whichcase the fair value is measured by reference to the fair value of the equityinstruments granted.

 

**2.16Interest-bearing loans and borrowings**

 

Short-term financial liabilitiesconsist of all liabilities with maturities up to one year. Long-term financialliabilities are liabilities with maturities over one year. All loans and borrowingsare initially recognized at the fair value of the consideration received lessdirectly attributable transaction costs. After initial recognition,interest-bearing loans and borrowings are subsequently measured at amortizedcost using the effective interest method. Gains and losses are recognized inthe statement of income when the liabilities are derecognized as well asthrough the amortization process. A financial liability is derecognized whenthe obligation underlying the liability is discharged, cancelled or expired.

 

**2.17 Provisions**

 

Provisions are recognized whenthere is a present obligation (legal or constructive) as a result of a pastevent, it is probable that an outflow of resources embodying economic benefitswill be required to settle the obligation and a reliable estimate of theobligation can be made. The expense relating to any provision is presented inthe statement of income net of any reimbursement. If the effect of the timevalue of money is significant, provisions are discounted. Where discounting isused, the increase in the provision due to the passage of time is recognized asa financial expense.

 

**2.18 Leases**

 

Leases of property, plant andequipment where the Group assumes substantially all the risks and rewards ofownership of the leased asset are classified as finance leases. Finance leasesare capitalized at the inception of the lease at the fair value of the leasedproperty or, if lower, at the present value of the minimum lease payments.Lease payments are apportioned between the finance charges and reduction of thelease liability to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income.Capitalized leased assets are depreciated over the shorter of the estimateduseful life of the asset or, over the lease term, if there is no reasonablecertainty that the Group will own the leased property by the end of the leaseterm.

 

Leases where the Group does notassume substantially all the risks and rewards of ownership are classified asoperating leases, and are recognized as an expense in the statement of incomeon a straight-line basis over the lease term.

 

The determination of whether anarrangement is, or contains, a lease is based on the substance of thearrangement and requires an assessment of whether the fulfillment of thearrangement is dependent on the use of a specific asset or assets and thearrangement conveys a right to use the asset.

 

**3 Financial riskmanagement**

 

**3.1 Riskmanagement policies**

 

The Group’s activities expose it toa variety of financial risks: market risk (including currency risk, interestrate risk and security price risk), credit risk and liquidity risk. These risksare discussed in note 3.2 to 3.6. The Group’s overall financial risk managementseeks to minimize potential adverse effects resulting from the unpredictabilityof financial markets on the Group’s financial performance.

 

The goals of the Group’s financialrisk management are described in the treasury policies. The adherence to thesepolicies is monitored by corporate treasury. The goals of the Group’s corporatetreasury function are to reduce the currency exposures in the statement ofincome,

 

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**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

optimize return on investments incash deposits, provide financing services to the business and monitor the Group’sfinancial risks.

 

The Group has specific operatingprocedures that prescribe the working practice on relevant specific financialrisk management topics such as use of derivative financial instruments,investment of excess liquidity, centralization of cash, statement of financialposition forecast procedures and authorization levels.

 

The Group uses derivative financialinstruments to hedge certain foreign currency risk exposures. Corporatetreasury is responsible for using derivatives to mitigate foreign exchange riskarising from anticipated transactions and recognized monetary positions. Corporatetreasury does this in close co-operation with the Group’s subsidiaries. Since2008, the Group adopted a more proactive approach in hedging foreign currencyexposures on monetary positions and forecasted transactions. In 2008, the Groupapplied for the first time formal hedge accounting to address specific economicexposures.

 

**Capital riskmanagement**

The Group manages its capital toensure that it will be able to continue as a going concern. The Group does nothave a target debt-to-equity ratio. Although the Group entered into financeleases and loans in the past, the Group is committed to funding the majority ofits operations with equity. The Group may choose to renew any loan that becomespayable.

 

The capital structure of the Groupconsists of financial liabilities and equity attributable to equity holders ofthe parent, comprising issued capital, reserves and retained earnings.

 
| **Financial liabilities compared   to total equity** | ** ** | **December 31,  2009** | ** ** | **December 31,  2008** | ** ** | **January 1,  2007** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|---------------------------|------------|
| Total  financial liabilities                                                  |       | 52,300                      |       | 61,630                      |       | 46,413                    |       |
|                                                                          |       |                        |       |                        |       |                      |       |
| Total  equity                                                                 |       | 738,265                     |       | 452,534                     |       | 497,683                   |       |
|                                                                          |       |                        |       |                        |       |                      |       |
| **Equity / financial liabilities**                                            | ** ** | **14.1**                    | ** ** | **7.3**                     | ** ** | **10.7**                  | ** ** |

 

The equity/ financial liabilitiesratio improved significantly as a result of the JNJ 18% equity investment.

 

**Working CapitalManagement**

The Group tries to minimizeinvestment in working capital, without jeopardizing the Group’s commercialobjectives.

 

In specific cases, the Group maychose to enter into factoring arrangements to manage the cash flow on outstandingtrade accounts receivable. The Group did not engage in factoring arrangementsin 2009.

 

In 2008, the Group entered intofactoring arrangements relating to certain Italian customers that allowedderecognition of accounts receivable in an amount of € 11,107. In 2008, theGroup also entered into factoring arrangements with a third party to sell aportion of its receivables in an amount of € 14,886 from product sales madeduring the month of December to a supranational organization. Consequentlyaccounts receivables outstanding from this customer were relatively low as atthe end of financial year 2008.

 

As part of the overall workingcapital management efforts, the Group agreed with Novartis in 2008 to extendpayment terms on the supply of Quinvaxem antigens. We have provided Novartiswith collateral on our Swiss premises for an amount up to € 30,254. Thesepayment terms still apply in 2009.

 

**Significantaccounting policies**

Details of the significantaccounting policies and methods adopted, including the criteria forrecognition, the basis of measurement and the basis on which income and expensesare recognized, in respect of each class of financial asset, financialliability and equity instrument are disclosed in note 2.

 

184

** **

**Financial statements**

Notes to the consolidated financial statements

 

**3.2 Foreigncurrency risk**

 

The Group divides the foreigncurrency risk into categories of transaction exposure, economic exposure andtranslation exposure.

 

The Group defines transactionexposure as the foreign currency exposure arising on monetary positions andforecasted transactions in the coming month that are denominated in a currencyother than the functional currency of the group company. The Group hassignificant transactional currency exposures as the majority of the Group’ssales are denominated in currencies other than the functional currency of thereporting subsidiaries. Specifically, movements in the US Dollar/ Euro exchangerate affect the results of operations because a significant portion of salesare denominated in US Dollars. The Group’s operating procedures require groupcompanies to manage the foreign exchange risks against their functionalcurrency. The target is to minimize foreign currency results on monetary itemsin the statement of financial position. Corporate treasury may hedge anyremaining foreign exchange risk exposure on monetary items.

 

The Group defines economic exposureas the foreign currency exposure to which the Group committed itself. This isthe exposure associated with the time delay between entering into a contract,budget or forecast and the realization thereof. It is not the Group’s policy toactively manage these exposures, but rather to hedge economic exposure on aselective basis by Management’s decision. The Group may apply formal hedgeaccounting in mitigating these risks. The Group is currently investigatingwhether it will adopt a more proactive approach to cover economic exposures.

 

The translation exposure is theexposure that arises on the translation of the financial statements ofsubsidiaries with different functional currencies into Euro. The Group hasoperations in Switzerland, Korea, Sweden, the UK and the US, which all have adifferent functional currency than the Euro. Consequently, movements in thecurrencies of these countries against the Euro will affect the results ofoperations because the statement of financial position and the statement ofincome of these subsidiaries are translated into Euro. The Group does notactively hedge its translation exposure.

 

**Foreign currencyrisk sensitivity analysis**

 

The Group is mainly exposed to USDollar, Swiss Franc, Korean Won, Swedish Crown and Australian Dollar. Thefollowing table details the Group’s sensitivity to a 10% strengthening of thesecurrencies. The sensitivity analysis includes outstanding foreign currencydenominated monetary items and adjusts their translation as at December 31,2009 for a 10% change in foreign currency rates. A positive amount indicates anincrease in income before income tax and equity.

 

For a 10% weakening of the foreigncurrencies against the Euro, there would be approximately an equal and oppositeeffect on the income before income tax and equity. The revaluation effects ofinvestments in foreign entities are recognized in equity. As we havesignificant operations denominated in other currencies than the Euro, themovements of currency exchange rates show a significant effect on equity. It isthe Group’s policy to limit the currency effects reported in financial incomeand expenses. The Group does not proactively manage the currency exposure onthe Group’s equity.

 
| ** **         |   | 2009                                      |   | 2008                   |   | 2007                                      |   |
|--------------------|--------|-------------------------------------------|--------|------------------------|--------|-------------------------------------------|--------|
| ** **         |   | Impact on  statement of  income |   | Impact on  equity |   | Impact on  statement of  income |   | Impact on  equity |   | Impact on  statement of  income |   |
| US Dollar          |   | 754                                       |   | 419                    |   | 229                                       |   | 482 |   | 1,876 |   |
| Swiss  Franc       |   | (1,624                                    | )      | 18,945                 |   | (373                                      | )      | 17,980 |   | (4,950 | ) |
| Korean  Won        |   | (755                                      | )      | 17,521                 |   | (133                                      | )      | 8,414 |   | 860 |   |
| Swedish  Crown     |   | (424                                      | )      | 2,797                  |   | (538                                      | )      | 2,924 |   | (486 | ) |
| Australian  dollar |   | 5                                         |   | 436                    |   | 5                                         |   | 808 |   | 882 |   |

 

185

 

**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

**3.3 Interest raterisk**

 

The Group 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 € 34,018 (2008: € 39,896). The Group has financial liabilities of €17,988 with a variable interest rate as at December 31, 2009 (2008: €20,855). Details on the interest rates and maturity of these loans are providedin note 5.20 ‘Short and long-term financial liabilities’’.

 

The Group owns financial assetsthat generate interest in an amount of € 440,860 (2008: € 183,865).

 

**Interest rate risksensitivity analysis**

The sensitivity analysis has beendetermined based on the exposure to interest rates at the year-end and thestipulated change taking place at the beginning of the financial year and heldconstant throughout the reporting period. The effect of a 1% increase ininterest rates on the Group’s profit/ (loss) before tax would be a positiveresult of € 3,522 (2008: € 947; 2007: € 1,100). If the interest rates decreaseby 1% the impact on the profit/ (loss) before tax would be a negative result of€ 1,689 (2008: € 947). A change in the interest rate does not have an impact onthe equity of the Group.

 

The positive effects of a 1%increase or decrease of interest on profit/ (loss) before tax is mainlyattributable to the Group’s interest income generating assets, which are higherthan the financial liabilities.

 

**3.4 Credit risk**

 

Credit risk represents the risk offinancial loss caused by default of the counterparty. The Group’s principalfinancial assets are cash and cash equivalents, short-term deposits and tradeand other receivables. These 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, credit-worthy 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 tradereceivable, the Group considers changes in the credit quality of the tradereceivable from the date credit was initially granted up to the reporting date.The customer base consists mainly of well-respected companies in the field ofmedicine and non-governmental organizations. In 2009, the Group has notencountered significant adverse events as a result of the weak global economy.While the Group does have concentrations of trade accounts receivableoutstanding to supranational organizations, management has determined the riskof default by these organizations to be limited and therefore considers thecredit risk to be within acceptable boundaries. Management believes that nofurther credit provision is required in excess of the allowance for doubtfuldebts. As at December 31, 2009 an amount of € 22,122 trade accountsreceivable were outstanding to these supranational organizations.

 

The credit risk is dispersed ascash and cash equivalents and short-term deposits are placed with numerousmajor financial institutions. Furthermore the Group currently only invests incurrent securities and money market transactions. Management does not expectany counterparty to fail to meet its obligations.

 

The carrying value of thesefinancial assets represents the Group’s maximum exposure to credit risk. Themaximum exposure at December 31, 2009 amounted to € 552,526 (2008: €242,206). See note 5.24 ‘Financial instruments-

 

186

 

**Financial statements**

Notes to the consolidated financialstatements

 

Financial assets’ for moreinformation on the categorization of the financial assets.

 

**3.5 Security pricerisk**

 

The Group’s security price risk ispredominantly limited to its investment in Galapagos, a biopharmaceuticalcompany listed on NYSE Euronext, valued at € 10,136 (2008: € 4,922). Theinvestment 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.

 

**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:

 

·      The profitfor the year ended 31 December 2009 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 € 1,044 (2008:increase/decrease by € 492) for the Group 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.

 

**3.6 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.

 

Some of the Group’s arrangementswith financial institutions are subject to covenant clauses, whereby the Groupis required to maintain certain cash thresholds. The Group did not breach anyof these covenant clauses in 2009 nor does the Group foresee any breaches ofthese covenants in the foreseeable future.

 

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 5.20 ‘Shortand long-term financial liabilities’ for an analysis of the most significantfinancial liabilities.

 

**4 Segmentinformation**

 

**4.1 General**

 

The Group operates in onereportable segment, which comprises the development, production and marketingof products that combat infectious diseases. The Group identified theManagement Board as the ‘chief operating decision maker’. The Management Boardreviews the consolidated operating results regularly to make decisions aboutresources and to assess overall performance.

 

**4.2 Informationabout major products**

 

The breakdown of the Group’srevenues from its product sales was as follows:

 

Inthousands of Euro

 
| **Year ended December 31,** | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Paediatric  vaccines                       | ** ** | **180,389** |       | 111,039     |       | 77,371      |       |
| Respiratory  vaccines                      | ** ** | **38,070**  |       | 32,474      |       | 33,188      |       |
| Travel  and endemic vaccines               | ** ** | **53,078**  |       | 55,572      |       | 47,282      |       |
| Other  vaccines                            | ** ** | **8,391**   |       | 8,907       |       | 10,705      |       |
| Proteins  and other business               | ** ** | **24,511**  |       | 18,063      |       | 9,023       |       |
|                                       | ** ** | **304,439** | ** ** | **226,055** | ** ** | **177,569** | ** ** |

 

**4.3 Informationabout major customers**

 

In 2009, sales to our two largestcustomers, which are in the paediatric vaccines area, amounted to € 148,072 or48.6% and € 21,013 or 6.9% of net product sales. In 2008, sales to thesecustomers accounted for € 85,142 or 37.6% and € 18,390 or 8.1% of net productsales, respectively.

 

187

** **

**Financial statements**

 

**Notes to the consolidated financial statementscontinued**

 

**4.4 Geographicalsegments**

 

The Group 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.

 

Domestic product sales amount to €3,553 or 1.2% (2008: € 3,743 or 1.7% and 2007: € 717 or 0.4%). Almost all ofour license revenues and service fees are billed to foreign parties.

 

In thousands of Euro

 
| **Year ended December 31,** | ** ** | **2009**    | ** ** | **2008**    | ** ** | **2007**    | ** ** |
|--------------------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| **Revenue**                                |       |        |       |        |       |        |       |
| Europe                                     | ** ** | **262,240** |       | 209,473     |       | 144,969     |       |
| North  America                             | ** ** | **39,565**  |       | 33,653      |       | 33,346      |       |
| Asia                                       | ** ** | **31,994**  |       | 19,095      |       | 18,589      |       |
| Other                                      | ** ** | **4,364**   |       | 4,936       |       | 6,882       |       |
| **Total**                                  | ** ** | **338,163** | ** ** | **267,157** | ** ** | **203,786** | ** ** |

 

In thousands of Euro

 
| **Year ended December 31,**  | ** ** | **2009**    | ** ** | **2008**    | ** ** |
|---------------------------------------------|------------|-------------|------------|-------------|------------|
| **Non-current assets as defined in IFRS 8** |       |        |       |        |       |
| The  Netherlands                            |       | 91,970      |       | 83,859      |       |
| Europe                                      |       | 137,136     |       | 142,442     |       |
| North  America                              |       | 5,558       |       | 5,190       |       |
| Asia                                        |       | 91,606      |       | 54,034      |       |
| **Total**                                   | ** ** | **326,270** | ** ** | **285,525** | ** ** |

 

In thousands of Euro

** **
| **Year ended December 31,** | ** ** | **2009**      | ** ** | **2008**    | ** ** |
|--------------------------------------------|------------|---------------|------------|-------------|------------|
| **Total assets**                           |       |          |       |        |       |
| The  Netherlands                           |       | 467,558       |       | 194,967     |       |
| Europe                                     |       | 312,680       |       | 303,225     |       |
| North  America                             |       | 7,753         |       | 7,472       |       |
| Asia                                       |       | 223,140       |       | 130,633     |       |
| **Total**                                  | ** ** | **1,011,131** | ** ** | **636,297** | ** ** |

 

**5 Notes to thespecific items of the consolidated financial statements**

 

**5.1 Personnel expenses**

 

Inthousands of Euro

 
| ** **                          | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| Wages and  salaries                 | ** ** | **66,538** |       | 59,634     |       | 58,493     |       |
| Social  security costs              | ** ** | **7,020**  |       | 6,806      |       | 6,734      |       |
| Pension  defined benefit plans      | ** ** | **(73**    | **)**      | 254        |       | 220        |       |
| Pension  defined contribution plans | ** ** | **2,241**  |       | 2,410      |       | 2,436      |       |
| Cost of  share-based payments       | ** ** | **7,511**  |       | 4,878      |       | 7,349      |       |
| Other  personnel expenses           | ** ** | **6,636**  |       | 6,436      |       | 9,810      |       |
|                                | ** ** | **89,873** | ** ** | **80,418** | ** ** | **85,042** | ** ** |

 

As of December 31, 2009, theGroup had 1,248 employees (2008: 1,126). The average number of employees in2009 was 1,188 (2008: 1,142). Personnel as at December 31, 2009 areemployed in the following categories:

 
| ** **                  | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|-----------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Research  and Development   | ** ** | **376**   |       | 303       |       | 368       |       |
| General  and administrative | ** ** | **170**   |       | 147       |       | 134       |       |
| Operations                  | ** ** | **521**   |       | 527       |       | 466       |       |
| Marketing  and sale         | ** ** | **181**   |       | 149       |       | 158       |       |
| **Total**                   | ** ** | **1,248** | ** ** | **1,126** | ** ** | **1,126** | ** ** |

 

The Group’s personnel are locatedprimarily in the Netherlands, Switzerland, Spain, Italy, Korea, Sweden, the UK,the US and China.

 

The split per geographical area isas follows:

 
| ** **     | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|----------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Europe         | ** ** | **969**   |       | 861       |       | 916       |       |
| North  America | ** ** | **19**    |       | 19        |       | 19        |       |
| Asia           | ** ** | **260**   |       | 246       |       | 191       |       |
| **Total**      | ** ** | **1,248** | ** ** | **1,126** | ** ** | **1,126** | ** ** |

 

188

 

**Financial statements**

Notes to the consolidated financialstatements

 

**5.2 Financial income**

 

Inthousands of Euro

 
| ** **       | ** ** | **2009**  | ** ** | **2008**  | ** ** | **2007**   | ** ** |
|------------------|------------|-----------|------------|-----------|------------|------------|------------|
| Currency  gains  |       | 6,591     |       | 1,914     |       | 7,479      |       |
| Interest  income |       | 2,429     |       | 5,021     |       | 5,711      |       |
|             |       | **9,020** | ** ** | **6,935** | ** ** | **13,190** | ** ** |

 

**5.3 Financial expenses**

 
| ** **                                               | ** ** | **2009**    | ** ** | **2008**   | ** ** | **2007**    | ** ** |
|----------------------------------------------------------|------------|-------------|------------|------------|------------|-------------|------------|
| Interest  expense                                        | ** ** | **(3,568**  | **)**      | (2,973     | )          | (3,053      | )          |
| Less:  amounts included in the cost of qualifying assets | ** ** | **619**     |       | 254        |       | 772         |       |
| ** **                                               | ** ** | **(2,949**  | **)**      | (2,719     | )          | (2,281      | )          |
|                                                     | ** ** | ** **  | ** ** |       |       |        |       |
| Currency  losses                                         | ** ** | **(8,915**  | **)**      | (5,840     | )          | (8,785      | )          |
| Other  financial expenses                                | ** ** | **(349**    | **)**      | (1,038     | )          | (746        | )          |
| ** **                                               | ** ** | **(12,213** | **)**      | **(9,597** | **)**      | **(11,812** | **)**      |

 

**5.4 Income tax**

 

Inthousands of Euro

 
| **Year ended December 31,** | ** ** | **2009**    | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|--------------------------------------------|------------|-------------|------------|-----------|------------|-----------|------------|
| Current  income tax1                       | ** ** | **(10,653** | **)**      | (3,193    | )          | (816      | )          |
| Deferred  taxation                         | ** ** | **(3,375**  | **)**      | 11,595    |       | 3,414     |       |
| **Income tax**                             | ** ** | **(14,028** | **)**      | **8,402** | ** ** | **2,598** | ** ** |

1 Current income tax includes an adjustment gainof the current tax charge of previous years in an amount of € 26 (2008: € 7,2007: € (5)).

 

The reconciliation between theprofit/ (loss) for the year multiplied by the applicable tax rate and theactual taxation is as follows:

 

In thousands of Euro

 
| **Year ended December 31,**    | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| Profit/(loss)  for the year before income tax | ** ** | **37,966**  |       | 5,848    |       | (46,932  | )          |
| At gross  weighted average income tax rate    | ** ** | **(2,764**  | **)**      | 912      |       | 12,587   |       |
| Timing  differences not recognized            | ** ** | **(7,387**  | **)**      | (6,301   | )          | (380     | )          |
| Recognition  tax loss carry forwards          | ** ** | **—**  |       | 9,284    |       | 4,072    |       |
| Effect of  tax rate changes                   | ** ** | **(211**    | **)**      | 3,527    |       | (197     | )          |
| R&D  tax credit                           | ** ** | **331**     |       | 2,916    |       | —   |       |
| Other  permanent differences                  | ** ** | **(1,665**  | **)**      | (1,734   | )          | (3,493   | )          |
| Tax  losses not recognized                    | ** ** | **(2,332**  | **)**      | (202     | )          | (9,991   | )          |
| Income  tax                                   | ** ** | **(14,028** | **)**      | 8,402    |       | 2,598    |       |
|                                          |       |        |       |     |       |     |       |
| Effective  income tax rate                    | ** ** | **36.9%**   |       | (143.7%  | )          | 5.5%     |       |

 

The changes in deferred income taxassets and liabilities on a net basis were as follows in 2009, 2008 and 2007:

 

In thousands of Euro

 
| ** **                                | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| January 1,                           | ** ** | **(16,644** | **)**      | (29,224  | )          | (33,438  | )          |
| Change in  accounting policy              | ** ** | **—**  |       | —   |       | 45       |       |
| Deferred  tax through statement of income | ** ** | **(3,375**  | **)**      | 11,595   |       | 3,414    |       |
| Deferred  tax through goodwill            | ** ** | **—**  |       | —   |       | (697     | )          |
| Deferred  tax through equity              | ** ** | **1,786**   |       | 257      |       | (388     | )          |
| Effects  of movements in exchange rates   | ** ** | **389**     |       | 728      |       | 1,840    |       |
| December 31,                         | ** ** | **(18,622** | **)**      | (16,644  | )          | (29,224  | )          |

 

Deferred tax through equityreflects the tax impact on the actuarial gains and losses on pensions that aredirectly recognized in other comprehensive income.

