**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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**Form 10-K**

**x**                              ANNUALREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1933

**Forthe fiscal year ended December 31, 2006**

**or**

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

**Forthe transition period from                      to                      **

**Commissionfile number 1-19131**

**MedImmune, Inc.**

*(Exact name of registrant asspecified in its charter)*

| **Delaware**                       |   | **52-1555759**         |
|------------------------------------|--------|------------------------|
| *(State  or other jurisdiction of* |   | *(I.R.S.  Employer*    |
| *incorporation  or organization)*  |   | *Identification  No.)* |

 

**OneMedImmune WayGaithersburg, Maryland 20878***(Address of principal executive office)**(Zip Code)*

**Registrant’s telephone number,including area code: (301) 398-0000**

**SecuritiesRegistered pursuant to Section 12(b) of the Act: None**

**Securities Registeredpursuant to Section 12(g) of the Act:Common Stock, $.01 par value**

*(Title of Class)*

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act. Yes x  Noo

Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or Section 15(d) of the Act. Yes o  Nox

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes x  No o

Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K.  o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer. See definition of “acceleratedfiler” and “large accelerated filer” in Rule 12b-2 of the ExchangeAct. (check one):

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

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act). Yes o  Nox

Aggregatemarket value of the 188,304,128 shares of voting and non-voting common equityheld by non-affiliates of the registrant, based on the closing price on June 30,2006, was $5.1 billion.* Common Stock outstanding as of February 21, 2007:237,747,411 shares.

DocumentsIncorporated by Reference: Portions of the registrant’s definitive proxystatement for the annual meeting of stockholders to be held May 24, 2007 (Part III).

*****Excludes 51,130,424 shares of commonstock held by directors, officers and any stockholder whose ownership exceeds5% of the shares outstanding as of June 30, 2006. Exclusion of shares heldby any person should not be construed to indicate that such person possessesthe power, directly or indirectly, to direct or cause the direction of themanagement or policies of the registrant, or that such person is controlled byor under common control with the registrant.

 

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**Medimmune, Inc.**

**Form 10-K**

**TABLEOF CONTENTS**

| ** **                | ** ** |
|---------------------------|------------|
| **PART I**           |       |
| Item 1.                   |       | Business |   | 3 |   |
| Item 1A    |       | Risk  Factors |   | 18 |   |
| Item 1B.                  |       | Unresolved Staff Comments |   | 27 |   |
| Item 2.                   |       | Properties |   | 27 |   |
| Item 3.                   |       | Legal  Proceedings |   | 28 |   |
| Item 4.                   |       | Submission of Matters to a Vote of Security Holders |   | 28 |   |
| **PART II**          |       |
| Item 5.                   |       | Market for MedImmune’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |   | 29 |   |
| Item 6.                   |       | Selected Consolidated Financial Data |   | 31 |   |
| Item 7.                   |       | Management’s Discussion and Analysis of Financial  Condition and Results of Operations |   | 32 |   |
| Item 7A.                  |       | Quantitative and Qualitative Disclosures about Market  Risk |   | 50 |   |
| Item 8.                   |       | Consolidated Financial Statements and Supplementary  Data Report of Independent Registered Public Accounting Firm |   | 53 |   |
| Item 9.                   |       | Changes in and Disagreements with Accountants on  Accounting and Financial Disclosure |   | 94 |   |
| Item 9A.                  |       | Controls and Procedures |   | 94 |   |
| Item 9B.                  |       | Other  Information |   | 94 |   |
| **PART III**         |       |
| Item 10.                  |       | Directors, Executive Officers and Corporate Governance |   | 95 |   |
| Item 11.                  |       | Executive Compensation |   | 95 |   |
| Item 12.                  |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters |   | 95 |   |
| Item 13.                  |       | Certain Relationships and Related Transactions, and  Director Independence |   | 95 |   |
| Item 14.                  |       | Principal Accountant Fees and Services |   | 95 |   |
| **PART IV**          |       |
| Item 15.                  |       | Exhibits and Financial Statement Schedule |   | 96 |   |
| **SIGNATURES**            |       | 97 |   |
| Schedule II               |       | S-1 |   |
| Exhibit Index        |       | E-1 |   |
| Exhibits                  |       |   |   |

 

MedImmune, Synagis, Ethyol, FluMist, NeuTrexin, Numaxand RespiGam are registered trademarks of the Company. Accuspray is a trademarkof Becton Dickinson. BiTE is a registered trademark of Micromet AG. Cervarix isa registered trademark of GlaxoSmithKline. Gardasil is a registered trademarkof Merck & Co., Inc. CytoGam is a registered trademark of ZLB Behring AG.

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**FORWARD-LOOKINGSTATEMENTS**

*The statements inthis annual report that are not descriptions of historical facts may beforward-looking statements. Those statements involve substantial risks anduncertainties. You can identify those statements by the fact that they containwords such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “project”or other terms of similar meaning. Those statements reflect management’scurrent beliefs, but are based on numerous assumptions, over which MedImmunemay have little or no control and that may not develop as MedImmune expects.Consequently, actual results may differ materially from those projected in theforward-looking statements. Among the factors that could cause actual resultsto differ materially are the risks, uncertainties and other matters discussedbelow under Item 1A. Risk Factors, and elsewhere in this report. MedImmunecautions that respiratory syncytial virus (“RSV”)  disease and influenza, two diseases targetedby the Company’s products, occur primarily during the winter months; MedImmunebelieves its operating results will reflect this seasonality for theforeseeable future. MedImmune is also developing several products for potentialfuture marketing. There can be no assurance that such development efforts willsucceed, that such products will receive required regulatory clearance or that,even if such regulatory clearance is received, such products will ultimatelyachieve commercial success. Unless otherwise indicated, the information in thisannual report is as of December 31, 2006. This annual report will not beupdated as a result of new information or future events.*

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**PART I**

**Item 1.**                        *Business*

MedImmune is committed to advancing science to developbetter medicines that help people live healthier, longer and more satisfyinglives. We currently focus our efforts on the therapeutic areas of infectiousdisease, cancer and inflammatory disease. We market three products: Synagis(palivizumab) and FluMist (Influenza Virus Vaccine Live, Intranasal) to helpprevent two common respiratory infectious diseases; and Ethyol (amifostine) tohelp reduce adverse side effects of certain anti-cancer chemotherapies andradiotherapies.

Founded in 1988 andheadquartered in Gaithersburg, Maryland, MedImmune operates facilities in theUnited States and Europe to manufacture and distribute one or more componentsof each of its products. We have a U.S.-based marketing team and sales force aswell as clinical, research and development staff, through which we aredeveloping a pipeline of product candidates for potential commercialization. Inaddition to our internal efforts, we have established clinical, research,development, manufacturing and commercialization collaborations with othercompanies and organizations.

**Products**

***Synagis***

Synagis is a humanized monoclonal antibody (“MAb”)approved for marketing in 1998 by the U.S. Food and Drug Administration (the “FDA”)for the prevention of serious lower respiratory tract disease caused byrespiratory syncytial virus (“RSV”) in pediatric patients at high risk ofacquiring RSV disease (pneumonia and bronchiolitis). RSV is the most commoncause of lower respiratory tract infections in infants and children worldwide.Healthy children and individuals with adequate immune systems often catch abenign chest cold when infected with RSV. In contrast, high-risk infants,including children born prematurely or with chronic lung disease, also known asbronchopulmonary dysplasia (“BPD”), and children with certain heart diseasespresent at birth (hemodynamically significant congenital heart disease (“CHD”))are at increased risk for acquiring severe RSV disease, often requiringhospitalization.

Synagis is administered by intramuscular injectiononce per month during anticipated periods of RSV prevalence in the community,which is typically during the winter months in the Northern Hemisphere. Assuch, the sales of Synagis reflect this seasonality and occur primarily in thefirst and fourth quarters of the calendar year. From the product’s launch in1998 through the middle of 2006, Synagis was co-promoted by MedImmune and theRoss Products Division of Abbott Laboratories (“Abbott”). Starting July 1,2006, we took full responsibility for promoting Synagis in the U.S.

Outside the U.S., Abbott International (“AI”), anaffiliate of Abbott, exclusively distributes Synagis. Synagis was approved bythe European Medicines Agency (“EMEA”) in 1999 and the Japanese Pharmaceuticaland Medical Devices Agency (“PMDA”) in 2002 for the prevention of serious lowerrespiratory tract disease caused by RSV. The indication for CHD infants wasapproved by the EMEA in 2003 and the PMDA in 2005. As of December 31,2006, 60 countries outside the U.S. had approved Synagis for marketing.

In 2005, MedImmune and AI amended the internationaldistribution agreement for Synagis to include rights for the exclusive,potential future distribution of Numax (motavizumab), a second-generation,anti-RSV MAb. Under the terms of the amended agreement, AI will be working tosecure regulatory approval of Numax outside of the U.S. and, assuming receiptof such approval, will distribute and market Numax outside of the United States.As a part of this agreement, we have the option to co-promote Numax with AI inup to seven countries outside of the United States. In the U.S., we intend tomarket and sell Numax on our own. If Numax is approved, we anticipatecontinuing to sell Synagis as well for some period of time.

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In 2006, 2005 and 2004, wereported $1,065 million, $1,063 million, and $942 million, respectively, inworldwide product sales from Synagis representing 87%, 87%, and 84%,respectively, of our total product sales in each of these three years.

***Ethyol***

Ethyol is used to help prevent certain unwanted sideeffects of specific types of chemotherapies and radiotherapies that are used totreat cancer.

Ethyol was initially approved by the FDA in 1995 toreduce the cumulative renal (kidney) toxicity associated with repeatedadministration of cisplatin (a common chemotherapy agent) to patients withadvanced ovarian cancer. In 1999, the FDA approved the use of Ethyol for thereduction of the incidence of moderate-to-severe dry mouth (xerostomia) inpatients undergoing post-operative radiation treatment for head and neckcancer, where the radiation port includes a significant portion of the parotidglands. Xerostomia, both acute and chronic, is a debilitating condition inwhich saliva production is reduced due to damage caused to the salivary glandsby therapeutic radiation. Patients with xerostomia are at increased risk oforal infection, dental cavities and loss of teeth, and often have difficultychewing, swallowing and speaking.

We are the sole marketer of Ethyol in the U.S. Outsidethe U.S. we have various distribution and marketing arrangements for the drug,primarily with affiliates of Schering-Plough Corporation (“Schering”). Themarketing and distribution relationship will end in 2007 with respect to certainWestern European countries. After that point, we anticipate assumingresponsibility for marketing and distributing Ethyol in those countries. Ethyolhas been approved for marketing in 63 countries worldwide, including the UnitedStates.

In 2006, 2005 and 2004, wereported worldwide product sales for Ethyol of $87 million, $95 million, and$92 million, respectively, which represented 7%, 8%, and 8%, respectively, ofour total product sales in each of these three years.

***FluMist***

FluMist is a vaccine approved for marketing in 2003 bythe FDA for the prevention of disease caused by influenza A and B viruses inhealthy children and adolescents, 5-17 years of age, and healthy adults,18-49 years of age. The vaccine is delivered as a nasal mist and is alive, attenuated vaccine, meaning that it uses modified and weakened liveviruses that stimulate the immune system to help prevent the flu. Each year anestimated 17 million to 50 million cases of influenza are reported in the U.S.,many of which occur in otherwise healthy people. Due to the availability ofsupply, vaccination against the influenza virus in the Northern Hemisphere hashistorically started in October; however, MedImmune released its first lots in July 2006for the 2006/2007 season in an attempt to make vaccination of children moreconveniently aligned with back-to-school physician visits. Given the durabilityof protection offered by FluMist, MedImmune plans to continue to releaseproduct as early as possible, while still making supplies available through thepeak of the season, which usually occurs in February.

The product that was originally approved was in afrozen formulation that faced significant distribution challenges. In January 2007,the FDA approved a refrigerated formulation of the product that we plan tolaunch in the 2007/2008 influenza season. The recently approved product isindicated for healthy children and adolescents, 5-17 years of age, and healthy adults18-49 years of age. In July 2006 we submitted a supplemental biologiclicense application (“sBLA”) to the FDA seeking an expanded label for FluMistfor use in children between 12 months and 59 months of age who do not have ahistory of wheezing or asthma. A response from the FDA for this sBLA isanticipated in the second quarter of 2007 and, assuming a positive outcome, weplan to include this expanded population in our label for FluMist in the2007/2008 influenza season.

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During the 2006/2007 influenza season, the U.S.Centers for Disease Control and Prevention’s (the “CDC”) Advisory Committee onImmunization Practices (the “ACIP”) included FluMist in the federal government’sVaccines for Children (the “VFC”) program as an alternative to the trivalentinjectable influenza vaccine (“TIV”). As a result, the federal governmentprovided FluMist free of charge to healthy children ages 5 to 18 years who metthe eligibility requirements of the VFC program. We anticipate that FluMistwill again be included in the VFC program for the 2007/2008 influenza season.

In 2006, we reported $36 million in total revenues forFluMist, or about 3% of our total revenues. This amount consists of $34 millionof product sales of FluMist during the second half of 2006 for the 2006/2007influenza season and $2 million of product sales in the first quarter of 2006for the 2005/2006 season. In 2005, we reported $21 million in total revenuesfor FluMist, or about 2% of our total revenues. This amount consists of $18million of product sales of FluMist during the second half of 2005 for the2005/2006 influenza season and $3 million of product sales in the first quarterof 2005 for the 2004/2005 influenza season. In 2004, we reported $54 million intotal revenues for FluMist, or about 5% of our total revenues. This amount wascomposed of $21 million in product sales of FluMist during the fourth quarterof 2004 for the 2004/2005 influenza season, and $33 million in total revenuesrelated to vaccine sold for the 2003/2004 influenza season that were notreported as revenue until the first half of 2004. Revenues related to the2003/2004 season represent transfer price revenue for product shipped to Wyeth,our former collaboration partner for FluMist, as well as royalties, supply goalpayments and corporate funding from Wyeth.

In 2006, we were awarded a$170 million, five-year cost-reimbursable contract from the U.S. Health andHuman Services Department (HHS) to develop cell-based seasonal and pandemic influenzavaccines using our proprietary live, attenuated, needle-free influenza vaccinetechnology. This project has been funded in whole or in part with Federal fundsfrom the Office of Public Health Emergency Preparedness, Office of Research andDevelopment Coordination, under Contract No. HHSO100200600010C. We plan toexpand our domestic manufacturing capacity by establishing a cell-basedfacility in the United States that can produce at least 150 million doses ofFluMist within six months of notification of an influenza pandemic. Also in2006, under a Cooperative Research and Development Agreement (“CRADA”) with theNational Institutes of Health (“NIH”), participants were dosed in a Phase 1study of an intranasal H5N1 influenza vaccine candidate based on our live,attenuated vaccine technology. This effort is using our proprietary reversegenetics technology, which allows researchers to remove potentially pathogenicportions of a pandemic virus, thereby making the vaccine and its productionsafer. Non-exclusive licenses to our reverse genetics intellectual propertywere granted in 2006 to CSL Limited of Australia for their use in developingnew human seasonal and pandemic influenza vaccines and are being offered toother manufacturers of influenza vaccines.