 

In 2007, a deferred tax asset of €580 was recognized against goodwill as an adjustment to the provisionalpurchase price allocation on the acquisition of SBL Vaccin Holding AB. Adeferred tax liability of € 1,277 was recognized against goodwill as an adjustmentto the provisional purchase price allocation on the acquisition of BernaProducts Corp.

 

189

 

**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

The composition of the temporarydifferences and tax loss carry forwards in the statement of financial positionis as follows:

 

In thousands of Euro

 
| **Year ended  December 31,**                             | ** ** | **2009**    | ** ** | 2008    | ** ** |
|---------------------------------------------------------------|------------|-------------|------------|---------|------------|
| **Deferred income tax liabilities**                           |       |        |       |    |       |
| Valuation differences attributable to: Inventories            | ** ** | **(2,555**  | **)**      | (2,171  | )          |
| Other assets                                                  | ** ** | **(1,287**  | **)**      | (1,614  | )          |
| Net pension assets                                            | ** ** | **(628**    | **)**      | (1,852  | )          |
| Property, plant and equipment                                 | ** ** | **(8,542**  | **)**      | (7,316  | )          |
| Intangible assets                                             | ** ** | **(12,920** | **)**      | (14,580 | )          |
| Other liabilities                                             | ** ** | **(1,416**  | **)**      | (1,649  | )          |
|                                                          | ** ** | **(27,348** | **)**      | (29,182 | )          |
| **Deferred income tax assets**                                |       |        |       |    |       |
| Losses available for offset against future taxable income     | ** ** | **5,488**   |       | 9,060   |       |
| Valuation differences attributable to: Inventories            | ** ** | **579**     |       | 469     |       |
| Other assets                                                  | ** ** | **542**     |       | 1,273   |       |
| Property, plant and equipment                                 | ** ** | **1,775**   |       | 1,202   |       |
| Other liabilities                                             | ** ** | **342**     |       | 534     |       |
|                                                          | ** ** | **8,726**   |       | 12,538  |       |
| Offset of deferred tax balances                               | ** ** | **8,518**   |       | 12,538  |       |
| Reflected in the statement of financial position as  follows: |       |        |       |    |       |
| Deferred tax assets                                           | ** ** | **208**     |       | —  |       |
| Deferred tax liability                                        | ** ** | **(18,830** | **)**      | (16,644 | )          |
| Deferred tax liabilities, net                                 | ** ** | **(18,622** | **)**      | (16,644 | )          |

 

The Group has unrecognized taxcarry forward losses of € 180,261 (2008: € 172,732; 2007: € 254,511) that areavailable, with certain restrictions in time, for offset against future taxableprofits of the companies in which the losses arose. In the Netherlandsanti-abuse laws may limit our ability to realize certain tax carry forwardlosses for an amount up to € 26,170.

 

In 2008, the Group agreed with theDutch tax authorities to retrospectively change the valuation of ourintellectual property for tax purposes to avoid the evaporation of unrecognizedtax carry forward losses in the Netherlands. As per year-end 2009 an amount of€ 90,375 of our intellectual property was recognized as intangible assets fortax purposes. These assets for tax purposes are depreciated ratably over timeover a period of 20 years. The difference between tax value and IFRS value isnot recognized as a deferred tax asset.

 

190

 

**Financial statements**

Notes to theconsolidated financial statements

 

The unrecognized carry forwardlosses relate to the Dutch and Italian operations of the Group and expire asfollows:

 
| 2010       |   | —  |   |
|------------|--------|---------|--------|
| 2011- 2012 |   | 38,666  |   |
| 2013-2014  |   | 22,693  |   |
| 2015       |   | 40,159  |   |
| After 2015 |   | 77,587  |   |
| Unlimited  |   | 1,156   |   |
| Total      |   | 180,261 |   |

 

**Taxholidays**

In the years 2009 and 2008 theGroup benefited from a tax holiday in Korea. The group received a discount of40% and 37% respectively for tax payable in these years. The tax holiday wasgranted by the Korean tax authorities in recognition of a foreign investment inan eligible high technology business. Prior to 2007 the net benefit of the taxholiday was nil due to tax loss carry forwards. For the years 2009 and 2008 thenet benefit of the tax holiday was € 5,363 and € 2,758. This tax holiday endedon December 31, 2009.

 

Starting in 2012, the Group willbenefit from a new tax holiday in Korea. This tax holiday was granted in 2008following the Group’s commitment to make a direct foreign investment in theshare capital of the Korean subsidiary. The investment was made in an amountequal to $ 30 million and was used for the new production facility in theIncheon Free Economic Zone. Based upon the ratio between new share capital andexisting share capital, a reduction of 76% is granted on the nominal tax amountpayable for the years 2012-2016. For the years 2017 and 2018 the reduction is38% on the nominal tax amount payable. As per the end of 2009 the deferred taxliabilities in the statement of financial position were € 2,083 lower comparedto if no tax holiday had been granted to the Group.

 

**Tax ratechanges**

In financial year 2009, theapplicable tax rate in Korea was 16.5%. As of 2010 the tax rate will be thenominal income tax rate of 24% as the current tax holiday ended December 31,2009.

 

The Swedish domestic statutorycorporate income tax rate amounted to 28.0% in 2008 and changed to 26.3% in2009 and the years thereafter.

 

**5.5 Profit/ (loss) per share**

 

In thousands of Euro, except per share data

 
| **Year ended  December 31,**                                     | ** ** | **2009**       | ** ** | 2008       |   | 2007       | ** ** |
|-----------------------------------------------------------------------|------------|----------------|------------|------------|--------|------------|------------|
| Profit/ (loss) attributable to ordinary shareholders                  | ** ** | **23,938**     |       | 14,250     |   | (44,334    | )          |
| Weighted average number of ordinary shares for the year               | ** ** | **70,265,644** |       | 65,593,374 |   | 65,102,801 |       |
| Dilutive effect share options                                         | ** ** | **1,419,673**  |       | 721,682    |   | —     |       |
| Weighted average number of ordinary shares including  dilutive effect | ** ** | **71,685,317** |       | 66,315,056 |   | 65,102,801 |       |
| Net profit / (loss) per share — basic                            | ** ** | **0.34**       |       | 0.22       |   | (0.68      | )          |
| Net profit / (loss) per share — diluted                          | ** ** | **0.33**       |       | 0.21       |   | (0.68      | )          |

 

191

 

**Financial statements**

 

**Notes to the consolidated financial statements continued**

 

**5.6 Property, plant and equipment**

 

Amounts in thousands of Euro

 
| ** **                            | ** ** | Freehold Land |       | Plant and   |       | Assets under |       |        | ** ** |
|---------------------------------------|------------|---------------|------------|-------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | and buildings |       | equipment   |       | construction |       | Total       | ** ** |
| **Cost At January 1, 2008**      | ** ** | **65,607**    | ** ** | **74,709**  | ** ** | **54,884**   | ** ** | **195,200** | ** ** |
| Additions                             |       | 66            |       | 7,917       |       | 7,804        |       | 15,787      |       |
| Disposals                             |       | —        |       | (1,444      | )          | —       |       | (1,444      | )          |
| Transfer assets under construction    |       | 66            |       | 35,204      |       | (35,270      | )          | —      |       |
| Disposal of subsidiary                |       | —        |       | (176        | )          | —       |       | (176        | )          |
| Effect of movements in exchange rates |       | 5,456         |       | 2,450       |       | 1,886        |       | 9,792       |       |
| **At December 31, 2008**         | ** ** | **71,195**    | ** ** | **118,660** | ** ** | **29,304**   | ** ** | **219,159** | ** ** |
| Additions                             |       | 319           |       | 11,237      |       | 39,479       |       | 51,035      |       |
| Disposals                             |       | (13           | )          | (4,676      | )          | —       |       | (4,689      | )          |
| Transfer assets under construction    |       | 5,758         |       | 252         |       | (6,010       | )          | —      |       |
| Effect of movements in exchange rates |       | 1,010         |       | 2,170       |       | 2,268        |       | 5,448       |       |
| **At December 31, 2009**         | ** ** | **78,269**    | ** ** | **127,643** | ** ** | **65,041**   | ** ** | **270,953** | ** ** |
| ** **                            | ** ** | ** **    | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Depreciation and impairment**       |       |          |       |        |       |         |       |        |       |
| ** **                            |       |          |       |        |       |         |       |        |       |
| **At January 1, 2008**           | ** ** | **(14,778**   | **)**      | **(34,897** | **)**      | **—**   | ** ** | **(49,675** | **)**      |
| Depreciation charge for the year      |       | (6,715        | )          | (9,914      | )          | —       |       | (16,629     | )          |
| Reversal of Impairment/ (impairment)  |       | 4,953         |       | (65         | )          | —       |       | 4,888       |       |
| Disposals                             |       | —        |       | 1,444       |       | —       |       | 1,444       |       |
| Disposal of subsidiary                |       | —        |       | 54          |       | —       |       | 54          |       |
| Effect of movements in exchange rates |       | (3,526        | )          | (4,509      | )          | —       |       | (8,035      | )          |
| **At December 31, 2008**         | ** ** | **(20,066**   | **)**      | **(47,887** | **)**      | **—**   | ** ** | **(67,953** | **)**      |
| Depreciation charge for the year      |       | (9,154        | )          | (11,239     | )          | —       |       | (20,393     | )          |
| Impairment                            |       | —        |       | (565        | )          | (320         | )          | (885        | )          |
| Reversal of impairment                |       | 3,827         |       | 4,257       |       | —       |       | 8,084       |       |
| Disposals                             |       | 13            |       | 4,378       |       | (143         | )          | 4,248       |       |
| Effect of movements in exchange rates |       | (607          | )          | (837        | )          | 5            |       | (1,439      | )          |
| **At December 31, 2009**         | ** ** | **(25,987**   | **)**      | **(51,893** | **)**      | **(458**     | **)**      | **(78,338** | **)**      |
| ** **                            | ** ** | ** **    | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Net book value**                    |       |          |       |        |       |         |       |        |       |
| ** **                            |       |          |       |        |       |         |       |        |       |
| **At December 31, 2009**         | ** ** | **52,282**    | ** ** | **75,750**  | ** ** | **64,583**   | ** ** | **192,615** | ** ** |
| **At December 31, 2008**         | ** ** | **51,129**    | ** ** | **70,773**  | ** ** | **29,304**   | ** ** | **151,206** | ** ** |

 

Depreciation is included in thecost of goods sold for an amount of € 12,094 in 2009 (2008: €10,026; 2007: €11,176), research and development costs of € 5,770 in 2009 (2008: € 4,157;2007: € 2,353) and selling, general and administrative costs of € 2,529 in 2009(2008: € 2,446; 2007: € 924).

 

192

 

**Notes to the consolidated financial statements**

 

**Impairment**

See note 1.4 ‘Use of estimates andjudgments’ in the financial statements for further details on any impairmentsor reversal thereof.

 

Useful lives

The Group reviews the estimateduseful lives of property, plant and equipment at the end of each annualreporting period. In 2009, Management determined that in Korea, the usefullives of certain items of property, plant and equipment from the Shingal sitecan only be used until the moment of the relocation to new Incheon site. As aresult the useful life of these assets was reduced to reflect that the assetwill be fully depreciated by March 31, 2011. The assets are subject toaccelerated depreciation, which leads to a higher depreciation charge in thecoming periods. In 2009, the impact on the profit before tax was an additionalcharge of € 806.

 

**Lease andborrowing costs**

At December 31, 2009 and 2008,the Group held equipment under finance leases with a cost of € 23,568 and €23,505, respectively, and a net book value of € 19,727 and € 21,936,respectively. The equipment under finance leases includes the new Spanishfilling line and laboratory equipment in Leiden, the Netherlands. These leasesare secured by the value of the underlying assets.

 

At December 31, 2009 an amountof € 619 of borrowing costs related to the construction of the new productionfacility in Korea were capitalized. The borrowing costs are capitalized at anaverage capitalization rate of 5.25%. The borrowing cost in 2008 of € 254related to the new production facility in Leiden, the Netherlands.

 

**Commitments**

The remaining contractualcommitments amount to € 15,755 (2008: € 20,380; 2007: € 4,696) for purchases ofproperty, plant and equipment, mainly related to the new Korean productionfacility in the Incheon, Free Economic Zone, Korea.

 

**5.7 Intangible assets**

 

In thousands of Euro

 
|                                  |       |                |       | Patents and |       | Developed    |       | Assets under |       |        |       |
|---------------------------------------|------------|---------------------|------------|-------------|------------|--------------|------------|--------------|------------|-------------|------------|
| Cost                                  |       | Customer lists |       | licenses    |       | technologies |       | development  |       | Total       |       |
| **At January 1, 2008**           | ** ** | **10,870**          | ** ** | **22,314**  | ** ** | **80,836**   | ** ** | **6,757**    | ** ** | **120,777** | ** ** |
| Effect of movements in exchange rates |       | 1,172               |       | 2,480       |       | (6,384       | )          | 770          |       | (1,962      | )          |
| **At December 31, 2008**         | ** ** | **12,042**          | ** ** | **24,794**  | ** ** | **74,452**   | ** ** | **7,527**    | ** ** | **118,815** | ** ** |
| Additions                             |       | —              |       | —      |       | 324          |       | 4,986        |       | 5,310       |       |
| Acquisition of subsidiaries           |       | 448                 |       | —      |       | —       |       | —       |       | 448         |       |
| Effect of movements in exchange rates |       | 15                  |       | 91          |       | 2,193        |       | 4            |       | 2,303       |       |
| **At December 31, 2009**         | ** ** | **12,505**          | ** ** | **24,885**  | ** ** | **76,969**   | ** ** | **12,517**   | ** ** | **126,876** | ** ** |
| ** **                            | ** ** | ** **          | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Amortization**                      |       |                |       |        |       |         |       |         |       |        |       |
| **At January 1, 2008**           | ** ** | **(3,957**          | **)**      | **(6,683**  | **)**      | **(16,092**  | **)**      | **—**   | ** ** | **(26,732** | **)**      |
| Amortization                          |       | (3,141              | )          | (3,706      | )          | (4,827       | )          | —       |       | (11,674     | )          |
| Effect of movements in exchange rates |       | (640                | )          | (1,299      | )          | 534          |       | —       |       | (1,405      | )          |
| **At December 31, 2008**         | ** ** | **(7,738**          | **)**      | **(11,688** | **)**      | **(20,385**  | **)**      | **—**   | ** ** | **(39,811** | **)**      |
| Amortization                          |       | (2,594              | )          | (4,491      | )          | (4,022       | )          | —       |       | (11,107     | )          |
| Effect of movements in exchange rates |       | (32                 | )          | (85         | )          | (443         | )          | —       |       | (560        | )          |
| **At December 31, 2009**         | ** ** | **(10,364**         | **)**      | **(16,264** | **)**      | **(24,850**  | **)**      | **—**   | ** ** | **(51,478** | **)**      |
| ** **                            | ** ** | ** **          | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **  | ** ** |
| **Net book value**                    |       |                |       |        |       |         |       |         |       |        |       |
| **At December 31, 2009**         | ** ** | **2,141**           | ** ** | **8,621**   | ** ** | **52,119**   | ** ** | **12,517**   | ** ** | **75,398**  | ** ** |
| **At December 31, 2008**         | ** ** | **4,304**           | ** ** | **13,106**  | ** ** | **54,067**   | ** ** | **7,527**    | ** ** | **79,004**  | ** ** |

 

193

 

 

**Notes to the consolidated financial statements continued**

 

Amortization of intangible assetsis included in the cost of goods sold for an amount of € 114 in 2009 (2008: €127; 2007: € 131), research and development costs of € 8,248 in 2009 (2008: €8,635; 2007: € 8,939) and selling, general and administrative costs of € 2,745in 2009 (2008: € 2,912; 2007: € 2,824).

 

Useful lives

The Group reviews the estimateduseful lives of intangible assets at the end of each annual reporting period.In November 2009, the Group announced the launch of the global Crucellbrand, a consistent identity for its worldwide activities and products. As aresult of the global rebranding, the useful life of the trademarks of BernaBiotech and SBL was reduced to a maximum of 3 years as these trademarks aregradually phased out. The impact in 2009 on the profit before tax was anadditional charge of € 597.

 

**Materialintangible assets**

The following individual intangibleassets are considered material to the Group’s financial statements:

** **

In thousands of Euro

 
| ** **                     | ** ** | ** **                 | ** ** | Carrying          |   | Carrying          | ** ** |
|--------------------------------|------------|----------------------------|------------|-------------------|--------|-------------------|------------|
| ** **                     | ** ** | **Remaining amortization** | ** ** | value             |   | value             | ** ** |
| ** **                     | ** ** | **at December 31,**   | ** ** | December 31, |   | December 31, | ** ** |
| ** **                     | ** ** | **2009 (in years)**        | ** ** | 2009              |   | 2008              | ** ** |
| Developed technology Quinvaxem | ** ** | **16.7**                   |       | 25,610            |   | 25,519            |       |
| Developed technology Epaxal    | ** ** | **16.2**                   |       | 10,325            |   | 10,959            |       |
| Developed technology Inflexal  | ** ** | **8.2**                    |       | 6,314             |   | 7,084             |       |
| In-process R&D Flavimun    | ** ** | **—**                 |       | 7,530             |   | 7,526             |       |
| Developed Technology Vivotif   | ** ** | **16.2**                   |       | 5,271             |   | 5,595             |       |

 

194

 

**Notes to the consolidated financial statements**

 

**5.8Goodwill and business combinations**

 

**5.8.1Goodwill**

 

Goodwill is measured as the excessof the total consideration over the net of the acquisition-date amounts of theidentifiable assets acquired and the liabilities assumed. Goodwill includesintangible assets acquired in a business combination, which were notidentifiable because the assets were either not separable or did not arise fromcontractual or legal rights. Goodwill recognized can significantly affectoperating results of both current and future periods as goodwill is subject toan annual impairment review and not to periodic amortization.

 

In thousands of Euro

 
| ** **                                 | ** ** | Goodwill   | ** ** |
|--------------------------------------------|------------|------------|------------|
| **Cost**                                   |       |       |       |
| **At January 1, 2008**                | ** ** | **44,377** | ** ** |
| Adjustment to cost of business combination |       | 237        |       |
| Effect of movements in exchange rates      |       | 1,462      |       |
| **At December 31, 2008**              | ** ** | **46,076** | ** ** |
| ** **                                 | ** ** | ** ** | ** ** |
| Adjustment to cost of business combination |       | 167        |       |
| Effect of movements in exchange rates      |       | 581        |       |
| **At December 31, 2009**              | ** ** | **46,824** | ** ** |
| ** **                                 | ** ** | ** ** | ** ** |
| **Net book value**                         |       |       |       |
| **At December 31, 2009**              | ** ** | **46,824** | ** ** |
| **At December 31, 2008**              | ** ** | **46,076** | ** ** |

 

The selling shareholders of SBLVaccin acquisition Holding AB are contractually entitled to earn-out paymentsbased on contingent future events. Additional consideration resulting from theearn-out agreement with the former shareholders was treated as an adjustment tothe cost of the business combination for an amount of € 167 and € 237 in 2009and 2008, respectively. This contingent consideration was not recognized in theprior year because the amount could not be measured reliably.

 

The goodwill has fully beenallocated to the businesses that were acquired in 2006 as a single cashgenerating unit.

 

·        In February 2006, the Company acquired approximately97% of the outstanding common shares of Berna Biotech AG (‘Berna Biotech’) for€ 348,852, excluding acquisition costs. During 2006 the remaining outstandingshares were also acquired. Berna Biotech was a fully integrated biotechnologycompany that marketed numerous vaccines on a global scale.

·        In October 2006, the Group purchased, via itssubsidiary Crucell Vaccines Inc. the assets and liabilities of theFlorida-based Berna Products Corp. (‘BPC’) from Acambis plc for € 13,806. BPCwas originally established in 1990 by Berna Biotech to market Vivotif, Berna’soral typhoid fever vaccine, in the US and Canada.

·        In November 2006, the Group acquired, via itssubsidiary Crucell Holland B.V. the shares of Stockholm-based SBL VaccinHolding AB (SBL) from 3i and SEB for a total consideration of € 39,341 in cash.SBL’s main product was Dukoral. In addition, SBL has a sales and distributionorganization for vaccines in Scandinavia.

 

**Impairmenttesting methodology and key assumptions**

The CGU’s recoverable amount isbased on the fair value less costs to sell. Given that due to the level of specificityof the CGU no observable market price exists, the fair values less costs tosell is based on discounted net present value calculations that use assumptionsapplicable in the current market as well as management’s past experience aboutthe key assumptions.

 

The valuation is based on adiscounted future cash flow model based on the Group’s latest long range planswhich have been benchmarked to external market information. The Group’s longrange plans use a 5-year planning horizon.

 

195

 

**Notes to the consolidated financial statements continued**

 

The key assumptions used in thecash flow projections are the growth rate after the 5-year planning horizon,the level of research and development expenses incurred to guarantee futureproducts, and the weighted average cost of capital (WACC).

 

The recoverable goodwill amount wasdetermined on the basis of a (pre-tax) discount rate of 13.0%, a growth rateafter the 5-year planning horizon of 0% and research and developmentexpenditures as a percentage of sales of 15%.

 

Calculations of the recoverableamount show that there is no impairment as the recoverable amount of the 2006business acquisitions exceeds the carrying amount of € 265 million (2008: € 235million) by € 146 million (2008: € 189 million).

 

Management believes that anyreasonable possible change in the key assumptions would not decrease therecoverable amount to the extent that the related carrying amount would exceedthe recoverable amount. Several sensitivity analyses on key assumptions wereperformed and the outcome indicated that the carrying amount would not exceedthe recoverable amount.

 

**5.8.2Acquisition selected assets and liabilities of Masta Ltd.**

On June 5, 2009 the Groupestablished Crucell UK Ltd. On July 15, 2009 the Group purchased, via itssubsidiary Crucell UK Ltd. selected assets and liabilities of UK-Based Mastafor an amount of £ 105. The relevant assets acquired pertain to the customerbase and the workforce of the UK fields activities of Masta Ltd. In addition,Masta Ltd received monthly payments from March 1, 2009 to July 1,2009 for a total amount of £ 304 from the Group as consideration forpre-acquisition costs directly related to the business combination.

 

The Group recognized theidentifiable assets acquired and the liabilities assumed at their respectivefair values.

The consideration allocated to theacquired customer contracts amounted to £ 405. No goodwill was recognized inthe business combination. Based on the magnitude of the business combination,not all specific disclosures as required by IFRS 3 were included.