**Other Products**

We reported revenues of$33 million, $42 million and $41 million from other product sales in 2006,2005, and 2004, respectively. These amounts represented less than 5% of ourtotal reported product sales in 2006, 2005 and 2004. In each of those years,other product revenues included sales of CytoGam (cytomegalovirus immuneglobulin intravenous (human)) and NeuTrexin (trimetrexate glucuronate forinjection). In 2004, other product revenues also included RespiGam. In December 2006,we sold all rights to the CytoGam product line and related assets to ZLBBehring AG in order to focus on supporting and advancing our core areas ofinfectious disease, cancer and inflammatory disease.

**Other Revenues**

Other Revenues are becoming an increasing proportionof our total revenues. In 2006, 2005, and 2004, we reported Other Revenues of$56 million, $23 million, and $17 million, respectively, which represented 4%,2%, and 2%, respectively, of our total revenues in each of these three years.

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Other revenuesprimarily come from three main sources:

·       GlaxoSmithKline(“GSK”) and Merck & Co., Inc. (“Merck”) have been developingvaccines against the human papillomavirus (“HPV”) to prevent cervical cancerutilizing our proprietary technology under license and sublicense agreements.In 2006, we began recording royalty and milestone revenue related to GSK’s andMerck’s HPV vaccines.

·       In2006, we began recording other revenues from the government contract related toour development of cell-based influenza vaccines.

·       In 2005, we began reportingincremental revenues under the amended international distribution agreementwith AI related to our RSV franchise.

**Product Candidates**

A significant portion of our operating expenses arerelated to the research and development of investigational-stage productcandidates. Research and development expenses were $449 million in 2006, $385million in 2005, and $327 million in 2004. During 2005 and 2004, we alsoincurred charges for acquired in process research and development (“IPR&D”)of $48 million and $29 million, respectively, in connection with theacquisition of research and development assets that expanded our pipeline. Wecurrently focus our research and development efforts in the therapeutic areasof infectious disease, cancer and inflammatory disease. Any of our programs inthese disease areas could become more significant to us in the future, butthere can be no assurance that any program in development or investigation willgenerate viable marketable products. As such, we continually evaluate allproduct candidates and may, from time to time, discontinue the development ofany given program and focus our attention and resources elsewhere. We maychoose to address new opportunities for future growth in a number of waysincluding, but not limited to, internal discovery and development of newproducts, in-licensing of products and technologies, and/or acquisition of companieswith products and/or technologies. Any of these activities may requiresubstantial research and development efforts and expenditure of significantamounts of capital.

Thefollowing table summarizes our current product candidate programs and greaterdetail is provided on these programs on the following pages:
| Infectious Disease                               | ** ** | **Inflammatory  Disease**                | ** ** | **Cancer**                                                   |
|--------------------------------------------------|------------|------------------------------------------|------------|--------------------------------------------------------------|
| FluMist (expanded  age indication)               |       | Anti-IL-9 MAb                            |       | Human papillomavirus vaccine                                 |
| Numax MAb                                        |       | Anti-IFN-alpha MAb and                   |       | Siplizumab                                                   |
| Epstein-Barr virus  vaccine                      |       | Anti-IFNaR MAb                           |       | Anti-CD19 BiTE®                                         |
| *S.  pneumoniae*vaccine                          |       | Anti-IL-5R MAb                           |       | Anti-Hsp90 drug                                              |
| RSV/PIV-1, -2, and -3/hMPV  combination vaccines |       | Anti-CD19,  Anti-CD20 and Anti-CD22 MAbs |       | Anti-Hedgehog drug Anti-EphA2 BiTE®, Conjugate and |
| H5N1 vaccine                                     |       | Anti-HMGB-1 MAb                          | * *   | *Listeria***EphA2 vaccine                                    |
| Anti-hMPV MAb                                    |       | Anti-chitinase MAb                       |       | Anti-EphB4 and Ephrin B2 MAbs                                |
| 3rd generation RSV  MAb                     |       | Anti-ICOS MAb                            |       | Anti-EphA4 MAb                                               |
| Anti-RSV drug  Anti*-staphylococcal*HP MAb       |       |                                     |       | Anti-CD19,  Anti-CD20 and  Anti-CD22 MAbs                    |
| Anti-candida HP  MAb                             |       |                                     |       | Anti-ALK MAb  cMET Avimers                                   |

 

**Infectious Disease**

·       **FluMist**—The refrigerated formulation of FluMist, which we referred toduring development as CAIV-T (cold adapted intranasal influenzavaccine-trivalent), is our second generation influenza vaccine. In January 2007the FDA approved the refrigerated formulation for use in helping to preventinfluenza in healthy children and adults from 5 years to 49 years of age. In July 2006we 

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submitted an sBLA to theFDA seeking an expanded label for use in children between 12 months and 59months of age who do not have a history of wheezing or asthma. A response fromthe FDA for this sBLA is anticipated in the second quarter of 2007. The sBLAconsisted of data from more than 30,000 subjects in 15 clinical studies,including our pivotal Phase 3 trial involving approximately 8,500 childrenbetween 6 months and 59 months of age. In this Phase 3 trial, efficacy of thevaccine was established across all age groups of children evaluated.Specifically, children vaccinated with refrigerated FluMist had 55-percentfewer overall confirmed cases of influenza compared to the injectable vaccine.

·       **Numax MAb**—Numax is being developed as asecond-generation anti-RSV MAb that may have greater therapeutic benefits thanSynagis. In November 2006, we completed a pivotal Phase 3 study, whichincluded approximately 6,600 infants, and demonstrated that Numax reduced theincidence of hospitalizations caused by RSV in infants at high risk for seriousRSV disease by 26 percent when compared to Synagis. The data also showed thatNumax is superior to Synagis by reducing the incidence of RSV-specificmedically attended outpatient lower respiratory infections by approximately 50percent. In 2006, we completed enrollment in a Phase 2 mixed-dosing trial. Itis expected that if Numax is approved for marketing, there will be a timeperiod where both Numax and Synagis will be available in the healthcare systemand this study is designed to determine the safety of using both Synagis andNumax in a single season. In 2006, we also initiated enrollment for a thirdseason in a Phase 3 study in full-term Native American infants. Recentlyaccumulated epidemiological data indicate that the risks associated with RSVdisease for otherwise healthy, full-term Native American infants is similar tothose commonly associated with children considered to be at high-risk to thevirus.

·       **Epstein-Barr virus (“EBV”) vaccine**—We haverights to a vaccine against certain subunits of EBV, a herpes virus that is theleading cause of infectious mononucleosis. This vaccine is based upon the majorenvelope glycoprotein that mediates viral absorption and penetration, and is amajor target for the production of neutralizing antibodies stimulated bynatural EBV infection. The vaccine is being developed with GSK under aworldwide collaboration, excluding North Korea and South Korea. Phase 2 studiescontinued in 2006.

·       ***Streptococcus pneumoniae*vaccine**—In2000, we granted a worldwide exclusive license to a *Streptococcus pneumoniae*vaccine to GSK. *Streptococcus pneumoniae*is a major causeof pneumonia, middle-ear infections and meningitis worldwide, especially invery young children and in the elderly. During 2006, GSK continued the clinicaldevelopment efforts with this vaccine in Phase 1 studies, including a largeepidemiology study that was started in 2005.