 

**5.9**      **Investments in associate and joint ventures**

 

**5.9.1 ****Associated company**

**ADImmuneCorp., Taiwan**

The Group has an 11.8% stake in theshare capital of Taiwan-based ADImmune Corp., (ADImmune) a company thatdevelops, manufactures and distributes vaccines and other biopharmaceuticalproducts. During 2008, our ownership of ADImmune Corp. was diluted from 20% to11.8%. ADImmune obtained a license to the Group’s virosome technology toproduce a virosome adjuvanted influenza vaccine for the following markets:Taiwan, Japan and Macau. Additionally, ADImmune will produce influenza antigenin the future, which we may purchase to produce our influenza vaccine product,Inflexal V.

 

Although the Group holds less than20% of the outstanding share capital, ADImmune is accounted for as anassociate. The Group concludes it has significant influence over ADImmune asthe Group has a seat in the governing body of ADImmune.

 

196

 

**Notes to the consolidated financial statements**

 

Summary financial information ofADImmune (unaudited) for the years ended December 31, 2009, not adjustedfor the percentage of ownership held by the Group, is as follows:

 

In thousands of Euro

 
| ** **     | ** ** | As of December 31, |   | Year ended December 31, | ** ** |
|----------------|------------|-------------------------|--------|------------------------------|------------|
| ** **     | ** ** |                    |   |                         |       |   |   |   |   | Profit/ (loss) | ** ** |
| ADImmune Corp. | ** ** | Total assets            |   | Total liabilities            |       | Revenues |   | Expenses |   | before tax | ** ** |
| 2009           |       | 127,763                 |   | (39,692                      | )          | 30,282 |   | (11,818 | ) | 18,464 |   |
| 2008           |       | 92,518                  |   | (23,080                      | )          | 5,844 |   | (6,548 | ) | (704 | ) |

 

**5.9.2 Jointventure**

**PerciviaLLC, United States**

In August 2006, DSMPharmaceutical Products Inc, and the Group established a joint venture,Percivia LLC (Percivia) to operate the PERCIVIA PER.C6 Development Center inCambridge, MA, US. Each company holds 50% of the shares of the joint venture.The initial contribution of the Group amounted to $ 500. The joint venture furtherdevelops the PER.C6 cell line and provides a unique solution for the productionof pharmaceutical proteins to licensees utilizing the PER.C6 human cell line inthe biotech industry. Percivia charges the costs incurred to the venturers. Noadditional contributions are planned.

 

Summary financial information ofthis joint venture, not adjusted for the percentage ownership held by the Groupis as follows:

 

In thousand of Euro

 
|          |   | As of  December 31, |   | Year ended  December 31, |   |
|---------------|--------|--------------------------|--------|-------------------------------|--------|
|          |   |                     |   |                          |   |   |   |   |   | Profit/  (loss) |   |
| Percivia  LLC |   | Total  assets            |   | Total liabilities        |   | Revenues |   | Expenses |   | before tax |   |
| 2009          |   | 3,888                    |   | (1,131                        | )      | 9,154 |   | (8,319 | ) | 835 |   |
| 2008          |   | 3,420                    |   | (1,440                        | )      | 8,721 |   | (7,972 | ) | 749 |   |

 

The tax charge for PERCIVIA PER.C6Development Center is accounted for in the financial statements of theventurers. The tax charge recognized in the financial statements relating tothe percentage owned by the Group amounts to € 142 in 2009 (2008: € 151).

 

**5.10Retirement benefit obligations**

 

The Group provides employee benefitplans to most of its employees by means of various pension plans. These planscomply with local regulations and practices in the countries in which they operateand differ based on legal requirements, tax legislation, local customs andeconomic conditions in those countries. While the nature of the plans varies bycountry, in general, the benefits provided depend on remuneration and years ofservice. Most of these benefits are administrated by insurance companies orpension funds.

 

In 2009 the Group changed itspolicy in accounting for actuarial gains and losses of defined benefit pensionsplans. Starting 2009, the Group recognizes actuarial gains and losses in theperiod in which they occur in other comprehensive income. Previously, the Groupaccounted for its actuarial gains and losses arising from experience-basedadjustments and changes in actuarial assumptions in line with the ‘corridor’method as prescribed in IAS 19.92.

 

The Group adjusted comparativeamounts disclosed for each prior period presented as if the new accountingpolicy had always been applied. See note 1.5.1 ‘New adopted accounting policiesin the financial year 2009’ in the financial statements for further details onthe change in accounting policy.

 

197

 

 

**Notes to theconsolidated financial statements continued**

 

In thousands of Euro

 
| Year  ended December 31, | ** ** | **2009**  | ** ** | 2008      |       | 2007      | ** ** |
|-------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Statement of income           |       |      |       |      |       |      |       |
| Defined benefit  plans        | ** ** | **(73**   | **)**      | 254       |       | 220       |       |
| Defined  contribution plans   | ** ** | **2,241** |       | 2,410     |       | 2,436     |       |
| **Total**                     | ** ** | **2,168** | ** ** | **2,664** | ** ** | **2,656** | ** ** |

 
| As of December 31,               | ** ** | 2009   |   | 2008   |   | 2007   |   |
|---------------------------------------|------------|--------|--------|--------|--------|--------|--------|
| Statement of  financial position      |       |   |   |   |   |   |   |
| Defined benefit  plans                |       |   |   |   |   |   |   |
| Pension assets                        |       | 2,923  |   | 8,612  |   | 7,397  |   |
| Pension liability                     |       | (4,437 | )      | (4,009 | )      | (3,699 | )      |
| Net pension asset –  (liability) |       | (1,514 | )      | 4,603  |   | 3,698  |   |

 

TheGroup operates defined benefit plans in Switzerland, Korea and Sweden. Thepension asset of € 2,923 (2008: € 8,612) relates to the Swiss pension fundwhile the pension liability of € 4,437 (2008: € 4,009) relates to the Swedishand the Korean pension funds.

 

Intotal, 95% of the plan assets (2008: 97%) and 90% of the defined benefitobligation (2008: 91%) relate to the Swiss pension fund. The Swiss mandatorypension fund is organized in a foundation. The regular retirement age is 65,with the possibility of early retirement from the age of 59 and postponement ofretirement up to the age of 68. Contributions by employees vary per agecategory and range from 1.25% for employees between 18 and 24 to 8.75% of theinsured income for employees between 60 and 68. Contributions by the employeralso vary per age category and range from 1.75% for employees between 18 and 24to a maximum contribution of 22.25% of the insured income for employees between60 and 68. The retirement pension at the age of 65 amounts to 6.4% of theaccrued retirement assets at retirement. The Swiss pension fund provides aminimum benefit to its participants, which is mandatory under Swiss law. Incase of an underfunding of the pension fund the employer is obliged to make an additionalcontribution to the pension fund.

 

Theassumptions used in the actuarial calculation can have a significant impact onthe outcome. The weighted average of the principal assumptions used indetermining the employee benefit obligations for the defined benefit plans ofthe Group are shown below:

 
| Year  ended December 31,   |   | 2009  |   | 2008  |   | 2007  |   |
|---------------------------------|--------|-------|--------|-------|--------|-------|--------|
| Discount rate                   |   | 3.42% |   | 3.37% |   | 3.40% |   |
| Expected return on  plan assets |   | 4.54% |   | 4.53% |   | 4.53% |   |
| Future salary  increases        |   | 1.22% |   | 1.19% |   | 1.22% |   |
| Future pension  increases       |   | 0.75% |   | 0.71% |   | 0.78% |   |

 

Changesin the present value of the defined benefit obligation are as follows:

 

In thousands of Euro

 
| Year  ended December 31,                      |       | 2009       |       | 2008       |       | 2007       |       |
|----------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **Defined  benefit obligation, January 1,**   | ** ** | **85,485** | ** ** | **74,506** | ** ** | **72,679** | ** ** |
| Past service cost –  vested obligations       |       | (1,563     | )          | —     |       | —     |       |
| Interest cost                                      |       | 2,860      |       | 2,165      |       | 2,363      |       |
| Current service  cost                              |       | 3,926      |       | 3,748      |       | 3,369      |       |
| Benefits paid                                      |       | (3,100     | )          | (4,418     | )          | (2,450     | )          |
| Actuarial (gains)/  losses                         |       | 1,088      |       | 3,038      |       | 934        |       |
| Exchange  differences                              |       | 608        |       | 6,446      |       | (2,389     | )          |
| **Defined  benefit obligation, December 31,** | ** ** | **89,304** | ** ** | **85,485** | ** ** | **74,506** | ** ** |

 

198

 

**Notes to the consolidatedfinancial statements**

 

Changesin the fair value of plan assets are as follows:

 

In thousands of Euro

 
| Year  ended December 31,                    |       | 2009       |       | 2008       |       | 2007        |       |
|--------------------------------------------------|------------|------------|------------|------------|------------|-------------|------------|
| **Fair  value of plan assets, January 1**   | ** ** | **92,211** | ** ** | **99,032** | ** ** | **102,306** | ** ** |
| Expected return on plan  assets                  |       | 4,132      |       | 4,606      |       | 4,528       |       |
| Acquisition of  subsidiaries                     |       | —     |       | —     |       | —      |       |
| Contributions by  employer                       |       | 2,074      |       | 598        |       | 2,338       |       |
| Contributions by participants                    |       | 1,164      |       | 1,053      |       | 984         |       |
| Benefits paid                                    |       | (3,100     | )          | (4,418     | )          | (2,450      | )          |
| Actuarial gains/  (losses)                       |       | 2,265      |       | (17,961    | )          | (5,727      | )          |
| Exchange  differences                            |       | 677        |       | 9,301      |       | (2,947      | )          |
| **Fair  value of plan assets, December 31** | ** ** | **99,423** | ** ** | **92,211** | ** ** | **99,032**  | ** ** |

 

In2010, the Group expects to contribute € 2,100 to its defined benefit pensionplans. The actual return on plan assets for the year ended December 31,2009 amounted to a gain of € 6,397 (2008: loss of € 13,355).

 

Thecosts for defined benefit plans are as follows:

 

In thousands of Euro

 
| Year  ended December 31,   | ** ** | **2009**   | ** ** | 2008    |       | 2007    |       |
|---------------------------------|------------|------------|------------|---------|------------|---------|------------|
| Current service  cost           | ** ** | **3,926**  |       | 3,748   |       | 3,369   |       |
| Interest cost                   | ** ** | **2,860**  |       | 2,165   |       | 2,363   |       |
| Expected return on  plan assets | ** ** | **(4,132** | **)**      | (4,606  | )          | (4,528  | )          |
| Past service cost               | ** ** | **(1,563** | **)**      | —  |       | —  |       |
| Employee contributions          | ** ** | **(1,164** | **)**      | (1,053  | )          | (984    | )          |
|                            | ** ** | **(73**    | **)**      | **254** | ** ** | **220** | ** ** |

 

Theamounts recognized in other comprehensive income are as follows:

 

In thousands of Euro

 
| Year  ended December 31,               | ** ** | **2009**   | ** ** | 2008    |       | 2007       |   |
|---------------------------------------------|------------|------------|------------|---------|------------|------------|--------|
| The  effect of changes in the asset ceiling | ** ** | **9,394**  |       | (20,157 | )          | (8,465     | )      |
| Actuarial (gains)  and losses               | ** ** | **(1,177** | **)**      | 20,999  |       | 6,661      |   |
| ** **                                  | ** ** | **8,217**  | ** ** | **842** | ** ** | **(1,804** | **)**  |

 
| As of December 31,                      | ** ** | **2009**  |       | 2008       |   | 2007       |   |
|----------------------------------------------|------------|-----------|------------|------------|--------|------------|--------|
| **Cumulative  actuarial (gains) and losses** | ** ** | **6,757** | ** ** | **(1,460** | **)**  | **(2,302** | **)**  |

 

Theamounts in the statement of financial position are determined as follows:

 

In thousands of Euro

 
| ** **                                           | ** ** | **December 31,** | ** ** | December 31, |   | January 1, |   |
|------------------------------------------------------|------------|-----------------------|------------|-------------------|--------|-----------------|--------|
| ** **                                           | ** ** | **2009**              | ** ** | 2008              |   | 2007            |   |
| Defined benefit  obligation                          | ** ** | **(89,304**           | **)**      | (85,485           | )      | (72,679         | )      |
| Fair value of plan  assets                           | ** ** | **99,423**            |       | 92,211            |   | 102,306         |   |
| Funded status                                        | ** ** | **10,119**            |       | 6,726             |   | 29,627          |   |
| Amount not  recognized as asset due to asset ceiling | ** ** | **(11,633**           | **)**      | (2,123            | )      | (30,493         | )      |
| Net pension  (liability)/ asset                      | ** ** | **(1,514**            | **)**      | 4,603             |   | (866            | )      |

 

Theimpact of the change in accounting policy on the net pension liability as at January 1,2007 is an amount of € 248. The total net pension liability as at January 1,2007 increased from € 618 to € 866.

 

In thousands of Euro

 
| Year  ended                                                    | ** ** | ** **  | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|-------------|------------|------------|------------|------------|------------|
| December 31,                                              | ** ** | **2009**    |       | 2008        |       | 2007       |       | 2006       |       |
| Defined benefit obligation                                     | ** ** | **(89,304** | **)**      | (85,485     | )          | (74,506    | )          | (72,679    | )          |
| Plan assets                                                    | ** ** | **99,423**  |       | 92,211      |       | 99,032     |       | 102,306    |       |
| Surplus                                                        | ** ** | **10,119**  |       | 6,726       |       | 24,526     |       | 29,627     |       |
| Experience adjustments  on plan liabilities – (loss)/gain | ** ** | **(0.4)%**  |       | (3.0)%      |       | (1.7)%     |       | 1.1%       |       |
| **Experience  adjustments on plan assets – (loss)/gain**  | ** ** | **2.2%**    | ** ** | **(10.0)%** | ** ** | **(5.8)%** | ** ** | **(0.2)%** | ** ** |

 

Themajor categories of plan assets as a percentage of the fair value of total planassets are as follows:

 
| ** ** | ** ** | **2009**   | ** ** | 2008       | ** ** |
|------------|------------|------------|------------|------------|------------|
| Bonds      | ** ** | **42.2%**  |       | 44.9%      |       |
| Equity     | ** ** | **24.3%**  |       | 22.0%      |       |
| Property   | ** ** | **25.1%**  |       | 28.4%      |       |
| Other      | ** ** | **8.4%**   |       | 4.7%       |       |
|       | ** ** | **100.0%** | ** ** | **100.0%** | ** ** |

 

Theoverall expected rate of return on assets is determined based on the marketprices expected to be applicable to the period over which the obligation is tobe settled and the relative weight of the separate categories of plan assets.

 

199

 

**Notes to theconsolidated financial statements continued**

 

**5.11 Other financial assets**

 

In thousands of Euro

 
| As  of December 31,           | ** ** | **2009**   | ** ** | 2008       | ** ** |
|------------------------------------|------------|------------|------------|------------|------------|
| Long-term  restricted cash         | ** ** | **13,023** |       | 12,896     |       |
| Long-term deposits  and guarantees | ** ** | **2,870**  |       | 1,645      |       |
| Other long-term  receivables       | ** ** | **325**    |       | 379        |       |
|                               | ** ** | **16,218** | ** ** | **14,920** | ** ** |

 

**5.12 Cash andcash equivalents**

 

In thousands of Euro

 
| As  of December 31,   | ** ** | **2009**    |       | 2008        |       |
|----------------------------|------------|-------------|------------|-------------|------------|
| Cash at banks and  in hand | ** ** | **95,297**  |       | 91,853      |       |
| Call deposits              | ** ** | **232,540** |       | 79,116      |       |
|                       | ** ** | **327,837** | ** ** | **170,969** | ** ** |

 

Cashand cash equivalents are denominated in the following currencies (translatedinto Euros):

 

In thousands of Euro

 
| As  of December 31, | ** ** | **2008**    |       | 2008        |       |
|--------------------------|------------|-------------|------------|-------------|------------|
| Euros (€)           | ** ** | **256,711** |       | 111,909     |       |
| Korean Won (KRW)         | ** ** | **35,047**  |       | 7,360       |       |
| US Dollar ($)            | ** ** | **24,907**  |       | 37,975      |       |
| Swedish Crowns  (SEK)    | ** ** | **4,570**   |       | 7,746       |       |
| Canadian Dolllars  (CAD) | ** ** | **3,459**   |       | 50          |       |
| Pound Sterling (£)  | ** ** | **1,610**   |       | 5           |       |
| Swiss Francs (CHF)       | ** ** | **1,210**   |       | 4,144       |       |
| Other currencies         | ** ** | **323**     |       | 1,780       |       |
|                     | ** ** | **327,837** | ** ** | **170,969** | ** ** |

 

**5.13 Derivative financial instruments**

 

TheGroup uses derivative financial instruments for the management of foreigncurrency risks.

 

In thousands of Euro

 
|                                    | ** ** | 2009       |       | 2009        |   | 2009       |   | 2008       |   | 2008        |   | 2008       |   |
|-----------------------------------------|------------|------------|------------|-------------|--------|------------|--------|------------|--------|-------------|--------|------------|--------|
| ** **                              | ** ** | Fair value | ** ** | Fair value  |   | Total fair |   | Fair value |   | Fair value  |   | Total fair |   |
| As  of December 31,                | ** ** | assets     | ** ** | liabilities |   | value      |   | assets     |   | liabilities |   | value      |   |
| Foreign exchange  contracts             |       | 229        |       | (294        | )      | (65        | )      | 1,761      |   | (194        | )      | 1,567      |   |
| Cash flow hedge                         |       | 57         |       | —      |   | 57         |   | —     |   | (685        | )      | (685       | )      |
| Total derivative financial  instruments |       | 286        |       | (294        | )      | (8         | )      | 1,761      |   | (879        | )      | 882        |   |

 

200

 

**Notes to the consolidatedfinancial statements**

 

Allderivative financial instruments mature within a year and are thereforepresented as current assets or liabilities. The fair values of forward foreignexchange contracts are determined using forward foreign exchange rates as at December 31,2009.

 

Allforeign exchange contracts, which are not designated as a qualifying hedgeinstrument, mature within 2 months after December 31, 2009. The principalamount and fair value of foreign currency forwards that are not designated in acash flow hedge are € 26,856 in 2009 (2008: € 38,907) and have a negativeunrealized result of € 65 in 2009 (2008: positive unrealized result of €1,567). The Group enters in these derivative transactions to mitigate itsforeign currency transaction exposure.

 

**Cash flow hedging**

TheGroup has designated certain qualifying derivative financial instruments ashedge instruments for cash flow hedge accounting to manage its currency riskresulting from specific contracts denominated in foreign currencies that differfrom the functional currency of the Group company that engages in the contract.The principal amount and fair value of foreign currency forwards designated ina cash flow hedge are € 4,486 (2008: € 7,535) and an unrealized result of € 57(2008: € 685) respectively.

 

Cashflow hedges of foreign currency risks relate to forecasted transactions. Theseare expected to occur between four and nine months after December 31,2009. As at year-end 2009, the outstanding cash flow hedge was estimated to be100% effective. No ineffectiveness was recognized in the statement of incomearising from cash flow hedges (2008: Nil).

 

**5.14Trade accounts receivable**

 

In thousands of Euro

 
| As  of December 31,                              | ** ** | **2009**   |       | 2008       |       |
|-------------------------------------------------------|------------|------------|------------|------------|------------|
| Trade receivables  from third party customers         | ** ** | **86,910** |       | 39,343     |       |
| Trade receivables  from associates and joint ventures | ** ** | **121**    |       | 765        |       |
|                                                  | ** ** | **87,031** | ** ** | **40,108** | ** ** |

 

AtDecember 31, 2009, trade accounts receivables are shown net of anallowance for doubtful debts for an amount of € 1,924 (2008: € 2,289). TheGroup’s normal credit period is 30 days, although in some jurisdictions,including Italy, Korea and Spain, a credit period of 60 days or even more ismaintained in line with local customs. Receivables are denominated in severalcurrencies and can be specified as follows:

 

In thousands of Euro

 
| As  of December 31, | ** ** | **2009**   |       | 2008       |       |
|--------------------------|------------|------------|------------|------------|------------|
| Euros (€)           | ** ** | **32,003** |       | 20,569     |       |
| US Dollar ($)            | ** ** | **34,434** |       | 8,985      |       |
| Swiss Francs (CHF)       | ** ** | **12,211** |       | 5,058      |       |
| Swedish Crowns  (SEK)    | ** ** | **6,833**  |       | 2,810      |       |
| Korean Won (KRW)         | ** ** | **417**    |       | 1,334      |       |
| Other currencies         | ** ** | **1,133**  |       | 1,352      |       |
|                     | ** ** | **87,031** | ** ** | **40,108** | ** ** |

 

201

 

**Notes to theconsolidated financial statements continued**

 

**Aging of past due, but not impaired**

Includedin the Group’s trade accounts receivables balance are debtors with a carryingamount of € 16,010 (2008: € 11,678) which are past due at the reporting datefor which the Group has no significant provision because there has not been asignificant change in credit quality and the amounts are consideredrecoverable. The Group does not hold any collateral over these balances.

 

In thousands of Euro

 
| As  of December 31, | ** ** | **2009**   |       | 2008       |       |
|--------------------------|------------|------------|------------|------------|------------|
| 0-60 days                | ** ** | **10,136** |       | 7,810      |       |
| 60-90 days               | ** ** | **2,524**  |       | 1,407      |       |
| 90-180 days              | ** ** | **888**    |       | 340        |       |
| Over 180 days            | ** ** | **2,462**  |       | 2,121      |       |
|                     | ** ** | **16,010** | ** ** | **11,678** | ** ** |

 

TheGroup’s trade accounts receivables past due, but not impaired, are mainly duewithin the European region (€ 13,629). These are mainly due from customers inthe Mediterranean region, which normally pay after the standard payment periodand due from significant customers, whose trade accounts receivables haverecently shifted into the overdue buckets.

 

**Allowancefor doubtful debts**

Movements in the allowance fordoubtful debts are as follows:

 

In thousands of Euro

 
| Year  ended December 31,                | ** ** | 2009      |       | 2008      |       |
|----------------------------------------------|------------|-----------|------------|-----------|------------|
| Balance at  beginning of the year            |       | 2,289     |       | 2,763     |       |
| Impairment losses  recognized on receivables |       | 166       |       | 1,429     |       |
| Amounts written off  as uncollectible        |       | (300      | )          | (1,379    | )          |
| Amounts recovered  during the year           |       | (51       | )          | (8        | )          |
| Impairment losses  reversed                  |       | (190      | )          | (281      | )          |
| Foreign exchange                             |       | 10        |       | (235      | )          |
|                                         | ** ** | **1,924** | ** ** | **2,289** | ** ** |

 

**5.15 Inventories**

 

In thousands of Euro

 
| As  of December 31,       | ** ** | 2009        |       | 2008       |       |
|--------------------------------|------------|-------------|------------|------------|------------|
| Raw materials and  consumables |       | 22,560      |       | 13,286     |       |
| Work in progress               |       | 85,667      |       | 61,980     |       |
| Finished products              |       | 10,193      |       | 16,581     |       |
|                           | ** ** | **118,420** | ** ** | **91,847** | ** ** |

 

202

 

**Notes to the consolidatedfinancial statements**

 

Inorder to be able to meet the demand from the market (e.g. in case of outbreakof a disease) the Group stocks certain inventories to a level such that theymay not be utilized within one year. Provisions are recognized for obsoleteinventory. The amount of write-down of inventories recognized as an expense is€ 1,689 (2008: € 3,218).