·       **RSV/parainfluenza virus types 1, 2 and 3 (“PIV-1,”“PIV-2” and “PIV-3”)/human metapneumovirus (“hMPV”) combinationvaccines**—In 2006, we conducted additional preclinical research andprocess development to further evaluate the safety and efficacy of live,attenuated intranasal pediatric respiratory viral vaccine candidates. In June 2006,we completed dosing in a second Phase 1 study with a combination RSV/PIV-3candidate vaccine in healthy children between 1-9 years of age. In June 2006,we also broadened our efforts through a CRADA with the National Institute ofAllergy and Infectious Diseases (NIAID), part of the National Institutes ofHealth to develop live, attenuated intranasal vaccines designed to reduce therisk of disease caused by RSV; PIV types 1, 2 and 3; and human metapneumovirus.Phase 1 studies are ongoing. Currently, no approved vaccine exists for theprevention of these respiratory viruses (Synagis is a MAb prescribed to preventRSV disease among premature and other high-risk infants whose immune systems donot effectively respond to a vaccine targeting RSV). Because of the burden ofdisease associated with these viruses in otherwise healthy young infants, thedevelopment of a safe and effective vaccine is an important public healthpriority.

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·       **Anti-hMPV MAb**—hMPV is a respiratory viruswith a high incidence of infection in children under the age of five. Earlyepidemiological studies indicate that outbreaks of hMPV occur on a seasonalbasis, with clinical symptoms that are similar to RSV, ranging from mildrespiratory problems to severe cough, bronchiolitis, and pneumonia. The veryyoungest children infected with hMPV often require hospitalization andmechanical ventilation. During 2006, we continued enrolling patients in aclinical epidemiology study in high-risk infants and children. We intend to usethe data from this epidemiology study to determine our next steps in the hMPVmonoclonal antibody program.

·       **Third-generation RSV MAb**—As we extend ourplanning beyond Numax, we continued preclinical development of a third-generationRSV monoclonal antibody during 2006 that has, in preclinical testing, four timesthe half life of Numax. This technology appears to provide sustained levels ofthe drug in the body over a longer period of time, potentially reducing thenumber and frequency of doses needed by patients.

·       **Anti-RSV drug**—We entered into a licensingand collaboration agreement with Biota Holdings Limited in 2005 to develop andcommercialize Biota’s small molecule compounds designed to prevent and treatRSV infection. These compounds are orally available drug candidates, and ifsuccessfully developed, could expand the RSV market to other susceptiblepatient groups beyond those groups currently approved for Synagis, such asolder children, the elderly and individuals with compromised immune systems.Currently, non-clinical and preclinical studies are being conducted to identifya lead candidate.

·       **Anti-*staphylococcal* HP Maband Anti-candida HP MAb**—In 2006, we entered into a collaborationwith Elusys Therapeutics, Inc. to develop new therapies targetinginfectious disease by combining our expertise in monoclonal antibodies withElusys’ proprietary Heteropolymer (HP) technology. This HP technology is a dualantibody conjugate composed of a MAb to an antigen on red blood cells that iscross-linked to a MAb that recognizes a blood-borne organism. Organisms aretargeted by the specific MAb and cleared by the liver. We are working withElusys on several antibodies of interest that would be beneficial in preventinginfections in premature infants. These studies are in the preclinical phase ofdevelopment.

**Inflammatory Disease**

·       **Anti-interleukin-9 (“IL-9”) MAb**—IL-9is a naturally occurring cytokine implicated in the pathogenesis of asthma andmay contribute to chronic obstructive pulmonary disease and cystic fibrosis.Data from preclinical studies in models of asthma suggest that IL-9neutralizing monoclonal antibodies may help reduce airway hyper-reactivity,mucous production and inflammation. During 2006, we completed a Phase 1 studyin which our lead anti-IL-9 antibody was administered subcutaneously tohealthy adults. In November 2006, we initiated enrollment in a Phase 2astudy in patients with asthma, and anticipate initiating additional Phase 2astudies in patients with asthma in 2007. We are evaluating this molecule as apotential new treatment for symptomatic, moderate-to-severe persistent asthma.

·       **Anti-interferon alpha (“IFNa”) MAb and anti-type 1interferon receptor (“IFNaR”) MAb**—During 2004, we formed acollaboration with Medarex, Inc. to develop antibodies targetinginterferon-alpha and the type 1 interferon receptor. This collaboration wasinitially focused on two antibodies: MEDI-545, targeting IFNa, and MEDI-546,targeting the IFNaR. In 2006, we begun dosing patients in a Phase 1 clinicaltrial with MEDI-545 which will include patients with systemic lupuserythematosus (SLE or lupus).

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·       **Anti-interleukin-5 (IL-5) receptor MAb**—In2006, we announced a collaboration with BioWa, Inc. to develop andcommercialize new inflammatory disease therapies targeting the IL-5receptor. Initially, we will focus on developing BIW-8405, a MAbcurrently in Phase 1 clinical studies in patients with asthma.

·       **Anti-high mobility group box chromosomal protein 1 (“HMGB-1”)MAb**—HMGB-1 is a late-acting cytokine believed to be involvedin the tissue damage associated with a range of inflammatory diseases, such asrheumatoid arthritis, sepsis, lupus and acute lung injury. Preclinical studieshave suggested that blocking HMGB-1 may help protect against tissueinjury associated with many chronic and acute inflammatory diseases, and mayreduce sepsis-related deaths. In 2003, we entered into an agreement withCritical Therapeutics, Inc. to co-develop biological products targetingHMGB-1 to treat severe inflammatory diseases. During 2006, we continuedto evaluate HMGB-1’s role in various inflammatory diseases and are currentlyin preclinical testing of fully human anti-HMGB-1 antibodies.

·       **Anti-CD19, Anti-CD20 and Anti-CD22 MAbs**—During2005, we acquired Cellective Therapeutics, Inc., which provided us withthree preclinical stage programs developing MAbs that target the B-cellantigens CD19, CD20 and CD22. These antigens are believed to play importantroles in regulating the immune system. Preclinical studies indicate thatantibodies targeting these antigens may block B-cell activities that areassociated with many tumors and autoimmune diseases, including multiplemyeloma, B-cell lymphomas, rheumatoid arthritis, and systemic lupuserythematosus. These molecules are currently in preclinical development. Weexpect to choose an anti-CD19 clinical candidate in 2007.

·       **Anti-chitinase MAb**—During 2004, we acquiredthe rights from Yale University to a family of proteins known as chitinasesthat may be important therapeutic targets in a number of cancers, as well asinflammatory and other diseases. During 2006, we continued our preclinicaldevelopment efforts evaluating the role of chitinases in respiratory diseases.

·       **Anti-ICOS MAb**—In 2006, we announced a licensing agreement withJapan Tobacco to develop a MAb targeting the ICOS receptor within the CD28receptor family for treatment of certain inflammatory diseases. Our initialefforts will focus on developing the current lead antibody, which aims toinhibit the receptor that is believed to play a key role in controllingadaptive immune responses, called inducible-costimulator (ICOS), and therebyregulate T-cell dependent activation of B cells. Inappropriate activation of Tcells resulting in B-cell activation is implicated in a variety of autoimmunedisorders.

**Cancer**

·       **Human papillomavirus (“HPV”) vaccine**—Merckand GSK have developed HPV vaccines using our proprietary technology underlicense and sublicense agreements. In 2006, Merck received FDA approval of itsHPV vaccine, Gardasil, and was granted a license by the European Commission forapproval in the European Union. In March 2006, GSK submitted a marketingapplication review for its HPV vaccine, Cervarix, to the EMEA, followed byregulatory filings in Australia, parts of Asia and parts of Latin America. GSKplans to file a BLA in the U.S. for Cervarix in the second quarter of 2007.Data published in The Lancet in 2006 provided evidence that Cervarixdemonstrated protection up to 4.5 years against persistent infection with HPV16 and HPV 18—the two most common cancer-causing HPV types—and protection frompre-cancerous lesions. More than 16,000 women worldwide have been vaccinatedwith Cervarix as part of completed and ongoing clinical trials. Phase 3 studiesare under way in more than 25 countries with more than 35,000 subjects enrolledin ongoing trials.

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·       **Siplizumab MAb**—Siplizumab is a humanizedMAb that targets CD2, a molecule expressed on certain white blood cells, andappears to have the effect of depleting T-cells and natural killer cells. Theseproperties suggest that siplizumab could provide a treatment for patients withT-cell lymphoproliferative disorders. Animal studies of T-cell leukemia haveindicated that siplizumab can help increase survival. In May 2005, wepresented preliminary data from a Phase 1 trial run by the National CancerInstitute with siplizumab indicating the antibody was well tolerated inpatients with certain T-cell lymphomas and leukemias. Partial diseaseremissions for some study participants were among the data presented. As aresult of the initial observations from this Phase 1 trial, during 2005 weexpedited enrollment of patients in an additional Phase 1/2 study using similardose escalation criteria. During 2006, clinical development of siplizumabcontinued in two Phase 1 dose escalation trials to assess maximum tolerateddose and safety of siplizumab in patients with CD2-positive T- andNK-cell malignancies.

·       **Anti-CD19 BiTE**—MT-103 (also known asMEDI-538) is a bi-specific T-cell engager (BiTE) molecule that binds toB-cell lymphomas expressing the CD19 surface molecule. With its second bindingarm, MT-103 recruits and activates T-cells to kill the cancerous B-cells.In 2006, we filed an investigational new drug application (IND) with the FDAfor MT103 for the treatment of patients with B-cell-derived non-Hodgkinslymphoma (NHL) not eligible for curative therapy. In 2006, we also continuedenrolling patients in a European Phase 1 dose escalation trial sponsored by ourpartner Micromet AG. We are also evaluating the broader application of Micromet’sBiTE technology to other targets of interest, such as EphA2 andcarcinoembryonic antigen (CEA).

·       **Anti-Heat Shock Protein 90 (“Hsp90’’) andAnti-Hedgehog drugs**—In 2006, we announced a collaboration withInfinity Pharmaceuticals, Inc. to jointly develop and commercialize novelsmall molecule cancer drugs targeting Heat Shock Protein 90 and the Hedgehogcell-signaling pathway. During 2006, development of IPI-504, a smallmolecule Hsp90 inhibitor, continued in a Phase 1 study in patients withrefractory gastrointestinal stromal tumors (GIST). Preliminary results fromthis trial showing evidence of biological activity of IPI-504 werepresented at the AACR-NCI-EORTC International Conference on Molecular Targetsand Cancer Therapeutics in November 2006. Also during 2006, development ofIPI-504 continued in a Phase 1 trial in patients with relapsed,refractory multiple myeloma. In addition, development of an oral formulation ofIPI-504 and studies to enable an IND for a Hedgehog antagonist continuedin 2006. In early 2007, dose administration began on a second schedule in theIPI-504 Phase 1 trial in GIST and dosing was initiated in a Phase 1/2trial of IPI-504 in patients with advanced non-small cell lung cancer.

·       **Anti-EphA2 MAbs and vaccines**—EphA2 isexpressed at very low levels on normal epithelial cells, but many cancersover-express EphA2, including metastatic melanoma, breast, prostate, colon,lung, ovarian and esophageal carcinomas. Further, when over-expressed, EphA2appears to promote metastases. Based on preclinical studies to date, we believethat targeting EphA2 in animal models may selectively inhibit the growth andsurvival of malignant cells, without altering the function or survival ofnormal cells. In 2004, we acquired the worldwide rights to the *Listeria*vaccine technologies from CerusCorporation to target EphA2-expressing tumors. In 2006, we continued ourpreclinical testing in these areas, applying monoclonal antibody and vaccineresearch against EphA2.

·       **Anti-EphA4 MAb**—We have identified EphA4 asa potential new target on certain cancer cells. Preclinical studies indicatethat high levels of EphA4 are found on many different cancers, including breastand pancreatic carcinomas, and that targeted intervention against EphA4 maydecrease the proliferation and metastatic behavior of these malignant cells. In2006, we continued our preclinical testing of EphA4 antibodies to choose aclinical candidate.

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·       **Anti-EphB4 and EphrinB2 MAbs**—In 2005, weentered into a collaborative agreement with VasGene Therapeutics to developcancer-focused MAbs targeting a novel member of a subfamily of receptortyrosine kinases, EphB4, as well as its ligand, EphrinB2. EphB4 is found athigh levels on tumor cells and in tumor-associated blood vessels. The bindingof EphB4 to EphrinB2 has been linked with the metastatic and angiogenicpotential of many cancers. As such, antibodies targeting EphB4 or EphrinB2 mayselectively inhibit the growth and survival of tumor cells and tumor-associatedblood vessels. In 2006, we continued our preclinical development of Anti-EphB4and EphrinB2 MAbs, and expect to choose a clinical candidate among humanizedversions of these molecules in 2007.

·       **Anti-ALK MAb**—In 2005, we entered into alicensing and collaboration agreement with Georgetown University for thedevelopment of MAbs targeting anaplastic lymphoma kinase (ALK), a member of theinsulin receptor family of tyrosine kinases. ALK is found at high levels incancer cells, where it is believed to play an important role in tumor cellgrowth and survival. Over-expression of ALK and its ligand, pleiotrophin (PTN),has been confirmed in numerous cancer types, including prostate, breast, colon,lung , pancreatic and ovarian cancers. Further, research has shown that highlevels of PTN are associated with lower survival rates, and results from *in vivo*studies suggest that anti-ALKantibodies may potentially reduce tumor growth and increase survival. In 2006,we continued our preclinical development of anti-ALK MAbs.

·       **cMET Avimers**—In 2005, we entered into a licensing andcollaboration agreement with Avidia, Inc. to develop anti-cancer productstargeting cMET, a receptor tyrosine kinase found in high levels in certaincancer cells. The collaboration also promotes the development of additionaltargets using Avidia’s avimer technology. Avimers are small, stable proteinsthat can act like antibodies and bind selectively to different receptors orligands. They may have advantages over MAbs or small molecules as therapeuticproducts in terms of biological activity, tissue distribution, reducedimmunogenicity and ease of manufacture. In 2006, we continued our preclinicaldevelopment of cMET avimers.

***Collaborations,Alliances and Investments***

To build, advance and promote our product portfolio,we often seek to augment our own internal programs and capabilities withcollaborative projects with a number of outside partners. For our marketedproducts, we have established certain license agreements, co-promotionarrangements, manufacturing, supply and co-development alliances with pharmaceuticaland other biotechnology companies, academic institutions and governmentlaboratories to which we currently pay royalties. For more information on thesecollaborations, please see Note 18, “Significant Agreements and Collaborations”to our Consolidated Financial Statements. Similarly, for product candidates nowin development, we have secured licenses to certain intellectual property andentered into strategic alliances with third parties for various aspects ofresearch, development, manufacturing and commercialization, pursuant to whichwe will owe or receive future royalties if the product candidates are licensedand commercialized.

We also believe thatinvesting in early stage biotechnology companies allows us to benefit fromother innovations in the industry. Accordingly, we established MedImmuneVentures, Inc. in 2002 as a wholly-owned venture capital subsidiary thatmakes minority interest investments in biotechnology companies we believe havepromising technology. Occasionally, we will make these investments inconnection with strategic alliances as we have done with Critical Therapeutics, Inc.and Micromet AG. As of December 31, 2006, MedImmune Ventures had committedapproximately $152 million of the $300 million that was allocated to it byMedImmune’s Board of Directors.