 

Theamount of inventories recognized as an expense in cost of product sales is € 173,391(2008: € 128,632; 2007: € 113,250).

 

**5.16Other current assets**

 

In thousands of Euro

 
| As  of December 31,                | ** ** | 2009        |       | 2008       |       |
|-----------------------------------------|------------|-------------|------------|------------|------------|
| Accrued income                          |       | 6,368       |       | 4,495      |       |
| Prepaid expenses                        |       | 4,415       |       | 3,612      |       |
| Other short-term  receivables           |       | 1,900       |       | 6,658      |       |
| Director’s loan                    |       | 134         |       | 134        |       |
| Income tax  receivables                 |       | 8,680       |       | 2,734      |       |
| Deposits with a  maturity over 3 months |       | 100,000     |       | —     |       |
|                                    | ** ** | **121,497** | ** ** | **17,633** | ** ** |

 

**5.17Issued share capital and reserves**

 

TheCompany’s authorized share capital amounts to 156,250,000 ordinary shares and156,250,000 preference shares, each with a par value of € 0.24. As of December 31,2009, there were 81,446,295 ordinary shares issued and outstanding (2008:65,833,242). No preference shares are issued and outstanding as of December 31,2009.

 
|                                                   |       |       |       | Issued     |       | Share       |       | Total         |       |
|--------------------------------------------------------|------------|------------|------------|------------|------------|-------------|------------|---------------|------------|
|                                                   |       | Shares     |       | capital    |       | premium     |       | capital       |       |
|                                                   |       | 000        |       | € 000 |       | € 000  |       | € 000    |       |
| At  December 31, 2007                             |       | 65,349     |       | 15,685     |       | 735,578     |       | 751,263       |       |
| Shares issued  relating to share-based payments        |       | 484        |       | 115        |       | 3,115       |       | 3,230         |       |
| Cost of share-based  payment transactions              |       | —     |       | —     |       | 5,053       |       | 5,053         |       |
| At  December 31, 2008                             |       | 65,833     |       | 15,800     |       | 743,746     |       | 759,546       |       |
| Shares issued  relating to share-based payments        |       | 986        |       | 237        |       | 8,969       |       | 9,206         |       |
| Cost of share-based  payment transactions              |       | —     |       | —     |       | 7,732       |       | 7,732         |       |
| Shares issued in  relation to private placement of JNJ |       | 14,627     |       | 3,510      |       | 228,549     |       | 232,059       |       |
| **At  December 31, 2009**                         | ** ** | **81,446** | ** ** | **19,547** | ** ** | **988,996** | ** ** | **1,008,543** | ** ** |

 

TheDutch Civil Code restricts distribution of legal reserves and capital in anamount of € 28,077 (2008: € 19,054).

 

**Strategic collaboration with affiliates of Johnson &Johnson (JNJ)**

OnSeptember 28, 2009 Crucell signed a strategic agreement with affiliates ofJNJ. On that date the Group entered into several agreements with affiliates ofJNJ: an equity purchase agreement, a registration rights agreement, ashareholder agreement and two collaboration agreements.

 

Pursuantto the equity purchase agreement the Company issued 14,626,984 shares to JHCNederland B.V., an affiliate of JNJ, at a price of € 20.63, totaling an amountof € 301,755. The number of shares issued represents 18% of the outstandingshare capital of the Company after issuance. The equity purchase agreementcontains customary representations and warranties.

 

203

 

**Notes to theconsolidated financial statements continued**

 

UnderIFRS, the fair value of the equity investment corresponds with a total value of€ 233,300. The fair value per share was equal to the price of a NYSE Euronextlisted share of the Company at the date of issuance. Costs directlyattributable to the issuance of shares amount to € 1,241 and are deducted fromshare premium, a component of equity. The premium over the fair value of €68,455 has been allocated to the development programs that are part of thestrategic collaboration with an affiliate of JNJ, as described below.

 

TheGroup and JNJ, through its subsidiary Ortho-McNeil-Janssen Pharmaceuticals, Inc.,entered into a strategic collaboration for the development andcommercialization of a universal monoclonal antibody product (flu-mAb) for thetreatment and prevention of influenza. In addition, the strategic collaborationinvolves three innovative discovery programs focusing on the development andcommercialization of a universal influenza vaccine as well as vaccines directedagainst three other infectious and non-infectious disease targets. Pursuant tothe registration rights agreement, JHC Nederland B.V. was granted certaincustomary rights regarding the registration of the new shares issued to itunder the US Securities Exchange Act 1934, as amended.

 

Thefollowing is a summary of certain important elements of the shareholderagreement.

 

**Standstill** For a certain period beginning September 28, 2009 , JHCNederland B.V. and its affiliates may not, without the Group’s prior approval,purchase or acquire any shares or securities of the Company convertible into,or exercisable or exchangeable for, or otherwise giving the holder thereof anyrights in respect of, shares or commence a public offer for the Company’sshares, if, in either case, the consummation of such purchase or acquisition orpublic offer would result in JHC Nederland B.V. and its affiliates in theaggregate beneficially owning(assuming the exercise, exchange or conversion of all oursecurities held by them), directly or indirectly, more than 18% of the issuedand outstanding shares of the Company. Customary exceptions apply to thestandstill.

 

**Anti-Dilution** If, within nine months from the date of issuance, theCompany experiences the consummation of a negotiated transaction for a changeof control of the Company at a price per share below the issue price, JHCNederland B.V. shall be entitled to receive a cash payment equal to thedifference between the issue price and such lower price multiplied by thenumber of shares acquired upon consummation of such transaction (not to exceedthe number of 14,626,984 new shares as acquired by JHC Nederland B.V. on theissue date). This amount must be paid to JHC Nederland B.V. within 5 businessdays after the consummation of the relevant transaction by the counterparty tothe change of control transaction or where it concerns a public offer or saleof all or substantially all of our assets by the Company.

 

**Drag Along Right** If the Company receives a bona fide public offer from athird party and (i) the Management Board and Supervisory Board haveendorsed, approved, recommended or otherwise supported such public offer, (ii) theholders of at least 70% of the issued and outstanding shares of the Company(including those held by JHC Nederland B.V. and/ or its affiliates) havetendered their shares to the third party in connection with such public offerand (iii) JHC Nederland B.V. and/ or any of its affiliates do not have abona fide matching (x) counter public offer to the Company’s shareholdersor (y) other proposal involving the acquisition by a third party of morethan 30% of the Company’s shares or assets pending, JHC Nederland B.V. and itsaffiliates shall agree to tender and sell all their shares in such publicoffer. JHC Nederland B.V. shall in such event, if applicable, also have theright to receive payment of the amount as described under ‘Anti-Dilution’ inthe preceding paragraph.

 

**Pre-Emptive Right**If the Company plans to issue any shares or any securitiesconvertible into, or exercisable or exchangeable for, or otherwise giving theholder thereof any rights in respect of, shares, JHC Nederland B.V. has theright to purchase in such offer such number of shares to maintain its

 

204

 

**Notes to the consolidatedfinancial statements**

 

proportionateownership interest in the Company on a fully diluted basis (disregarding equitybased awards under the Employee stock ownership plan (ESOP)). The NederlandB.V. pre-emptive right shall expire and no longer be available upon JHCNederland B.V. (together with its affiliates) ceasing to beneficially own atleast 12% of JHC Company’s issued and outstanding shares of the Company.

 

**Approval Rights** the Company may not without the approval of JHC NederlandB.V.: (i) commence a tender offer or repurchase of shares if theconsummation of such tender offer or repurchase would result in JHC NederlandB.V. holding more than 18% of the issued and outstanding shares, (ii) grantoptions or other equity awards in excess of the amounts authorized under theESOP, or (iii) amend the Articles of Association in a manner that wouldcreate a new class of securities, or make the current rights of the General Meetingsubject to proposals of the Management Board and/or Supervisory Board orsubject to other limitations. JHC Nederland B.V. approval right shall expireand no longer be available upon JHC Nederland B.V. (together with itsaffiliates) ceasing to beneficially own at least 10% of the Company’s issuedand outstanding shares.

 

**5.18 Share-based payment plans**

 

**Stock-based compensation**

**Employee stock option plans**

TheGroup maintains stock option plans whereby the Remuneration committee of theSupervisory Board may grant options to employees, directors and members of theSupervisory Board. The compensation expenses included in operating expenses forthose plans were € 7,732, € 5,053 and € 6,524 in 2009, 2008 and 2007,respectively.

 

InDecember 2004, the Supervisory Board approved a new option plan (the ‘2005Plan’) providing for the grant of stock options to non-Management Committeemembers. Options granted under this stock option plan are exercisable oncevested. Granted options vest straight line over a period of four years.Compensation costs are recognized in accordance with the accelerated method.The options expire five years after date of grant. Upon termination ofemployment, options must be exercised within 90 days. Options granted under thestock option plan are granted at exercise prices, which equal the fair value ofthe ordinary shares of the Company at the date of grant.

 

Alloptions granted under previous stock option plans (the ‘Prior Plans’) areexercisable immediately upon grant. The options expire four to eight years fromthe date of grant, or earlier upon termination of employment with the Group.Upon termination of employment, options must be exercised within 90 days. Nofurther grants are to be made under the Prior Plans.

 

TheGroup has a separate long-term incentive (LTI) stock option for its ManagementCommittee members. Under the terms of the LTI plan, options are conditionallygranted and vest at the end of a three-year performance period. Theconditionally granted options include a market condition that is taken intoaccount when estimating the fair value of the equity instruments granted. Thenumber of LTI options that vest are based on the fulfillment of the LTIperformance condition. On the vesting date, the Company’s Total ShareholderReturn (‘TSR’) performance is measured against the performance of the NASDAQBiotechnology Index during the performance period. The positive difference inpercentages, if any, between the Company’s TSR compared to the performance ofthe NASDAQ Biotechnology Index, determines the number of LTI options that veston the vesting date. Depending on the level of achievement of these marketmeasures, at the end of three years, the number of shares vesting could be0%-200% of the number of options originally granted.

 

TheGroup accounts for its employee stock options under the fair value method. Thefair value of options is estimated at the date of grant using the Black-Scholesoption-pricing model, with the following weighted average assumptions:

 
| Year  ended December 31, |   | 2009   |   | 2008   |   | 2007   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Risk-free interest  rate      |   | 2.4%   |   | 4.3%   |   | 4.1%   |   |
| Expected dividend  yield      |   | — |   | — |   | — |   |
| Expected volatility           |   | 50.9%  |   | 36.7%  |   | 33.3%  |   |
| Expected life  (years)        |   | 4.39   |   | 4.76   |   | 4.25   |   |

 

Theweighted average fair value of options granted during the years ended December 31,2009, 2008 and 2007 was € 6.68, € 4.03 and € 5.34, respectively.

 

205

 

**Notes to theconsolidated financial statements continued**

 

A summary of thestock option activity for the outstanding plans is as follows:

 
| ** **                             | ** ** |          |       | Weighted         | ** ** |
|----------------------------------------|------------|---------------|------------|------------------|------------|
| ** **                             | ** ** | Number of     |       | average exercise | ** ** |
| ** **                             | ** ** | options       |       | price            | ** ** |
| **Balance  at January 1, 2007**   | ** ** | **3,685,440** | ** ** | **10.36**        | ** ** |
| Granted                                |       | 1,514,165     |       | 16.97            |       |
| Exercised                              |       | (301,475      | )          | 6.45             |       |
| Forfeited                              |       | (237,447      | )          | 19.15            |       |
| **Balance  at December 31, 2007** | ** ** | **4,660,683** | ** ** | **12.31**        | ** ** |
| Granted                                |       | 2,639,640     |       | 11.59            |       |
| Exercised                              |       | (420,270      | )          | 7.58             |       |
| Forfeited                              |       | (592,175      | )          | 16.55            |       |
| **Balance  at December 31, 2008** | ** ** | **6,287,878** | ** ** | **11.92**        | ** ** |
| Granted                                |       | 1,179,986     |       | 14.41            |       |
| Exercised                              |       | (958,569      | )          | 9.57             |       |
| Forfeited                              |       | (376,357      | )          | 14.77            |       |
| **Balance  at December 31, 2009** | ** ** | **6,132,938** | ** ** | **12.59**        | ** ** |

 

Includedin the options outstanding are also options to acquire ordinary shares held bycertain former employees and consultants. These individuals have been permittedto continue vesting in these options for services rendered.

 

During2009, a number of 134,306 conditionally granted LTI options were issued. TheseLTI options are included in the total number of options outstanding as of December 31,2009.

 

Thefollowing table summarizes information about the company’s stock optionsoutstanding at December 31, 2009:

 
| ** **                      | ** ** |              |       |      |       | Weighted     |       |          |       | Weighted        |       |
|---------------------------------|------------|-------------------|------------|-----------|------------|--------------|------------|---------------|------------|-----------------|------------|
| ** **                      | ** ** | Outstanding       |       | Weighted  |       | average      |       |          |       | average         |       |
| ** **                      | ** ** | options at        |       | average   |       | remaining    |       |          |       | exercise price- |       |
| ** **                      | ** ** | December 31, |       | exercise  |       | contractual  |       | Exercisable   |       | exercisable     |       |
| Exercise price                  | ** ** | 2009              |       | price     |       | life (years) |       | options       |       | options         |       |
| € 2.35 –€ 5.00   |       | 489,100           |       | 3.33      |       | 1.12         |       | 489,100       |       | 3.33            |       |
| € 5.00 –€ 9.99   |       | 918,315           |       | 7.43      |       | 2.22         |       | 617,885       |       | 6.49            |       |
| € 10.00 –€ 14.99 |       | 3,298,396         |       | 12.96     |       | 3.84         |       | 379,125       |       | 13.09           |       |
| € 15.00 –€ 19.99 |       | 1,227,546         |       | 17.88     |       | 2.23         |       | 678,782       |       | 18.06           |       |
| € 20.00 –€ 22.22 |       | 199,581           |       | 20.42     |       | 1.18         |       | 155,006       |       | 20.47           |       |
| **Total**                       | ** ** | **6,132,938**     | ** ** | **12.59** | ** ** | **2.99**     | ** ** | **2,319,898** | ** ** | **11.22**       | ** ** |

 

**Stock option grants to non-employees**

Crucellhas a total number of 55,000 (2008: 67,604) stock options to variousnon-employees outstanding in connection with consulting agreements over theyears. The exercise prices range from € 14.58 to € 18.22 per share and thestock options expire on dates ranging from May 2010 through August 2012.

 

206

 

**Notes to the consolidatedfinancial statements**

 

TheCompany recorded compensation expense associated with these stock options of €23, € 24, and € 11 for the years ended December 31, 2009, 2008 and 2007,respectively.

 

Stockoption grants to non-employees are made pursuant to approved stock option plansand activity related thereto is included in the tables above with the employeegrants of the approved plans.

 

**5.19 Provisions, commitments andcontingencies**

 

In thousands of Euro

 
|                                |       |          |       |       |       | Employee  |       |      |       |      |       |
|-------------------------------------|------------|---------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|
|                                |       | Restructuring |       | Litigation |       | Benefits  |       | Other     |       | Total     |       |
| **At  January 1, 2008**        | ** ** | **—**    | ** ** | **855**    | ** ** | **3,699** | ** ** | **1,013** | ** ** | **5,567** | ** ** |
| Arising during the  year            |       | 684           |       | 705        |       | —    |       | 626       |       | 2,015     |       |
| Utilised                            |       | (74           | )          | (2         | )          | —    |       | (491      | )          | (567      | )          |
| Unused amounts  reversed            |       | —        |       | —     |       | —    |       | (33       | )          | (33       | )          |
| Movement defined  benefit liability |       | —        |       | —     |       | (207      | )          | —    |       | (207      | )          |
| Exchange adjustment                 |       | —        |       | 90         |       | 517       |       | 75        |       | 682       |       |
| **At  December 31, 2008**      | ** ** | **610**       | ** ** | **1,648**  | ** ** | **4,009** | ** ** | **1,190** | ** ** | **7,457** | ** ** |
| Current 2008                        |       | 610           |       | —     |       | —    |       | 971       |       | 1,581     |       |
| Non-current 2008                    |       | —        |       | 1,648      |       | 4,009     |       | 219       |       | 5,876     |       |
|                                |       |          |       |       |       |      |       |      |       |      |       |
| At January 1,  2009            |       | 610           |       | 1,648      |       | 4,009     |       | 1,190     |       | 7,457     |       |
| Arising during the  year            |       | 300           |       | 247        |       | —    |       | 911       |       | 1,458     |       |
| Utilised                            |       | (541          | )          | (88        | )          | —    |       | (934      | )          | (1,563    | )          |
| Unused amounts  reversed            |       | (69           | )          | —     |       | —    |       | (134      | )          | (203      | )          |
| Movement defined  benefit liability |       | —        |       | —     |       | 399       |       | —    |       | 399       |       |
| Exchange adjustment                 |       | —        |       | 4          |       | 29        |       | 11        |       | 44        |       |
| **At  December 31, 2009**      | ** ** | **300**       | ** ** | **1,811**  | ** ** | **4,437** | ** ** | **1,044** | ** ** | **7,592** | ** ** |
| Current 2009                        |       | —        |       | —     |       | —    |       | 739       |       | 739       |       |
| Non-current 2009                    |       | 300           |       | 1,811      |       | 4,437     |       | 305       |       | 6,853     |       |

 

Theimpact of the change in accounting policy on provisions as at January 1,2007 is an amount of € 248, which is due to an increase of the employeebenefits. The total provision as at January 1, 2007 increased from € 8,006to € 8,354.

 

**Restructuring provisions**

InMay 2009, Management decided to move the formulation and fillingactivities relating to Dukoral and rCTB to our Madrid site. A restructuringprovision of € 300 is recognized for redundancy packages offered to employees.In 2008, a restructuring program in our Italian subsidiary Berna Biotech ItaliaSrl. was executed. A total provision of € 684 was recognized of which € 610 wasoutstanding as per year-end 2008. An amount of € 541 was utilized in 2009. Theremaining amount of € 69 was released.

 

**Legal proceedings**

TheGroup is subject to certain lawsuits and other legal proceedings. The currentstatus of any pending proceedings has been reviewed with a legal counsel. Uponconsideration of known relevant facts and circumstances, provisions arerecognized for losses that are considered to be probable and that can bereasonably estimated at the year-end.

 

**Deductibility of research and development costs**

InItaly, Berna Biotech Italia Srl. was subject to a tax audit for fiscal years2001 and 2002. For the year 2001, a settlement was reached with the Italian taxauthorities in 2007. For the year 2002, no settlement has been reached. The taxauthorities issued an assessment that deviates from the amount that was filedin the tax return. We have challenged this assessment

 

207

 

**Notes to theconsolidated financial statements continued**

 

incourt. We made a provision for the costs of additional taxes, penalties andinterest, as well as lawyers’ fees, which we expect we would have to pay as aresult. One of the items in dispute is the deductibility of the research anddevelopment costs we make in Italy. The Group won the initial court case withrespect to the deductibility of the research and development costs. The Italiantax authorities appealed this decision.

 

In2008, the Italian tax authorities also challenged the deductibility of researchand development costs for the year 2003 and issued an assessment. We challengedthis assessment in court. The Group won the initial court case with respect tothe deductibility of the research and development costs. The Italian taxauthorities appealed this decision. The Italian tax authorities may alsochallenge the deductibility of research and development costs for the years2004 to 2008. As the Group considers it more likely than not that the researchand development cost will be tax deductible, consequenlty no provision wasrecognized for the non-deductibility of research and development costs for theyear 2003.

 

**Complaint against government grant awarded**

In2008, a competitor of Crucell filed a protest against the award of a USGovernment grant to Crucell for the development and manufacture of a vaccineagainst the Ebola and Marburg virus. The complaint was filed against the USGovernment but Crucell voluntarily joined the proceedings to defend the award.Following a dismissal of the protest by the US Government Accountability Office(GAO), the competitor filed an appeal with the United States Court of Appealsfor the Federal Circuit. In the second quarter of 2009, this appeal by thecompetitor was also dismissed.

 

**Employee benefits**

Seenote 5.10 ‘Retirement benefit obligations’ for more information on employeebenefits.

 

**Other**

Theother provisions mainly include provisions for product returns and assetretirement obligations. The provision for product returns amounts to € 589 andis established for expected product returns to be incurred within one year. Theasset retirement obligations mainly related to our Swiss subsidiary and areexpected to be settled after one year.

 

**Contingencies**

 

**Contingent liability STAR technology**

 

TheGroup acquired STAR technology in 2004 through the purchase of ChromaGenicsB.V., a privately held biotechnology company based in Amsterdam. In connectionwith the purchase, we also entered in a contingent payment agreement that couldresult in additional payments of up to € 7.0 million to former ChromaGenicsshareholders upon receipt of revenues and royalties generated from the STARtechnology. In connection with this agreement, we paid € 2.0 million in 2007 toformer ChromaGenics shareholders. No payments were made in 2009 and 2008.

 

208

 

**Notes to the consolidatedfinancial statements**

 

**5.20 Short and long-term financial liabilities**

 

Thisnote provides information about the contractual terms of the Group’s loans andborrowings. See note 3 ‘Financial risk management’ for more information on theGroup’s exposure to financial market risks.

 

Inthousands of Euro

 
|                                                  |       |            |       |       |       |      |       |      |       |      |       |      |       | More than  |       |       |       |
|-------------------------------------------------------|------------|-----------------|------------|------------|------------|-----------|------------|-----------|------------|-----------|------------|-----------|------------|------------|------------|------------|------------|
| As  of December 31,                              |       | **Total  2009** |       | 2010       |       | 2011      |       | 2012      |       | 2013      |       | 2014      |       | 5 years    |       | Total 2008 |       |
| Mortgage  loan                                        | ** ** | **16,094**      |       | 384        |       | 401       |       | 420       |       | 441       |       | 462       |       | 13,986     |       | 16,461     |       |
| Equipment  lease                                      | ** ** | **17,924**      |       | 3,099      |       | 3,426     |       | 6,158     |       | 1,786     |       | 3,455     |       | —     |       | 20,526     |       |
| Comprehensive  credit limit Berna Biotech Korea Corp. | ** ** | **14,990**      |       | 14,990     |       | —    |       | —    |       | —    |       | —    |       | —     |       | 20,855     |       |
| Mortgage  loan Korea                                  | ** ** | **2,998**       |       | —     |       | —    |       | —    |       | —    |       | 2,998     |       | —     |       | —     |       |
| Loan  Berna Biotech Korea Corp.                       | ** ** | **—**      |       | —     |       | —    |       | —    |       | —    |       | —    |       | —     |       | 2,909      |       |
| Derivatives                                           | ** ** | **294**         |       | 294        |       | —    |       | —    |       | —    |       | —    |       | —     |       | 879        |       |
|                                                  | ** ** | **52,300**      | ** ** | **18,767** | ** ** | **3,827** | ** ** | **6,578** | ** ** | **2,227** | ** ** | **6,915** | ** ** | **13,986** | ** ** | **61,630** | ** ** |

 

**Mortgage loan Netherlands**

InDecember 2005, the Group entered into a Euro mortgage loan of up to €17,091 and as of December 31, 2006 the Group had drawn the maximum amount.In 2006, interest was accrued to the loan and no payments of principal orinterest were required. Beginning January 1, 2007, the loan is beingrepaid through monthly payments over 15 years. A balloon repayment of € 10,000will be made at the end of the 15 years. The loan matures on December 31,2021. The loan bears interest at 4.55% for the first five years. After thisperiod the rates will be renegotiated. The land, building, part of theequipment and a compensating cash balance arrangement with a bank in the amountof € 10,000 secure the loan. The carrying amount of the underlying securedassets was at the year-end € 22,396 (2008: € 24,015 2007: € 26,946).

 

**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 5.23 ‘Operating and financeleases’.

 

**Comprehensive credit limit Berna Biotech Korea Corp.**

OnJune 12, 2008 Berna Biotech Korea Corp. entered into a comprehensivecredit limit transaction agreement. Under the terms of the agreement BernaBiotech Korea Corp. may freely borrow and repay money for an amount of KRW 30billion during the period ending on May 31, 2009. In December 2008,Berna Biotech Korea Corp. agreed on an additional facility for KRW 10 billion.The loan has a variable interest rate that is based on a Korean interest indexplus a margin. As per year-end the interest percentage was 6.79% and an amountof KRW 37 billion (€ 20,855) was drawn under the agreement.

 

**Loan Berna Biotech Korea Corp.**

BernaBiotech Korea Corp. had an unsecured Euro loan with an interest rate of 5.45%which was outstanding as at December 31, 2008. The original maturity dateof the loan was August 1, 2010, but the loan was repaid in full on February 2,2009.

 

**Mortgage loan Korea**

On March 26, 2009,the Group’s Korean subsidiary entered into a mortgage loan facility in anamount of KRW 50 billion (€ 27,704) with a Korean bank to partly financethe investments in the new Incheon facility. The loan has a duration of 60months and has a variable interest rate that is based on a Korean interestindex plus a mark-up. As at December 31, 2009, KRW 5 billion was drawnunder the mortgage facility. The Group provided the third party bank with aguarantee amounting to KRW 50 billion plus interest and other costs.

 

209

 

**Notes to the consolidatedfinancial statements continued**

 

**5.21Other liabilities and deferred income — current and non-current**

 

In thousands of Euro

 
|                                       |   |    |   |        |   | 2009    |   |    |   |        |   | 2008   |   |
|--------------------------------------------|--------|---------|--------|-------------|--------|---------|--------|---------|--------|-------------|--------|--------|--------|
| As  of December 31,                   |   | Current |   | Non-current |   | Total   |   | Current |   | Non-current |   | Total  |   |
| Deferred income                            |   | 21,301  |   | 54,980      |   | 76,281  |   | 7,882   |   | 7,054       |   | 14,936 |   |
| Accrued  salary expenses and payroll taxes |   | 12,231  |   | —      |   | 12,231  |   | 9,817   |   | —      |   | 9,817  |   |
| Accrued expenses                           |   | 11,731  |   | —      |   | 11,731  |   | 8,540   |   | —      |   | 8,540  |   |
| Other liabilities                          |   | 2,249   |   | 504         |   | 2,753   |   | 2,166   |   | 591         |   | 2,757  |   |
|                                       |   | 47,512  |   | 55,484      |   | 102,996 |   | 28,405  |   | 7,645       |   | 36,050 |   |

 

*Collaboration with**an affiliate of JNJ*

OnSeptember 28, 2009, the Group entered into two collaboration agreementswith Ortho-McNeil-Janssen Pharmaceuticals (an affiliate of JNJ) in conjunctionwith several other agreements (See 5.17 ‘Issued share capital and reserves’).The premium over the fair value of the shares paid by JNJ for the 18% equityinvestment amounted to € 68,455 and is classified as deferred income. Theamount is amortized over the duration of the continuing performance obligationsof the development programs.

 

**5.22 Tradeaccounts payable**

 

In thousands of Euro

 
| As  of December 31,                 |       | **2009**   |   | 2008   |   |
|------------------------------------------|------------|------------|--------|--------|--------|
| Trade accounts  payable to third parties | ** ** | **78,345** |   | 58,182 |   |
| Trade accounts  payable to joint venture | ** ** | **754**    |   | 1,023  |   |
|                                     | ** ** | **79,099** |   | 59,205 |   |

 

210

 

**Notes to the consolidatedfinancial statements**

 

**5.23 Operating and finance leases**

 

**Operating lease commitments**

TheGroup leases certain research and corporate facilities, motor vehicles anditems of machinery and equipment. No restrictions are placed upon the lessee byentering into these leases. Future minimum lease payments under operatingleases as at December 31, 2009 and 2008 are as follows:

 

In thousands of Euro

 
| As  of December 31,                     |       | **2009**   |   | 2008   |   |
|----------------------------------------------|------------|------------|--------|--------|--------|
| Within one year                              | ** ** | **4,203**  |   | 3,830  |   |
| After one year but  not more than five years | ** ** | **9,310**  |   | 10,073 |   |
| More than five  years                        | ** ** | **9,533**  |   | 10,759 |   |
|                                         | ** ** | **23,046** |   | 24,662 |   |

 

Most operating leases areincreased by a general price index on an annual basis.

 

**Finance lease commitments**

Certainof the Group’s fixtures and equipment are subject to finance leases. Theseleases mainly relate to equipment for the new production facility in Leiden andthe filling line in Spain. Interest rates are fixed at the contract date. All leasesare on a fixed repayment basis and no arrangements have been entered into forcontingent rental payments. The fair value of the Group’s lease obligationsapproximates their carrying amount. The Group’s obligations under financeleases are secured by the value of the underlying assets. The average term offinance leases entered into is 5.5 years.

 

Futureminimum lease payments under finance leases as at December 31, 2009 and2008 are as follows:

 

In thousands of Euro

 
|                                         |       | **2009**     |       | Present    |       | 2008       |       | Present    |       |
|----------------------------------------------|------------|--------------|------------|------------|------------|------------|------------|------------|------------|
|                                         |       | **Minimum**  |       | value of   |       | Minimum    |       | value of   |       |
| As  of December 31,                     |       | **payments** |       | payments   |       | payments   |       | payments   |       |
| Within one year                              | ** ** | **4,279**    |       | 3,099      |       | 4,134      |       | 2,777      |       |
| After one year but  not more than five years | ** ** | **16,832**   |       | 14,825     |       | 17,284     |       | 14,293     |       |
| More than five  years                        |       | —       |       | —     |       | 3,580      |       | 3,456      |       |
|                                         | ** ** | **21,111**   | ** ** | **17,924** | ** ** | **24,998** | ** ** | **20,526** | ** ** |

 

211

 

**Notes to theconsolidated financial statements continued**

 

**5.24 Financial instruments**

 

**Financial assets**

 

In thousands of Euro

 
|                     |       | Financial  |       |       |       |           |       |       |       |        |       | Financial  |       |           |       |       |       |        |
|--------------------------|------------|------------|------------|------------|------------|----------------|------------|------------|------------|-------------|------------|------------|------------|----------------|------------|------------|------------|-------------|
|                     |       | assets at  |       |       |       |           |       |       |       |        |       | assets at  |       |           |       |       |       |        |
|                     |       | fair value |       |       |       |           |       | Available- |       |        |       | fair value |       |           |       | Available- |       |        |
|                     |       | through    |       | Designated |       |           |       | for-sale   |       |        |       | through    |       |           |       | for-sale   |       |        |
|                     |       | profit and |       | cash flow  |       | Loans and |       | financial  |       | 2009        |       | profit and |       | Loans and |       | financial  |       | 2008        |
| As of  December 31, |       | loss       |       | hedge      |       | receivables    |       | assets     |       | Total       |       | loss       |       | receivables    |       | assets     |       | Total       |
| Derivative financial     |       |       |       |       |       |           |       |       |       |        |       |       |       |           |       |       |       |        |
| instruments              |       | 229        |       | 57         |       | —         |       | —     |       | 286         |       | 1,761      |       | —         |       | —     |       | 1,761       |
| Available-for-sale       |       |       |       |       |       |           |       |       |       |        |       |       |       |           |       |       |       |        |
| financial assets         |       | —     |       | —     |       | —         |       | 10,441     |       | 10,441      |       | —     |       | —         |       | 4,922      |       | 4,922       |
| Other financial assets   |       | —     |       | —     |       | 16,218         |       | —     |       | 16,218      |       | —     |       | 14,920         |       | —     |       | 14,920      |
| Cash and cash            |       |       |       |       |       |           |       |       |       |        |       |       |       |           |       |       |       |        |
| equivalents              |       | —     |       | —     |       | 327,837        |       | —     |       | 327,837     |       | —     |       | 170,969        |       | —     |       | 170,969     |
| Trade accounts           |       |       |       |       |       |           |       |       |       |        |       |       |       |           |       |       |       |        |
| receivables              |       | —     |       | —     |       | 87,031         |       | —     |       | 87,031      |       | —     |       | 40,108         |       | —     |       | 40,108      |
| Other current assets     |       | —     |       | —     |       | 110,713        |       | —     |       | 110,713     |       | —     |       | 9,526          |       | —     |       | 9,526       |
|                     | ** ** | **229**    | ** ** | **57**     | ** ** | **541,799**    | ** ** | **10,441** | ** ** | **552,526** | ** ** | **1,761**  | ** ** | **235,523**    | ** ** | **4,922**  | ** ** | **242,206** |

 

The carryingvalue of the financial assets approximates the fair value.

 

**Financial liabilities**

 

In thousands of Euro

 
|                             |       | Financial   |       |           |       |        |       | Financial   |       |       |       |           |       |        |
|----------------------------------|------------|-------------|------------|----------------|------------|-------------|------------|-------------|------------|------------|------------|----------------|------------|-------------|
|                             |       | liabilities |       |           |       |        |       | liabilities |       |       |       |           |       |        |
|                             |       | at fair     |       |           |       |        |       | at fair     |       |       |       |           |       |        |
|                             |       | value       |       | Financial      |       |        |       | value       |       |       |       | Financial      |       |        |
|                             |       | through     |       | liabilities at |       |        |       | through     |       | Designated |       | liabilities at |       |        |
|                             |       | profit and  |       | amortized      |       | 2009        |       | profit and  |       | cash flow  |       | amortized      |       | 2008        |
| As of  December 31,         |       | loss        |       | cost           |       | Total       |       | loss        |       | hedge      |       | cost           |       | Total       |
| Derivative financial instruments |       | 294         |       | —         |       | 294         |       | 194         |       | 685        |       | —         |       | 879         |
| Financial liabilities            |       | —      |       | 52,006         |       | 52,006      |       | —      |       | —     |       | 60,751         |       | 60,751      |
| Other non-current liabilities    |       | —      |       | 504            |       | 504         |       | —      |       | —     |       | 591            |       | 591         |
| Accounts payable                 |       | —      |       | 79,099         |       | 79,099      |       | —      |       | —     |       | 59,205         |       | 59,205      |
| Other current liabilities        |       | —      |       | 26,211         |       | 26,211      |       | —      |       | —     |       | 20,523         |       | 20,523      |
|                             | ** ** | **294**     | ** ** | **157,820**    | ** ** | **158,114** | ** ** | **194**     | ** ** | **685**    | ** ** | **141,070**    | ** ** | **141,949** |

 

Thefair values of the financial liabilities of the Group approximate the carryingamount of the Group’s financial instruments.

 

Thefair values of the loans have been calculated by discounting the face valueswith the interest rate of financial instruments with a similar risk profile andterm. The fair values of forward foreign exchange contracts are determinedusing forward foreign exchange rates as at December 31, 2009.

 

212

 

**Notes to the consolidatedfinancial statements**

 

**Maturity analysis contractual undiscounted cash flows**

 

Futureminimum payments for all contractual obligations for years subsequent to December 31,2009 are as follows:

 

In thousands of Euro

 
|                                              |   |    |   | Less than |   |      |   |      |   | More than |
|---------------------------------------------------|--------|---------|--------|-----------|--------|-----------|--------|-----------|--------|-----------|
| As  of December 31,                          |   | Total   |   | one year  |   | 1-3 years |   | 3-5 years |   | 5 years   |
| **Contractual  obligations**                      |   |    |   |      |   |      |   |      |   |      |
| Debt obligations1                                 |   | 42,767  |   | 16,627    |   | 2,638     |   | 5,639     |   | 17,863    |
| Finance lease  obligations2                       |   | 21,111  |   | 4,266     |   | 11,159    |   | 5,686     |   | —    |
| Derivative  financial instruments3                |   | 31,464  |   | 31,464    |   | —    |   | —    |   | —    |
| Accounts payable                                  |   | 79,099  |   | 79,099    |   | —    |   | —    |   | —    |
| Other current  liabilities                        |   | 26,715  |   | 26,211    |   | 504       |   | —    |   | —    |
| **Recognised  obligations**                       |   | 201,156 |   | 157,667   |   | 14,301    |   | 11,325    |   | 17,863    |
| ** **                                        |   |    |   |      |   |      |   |      |   |      |
| **Commitments**                                   |   |    |   |      |   |      |   |      |   |      |
| Operating lease  obligations4                     |   | 23,046  |   | 4,203     |   | 5,787     |   | 3,523     |   | 9,533     |
| Capital expenditure  commitments5                 |   | 15,755  |   | 15,755    |   | —    |   | —    |   | —    |
| **Total  commitments**                            |   | 38,801  |   | 19,958    |   | 5,787     |   | 3,523     |   | 9,533     |
| **Total  recognized obligations and commitments** |   | 239,957 |   | 177,625   |   | 20,088    |   | 14,848    |   | 27,396    |

 

1  Thedebt obligations exclude finance lease obligations and include an amount ofinterest of € 7,841.

2  Financelease obligations. Certain of the Group’s fixtures and equipment are financeleases. The finance leases relate to equipment for the new production facilityin Leiden, the Netherlands and to the filling line in Spain. Interest rates arefixed at the contract date. All leases are on a fixed repayment basis and noarrangements have been entered into for contingent rental payments. Theinterest included amounts to € 3,187.

3  Derivativefinancial instruments are foreign exchange contracts. The principal amount andfair value of foreign currency forwards that are not designated in a cash flowhedge are € 26,856 in 2009 (2008: € 38,907) and have a negative unrealizedresult of € 65 in 2009 (2008: positive unrealized result of € 1,567). Theprincipal amount and fair value of foreign currency forwards designated in acash flow hedge are € 4,486 (2008: € 7,535) and an unrealized result of €57 (2008: € 685), respectively.

4  Operatinglease obligations. The operating lease obligations include rental obligations.The Group concluded long-term rental agreements for premises in Sweden and theNetherlands. In addition, the Group leases certain motor vehicles and items ofmachinery and equipment.

5  Capitalexpenditure commitments. The contractual commitments for purchases of property,plant and equipment as per December 31, 2009 amount to approximately €15,755 (2008: €, 20,380: € 4,696). These commitments mainly relate to our newproduction facility in Incheon, Free Economic Zone, Korea.

 

213

 

**Notes to theconsolidated financial statements continued**

 

**5.25 Fair value estimation**

 

Effective1 January 2009, the Group adopted the amendment to IFRS 7 for financialinstruments that are measured in the statement of financial position at fairvalue, this requires disclosure of fair value measurements by level of thefollowing fair value measurement hierarchy:

 
| · | Quoted  prices (unadjusted) in active markets for identical assets or liabilities  (level 1).                                                                                                           |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| · | Inputs  other than quoted prices included within level 1 that are observable for the  asset or liability, either directly (that is, as prices) or indirectly (that  is, derived from prices) (level 2). |
| · | Inputs  for the asset or liability that are not based on observable market data (that  is, unobservable inputs) (level 3).                                                                              |

 

In thousands of Euro

 
| ** **                                             | ** ** | **2009**    | ** ** | ** **  | ** ** | ** ** | ** ** | **2008**    | ** ** | ** **  | ** ** | ** ** |
|--------------------------------------------------------|------------|-------------|------------|-------------|------------|------------|------------|-------------|------------|-------------|------------|------------|
| **As of December 31,**                            | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Total**  | ** ** | **Level 1** | ** ** | **Level 2** | ** ** | **Total**  |
| **Assets**                                             |       |        |       |        |       |       |       |        |       |        |       |       |
| Financial  assets at fair value through profit or loss |       |        |       |        |       |       |       |        |       |        |       |       |
| Derivative  financial instruments                      |       | —      |       | 57          |       | 57         |       | —      |       | 1,761       |       | 1,761      |
| Available-for-sale  financial assets                   |       | 10,136      |       | 305         |       | 10,441     |       | 4,922       |       | —      |       | 4,922      |
| **Liabilities**                                        |       |        |       |        |       |       |       |        |       |        |       |       |
| Derivative  financial instruments                      |       | —      |       | (65         | )          | (65        | )          | —      |       | (879        | )          | (879)      |
| **Total**                                              | ** ** | **10,136**  | ** ** | **297**     | ** ** | **10,433** | ** ** | **4,922**   | ** ** | **882**     | ** ** | **5,804**  |

 

TheGroup did not have any assets at liabilities measured at fair value usingsignificant unobservable inputs (Level 3) as of December 31, 2009 and2008.

 

Thefair value of financial instruments traded in active markets is based on quotedmarket prices at the year-end. A market is regarded active if quoted prices arereadily and regularly available from an exchange, dealer, broker, industrygroup, pricing service, or regulatory agency, and those prices represent actualand regularly occurring market transactions on an arm’s length basis. Thequoted market price used for financial assets held by the group is the currentbid price. These instruments are included in level 1. Instruments included inlevel 1 comprise primarily equity investments classified as trading securitiesor available-for-sale.

 

Thefair value of financial instruments that are not traded in an active market(for example, over-the-counter derivatives) is determined by using valuationtechniques. These valuation techniques maximise the use of observable marketdata where it is available and rely as little as possible on entity specificestimates. If all significant inputs required to fair value an instrument areobservable, the instrument is included in level 2.

 

Ifone or more of the significant inputs is not based on observable market data,the instrument is included in level 3.

 

TheGroup did not reclassifiy any financial assets out of the fair value throughprofit and loss category or out of the available-for-sale category.

 

214

 

**Notes to the consolidatedfinancial statements**

 

**5.26 Guarantees**

 

TheGroup has a guarantee facility for an amount of € 10.0 million with athird-party bank.

 

In2008, as part of the overall working capital management efforts, the Groupagreed with Novartis to extend payment terms on the supply of Quinvaxemantigens. We have provided Novartis with collateral on our Swiss premises foran amount up to € 30,254. These payment terms still apply in 2009.

 

Inaddition to the guarantees given on assets, as described in note 5.6 ‘Property,plant and equipment’ and note 5.20 ‘Short and long-term financial liabilities’,the guarantees issued by the Group amount to € 4,414, which include a letter ofcredit issued by the Group for an amount of $ 1.6 million, which will expire onApril 14, 2013, for the benefit of the Percivia Development Center.

 

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

 

In2009, the Group’s cash flow from operating activities was € 76,866, compared toa negative operating cash flow of € 254 in 2008. These cash flows consistof non-cash adjustments and changes in working capital relating to operatingactivities.

 

OnSeptember 28, 2009 Crucell signed a strategic agreement with JNJ. As partof this agreement the Company allocated an amount of € 68,455 to thedevelopment programs, which is presented as deferred income. The non-currentpart of € 51,341 is included in ‘Receipt from (payments of) deferredincome and provisions’ and the current part of € 17,114 is included in the ‘Changesin net working capital.

 

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

 

In2009, the Group’s cash flow used in investing activities amounted to € 154,387,compared to € 8,907 in 2008.

 

Investmentswere made in property, plant and equipment for an amount of € 51,035 (2008: €15,787). These investments mainly related to our new Korean production facilityand investments in our facilities in Bern, Switzerland that will improvecurrent production processes and allow in-house production of materialscurrently sourced from third parties. In addition, investments were made inintangible assets in an amount of € 5,925.

 

Anamount of € 100,000 was invested in deposits with a maturity over 3 months.

 

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

 

In2009, the total cash flow from financing activities amounted to € 231,512 in2009, compared to € 16,626 in 2008.

 

TheCompany issued 14,626,984 shares to JHC Nederland B.V. an affiliate of JNJ. Thefair value of the shares issued, after deducting directly attributabletransaction costs, amounted to € 232,059. See note 5.17 ‘Issued share capitaland reserves’ for more information on the shares issued. Total cash proceedsresulting from share based payment transactions, mainly the exercise of optionsby employees, amounted to € 9,206 in 2009.

 

Anamount of € 2,884 was drawn under a mortgage loan facility by the Group’sKorean subsidiary in connection with the new production facility.

 

TheGroup’s Korean subsidiary repaid an unsecured Euro-denominated in an amount of€ 2,909 and partially repaid a KRW denominated flexible loan in amount of for €6,757. The Group also repaid finance lease liabilities in the aggregate amountof € 2,984.

 

215

 

**Notes to theconsolidated financial statements continued**

 

**5.30 Related parties**

 

**Related party transactions**

TheGroup has related party transactions and balances with joint venture partners,associates and directors and executive officers. All transactions with relatedparties were carried out under normal market conditions (arm’s lengthprinciple). There are no related party transactions outside the normal courseof business.

 

**Terms and conditions of transactions with related parties**

Thesales to 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 the Groupor received in respect of any related party receivables or payables. For theyear ended December 31, 2009, the Group has not made any provision fordoubtful debts relating to amounts owed by related parties (2008: nil). Thisassessment is undertaken each financial year through examining the financialposition of the related party.

 

Transactionsbetween the Company and its subsidiaries, which are related parties, have beeneliminated on consolidation and are not disclosed in this note.

 

Thefollowing table provides the total value of transactions which have beenentered into with related parties, excluding Management and Supervisory Boardmembers, for the relevant financial year.

 

In thousands of Euro

 
| ** **     | ** ** | ** ** | ** ** | **Revenue/(expenses) for**            |
|----------------|------------|------------|------------|---------------------------------------|
| ** **     | ** ** | ** ** | ** ** | **the year ended  December 31,** |
| Related party1 |       | 2009       |       | 2008                                  |   | 2007 |
| Associates     |       | 2,825      |       | 3,392                                 |   | 2,858 |
| Joint Venture  |       | (4,170     | )          | (4,081                                | ) | (4,247) |

 

1  Prior to 2009,transactions with Avv. Falaguerra, an Italian firm that provides taxationservices to the Group’s Italian subsidiary, were disclosed, asMr. Falaguerra was the chairman of the Italian subsidiary.Mr. Falaguerra resigned in 2009 as chairman. Transactions withMr. Falaguerra were limited in value and have not been disclosed any more.

 

Asof December 31, 2009 trade accounts receivable in an amount of € 121(2008: 4,495) were receivable from the Group’s associate. As of December 31,2009 trade accounts payable in an amount of € 754 (2008: 1,023) were payable tothe Group’s joint venture.

 

**Preferred foundation**

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 these interests throughacquiring and managing the preference shares and by exercising the rightsattaching to these shares, in particular, the voting rights.