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***Sales and Marketing***

We have developed a sales and marketing organizationthat focuses on targeting healthcare providers, managed healthcareorganizations, specialty distribution companies, government purchasers andpayers. Approximately 92 sales and managed care representatives coverapproximately 1,600 hospitals, managed care organizations, and clinics in theU.S., which specialize in pediatric/neonatal care for the promotion of Synagisand FluMist. Approximately 270 sales representatives cover approximately 21,000pediatric practices in the U.S. for the promotion of Synagis and FluMist. Inaddition, approximately 65 oncology/sales specialists are devoted to the salesand marketing of Ethyol to oncologists practicing in cancer treatment centers,large hospitals and private medical practices. In total, we now employapproximately 560 sales and marketing personnel in the United States.

From the launch of Synagis in 1998 through the middleof 2006, we had a co-promotion agreement with Abbott for the product’spromotion in the United States. Starting July 1, 2006, we took full responsibilityfor promoting Synagis in the U.S. We expanded the pediatric sales organizationby approximately 125 sales professionals in advance of the 2006/2007 RSV seasonto replace Abbott’s co-promotion efforts.

In the U.S., we rely primarily upon specialtydistributors and wholesalers to deliver Synagis to physicians, hospitals andpharmacies. In 2003, we launched the Synagis Distribution Network (“SDN”),which significantly reduced the number of distributors and wholesalers involvedin the distribution of Synagis with the intention of providing high-quality andconsistent services for patients. We reevaluate the distribution networkmembership every season and make changes as needed in an attempt to ensure thatpatients receive the highest levels of service and customer support. 

As discussed in Note 6, “Segment,Geographic and Product Information,” of our Consolidated Financial Statements,we have four major customers that each accounted for 12% or more of our totalrevenue during 2006. Note 6 also contains information concerning the geographicareas in which we operate.

***Manufacturing andSupply***

We operate commercial manufacturing facilities anddistribution facilities in the U.S. and Europe. In addition, we have enteredinto manufacturing, supply and purchase agreements with other companies toprovide certain portions of the production capacity for all of our marketedproducts and to produce clinical supplies for our development-stage products.Certain materials necessary for our commercial manufacturing of our productsare proprietary products of other companies, and in some cases, theseproprietary products are specifically cited in our drug or biologics applicationwith the FDA such that they must be obtained from that specific, sole source.In addition, certain materials necessary for our commercial manufacturing ofour products are only available through one approved single source suppliereven though the materials are available from more than one supplier. Wecurrently attempt to manage the risk associated with such single-sourcedmaterials by active inventory management and, where feasible, alternate sourcedevelopment. We monitor the financial condition of our suppliers, their abilityto supply our needs and the market conditions for these raw materials. Also,certain materials required in the commercial manufacturing of our products arederived from biological sources. We maintain screening procedures with respectto certain biological sources, where appropriate, and we are investigatingalternatives to them.

**Synagis****—The**primarymanufacturing facility for Synagis bulk drug substance is our Frederick,Maryland manufacturing center (“FMC”). The FMC is a biologics facility withcell culture production and associated downstream processing equipment forrecombinant products. Filling of Synagis bulk produced at FMC is performed bySicor Pharmaceuticals, Inc., an affiliate of Teva Pharmaceuticals USA, Inc.and packaging is performed by Cardinal Health PTS, LLC.

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Bulk Synagis is also manufactured by BoehringerIngelheim Pharma GmbH & Co. KG (“BI”) under a manufacturing and supplyagreement. BI also fills and packages Synagis produced at its German facility.As the sole supplier of Synagis for all territories outside the U.S. andsupplemental supplier for the U.S. market, BI is responsible for obtaining andmaintaining licensure and approval for making the product at its facility fromall appropriate regulatory authorities including the FDA. We plan to continueto rely upon BI for production of additional quantities of Synagis to meetexpected worldwide demand for the product.

**Ethyol****—All******bulk drug substance for Ethyol is produced by a contractmanufacturer. In 2006, formulation, filling and finishing of all product wascompleted at our manufacturing facility in Nijmegen, the Netherlands. To backupour own formulation, filling and finishing capabilities, we have an agreementwith Ben Venue Laboratories, Inc., an affiliate of BI, to formulate, filland finish Ethyol for sale in the United States.

**FluMist****—FluMist**is producedat several facilities either owned or leased by MedImmune. The master virusseeds are prepared at our Mountain View, California, facility. We manufacturebulk monovalents and diluent of FluMist at our Speke, United Kingdom, bulkmanufacturing facility. Blending of FluMist into its trivalent formulation andfilling of the final vaccine into the Accuspray applicators, the non-invasivenasal spray delivery system developed and supplied by Becton, Dickinson andCompany, takes place at our leased Philadelphia, Pennsylvania, facilities.

In addition to thesemanufacturing facilities, we own a distribution facility in Louisville,Kentucky, from which Synagis, Ethyol and FluMist are distributed.

***Patents, Licensesand Proprietary Rights***

The products and product candidates currently beingdeveloped or considered for development by MedImmune are in the area ofbiotechnology, an area in which there are extensive patent filings. We rely onpatent protection against use of our proprietary products and technologies by competitors.The patent positions of biotechnology firms generally are highly uncertain andinvolve complex legal and factual questions. To date, no consistent policy hasemerged regarding the breadth of claims allowed in biotechnology patents. Wecurrently own or in-license patents related to our products or productcandidates and own or in-license additional applications for patents that arecurrently pending. A list of the U.S. patents we own or exclusively in-licenserelating to the products we market as of February 2007 is filed as Exhibit 99.1hereto and is incorporated by reference into this report. In general, when wein-license intellectual property from various third parties, we are required topay royalties to the parties on product sales.

Our marketed products, Synagis, Ethyol and FluMist,are covered by trademark registrations and pending applications forregistration. Trademark protection continues in some countries for as long asthe mark is used and, in other countries, for as long as it is registered.Registrations generally are for fixed, but renewable, terms.

The protection of ourunpatented confidential and proprietary information and materials is importantto us. To protect our trade secrets, materials and other confidential information,we generally require our employees, consultants, scientific advisors, andparties to collaboration and licensing agreements to execute confidentialityagreements upon the commencement of employment, the consulting relationship, orthe collaboration or licensing arrangement with us. However, others couldeither develop independently the same or similar information or obtain accessto our information.

***GovernmentRegulation***

The research, development, manufacture and sale of ourproducts are subject to numerous complex laws and statutes as well asregulations promulgated by the applicable governmental authorities, principally

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the FDA in the U.S. andsimilar authorities in other countries. While there is considerable time andexpense associated with complying with these requirements, knowledge of andexperience with these matters also yields benefits to MedImmune. For example,the more knowledgeable we are about these matters, the more we are able todesign our research, development and manufacturing strategies in a manner thatis calculated to obtain regulatory approval to market our products in theapplicable countries. Moreover, the complexity of these matters can have theeffect of delaying or limiting the number of competing products that can successfullybe brought to market. In addition, certain regulatory approval pathways, forexample, orphan drug designation in the U.S. for marketing products applicableto rare diseases or small populations, can also have the effect of limiting thenumber of competing products available in the market.

Additionally, we are agovernment contractor subject to Federal Acquisition Regulations. We are alsosubject to various federal and state laws pertaining to health care “fraud andabuse,” including anti-kickback laws and false claims laws. In addition, we aresubject to various laws and regulations relating to safe working conditions,the experimental use of animals and the use and disposal of hazardous orpotentially hazardous substances, including radioactive compounds andinfectious disease agents, used in connection with our research.