 

216

 

**Notes to the consolidatedfinancial statements**

 

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 as necessary to match the total number of statutoryvotes on all of the ordinary shares outstanding at the time of an acquisition.The Preferred Foundation must pay at least 25% of the nominal value of thepreference shares it acquires from the Company. If the Company has previouslyacquired any preference shares, they may be cancelled.

 

Aboard of governors 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 been appointed to the board of governors. A majority of thesemembers may not be members or former members of the Management or SupervisoryBoard of the Company, or an employee of any of our advisers, any of our banksor us. The board of governors appoints these independent members. TheSupervisory Board appoints the non-independent members after consultation withthe Management Board.

 

In2009, the Group funded the Preferred Foundation in an amount of € 100 (2008:nil, 2007: € 438).

 

Asa result of the arrangements regarding the exercise of the options andrestrictions to the use of the underlying shares by the Preferred Foundation,the Company is of the opinion that the option has an insignificant value.

 

**Remuneration report for Management Board and SupervisoryBoard**

The‘Remuneration report for Management Board and Supervisory Board’ as included inthe Corporate Governance section of the Management Report contains requireddisclosures on key management personnel compensation, as meant in IAS 24. Thesedisclosures are deemed to be part of the financial statements.

 

217

 

 

**Companyfinancial statements**

** **

**6 Statement of financial position (After appropriation ofresult)**

 

In thousands of Euro

 
|                                                 |   |   |   |                  |   |              |   | January 1, |
|------------------------------------------------------|--------|--------|--------|-----------------------|--------|-------------------|--------|-----------------|
|                                                 |   |   |   |                  |   | December 31, |   | 2007            |
|                                                 |   |   |   | **December 31,** |   | 2008              |   | As adjusted     |
| As  of December 31,                             |   | Notes  |   | **2009**              |   | As adjusted       |   | opening         |
| **Assets**                                           |   |   |   |                  |   |              |   |            |
| Non-current assets                                   |   |   |   |                  |   |              |   |            |
| Investments in  subsidiaries                         |   | 9.1    |   | **340,294**           |   | 267,375           |   | 283,320         |
| Other long-term  receivables                         |   | 9.2    |   | **34,648**            |   | 49,272            |   | 141,089         |
| Goodwill                                             |   |   |   | **37,529**            |   | 37,239            |   | 35,456          |
|                                                 |   |   |   | **412,471**           |   | 353,886           |   | 459,865         |
| Current assets                                       |   |   |   |                  |   |              |   |            |
| Short-term  receivables                              |   |   |   | **474**               |   | 1,015             |   | 1,218           |
| Cash and cash  equivalents                           |   |   |   | **262,449**           |   | 79,295            |   | 38,094          |
| Short term  receivables related parties              |   |   |   | **108,227**           |   | 18,614            |   | —          |
|                                                 |   |   |   | **371,150**           |   | 98,924            |   | 39,312          |
| **Total  assets**                                    |   |   |   | **783,621**           |   | 452,810           |   | 499,177         |
| ** **                                           |   |   |   | ** **            |   |              |   |            |
| **Liabilities  and shareholders’ equity**       |   |   |   |                  |   |              |   |            |
| Shareholders’  equity                           |   |   |   |                  |   |              |   |            |
| Issued capital                                       |   |   |   | **19,547**            |   | 15,800            |   | 15,553          |
| Share premium                                        |   |   |   | **988,996**           |   | 743,746           |   | 726,869         |
| Translation reserve  (legal reserve)                 |   |   |   | **(19,586**           | **)**  | (32,852           | )      | (7,933)         |
| Hedge reserve  (legal reserve)                       |   |   |   | **57**                |   | (685              | )      | —          |
| Available-for-sale  reserve (legal reserve)          |   |   |   | **8,473**             |   | 3,254             |   | 10,670          |
| Actuarial gains and  losses                          |   |   |   | **(5,217**            | **)**  | 1,214             |   | 383             |
| Accumulated deficit                                  |   |   |   | **(254,005**          | **)**  | (277,943          | )      | (247,859)       |
|                                                 |   | 9.3    |   | **738,265**           |   | 452,534           |   | 497,683         |
| Non-current  liabilities                             |   |   |   |                  |   |              |   |            |
| Provision for  financial assets                      |   |   |   | **15,490**            |   | —            |   | 1,341           |
| Liabilities to  related parties                      |   |   |   | **155**               |   | 149               |   | 132             |
|                                                 |   |   |   | **15,645**            |   | 149               |   | 1,473           |
| Current liabilities                                  |   |   |   |                  |   |              |   |            |
| Accrued  compensation and related benefits           |   |   |   | **29,551**            |   | 122               |   | 21              |
| Liability to  related parties                        |   |   |   | **160**               |   | 5                 |   | —          |
|                                                 |   |   |   | **29,711**            |   | 127               |   | 21              |
| **Total  liabilities and shareholders’ equity** |   |   |   | **783,621**           |   | 452,810           |   | 499,177         |

 

**7 Statement of income**

 

In thousands of Euro

 
|                             |       |       |       | 2008        |       | 2007         |
|----------------------------------|------------|------------|------------|-------------|------------|--------------|
| Year  ended December 31,    |       | **2009**   |       | As adjusted |       | As adjusted  |
| Result from  subsidiaries        | ** ** | **18,647** |       | 3,683       |       | (48,368)     |
| Other income                     | ** ** | **5,291**  |       | 10,567      |       | 4,034        |
| **Profit/  (loss) for the year** | ** ** | **23,938** | ** ** | **14,250**  | ** ** | **(44,334)** |

 

218

 

**Notes to the Company financialstatements**

 

**Notes to theCompany financial statements**

 

**8 General**

 

Thedescription of the Group’s activities and the Group structure as included inthe notes to the consolidated financial statements also apply to the Companyfinancial statements (see note 1.1).

 

Inaccordance with article 2:362 section 8 of Book 2 Title 9 of the Dutch CivilCode, the accounting policies used in the preparation of the Company financialstatements, except for investments, are the same as those used in thepreparation of the consolidated financial statements. Investments insubsidiaries are stated at net asset value as the Company effectively exercisessignificant influence over the operational and financial activities of theseinvestments. The net asset value is determined on the basis of the IFRSaccounting principles applied by the Group in its consolidated financialstatements.

 

Inaccordance with article 402, Book 2 Title 9 of the Dutch Civil Code, theCompany statement of income is presented in abbreviated form.

 

**9 Notes to the Company financial statements**

 

**9.1 Investments in subsidiaries**

 

Investmentsin subsidiary companies are stated at net asset value as the Companyeffectively exercises significant influence over the operational and financialactivities of these investments.

 

In thousands of Euro

 
| Year  ended December 31,          |       | 2009        |       | 2008        |       | 2007        |
|----------------------------------------|------------|-------------|------------|-------------|------------|-------------|
| **Book  value as of January 1,**  | ** ** | **267,375** | ** ** | **272,054** | ** ** | **283,523** |
| Change in  accounting policy           |       | —      |       | —      |       | (203)       |
| Share in result of  subsidiaries       |       | 18,647      |       | 3,683       |       | (48,368)    |
| Effect of movements  in exchange rates |       | 12,976      |       | (6,684      | )          | (20,018)    |
| Dividends received                     |       | —      |       | (43,069     | )          | (80,907)    |
| Acquisition shares  subsidiaries       |       | —      |       | —      |       | 80,907      |
| Transfer to/ (from)  provisions        |       | 15,490      |       | —      |       | (1,341)     |
| Offset of  receivables                 |       | 26,961      |       | 47,062      |       | 59,375      |
| Other comprehensive  income items      |       | (1,155      | )          | (5,671      | )          | (914)       |
| **Book  value at December 31,**   | ** ** | **340,294** | ** ** | **267,375** | ** ** | **272,054** |

 

Othercomprehensive income items include actuarial losses and gains on pensions,unrealized results on available-for-sale financial assets and changes in thecash flow hedge reserves of the Company’s subsidiaries.

 

OnJune 12, 2008 Crucell Switzerland AG distributed a dividend equivalent to€ 43,069 to the Company.

 

Beginning2007, Crucell owned 7.3% of the shares of Berna Rhein B.V. The remaining 92.7%of the shares were owned by Crucell’s subsidiary Crucell Switzerland AG. On November3, 2007 Crucell acquired the remaining 92.7% shares for € 80,907. CrucellSwitzerland AG subsequently distributed a dividend equivalent to € 80,907 tothe Company.

 

219

 

**Notes to theCompany financial statements continued**

 

**9.2Other long-term receivables**

 

In thousands of Euro

 
|                                      |   | December 31, |   | December 31, |   | January 1, |   |
|-------------------------------------------|--------|-------------------|--------|-------------------|--------|-----------------|--------|
| As  of December 31,                  |   | 2009              |   | 2008              |   | 2007            |   |
| Long-term  receivables on related parties |   | 21,625            |   | 36,376            |   | 126,693         |   |
| Other long-term  receivables              |   | 13,023            |   | 12,896            |   | 14,396          |   |
|                                      |   | 34,648            |   | 49,272            |   | 141,089         |   |

 

**9.3 Shareholders’ equity**

 

Referenceis made to the consolidated statement of changes in equity and to note 5.17 ‘Issuedshare capital and reserves’ of the notes to the consolidated financialstatements as of, and for the year ended December 31, 2009.

 

**9.4 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 the financial year 2008, Berna Rhein B.V. was included in that fiscalunity.

 

**9.5 Employee information**

 

TheCompany had no employees in 2009 and 2008.

** **

**9.6 Auditor’s fees**

 
|                                    |       | Year ended December  31, 2009 |       | Year ended December  31, 2008 |       |
|-----------------------------------------|------------|-------------------------------|------------|-------------------------------|------------|
|                                    |       |                          |       | Network                       |       |   |   |   |   | Network |   |   |   |
|                                    |       | Deloitte                      |       | Deloitte                      |       |   |   | Deloitte |   | Deloitte |   |   |   |
|                                    |       | Accountants                   |       | Accountants                   |       |   |   | Accountants |   | Accountants |   |   |   |
|                                    |       | B.V.                          |       | B.V.                          |       | Total |   | B.V. |   | B.V. |   | Total |   |
| Audit fees                              |       | 510                           |       | 315                           |       | 825 |   | 481 |   | 359 |   | 840 |   |
| Audit related fees                      |       | 149                           |       | —                        |       | 149 |   | 75 |   | — |   | 75 |   |
| Tax fees for  services provided related |       |                          |       |                          |       |   |   |   |   |   |   |   |   |
| to consultation on  tax matters         |       | —                        |       | —                        |       | — |   | — |   | — |   | — |   |
| **Total  fees**                         | ** ** | **659**                       | ** ** | **315**                       | ** ** | **974** | ** ** | **556** | ** ** | **359** | ** ** | **915** | ** ** |

 

220

** **

**Notes to the Company financialstatements**

 

**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 subsidiaries:

 

Crucell Holland B.V., Leiden

U-BiSys B.V., Utrecht

ChromaGenicsB.V., Amsterdam

 

**Signing of the financial statements**

 

Thefinancial statements were approved by the Management Board and SupervisoryBoard and authorized for issue on April 6, 2010.

 

**Management Board**

R.H.P. Brus

L. Kruimer

C. de Jong

J. Goudsmit

 

**Supervisory Board**

J.P. Oosterveld

A. Hoevenaars

S.P. Lance

P.M. Satow

C.E. Wilhelmsson

S. Davis

F. Waller

 

221

 

 

**Other information**

 

**Otherinformation**

 

**Appropriation of result**

 

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 dividendsfirst, which will be a certain percentage of their nominal value. WithSupervisory Board approval, our Management Board then decides whether and howmuch of the remaining profit will be reserved. 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 result for the year 2009 was added to the 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. Mr. J.P.Oosterveld, in his capacity as chairman of our Supervisory Board, and Mr. P.Bouw, Mr. M.W. den Boogert, Mr. S. van Wijnbergen and Mr. G.P. Krans,have been appointed to the board of governors. A majority of these members maynot be members or former members of our Management or Supervisory Board, or anemployee of any of our advisers, any of our banks or us. The board of governorsappoints these independent members. Our Supervisory Board appoints thenon-independent members after consultation with our Management Board.

 

222

 

**Auditor’s report**

 

**Auditor’s report**

 

**To the Supervisory Board and Shareholders of Crucell N.V.,Leiden, The Netherlands**

 

**Report on the financial statements**

 

Wehave audited the accompanying financial statements 2009 as set out on pages 163to 221 of Crucell N.V., Leiden. The financial statements consist of theconsolidated financial statements and the company financial statements. Theconsolidated financial statements comprise the consolidated statement offinancial position as at December 31, 2009, the consolidated statement ofincome, consolidated statement of comprehensive income, consolidated statementof changes in equity and consolidated statement of cash flow for the year thenended, and notes, comprising a summary of significant accounting policies andother explanatory notes. The company financial statements comprise the companystatement of financial position as at December 31, 2009, the companystatement of income for the year then ended and the explanatory notes.

 

**Management’s responsibility**

 

Managementis responsible for the preparation and fair presentation of the financialstatements in accordance with International Financial Reporting Standards asadopted by the European Union and with Part 9 of Book 2 of the NetherlandsCivil Code, and for the preparation of the management report in accordance withPart 9 of Book 2 of the Netherlands Civil Code. This responsibilityincludes: designing, implementing and maintaining internal control relevant tothe preparation and fair presentation of the financial statements that are freefrom material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates thatare reasonable in the circumstances.

 

**Auditor’s responsibility**

 

Ourresponsibility is to express an opinion on the financial statements based on ouraudit. We conducted our audit in accordance with Dutch law. This law requiresthat we comply with ethical requirements and plan and perform the audit toobtain reasonable assurance whether the financial statements are free frommaterial misstatement.

 

Anaudit involves performing procedures to obtain audit evidence about the amountsand disclosures in the financial statements. The procedures selected depend onthe auditor’s judgment, including the assessment of the risks of materialmisstatement of the financial statements, whether due to fraud or error. Inmaking those risk assessments, the auditor considers internal control relevantto the entity’s preparation and fair presentation of the financial statementsin order to design audit procedures that are appropriate in the circumstances,but not for the purpose of expressing an opinion on the effectiveness of theentity’s internal control. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of accountingestimates made by management, as well as evaluating the overall presentation ofthe financial statements.

 

Webelieve that the audit evidence we have obtained is sufficient and appropriateto provide a basis for our audit opinion.

 

**Opinion with respect to the consolidated financial statements**

 

Inour opinion, the consolidated financial statements give a true and fair view ofthe financial position of Crucell N.V. as at December 31, 2009, and of itsresult and its cash flow for the year then ended in accordance withInternational Financial Reporting Standards as adopted by the European Unionand with Part 9 of Book 2 of the Netherlands Civil Code.

 

**Opinion with respect to the company financial statements**

 

Inour opinion, the company financial statements give a true and fair view of thefinancial position of Crucell N.V. as at December 31, 2009 and of itsresult for the year then ended in accordance with Part 9 of Book 2 of theNetherlands Civil Code.

 

**Report on other legal and regulatory requirements**

 

Pursuantto the legal requirement under 2:393 sub 5 part f of the Netherlands CivilCode, we report, to the extent of our competence, that the management report isconsistent with the financial statements as required by 2:391 sub 4 of theNetherlands Civil Code.

 

Signedby:

 

**Deloitte Accountants B.V.**

P.J.M.Avan de Goor

Amsterdam,the Netherlands

April 6,2010

 

223

 

**Information for shareholders and investors**

 

**Information forshareholders and investors**

 

**Investor relations approach**

 

Crucellmaintains an active and transparent approach to relations with shareholders andinvestors. We inform the financial markets regularly about the Company’sstrategy and developments. Quarterly results releases, presentations and pressreleases on important business developments are disseminated on a regular basisand reinforced with briefings by phone and in person. Since August 2007,we have strengthened our Investor Relations activities with the addition of twodedicated Investor Relations Officers whose mission it is to ensure theinvestor community understands clearly the Company’s prospects and performance.This reflects our ambition to widen our investor base as well as to deepenexisting investors’ understanding of Crucell.

 

Activitiesin 2009 for shareholders and investors comprised:

 

·                  A full presentationof quarterly results to financial journalists and analysts at each quarter,consisting of an online slide show and audio commentary, question and answersessions and archiving for subsequent retrieval;

·                  Various additionaltelephone conference calls with management for analysts and investors;

·                  Regular road showmeetings with potential and existing shareholders and sell-side analysts whocover the Company;

·                  Timely updates in theInvestor Relations section of the website www.crucell.com;

·                  Periodic websiteupdates of more comprehensive financial Company data, including filings withthe United States Securities and Exchange Commission; and

·                  Online publication ofrelevant scientific company presentations.

 

**Crucell shares**

 

Crucell’sordinary shares are listed on:

·                  NYSE EuronextAmsterdam N.V. (symbol: CRXL) since 2000;

·                  NASDAQ in the US(symbol: CRXL) in the form of ADS’s since 2000;

·                  SWX Swiss Exchange inZurich (symbol: CRXL) since 2005;

 

TheCompany’s primary listing is Amsterdam where trading turnover reached € 1.95billion in 2009; Crucell’s shares are included in the AMX mid-cap index (since2005);

 

**Share data**

 
| Year  ended December 31,                                 | ** ** | **2009**   | ** ** | 2008   | ** ** |
|---------------------------------------------------------------|------------|------------|------------|--------|------------|
| Earnings per share                                            | ** ** | **0.34**   |       | 0.22   |       |
| Shares outstanding  (million) at year-end                     | ** ** | **81.4**   |       | 65.8   |       |
| Dividend                                                      | ** ** | **—** |       | — |       |
| Highest price                                                 | ** ** | **17.61**  |       | 14.10  |       |
| Lowest price                                                  | ** ** | **10.78**  |       | 7.40   |       |
| Price at  December 31,                                   | ** ** | **13.90**  |       | 10.89  |       |
| Average daily  trading volume on Euronext Amsterdam (X 1,000) | ** ** | **500**    |       | 465    |       |

 

**Shareholders with holdings of Crucell shares exceeding 5%**

Percentageof beneficial ownership is based on an aggregate of 81,661,920 ordinary sharesoutstanding at March 29, 2010 except as otherwise noted:

 
|                                                   |   | Ordinary Shares  Beneficially Owned1 |
|--------------------------------------------------------|--------|--------------------------------------|
|                                                   |   | Number of                            |   | Holding |   |
| Beneficial  Owner                                      |   | Ordinary Shares                      |   | (%) |   |
| JHC Nederland B.V.                                     |   | 14,626,984                           |   | 17.91 | 2 |
| A. van Herk B.V.                                       |   | 7,689,270                            |   | 9.42 | 3 |
| Ordinary shares  held by our Management Board members  |   | 442,079                              |   | 0.54 |   |
| Ordinary shares  held by our Supervisory Board members |   | 142,210                              |   | 0.17 |   |

 

1           UnderRule 13d 3 of the Exchange Act, more than one person may be deemed tobeneficially own certain ordinary shares (if, for example, persons share thepower to vote or the power to dispose of the ordinary shares). In addition, aperson is deemed to beneficially own ordinary shares if the person has theright to acquire the ordinary shares (for example, upon exercise of an option)within 60 days of the date as of which the information is provided. As aresult, the percentage of outstanding ordinary shares of any person as shown inthis table does not necessarily reflect the person’s actual ownership or votingpower with respect to the number of ordinary shares actually outstanding. Inaddition, filings with the Netherlands Authority for the Financial Markets(Autoriteit Financiële Markten or AFM) with respect to shareholdings in publiccompanies do not specify the number of shares held by the filing party.

2           Percentage holding is derived from a filing made by Johnson &Johnson with the Netherlands AFM.

3           Percentage holding is derived from a filing made by A. vanHerk B.V. with the Netherlands AFM.

 

224

 

**Information for shareholders and investors**

 

Asof March 29, 2010, there were 12,645,840 ADSs, each representing oneordinary share, all of which were held of record by five registered holders inthe US (including The Depository Trust Company). The number of ADSs at March 29,2010 represent 15.5% of our ordinary shares that were issued and outstanding onthat date.

 

Tothe best of our knowledge, we are not directly or indirectly owned orcontrolled by any other corporation, foreign government or other person orentity.

 

**Share information**

Crucellshares 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 NASDAQSmall Cap index since 2005 and in the NYSE Euronext NEXT Biotech Index as of April 2008.

 
| As  of December 31,                | ** ** | **2009**    | ** ** | 2008    | ** ** |
|-----------------------------------------|------------|-------------|------------|---------|------------|
| Market  Capitalization (€ million) | ** ** | **1,131.5** |       | 716.6   |       |
| Market  Capitalization ($ million) | ** ** | **1,630.0** |       | 1,000.2 |       |
| Closing share price  (€)           | ** ** | **13.90**   |       | 10.89   |       |
| Closing share price  ($)                | ** ** | **20.02**   |       | 15.20   |       |
| Shares outstanding  (million)           | ** ** | **81.4**    |       | 65.8    |       |

 

**Shareholder information**

 

AtDecember 31, 2009, institutional investors held approximately 51% of theoutstanding shares in Crucell, private investors held 48% of shares andholdings of affiliates were approximately 1%.

 

Geographicalspreads of shareholders in approximate percentages on December 31, 2009,compared to the previous year are as follows:

 
| ** **      | ** ** | **2009** | ** ** | 2008    | ** ** |
|-----------------|------------|----------|------------|---------|------------|
| The Netherlands | ** ** | **60**   | **%****1** | 68      | %          |
| United States   | ** ** | **30**   | **%**      | 22      | %          |
| Germany         | ** ** | **2**    | **%**      | 4       | %          |
| United Kingdom  | ** ** | **1**    | **%**      | 3       | %          |
| Scandinavia     | ** ** | **2**    | **%**      | 2       | %          |
| Other           | ** ** | **5**    | **%**      | 1       | %          |
| Total           | ** ** | **100**  | **%**      | **100** | **%**      |

 

1 Including18% shareholding by JHC Nederland B.V. Ultimate parent company Johnson &Johnson is U.S. based.

 

**Outlook for 2010**

 

Weconfirm the outlook as provided to the market on February 9, 2010:

·                  continued strongoperating cash flow to accelerate product development;

·                  R&D spending toincrease by over one-third;

·                  maintaining a healthyoperating profit; and

·                  revenues and otheroperating income1 broadly in line with 20091.

 

1 In guidance currencies = EUR/USD rate of 1.41

 

**General information**

 

**Auditors**

DeloitteAccountants B.V.

 

**Legal Counsel**

Allen &Overy LLP

ClearyGottlieb Steen & Hamilton LLP

 

**Tax Advisers**

Ernst &Young

 

**ADS Depository**

Bankof New York Mellon

 

**Investor Relations**

OyaYavuz, Vice President of Corporate Communications & Investor Relations

FraukeGroenevelt, Manager Investor Relations 

Tel:+31 71 5197064 

Email:ir@crucell.com

 

225

 

 

**Information for shareholders and investors**

 

**Information forshareholders and investors continued**

 

**Our ordinary shares and ADSs**

 

Ourordinary shares are traded in the US 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 Mellon acting as depositaryin respect thereof.