***Competition***

The biotechnology and pharmaceutical industries arecharacterized by rapidly evolving technology and intense competition. Ourcompetitors include pharmaceutical, chemical and biotechnology companies, manyof which have financial, technical and marketing resources significantlygreater than ours. In addition, many specialized biotechnology companies haveformed collaborations with large, established companies to support research,development and commercialization of products that may be competitive with ours.Academic institutions, governmental agencies and other public and privateresearch organizations are also conducting research activities and seekingpatent protection and may commercialize products on their own or through collaborationarrangements.

We expect our products to compete primarily on thebasis of product efficacy, safety, patient convenience, reliability and patentposition. In addition, the first product to reach the market in a therapeuticor preventive area is often at a significant competitive advantage relative tolater entrants to the market. Our competitive position will also depend on ourability to attract and retain qualified scientific and other personnel, developeffective proprietary products, implement product and marketing plans, obtainpatent protection and secure adequate capital resources.

We believe that Synagis is the only product currentlyavailable for the prevention of RSV disease. However, we are aware of oneproduct, ribavirin, which is indicated for the treatment of RSV disease in theUnited States. The existence of this product, or other products or treatmentsof which we are not aware, or products or treatments that may be developed inthe future, may adversely affect the marketability of Synagis.

In relation to influenza vaccines, we are aware of  five licensed products currently on the marketin the U.S.: Fluzone (Sanofi-Pasteur), Fluvirin (Novartis), Fluarix andFluLaval (GSK), and FluMist (MedImmune). There are several companies, includingthose listed, that are working on innovative products that may provide enhancedefficacy and/or delivery of influenza vaccine. If these efforts are successful,it will create additional competition in the influenza vaccine market that mayadversely affect the marketability of FluMist.

Many companies, including well-known pharmaceuticalcompanies, are marketing anti-cancer drugs and drugs to ameliorate or treat theside effects of cancer therapies. These companies, and many others, are seekingto develop new drugs and technologies for various cancer applications. Many ofthese drugs, products and technologies are, or in the future may be,competitive with our oncology products. To our 

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knowledge, companiesmaintaining a significant active oncology marketing and sales presence includeAmgen, Inc., AstraZeneca Pharmaceuticals, LP, Bristol-Myers SquibbCompany, Eli Lilly and Company, Genentech, Inc., GSK, Hoffmann-La Roche, Inc.,Johnson & Johnson, Novartis AG, Pfizer, Inc., and Schering. Thesecompanies have greater financial, technical, manufacturing, marketing and otherresources than us and may be better equipped than us to develop, market andmanufacture oncology therapies.

In June 2004, wereceived a notification from Sun Pharmaceutical Industries, Ltd. that it hadsubmitted an abbreviated new drug application to the FDA seeking approval for ageneric version of Ethyol (amifostine). We evaluated the options available tous and, in August 2004, we filed a patent infringement case against SunPharmaceutical in the U.S. District Court for the District of Maryland. In October 2006,Sun received tentative approval from the FDA for their generic amifostineproduct. For additional information see Note 20, “Legal Proceedings,” of ourConsolidated Financial Statements.

***Executive Officers of the Company***

Thefollowing table shows our executive officers, their respective ages and positionas of December 31, 2006:
| Name                                 | ** ** | ** ** | ** ** | **Age**                                             | ** ** | ** ** | **Position** | ** ** | ** ** | **Joined  Medlmmune** |
|--------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|------------|--------------|------------|------------|-----------------------|
| Wayne T. Hockmeyer,  Ph.D.           |       | 62         |       | Chairman of the Board  and Founder;                 |       | 1988       |
|                                 |       |       |       | President, MedImmune  Ventures, Inc.      |       |       |
| David M. Mott                        |       | 41         |       | Chief Executive  Officer, President and             |       | 1992       |
|                                 |       |       |       | Vice Chairman of  the Board                    |       |       |
| James F. Young, Ph.D.                |       | 54         |       | President,  Research and Development                |       | 1989       |
| Edward M. Connor, M.D.               |       | 54         |       | Executive Vice  President and                       |       | 1994       |
|                                 |       |       |       | Chief Medical Officer                     |       |       |
| Edward T. Mathers                    |       | 46         |       | Executive Vice  President, Corporate                |       | 2002       |
|                                 |       |       |       | Development &  Venture                     |       |       |
| Bernardus N. Machielse,  Drs.        |       | 46         |       | Executive Vice  President, Operations               |       | 1999       |
| William C.  Bertrand, Jr., J.D. |       | 42         |       | Senior Vice  President, General Counsel,            |       | 2001       |
|                                 |       |       |       | Secretary and  Corporate Compliance Officer    |       |       |
| Peter Greenleaf                      |       | 36         |       | Senior Vice  President, Marketing and Sales         |       | 2006       |
| Pamela J. Lupien                     |       | 47         |       | Senior Vice  President, Human Resources             |       | 2002       |
| Sidney Mazel, Ph.D.                  |       | 48         |       | Senior Vice  President, Product Planning & |       | 2006       |
|                                 |       |       |       | Portfolio Management                                |       |       |
| Lota S. Zoth, C.P.A.                 |       | 47         |       | Senior Vice President  and Chief Financial Officer  |       | 2002       |

 

**WayneT. Hockmeyer, Ph.D.****—Dr.**Hockmeyer founded MedImmune, Inc.in April 1988 as President and Chief Executive Officer and was elected toserve on the Board of Directors in May 1988. Dr. Hockmeyer becameChairman of the Board of Directors in May 1993. He relinquished hisposition as Chief Executive Officer in October 2000 and now serves as theChairman of the Board of Directors and President of MedImmune Ventures, Inc.Dr. Hockmeyer earned his bachelor’s degree from Purdue University and hisPh.D. from the University of Florida in 1972. Dr. Hockmeyer was recognizedin 1998 by the University of Florida as a Distinguished Alumnus and in 2002, hewas awarded a Doctor of Science 

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*honoriscausa*from Purdue University. Dr. Hockmeyer is a memberof the Maryland Economic Development Commission and the Maryland Governor’sWorkforce Investment Board (GWIB). He is a member of the board of directors ofthe publicly traded biotechnology companies, Advancis Pharmaceutical Corp.,GenVec, Inc. and Idenix Pharmaceuticals, Inc. and serves on theboards of several educational and philanthropic organizations and the boards ofdirectors of certain private companies consistent with his responsibilities asPresident of MedImmune Ventures, Inc.

**DavidM. Mott****—Mr.**Mott was appointed ChiefExecutive Officer in October 2000 and was also appointed President in February 2004.He joined MedImmune in April 1992 as Vice President with responsibilityfor business development, strategic planning and investor relations. In 1994, Mr. Mottassumed additional responsibility for the medical and regulatory groups, and inMarch 1995 was appointed Executive Vice President and Chief FinancialOfficer. In November 1995, Mr. Mott was appointed to the position ofPresident and Chief Operating Officer and was elected to the Board ofDirectors. In October 1998, Mr. Mott was appointed Vice Chairman. Mr. Mottis a member of the board of the Biotechnology Industry Organization (BIO),MdBIO, Inc. and the Tech Council of Maryland. He also serves on the Boardof Governors of Beauvoir, the National Cathedral Elementary School. Mr. Mottholds a bachelor of arts degree from Dartmouth College.

**JamesF. Young, Ph.D.****—Dr.**Young has over 30 years ofexperience in the fields of molecular genetics, microbiology, immunology andpharmaceutical development. In December 2000, Dr. Young was promotedto the position of President, Research and Development. He joined MedImmune in1989 as Vice President, Research and Development. In 1995, he was promoted toSenior Vice President and in 1999 he was promoted to Executive Vice President,Research and Development. Dr. Young received his doctorate in microbiologyand immunology from Baylor College of Medicine in Houston, Texas and a bachelorof science degrees in biology and general science from Villanova University inVillanova, Pennsylvania. Dr. Young is a member of the Board of Directorsof Xencor, Inc.