 

Thefollowing table sets forth the range of high and low closing prices, in USdollars, for our ADSs on the NASDAQ National Market for the periods indicated.

 
|                                                       |   | ADSs   |   |
|------------------------------------------------------------|--------|--------|--------|
|                                                       | High   | Low    |   |
| **Annual information****for  the past five years**         |   |   |   |
| 2005                                                       | 29.95  | 12.30  |   |
| 2006                                                       | 28.82  | 17.27  |   |
| 2007                                                       | 28.96  | 16.08  |   |
| 2008                                                       | 19.88  | 9.60   |   |
| 2009                                                       | 25.38  | 15.65  |   |
| **Quarterly information****for  the past two years**       |   |   |   |
| **2008**                                                   |   |   |   |
| First  Quarter                                             | 19.39  | 13.15  |   |
| Second  Quarter                                            | 19.88  | 15.47  |   |
| Third  Quarter                                             | 18.18  | 13.27  |   |
| Fourth  Quarter                                            | 15.86  | 9.60   |   |
| **2009**                                                   |   |   |   |
| First  Quarter                                             | 23.29  | 15.65  |   |
| Second  Quarter                                            | 24.29  | 18.44  |   |
| Third  Quarter                                             | 25.38  | 21.45  |   |
| Fourth  Quarter                                            | 22.01  | 19.57  |   |
| **2010**                                                   |   |   |   |
| First  Quarter                                             | 21.44  | 18.97  |   |
| **Monthly information for the most****recent  six months** |   |   |   |
| October 2009                                          | 22.01  | 19.57  |   |
| November 2009                                         | 21.95  | 19.95  |   |
| December 2009                                         | 21.89  | 19.92  |   |
| January 2010                                          | 20.87  | 19.33  |   |
| February 2010                                         | 20.22  | 18.97  |   |
| March 2010  (until March 29)                     | 21.44  | 19.29  |   |

 

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                   |            |   |   |
| 2005                                                          | 24.77           | 9.50   |   |
| 2006                                                          | 23.49           | 14.04  |   |
| 2007                                                          | 22.27           | 10.96  |   |
| 2008                                                          | 13.26           | 7.77   |   |
| 2009                                                          | 17.42           | 11.33  |   |
| Quarterly  information for the past two years                 |            |   |   |
| 2008                                                          |            |   |   |
| First  Quarter                                                | 13.26           | 8.55   |   |
| Second  Quarter                                               | 12.85           | 9.86   |   |
| Third  Quarter                                                | 12.10           | 9.15   |   |
| Fourth  Quarter                                               | 11.35           | 7.77   |   |
| 2009                                                          |            |   |   |
| First  Quarter                                                | 17.15           | 11.33  |   |
| Second  Quarter                                               | 17.20           | 14.31  |   |
| Third  Quarter                                                | 17.42           | 14.87  |   |
| Fourth  Quarter                                               | 15.38           | 13.48  |   |
| 2010                                                          |            |   |   |
| First  Quarter                                                | 15.62           | 13.77  |   |
| **Monthly information for the********most recent six months** |            |   |   |
| October 2009                                             | 15.38           | 13.51  |   |
| November 2009                                            | 14.65           | 13.48  |   |
| December 2009                                            | 14.60           | 13.85  |   |
| January 2010                                             | 14.49           | 13.77  |   |
| February 2010                                            | 14.48           | 13.93  |   |
| March 2010  (until March 29)                        | 15.62           | 14.23  |   |

 

226

 

**Information for shareholders and investors**

 

**Exchange rate information**

Thefollowing table sets forth, for the previous six months, the high and low NoonBuying Rates expressed in Euro per USD 1.00.

 
|                                   | High € | Low € |   |
|----------------------------------------|-------------|------------|--------|
| October 2009                      | 0.69        | 0.67       |   |
| November 2009                     | 0.68        | 0.66       |   |
| December 2009                     | 0.70        | 0.66       |   |
| January 2010                      | 0.72        | 0.69       |   |
| February 2010                     | 0.74        | 0.72       |   |
| March 2010  (until March 26) | 0.75        | 0.73       |   |

 

OnMarch 26, 2010 the Noon Buying Rate was $ 1.00 = € 0.75. These rates maydiffer from the actual rates used in the preparation of our financial statementsand other financial information appearing in this Annual Report.

 

**American Depository shares**

TheBank of New York Mellon serves as the depositary (the ‘Depositary’) for Crucell’sAmerican Depositary Shares (‘ADS’) program. The Bank of New York Mellon has itsprincipal executive office at One Wall Street, New York, New York 10286, theUS. Pursuant to the deposit agreement between Crucell, the Depositary andowners and holders of ADS (the ‘Deposit Agreement’), ADS holders may berequired to pay various fees to the Depositary, and the Depositary may refuseto provide any service for which a fee is assessed until the applicable fee hasbeen paid. In particular, the Depositary, under the terms of the DepositAgreement, shall charge a fee of $5.00 or less per 100 ADSs (or portionthereof) for (i) the issuance, execution and delivery of ADSs or (ii) thewithdrawal of shares underlying the ADSs. In addition, ADS holders may berequired under the Deposit Agreement to pay the Depositary (i) any tax,duty, governmental charge or fee or stock transfer or registration fee arisingin connection with the foregoing transactions or otherwise, (ii) anyexpense resulting from the conversion of a foreign currency into US dollars and(iii) the expense of certain communications made, at the request of theADS holder, by cable, telex or facsimile. The Depositary may (i) withholddividends or other distributions or sell any or all of the shares underlyingthe ADSs in order to satisfy any tax or governmental charge and (ii) deductfrom any cash distribution any tax payable thereon or the cost of any currencyconversion.

 

**Fees Incurred in past annual period**

FromJanuary 1, 2009 to March 29, 2010, the Company received from thedepositary $196,580.42 (February 20, 2009) and $50,000.00 (September 19,2009) for standard out-of-pocket maintenance costs for the ADSs (consisting ofthe expenses of postage and envelopes for mailing annual and interim financialreports, printing and distributing dividend checks, electronic filing of U.S. Federaltax information, mailing required tax forms, stationery, postage, facsimile,and telephone calls), any applicable performance indicators relating to the ADSfacility, underwriting fees and legal fees.

 

**Fees to be paid in the future**

TheBank of New York Mellon, as depositary, has agreed to reimburse the Company forexpenses they incur that are related to establishment and maintenance expensesof the ADS program. The depositary has agreed to reimburse the Company for itscontinuing annual stock exchange listing fees. The depositary has also agreedto pay the standard out-of-pocket maintenance costs for the ADSs, which consistof the expenses of postage and envelopes for mailing annual and interimfinancial reports, printing and distributing dividend checks, electronic filingof U.S. Federal tax information, mailing required tax forms, stationery,postage, facsimile, and telephone calls. It has also agreed to reimburse theCompany annually for certain investor relationship programs or special investorrelations promotional activities. In certain instances, the depositary hasagreed to provide additional payments to the Company based on any applicableperformance indicators relating to the ADS facility. There are limits on theamount of expenses for which the depositary will reimburse the Company, but theamount of reimbursement available to the Company is not necessarily tied to theamount of fees the depositary collects from investors.

 

Thedepositary collects its fees for delivery and surrender of ADSs directly frominvestors depositing shares or surrendering ADSs for the purpose of withdrawalor from intermediaries acting for them. The depositary collects fees for makingdistributions to investors by deducting those fees from the amounts distributedor by selling a portion of distributable property to pay the fees. Thedepositary may collect its annual fee for depositary services by deduction fromcash distributions or by directly billing investors or by charging thebook-entry system accounts of participants acting for them. The depositary maygenerally refuse to provide fee-attracting services until its fees for thoseservices are paid.

 

227

 

**Information for shareholders and investors**

 

**Information forshareholders and investors continued**

 

**Taxation**

Thefollowing is a summary of the material Dutch and US tax consequences of aninvestment in ordinary shares or ADSs. This summary does not discuss everyaspect of taxation that may be relevant to a particular investor who is subjectto special treatment under any applicable law, and is not intended to beapplicable in all respects to all categories of investors. This summary alsoassumes that our business will be conducted in the manner outlined in thisdocument. Changes in our organizational structure or the manner in which weconduct our business may invalidate this summary. The laws upon which thissummary is based are subject to change, perhaps with retroactive effect. Achange to these laws may invalidate the contents of this summary, which willnot be updated to reflect changes in the laws. Prospective investors shouldconsult their professional tax advisers regarding their particular personal taxconsequences of acquiring, owning and disposing of our ordinary shares or ADSs.

 

**Certain Dutch tax consequences for holders of ordinary sharesor ADSs**

Thissummary describes the principal tax consequences that will generally apply inthe case of an investment in the ordinary shares or ADSs under Dutch tax lawsin force and in effect as of the date hereof, and is subject to changes inDutch law, including changes that could have retroactive effect. Not everypotential tax consequence of such investment under the laws of the Netherlandswill be addressed.

 

**Dutch taxation of resident shareholders**

 

Thesummary of certain Dutch taxes set out in this section ‘Dutch Taxation ofResident Shareholders’ is only intended for the following investors:

 

·                  Individuals who areresident or deemed to be resident or who have opted to be resident in theNetherlands for purposes of Dutch taxation and who invest in the ordinaryshares or ADSs, excluding individuals who invest in the ordinary shares or ADSsthat form part of a substantial interest (as described below) or deemedsubstantial interest in us and excluding individuals who are our employees orwho are deemed to be our employees or employees of any entity related to us(the ‘Dutch Individuals’); and

·                  Corporate entities(including associations which are taxable as corporate entities) that areresident or deemed to be resident in the Netherlands for purposes of Dutchtaxation and who invest in the ordinary shares or ADSs; excluding:

·                  Corporate entitiesthat are not subject to Dutch corporate income tax;

·                  Pension funds(pensioenfondsen) and other entities that are wholly or partly exempt fromDutch corporate income tax;

·                  Corporate entitiesthat hold ordinary shares or ADSs that qualify for application of theparticipation exemption (as laid down in the Dutch Corporate Income Tax Act1969); and

·                  Investmentinstitutions (beleggingsinstellingen) and tax exempt investment institutions(vrijgestelde beleggingsinstellingen) as defined in the Dutch Corporate IncomeTax Act 1969; (the ‘Dutch Corporate Entities’).

 

Generally,a holder of ordinary shares or ADSs will not have a substantial interest if he,his spouse, certain other relatives (including foster children) or certainpersons sharing his household, do not hold, alone or together, whether directlyor indirectly, the ownership of, or certain other rights over, ordinary sharesrepresenting 5% or more of our total issued and outstanding capital (or theissued and outstanding capital of any class of shares), or rights to acquireordinary shares, whether or not already issued, that represent at any time 5%or more of our total issued and outstanding capital (or the issued andoutstanding capital of any class of shares) or the ownership of certain profitparticipating certificates that relate to 5% or more of our annual profitand/or to 5% or more of our liquidation proceeds.

 

**Individual and corporate income tax**

ForDutch Individuals not engaged or deemed to be engaged in an enterprise andDutch individuals for whom the

 

228

 

**Information for shareholders and investors**

 

benefitsderived from the ordinary shares or ADSs are not treated as ‘result from otheractivities’, the following applies:

 

Thetaxable benefit from a Dutch Individual’s ‘savings and investments’ (sparen enbeleggen) is set annually at 4% of the average of the so-called ‘yield basis’(rendements grondslag) at the beginning and at the end of a year, insofar asthe average exceeds the ‘exempt net asset amount’ (heffingvrij vermogen). Suchtaxable benefit is reduced by such portion of the personal allowance as has notbeen taken into account in respect of certain other types of income. Thisbenefit is taxed at the rate of 30%. For Dutch Individuals who invest in theordinary shares or ADSs, the ordinary shares or ADSs will form part of the yieldbasis. The ordinary shares or ADSs will be taken into account in the yieldbasis at their fair market value. The actual benefits from the ordinary sharesor ADSs do not influence the taxable benefit, even if they exceed, or are lowerthan, 4% of the yield basis.

 

ForDutch Individuals engaged or deemed to be engaged in an enterprise, DutchIndividuals for whom the benefits derived from the ordinary shares or ADSs aretreated as result from other activities, and Dutch Corporate Entities, thefollowing applies:

 

Anybenefits derived or deemed to be derived from the ordinary shares or ADSs(including any capital gains realized on the disposal thereof) that areattributable to an enterprise carried on in the Netherlands by a DutchIndividual or to an enterprise effectively managed in the Netherlands in whichhe has an interest, are generally subject to income tax charged at progressiverates. The same applies to a Dutch Individual for whom the benefits derivedfrom the ordinary shares or ADSs are treated as result from other activities.Any benefits derived or deemed to be derived from the ordinary shares or ADSs(including any capital gains realized on the disposal thereof) that are held bya Dutch Corporate Entity are generally subject to corporate income tax.

 

**Withholding tax**

Dividendswe distribute are generally subject to a withholding tax imposed by theNetherlands at a rate of 15%. The concept ‘dividends we distribute’ used inthis section includes, but is not limited to:

 

·                  Distributions in cashor in kind, deemed and constructive distributions and repayments of paid-incapital not recognized for Dutch dividend withholding tax purposes; 

·                  Liquidation proceeds, proceeds ofredemption of the ordinary shares or ADSs or, as a rule, consideration for therepurchase of the ordinary shares or ADSs by us in excess of the averagepaid-in capital recognized for Dutch dividend withholding tax purposes;

·                  The par value of theordinary shares or ADSs issued to a holder of the ordinary shares or ADSs or an increase of thepar value of the ordinary shares or ADSs, as the case may be, to the extentthat it does not appear that a contribution, recognized for Dutch dividendwithholding tax purposes, has been made or will be made; and

·                  Partial repayment ofpaid-in capital, recognized for Dutch dividend withholding tax purposes, if andto the extent that there are net profits (zuivere winst), unless: 

– The generalmeeting of our shareholders has resolved in advance to make such repayment; 

– The par valueof the ordinary shares or ADSs concerned has been reduced by an equal amount byway of an amendment of the articles of association; and 

·                  Dutch Individuals andDutch Corporate Entities generally can credit the dividend withholding taxagainst their income tax or corporate income tax liability and will be entitledto a refund of dividend withholding tax insofar as such tax, together with anyother creditable domestic and/ or foreign taxes, exceeds their aggregate incometax or corporate income tax liability. To avoid ‘dividend stripping’, a condition to be ableto credit dividend withholding tax is that the recipient of proceeds from theordinary shares or ADSs qualifies as the beneficial owner thereof. A recipientof proceeds from the ordinary shares or ADSs is not considered to be thebeneficial owner thereof if the amount of dividend, following a set oftransactions, is ultimately wholly or partly received by another person, ifthis other person also retains, directly or indirectly, an interest in theordinary shares or ADSs and the recipient is entitled to a (partial) refund orexemption to which the other person is not entitled.

 

**Gift and inheritance taxes**

Agift tax liability will arise in the Netherlands with respect to an acquisitionof the ordinary shares or ADSs by way of a gift made by a Dutch individual or aDutch corporate entity. An inheritance tax liability will arise in theNetherlands with respect to an acquisition or deemed acquisition of theordinary shares or ADSs on the death of a Dutch individual.

 

Forpurposes of Dutch gift and inheritance taxes, an individual of Dutchnationality will be deemed to be resident

 

229

 

**Information for shareholders and investors**

 

**Information forshareholders and investors continued**

 

inthe Netherlands if he has been resident in the Netherlands at any time duringthe ten years preceding the date of the gift or his death. For purposes of theDutch gift tax, an individual not holding Dutch nationality will be deemed tobe resident in the Netherlands if he has been resident in the Netherlands atany time during the 12 months preceding the date of the gift.

 

**Taxation of US investors**

 

Thefollowing is a summary of the material US federal income tax considerationsregarding the purchase, ownership and disposition of ordinary shares or ADSs toyou if you are an “eligible US holder” (as defined below) but it does notpurport to be a comprehensive description of all of the tax considerations thatmay be relevant to you or your situation, including tax considerations thatarise from rules of general application to all taxpayers or to certainclasses of investors or that are generally assumed to be known by you. Inparticular, the summary does not address considerations that may be applicableto you if you will not hold ordinary shares or ADSs as capital assets, if youare not an eligible US holder, or if you are a taxpayer subject to special taxrules, such as a bank, tax-exempt entity, insurance company, 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, a person that holds ordinaryshares or ADSs as a position in a synthetic security, hedging transaction orconversion transaction, a person liable for the alternative minimum tax and aperson who owns or is deemed to own 10% or more of any class of our stock. Thesummary is based on laws, treaties and regulatory interpretations in effect onthe date of this document, all of which are subject to change.

 

*You should consult your own advisers regarding the taxconsequences of an investment in the ordinary shares or ADSs in light of yourparticular circumstances, including the US tax considerations discussed belowand the effect of any state, local or other national laws.*

 

Youare an eligible US holder if you are a resident of the US for purposes of thetax treaty between the Netherlands and the US (the ‘tax treaty’) and are fullyeligible for benefits under the tax treaty. You generally will be entitled tothe benefits of the tax treaty if you are:

 

·                  The beneficial ownerof ordinary shares or ADSs (and of the dividends paid with respect to suchordinary shares or ADSs);

·                  A “US person” (i.e.,an individual resident of the US, a US corporation, or a partnership, estate ortrust to the extent your income is subject to taxation in the US as the incomeof a resident, in your hands or in the hands of your partners orbeneficiaries);

·                  Not resident in theNetherlands for Dutch tax purposes; and

·                  Not subject to ananti-treaty shopping rule.

 

Yougenerally will not be eligible for the benefits of the tax treaty, and thereforewill not be an eligible US holder, if you hold ordinary shares or ADSs inconnection with the conduct of business through a permanent establishment, orthe performance of services through a fixed base in the Netherlands, or you arenot resident in the US for US tax purposes.

 

Ifa partnership (or other entity treated as a partnership for US tax purposes)holds ordinary shares or ADSs, the tax treatment of a partner generally willdepend upon the status of the partner and the activities of the partnership. Ifyou are a partner in a partnership (or other entity treated as a partnershipfor US tax purposes) that holds ordinary shares or ADSs, you should consultyour own tax adviser regarding the specific tax consequences of owning anddisposing of ordinary shares or ADSs.

 

Basedon our audited financial statements and relevant market data, we believe thatwe were not treated as a ‘passive foreign investment company’ or ‘PFIC’ for USfederal income tax purposes with respect to the year 2009. In addition, based onour current expectations regarding the value and nature of our assets, thesources and nature of our

 

230

 

**Information for shareholders and investors**

 

income,and relevant market data, we do not anticipate becoming a PFIC in the year 2010or thereafter. We believe, however, that we were or may have been a PFIC for USfederal income tax purposes with respect to the years before 2005. See ‘PassiveForeign Investment Company Rules,’ below. *USholders that held our ordinary shares or ADSs at any time before 2005 shouldconsult their own tax advisers regarding the possible application of the PFIC rules totheir ordinary shares or ADSs.*

 

ForUS federal income tax purposes beneficial owners of ADSs will be treated as theowners of the underlying ordinary shares represented by those ADSs.

 

**Taxation of dividends**

Thegross amount of distributions paid by us (including amounts withheld in respectof Dutch withholding tax) generally will be subject to US federal income taxationas foreign source ordinary dividend income to the extent paid or deemed paidout of our current or accumulated earnings and profits (as determined under USfederal income tax principles), and will not be eligible for the dividendsreceived deduction allowed to corporations. Distributions in excess of currentand accumulated earnings and profits will be treated as a non-taxable return ofcapital to the extent of your basis in our ordinary shares or ADSs andthereafter as capital gain. However, we do not maintain calculations ofearnings and profits and you should therefore assume that any distribution wemake with respect to our ordinary shares and ADSs will constitute ordinarydividend income.

 

Subjectto certain exceptions for positions that are hedged or held for less than 60days, an individual US holder generally will be subject to US taxation at amaximum rate of 15% in respect of dividends received before January 1,2011, unless we were in the year prior to the year in which the dividend waspaid, or are, in the year in which the dividend is paid, a PFIC. As describedabove, we believe that we were not a PFIC for US tax purposes with respect tothe year 2009, and also do not anticipate becoming a PFIC with respect to theyear 2010.

 

Dividendspaid in Euro will be included in income in a US dollar amount calculated byreference to the exchange rate in effect on the date of receipt by you (or bythe depositary in the case of ADSs). If such dividends are converted into USdollar 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 US, you may be required to recognize foreign currency gainor loss to the extent the amount of the tax treaty refund (in dollars) receivedby you differs from the US dollar equivalent of the refund amount on the datethe dividends were received.

 

Youmay claim the benefit of the reduced withholding rate of 15% that is availableunder the tax treaty between the Netherlands and the US by submitting a dulycompleted Form IB 92 (USA) (available at www.belastingdienst.nl) that hasbeen certified by a financial institution (typically the entity that holds theordinary shares or ADSs as custodian for the holder). If we receive therequired documentation prior to the relevant dividend payment date, we mayapply the reduced withholding rate at source. If you fail to satisfy theserequirements prior to the payment of a dividend, you may claim a refund of theexcess of the amount withheld over the tax treaty rate by filing Form IB92 (USA) together with a supplemental statement with the Dutch tax authorities.Pension funds and tax-exempt organizations qualifying for a complete exemptionfrom tax are not entitled to claim tax treaty benefits at source, and insteadmust file claims for refund by filing Form IB 95 (USA) (also available atwww.belastingdienst.nl).

 

Subjectto applicable limitations and to the special considerations discussed below,Dutch withholding tax at the 15% tax treaty rate will be treated as a foreignincome tax that is eligible for credit against your US federal income taxliability or, at your election, may be deducted in computing taxable income.Foreign tax credits will not be allowed for withholding taxes imposed inrespect of certain short-term or hedged positions and may not be allowed inrespect of arrangements in which your expected economic profit, after non-UStaxes, is insubstantial. You should consult your own advisers concerning theimplications of these rules in light of your particular circumstances.

 

**Taxation of capital gains**

Subjectto the discussion below under ‘Passive Foreign Investment Company Rules’, gainor loss 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 dollar-value of the amountrealized on the disposition. (If the amount realized is denominated in aforeign currency, such amount shall be determined at the spot rate on the dateof disposition, or, at the spot rate on the settlement date if the

 

231

 

**Information for shareholders and investors**

 

**Information forshareholders and investors continued**

 

sharesor ADSs are traded on an established securities market and you are a cash basiseligible US holder or an accrual basis eligible US holder that so elects). Thegain or loss will be long-term gain or loss if the ordinary shares or ADSs wereheld for more than one year. Long-term capital gain recognized by an individualUS holder before January 1, 2011 generally is subject to taxation at amaximum rate of 15%.

 

**Passive foreign investment company rules**

UnfavourableUS 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 (a) 75% or more of our gross incomeis treated as passive income for purposes of the PFIC rules; or (b) theaverage percentage of the value of our assets that produce or are held for theproduction of passive income is at least 50%.

 

Asexplained above, we believe that we were not a PFIC for US tax purposes withrespect to the year 2009, and also do not anticipate becoming a PFIC withrespect to the year 2010 and thereafter. We believe, however, that we were ormay have been a PFIC for US federal income tax purposes with respect to theyears before 2005.

 

Ifwe were a PFIC in the past, US holders that held our ordinary shares or ADSs atany time during the years when we were a PFIC and did not make certain US taxelections (a “mark-to-market election” or a “QEF election”) will be subject toadverse tax treatment. For instance, such holders will be subject to a specialtax at ordinary income tax rates on certain dividends that we pay and on gainsrealized on the sale of ordinary shares or ADSs (“excess distributions”) in allsubsequent years, even though we ceased to qualify as a PFIC. The amount ofthis tax will be increased by an interest charge to compensate for taxdeferral, calculated as if the excess distributions had been earned ratablyover the period the US holder held its ordinary shares or ADSs. It may bepossible, in certain circumstances, for a holder to avoid the application ofthe PFIC rules by making a “deemed sale” election for its taxable yearthat includes the last day of our last taxable year during which we qualifiedas a PFIC. *The PFIC rules are extremelycomplex, and you should consult your own tax advisers regarding the possibleapplication of the PFIC rules to your ordinary shares or ADSs and thedesirability and availability of a “deemed sale election.”*

 

**US backup withholding tax and information reporting**

Paymentsin respect of the ordinary shares or ADSs that are made in the US or by aUS-related financial intermediary will be subject to information reporting andmay be subject to backup withholding unless you: (a) are a corporation orother exempt recipient; or (b) provide an IRS Form W-9 or anacceptable substitute form, certifying your taxpayer identification number andthat no loss of exemption from backup withholding has occurred.

 

Ifyou are not a US citizen or a “US person” (as defined in the introduction tothis discussion), you generally are not subject to these rules, but may berequired to provide certification of non-US status in order to establish thatyou are exempt.

 

**Documents on display**

 

Weare subject to the informational requirements of the Securities Exchange Act of1934, as amended, and in accordance therewith file information with the USSecurities and Exchange Commission (‘SEC’). You may read and copy thisinformation at the following location:

 

**Public Reference Room**

**100 F Street, N.E.**

**Washington, D.C. 20549**

**USA**

 

Pleasecall the SEC at 1 800 SEC 0330 for further information on the public referenceroom. Copies of these materials can also be obtained by mail at prescribedrates from the Public Reference Section of the Securities and ExchangeCommission, 100 F Street, N.E., Washington, D.C. 20549. Our ADSs are quoted onthe NASDAQ National Market, and consequently, the periodic reports and otherinformation filed by us with the Commission can be inspected at the

 

232

 

**Information for shareholders and investors**

 

officesof the NASDAQ National Market, 1735 K Street, N.W., Washington, D.C. 20006. Theprimary market for our ordinary shares is NYSE Euronext Amsterdam. We make ourfilings with the SEC by electronic means. Any filings we make electronicallyare available to the public over the internet at the Commission’s website atwww.sec.gov and at our website at www.crucell.com.

 

**Exchange Controls**

Thereare currently no Dutch laws, decrees or regulations that restrict the export orimport of capital, including, but not limited to, foreign exchange controls, orthat affect the remittance of dividends or other payments to non-Dutchresidents or to US holders of our securities except as otherwise set forth in ‘Taxation’in this section.

 

**Significant changes**

 

Otherthan as disclosed in this Annual Report, no significant change has occurredsince December 31, 2009, the date of our most recent audited financial statements.

 

**Limitation of liability and indemnification matters**

Pursuantto Dutch law, each member of our Supervisory and Management Boards isresponsible to us for the proper performance of his or her assigned duties.They are also responsible for taking measures to prevent the consequences ofany improper performance of duties by another member of our Supervisory Boardor our Management Board. Our articles of association provide that ourManagement Board members and our Supervisory Board members are discharged fromliability for their actions as board members if our General Meeting ofShareholders adopts a resolution to that effect. This discharge extends only toactions or omissions disclosed in or apparent from the adopted annual accountsor otherwise communicated 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 who suffers any loss as a result ofany action 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.

 

233

 

 

**Appendix overview licensees and partners**

 

**Appendixoverview licensees and partners**

 

See below an overview of theGroup’s most significant licensees and partners:

 

**Vaccines**

 
| Partner/licensee                              |   | Starting date  |   | Technology        |   | Disease  target             |   | Development  stage |
|-----------------------------------------------|--------|----------------|--------|-------------------|--------|-----------------------------|--------|--------------------|
| Aeras  Global TB Vaccine Foundation           |   | Mar. 2004 |   | PER.C6  and AdVac |   | Tuberculosis                |   | Phase  2           |
| Bestewil  Holding B.V.                        |   | Jan. 2006 |   | Co-micelles       |   | Influenza                   |   | Pre-clinical       |
| Harvard  School of Medicine                   |   | Dec. 2003 |   | AdVac  + Ad5HVR48 |   | HIV                         |   | Pre-clinical       |
| International  AIDS Vaccine Initiative (IAVI) |   | Sep. 2004 |   | AdVac             |   | HIV                         |   | Phase  1           |
| Kimron  Veterinary Institute                  |   | Jul. 2003 |   | PER.C6            |   | West  Nile virus –     |   | Marketed           |
|                                          |   |           |   |              |   | Veterinary  vaccine (avian) |   | in  Israel         |
| Merck &  Co., Inc.              |   | Nov. 1998 |   | PER.C6            |   | Undisclosed  vaccines       |   | Phase  1           |
| Merck &  Co., Inc.              |   | Sep. 2007 |   | PER.C6  and AdVac |   | 2  Infectious disease areas |   | Pre-clinical       |
| National  Institutes of Health (NIH)          |   | Mar. 2002 |   | PER.C6  and AdVac |   | Ebola,  lassa and Marburg   |   | Phase  1           |
| National  Institutes of Health (NIH)          |   | Mar. 2004 |   | PER.C6  and AdVac |   | Malaria                     |   | Phase  1           |
| Okairos  Srl.                                 |   | Oct. 2005 |   | PER.C6            |   | Hepatitis  C                |   | Phase  1           |
| Sanofi  pasteur                               |   | Dec. 2003 |   | PER.C6            |   | Influenza                   |   | Phase  2           |
| TapImmune  Inc.                               |   | Nov. 2009 |   | PER.C6            |   | Undisclosed  vaccine        |   | Pre-clinical       |
| Transgene  SA                                 |   | Dec. 2007 |   | PER.C6            |   | Undisclosed  vaccine        |   | Pre-clinical       |
| Vaxin, Inc.                              |   | Sep. 2004 |   | PER.C6            |   | Alzheimers  disease         |   | Pre-clinical       |
|                                          |   |           |   |              |   | and  veterinary             |   |               |

 

**Proteins**

 
| Partner/licensee                 |   | Starting date  |   | Technology |   | Disease  target                |   | Development  stage |
|----------------------------------|--------|----------------|--------|------------|--------|--------------------------------|--------|--------------------|
| Abraxis  Bioscience, LLC.        |   | Oct. 2008 |   | PER.C6     |   | Protein  production            |   | Pre-clinical       |
| Affitech  AS                     |   | Nov.2008       |   | PER.C6     |   | Undisclosed  Antibodies        |   | Pre-clinical       |
| Bioceros  B.V.                   |   | May 2008  |   | STAR       |   | Portfolio  antibodies          |   | Pre-clinical       |
| Biotecnol  SA                    |   | Jan. 2007 |   | PER.C6     |   | Portfolio  antibodies          |   | Pre-clinical       |
| Cangene  Corp.                   |   | Oct. 2008 |   | PER.C6     |   | Undisclosed  Antibodies        |   | Pre-clinical       |
| Centocor, Inc.              |   | Dec.2008       |   | STAR       |   | Monoclonal  antibodies         |   | Pre-clinical       |
| CSL  Ltd.                        |   | Dec. 2008 |   | PER.C6     |   | Undisclosed  protein           |   | Pre-clinical       |
| Daiichi  Sankyo Co., Ltd.        |   | Nov. 2007 |   | PER.C6     |   | Portfolio  antibodies          |   | Pre-clinical       |
| Ferring  International Center SA |   | May 2005  |   | PER.C6     |   | Women’s  healthcare       |   | Pre-clinical       |
| Ferring  International Center SA |   | Dec. 2005 |   | PER.C6     |   | Women’s  healthcare       |   | Pre-clinical       |
| Gedeon  Richter PLC              |   | Nov.2008       |   | PER.C6     |   | Undisclosed  biopharmaceutical |   | Pre-clinical       |
| GlaxoSmithKline  Biologicals SA  |   | Dec. 2008 |   | PER.C6     |   | Recombinant  protein           |   | Pre-clinical       |
| Invitrogen  Corp.                |   | Sep. 2007 |   | STAR       |   | Monoclonal  antibodies         |   | Pre-clinical       |
| IQ  Corporation B.V.             |   | Oct. 2005 |   | PER.C6     |   | Anti-anthrax  antibody         |   | Pre-clinical       |
| LFB  Biotechnologies             |   | Jul. 2007 |   | PER.C6     |   | Undisclosed  antibodies        |   | Pre-clinical       |
| JSC  Masterclone                 |   | Jul  2007      |   | PER.C6     |   | Undisclosed  antibodies        |   | Pre-clinical       |
| Merus  B.V.                      |   | Jun. 2004 |   | PER.C6     |   | Portfolio  oligoclonics        |   | Pre-clinical       |
| MorphoSys  AG                    |   | Apr. 2008 |   | PER.C6     |   | Oncology                       |   | Pre-clinical       |
| MorphoSys  AG                    |   | Aug. 2006 |   | PER.C6     |   | Inflammatory  diseases         |   | Phase  2           |
| MorphoSys  AG                    |   | Aug. 2004 |   | PER.C6     |   | Portfolio  antibodies          |   | Pre-clinical       |

 

234

 

**Appendix overview licensees and partners**
|                                  |   |           |   |   |   |                    |   |         |
|---------------------------------------|--------|----------------|--------|--------|--------|-------------------------|--------|--------------|
| Novartis  Vaccines and Diagnostics    |   | Jun. 2004 |   | PER.C6 |   | Portfolio  antibodies   |   | Pre-clinical |
| Oy  Medix Biochema AB                 |   | Dec. 2009 |   | PER.C6 |   | Recombinant  antibodies |   | Pre-clinical |
| Patrys  Ltd.                          |   | Aug. 2009 |   | PER.C6 |   | Undisclosed  protein    |   | Pre-clinical |
| Patrys  Ltd.                          |   | Jul. 2009 |   | PER.C6 |   | Monoclonal  antibodies  |   | Pre-clinical |
| Pharmathene, Inc.                |   | Dec. 2009 |   | PER.C6 |   | Undisclosed  protein    |   | Pre-clinical |
| ProFibrix  B.V.                       |   | Dec. 2008 |   | PER.C6 |   | Recombinant  fibrinogen |   | Pre-clinical |
| ProFibrix  B.V.                       |   | Dec. 2008 |   | PER.C6 |   | Recombinant  thrombin   |   | Pre-clinical |
| Synthon  B.V.                         |   | Nov. 2008 |   | PER.C6 |   | Biosimilar  protein     |   | Pre-clinical |
| Taiwanese  Development                |   | Mar. 2007 |   | PER.C6 |   | Undisclosed  proteins   |   | Pre-clinical |
| Center  for Biotechnology             |   |           |   |   |   |                    |   |         |
| TalecrisBiotherapeutics  Inc.         |   | Dec. 2008 |   | PER.C6 |   | Undisclosed  proteins   |   | Pre-clinical |
| TalecrisBiotherapeutics  Inc.         |   | Sep. 2008 |   | PER.C6 |   | Undisclosed  protein    |   | Pre-clinical |
| Thrombolytic  Science Int., Inc. |   | Oct. 2009 |   | PER.C6 |   | Undisclosed  protein    |   | Pre-clinical |
| Toyobo  Gene Analysis Co. Ltd.        |   | Apr. 2008 |   | STAR   |   | Portfolio  antibodies   |   | Pre-clinical |

 

**Gene therapy**

 
| Partner/licensee                 |   | Starting date  |   | Technology |   | Disease  target              |   | Development  stage |
|----------------------------------|--------|----------------|--------|------------|--------|------------------------------|--------|--------------------|
| Ark  Therapeutics Ltd.           |   | Jan. 2006 |   | PER.C6     |   | Portfolio                    |   | Phase  3           |
| Cancer  Research UK Centre       |   | Jan. 2010 |   | PER.C6     |   | Oncology                     |   | Pre-clinical       |
| Elm  Biotech Pty Ltd.            |   | Dec. 2008 |   | PER.C6     |   | Adenovirus-vectored  product |   | Pre-clinical       |
| TAPImmune  Inc.                  |   | Aug. 2003 |   | PER.C6     |   | Portfolio                    |   | Pre-clinical       |
| Merck &  Co., Inc. |   | Nov. 1998 |   | PER.C6     |   | Portfolio                    |   | Pre-clinical       |
| Momotaro-Gene  Inc.              |   | Aug. 2009 |   | PER.C6     |   | Prostate  cancer             |   | Phase  1           |
| NeoTropix, Inc.             |   | Mar. 2004 |   | PER.C6     |   | Oncology                     |   | Pre-clinical       |
| Transgene  SA                    |   | Apr. 2001 |   | PER.C6     |   | Portfolio                    |   | Phase  2           |
| Vascular  Biogenics Ltd.         |   | Mar. 2005 |   | PER.C6     |   | Portfolio                    |   | Phase  2           |

 

**Alliances with contract managers forproduction**

 
| Partner/licensee                  |   | Starting date  |   | Technology         |   | Area                                                        |
|-----------------------------------|--------|----------------|--------|--------------------|--------|-------------------------------------------------------------|
| Avid  Bioservices, Inc.      |   | Jul. 2008 |   | PER.C6             |   | Protein  production services                                |
| Bioceros                          |   | Jan. 2009 |   | PER.C6             |   | Cell  line generation services                              |
| Biochrom  AG                      |   | Nov. 2008 |   | PER.C6/  PERMECXIS |   | Medium  Development                                         |
| Cambrex                           |   | Aug. 2004 |   | PER.C6             |   | Medium  development                                         |
| DSM  Biologics                    |   | Dec. 2002 |   | PER.C6             |   | Therapeutic  proteins (including antibodies)                |
| Thermo  Fischer Scientific Inc.   |   | Dec. 2003 |   | PER.C6             |   | Medium  development                                         |
| Invitrogen  Corp.                 |   | Jun. 2003 |   | PER.C6             |   | Medium  development                                         |
| JRH  Biosciences Inc.             |   | May 2004  |   | PER.C6             |   | Medium  development Recombinant vaccines                    |
| KBI  Biopharma                    |   | Jan. 2009 |   | PER.C6             |   | Cell  line generation services                              |
| Lonza                             |   | Nov.2008       |   | PER.C6/  PERMECXIS |   | Medium  Development                                         |
| SAFC  Pharma                      |   | Dec. 2001 |   | PER.C6             |   | Recombinant  vaccines & gene therapy products (US) |
| Sigma-Aldrich  Corp.              |   | Dec. 2003 |   | PER.C6             |   | Medium  development                                         |
| Vivante  GMP Solutions, Inc. |   | Jun. 2009 |   | PER.C6             |   | Manufacturing  services and gene therapeutics               |

 

**Functional Genomics**

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

 

235

** **

**Cross-reference to Form 20-F**

 

**Cross-referenceto 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                                         |       | 8-9                                       |
| 3a              |       | Selected  financial data                                 |       | 227                                       |
|            |       | Exchange  rate information                               |       | n/a                                       |
| 3b              |       | Capitalization  and indebtedness                         |       | n/a                                       |
| 3c              |       | Reasons  for the offer and use of proceeds               |       | n/a                                       |
| 3d              |       | Risk  factors                                            |       | 106-114                                   |
|            |       |                                                     |       |                                      |
| 4               |       | Information  on the Company                              |       |                                      |
| 4a              |       | History  and development of the Company                  |       | 79, 99, 105                               |
| 4b              |       | Business  overview                                       |       | 74-105, 187-188                           |
| 4c              |       | Organizational  structure                                |       | 168-169                                   |
| 4d              |       | Property,  plant and equipment                           |       | 103-104                                   |
|            |       |                                                     |       |                                      |
| 4A              |       | Unresolved  staff comments                               |       | n/a                                       |
|            |       |                                                     |       |                                      |
| 5               |       | Operating  and financial review and prospects            |       |                                      |
| 5a              |       | Operating  results                                       |       | 115-125, 129-132, 185,  200-201           |
| 5b              |       | Liquidity  and capital resources                         |       | 125-129, 183-187, 193,  200, 209, 212-215 |
| 5c              |       | Research  and development, patents and licenses, etc.    |       | 20-25, 74-75, 83-90,  121                 |
| 5d              |       | Trend  information                                       |       | 6-7, 18-33, 74-78, 170-173                |
| 5e              |       | Off-balance  sheet arrangements                          |       | 132                                       |
| 5f              |       | Tabular  disclosure of contractual obligations           |       | 213                                       |
| 5g              |       | Safe  harbor                                             |       | 72                                        |
|            |       |                                                     |       |                                      |
| 6               |       | Directors,  senior management and employees              |       |                                      |
| 6a              |       | Directors  and senior management                         |       | 135-143                                   |
| 6b              |       | Compensation                                             |       | 143-150                                   |
| 6c              |       | Board  practices                                         |       | 135-143                                   |
| 6d              |       | Employees                                                |       | 52-56, 188                                |
| 6e              |       | Share  ownership                                         |       | 146-150                                   |
|            |       |                                                     |       |                                      |
| 7               |       | Major  shareholders and related party transactions       |       |                                      |
| 7a              |       | Major  shareholders                                      |       | 224                                       |
| 7b              |       | Related  party transactions                              |       | 143-150, 216-217                          |
| 7c              |       | Interests  of experts and counsel                        |       | n/a                                       |
|            |       |                                                     |       |                                      |
| 8               |       | Financial  information                                   |       |                                      |
| 8a              |       | Consolidated  statements and other financial information |       | 163-221                                   |
| 8b              |       | Significant  changes                                     |       | 233                                       |
|            |       |                                                     |       |                                      |
| 9               |       | The  offer and listing                                   |       |                                      |
| 9a              |       | Offer  and listing details                               |       | 203-205, 226-227                          |
| 9b              |       | Plan  of distribution                                    |       | n/a                                       |
| 9c              |       | Markets                                                  |       | 224                                       |

 

236

 

**Cross-reference to Form 20-F**

 
| 9d                |   | Selling  shareholders                                                         |   | n/a                   |
|-------------------|--------|-------------------------------------------------------------------------------|--------|-----------------------|
| 9e                |   | Dilution                                                                      |   | n/a                   |
| 9f                |   | Expenses  of the issue                                                        |   | n/a                   |
|              |   |                                                                          |   |                  |
| 10                |   | Additional  information                                                       |   |                  |
| 10a               |   | Share  capital                                                                |   | 166, 203-205          |
| 10b               |   | Memorandum  and articles of association                                       |   | 155-160               |
| 10c               |   | Material  contracts                                                           |   | 105A-105C             |
| 10d               |   | Exchange  controls                                                            |   | 233                   |
| 10e               |   | Taxation                                                                      |   | 228-232               |
| 10f               |   | Dividends  and paying agents                                                  |   | n/a                   |
| 10g               |   | Statement  by experts                                                         |   | n/a                   |
| 10h               |   | Documents  on display                                                         |   | 232-233               |
| 10i               |   | Subsidiary  information                                                       |   | n/a                   |
|              |   |                                                                          |   |                  |
| 11                |   | Quantitative  and qualitative disclosures about market risk                   |   | 183-187, 200-202, 214 |
|              |   |                                                                          |   |                  |
| 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                                                   |   | 105, 227              |
|              |   |                                                                          |   |                  |
| **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                                                       |   | 151-154               |
|              |   |                                                                          |   |                  |
| 16                |   | Reserved                                                                      |   |                  |
| 16a               |   | Audit  committee financial expert                                             |   | 139                   |
| 16b               |   | Code  of ethics                                                               |   | 56, 134               |
| 16c               |   | Principal  accountant fees and services                                       |   | 151                   |
| 16d               |   | Exemptions  from the listing standards for Audit committees                   |   | n/a                   |
| 16e               |   | Purchase  of equity securities by the issuer and affiliated purchasers        |   | n/a                   |
| 16f               |   | Change  in Registrant’s Certifying Accountant                            |   | n/a                   |
| 16g               |   | Corporate  Governance                                                         |   | 135                   |
|              |   |                                                                          |   |                  |
| **Part III** |   |                                                                          |
| ** **        |   |                                                                          |
| 17                |   | Financial  statements                                                         |   | 163-221               |
| 18                |   | Financial  statements                                                         |   | n/a                   |
| 19                |   | Exhibits  (filed with the SEC)                                                |   | 238-239               |

 

237

 

**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 sanofipasteur) (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)*                                                           |

 

238

 
| 4.11   |   | Collaboration  Agreement dated April 30, 2001 between Chiron Behring GmbH &  Co. and Rhein Biotech N.V. and Green Cross Vaccine Corporation (incorporated  by reference as Exhibit 4.11 to Crucell N.V.’s amended annual report on  Form 20-F/A, as filed with the Securities and Exchange Commission on  December 7, 2007)* |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 4.12   |   | Employment  contract dated September 1, 2007 between Crucell N.V. and C. de Jong (incorporated  by reference as Exhibit 4.12 to Crucell N.V.’s annual report on  Form 20-F, as filed with the Securities and Exchange Commission on April 22,  2009)                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 4.13   |   | Equity  Purchase Agreement dated September 28, 2009 between JHC Nederland B.V. and  Crucell N.V.*                                                                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 4.14   |   | Shareholder  Agreement dated September 28, 2009 between JHC Nederland B.V. and Crucell  N.V.*                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 8.1    |   | List  of subsidiaries of Crucell N.V.                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 12.1   |   | Certification  of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 12.2   |   | Certification  of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 13.1   |   | Certification  of CEO and CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                           |
| 99.1   |   | Crucell  Code of Conduct (incorporated by reference as Exhibit 99.1 to Crucell N.V.’s  annual report on Form 20-F, as filed with the Securities and Exchange  Commission on April 22, 2009)                                                                                                                                                |

 

Confidential treatmenthas been granted with respect to portions of the exhibit indicated by a dagger(†). The omitted portions have been filed separately with theSecurities and Exchange Commission. * Confidential treatment requested as tocertain portions, which portions have been filed separately with the Securitiesand Exchange Commission by Crucell N.V.

 

239

 

 

**SIGNATURE**

 

The registrant hereby certifiesthat it meets all of the requirements for filing on Form 20-F and that it hasduly caused and authorized the undersigned to sign this annual report on itsbehalf.

 

CRUCELL N.V.

 

 
| By:    | /s/ RONALD H.P. BRUS    |   | By:    | /s/ LEONARD KRUIMER     |
|--------|-------------------------|--------|--------|-------------------------|
|   | Ronald H.P. Brus        |   |   | Leonard Kruimer         |
|   | Chief Executive Officer |   |   | Chief Financial Officer |

 

 

April 6, 2010