**EdwardM. Connor, M.D.****—Dr.**Connor was promoted toExecutive Vice President and Chief Medical Officer in September 2004. Hejoined MedImmune as Director of Clinical Studies in 1994 and was promoted toVice President, Clinical Development in 1995. In his current post, he isresponsible for directing all medical activities for MedImmune, which includeClinical Research and Operations, Medical and Scientific Affairs and ProductSafety. Dr. Connor holds a bachelor’s degree in biology from VillanovaUniversity and a medical degree from University of Pennsylvania School ofMedicine. He did postgraduate training in pediatrics at Children’s MemorialHospital/Northwestern University in Chicago, where he also served as ChiefResident and did a fellowship in Pediatric Infectious Diseases at theUniversity of Rochester.

**EdwardT. Mathers****—Mr.**Mathers was named ExecutiveVice President, Corporate Development and Venture, in August 2006.Mr. Mathers is responsible for the Company’s licensing, businessdevelopment and merger and acquisition activities, including evaluatinginvestment opportunities for MedImmune Ventures. He joined MedImmune as VicePresident, Corporate Development, in 2002 and was named Senior Vice President,Corporate Development, in February 2005. Prior to joining MedImmune, Mr. Matherswas Vice President of Marketing and Corporate Licensing and Acquisitions atInhale Therapeutic Systems. Previously, he enjoyed a successful 15-yearcareer at Glaxo Wellcome, Inc. (now GlaxoSmithKline), holding a number ofpositions of increasing responsibility in sales and marketing. Mr. Mathersstarted his career at Ortho Pharmaceuticals Corporation (a division of Johnson &Johnson) as a researcher. He holds a bachelor’s degree in chemistry from NorthCarolina State University.

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**BernardusN. Machielse, Drs.****—Drs.**Machielse was appointedExecutive Vice President, Operations in November 2006. Drs. Machielsehas responsibility for manufacturing, quality, supply chain and engineeringfacilities. He joined MedImmune in May 1999 as Vice President, Quality. InSeptember 2003, Drs. Machielse was named Senior Vice President,Quality. In January 2005, he was appointed Senior Vice President,Operations. Prior to joining MedImmune, Drs. Machielse was vice presidentof quality control and quality assurance for Xoma Corporation of Berkeley,California. He also spent several years in various manufacturing and qualitypositions at Centocor BV of the Netherlands. Drs. Machielse holds abachelor of science degree in medical biology and a master of science degree inbiochemistry from the University of Utrecht, The Netherlands.

**WilliamC. Bertrand, Jr., J.D.****—Mr.**Bertrand waspromoted to Senior Vice President in November 2005, and serves as ourGeneral Counsel, Secretary and Corporate Compliance Officer, and also hasresponsibility for our Government Affairs and public policy teams. He wasappointed our first General Counsel in September 2003. He joined MedImmunein 2001 as Vice President, Legal Affairs, and was appointed CorporateCompliance Officer shortly thereafter. Prior to joining MedImmune, Mr. Bertrandserved in various legal positions at Pharmacia Corporation from 1997-2001,including Litigation Counsel, Senior Corporate Counsel and Associate GeneralCounsel. He had also been Associate General Counsel for a life insurancecompany; a partner at Dickinson, Wright, Moon, Van Dusen & Freeman ofLansing, MI; and taught courses at various institutions, including Seton HallUniversity School of Law. Mr. Bertrand holds a bachelor of science degreein biology from Wayne State University and a juris doctorate (cum laude) fromUniversity of Wisconsin—Madison.

**PeterGreenleaf****—Mr.**Greenleaf was appointedMedImmune’s Senior Vice President, Marketing and Sales, in May 2006. Inthis role, he is responsible for leading MedImmune’s global commercialorganization and developing strategies to ensure the successfulcommercialization of the company’s current and future product portfolio. Mr. Greenleafjoins MedImmune from Centocor, Inc., where he served as Vice President ofthe Gastroenterology Franchise, responsible for sales, marketing, strategicplanning and business development. Previously, he was employed in sales andmarketing capacities with Boehringer Mannheim Corporation and US Healthcare, Inc.Mr. Greenleaf holds a bachelor of science degree from Western ConnecticutState University, and a master’s degree in business administration from St.Joseph’s University.

**PamelaJ. Lupien****—Ms.**Lupien was promoted to SeniorVice President of Human Resources in November 2005. She joined MedImmuneas Vice President of Human Resources in April 2002. Prior to joiningMedImmune, Ms. Lupien was Senior Vice President of Human Resources atOrbital Sciences Corporation from 2000 until 2002. Previously she held avariety of positions of increasing responsibility at James Martin &Company, Betzdearborn, Inc., Freuhauf Trailer Corporation and IBMCorporation. Ms. Lupien has a bachelor’s degree in social sciences fromthe University of South Florida and a master’s degree in business administrationfrom Jacksonville University.

**SidneyMazel, Ph.D.****—Dr.**Mazel joined MedImmune asSenior Vice President, Product Planning and Portfolio Management, in June 2006.In this position, Dr. Mazel is responsible for leading the life-cyclemanagement of the company’s expanding portfolio of products and productcandidates, specifically focusing on new product planning, project management,market research and competitive intelligence. Prior to joining MedImmune, Dr. Mazelheld a number of senior leadership positions at Merck & Co.Previously, Dr. Mazel was a principal with Pittiglio, Rabin, Todd andMcGrath, a consulting firm that provides services to improve strategicplanning, technology management, product development and marketing operationsfor leading pharmaceutical and biotechnology companies. Prior to his consultingwork, Dr. Mazel held positions of increasing responsibility at WyethPharmaceuticals. Dr. Mazel received both his bachelor’s and master’sdegrees from George Washington University, and his Ph.D. from the University ofMaryland.

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**Lota S. Zoth, C.P.A.****—Ms.**Zoth wasappointed MedImmune’s Senior Vice President and Chief Financial Officer in April 2004,having joined MedImmune in August 2002 as Vice President and Controller.As Chief Financial Officer, Ms. Zoth has responsibility for all financialactivities, information technology and public affairs. Prior to joiningMedImmune, Ms. Zoth was Senior Vice President and Corporate Controller forPSINet, Inc. During her tenure at PSINet, Ms. Zoth led many of theefforts associated with compliance with the bankruptcy court and participatedin the due diligence efforts as parts of the company were disposed. Between1998 and 2000, Ms. Zoth was Vice President, Corporate Controller and ChiefAccounting Officer of Sodexho Marriott Services, Inc. Prior to SodexhoMarriott, Ms. Zoth was Vice President, Financial Analysis, for MarriottInternational, Inc.’s food and management services division. Ms. Zothis a CPA, and holds a bachelor of business administration - summa cum laude inaccounting from Texas Tech University.

***Employees***

We consider relations with our employees to be good.As of December 31, 2006, we had 2,359 full-time regular employees and 179full-time temporary employees.

Approximately 55 of ouremployees in the U.K. are members of a labor union, with which we are scheduledto renegotiate employment terms at the end of 2007. While there can be noguarantee that future negotiations will lead to an outcome that is favorable toMedImmune, there is a positive industrial relations environment on the site,and we have every reason to believe that this will continue. However the factremains that if negotiations were to break down between MedImmune and theunion, there can be no guarantee that we would be able to manufacture anadequate supply of influenza vaccines.

***InvestorInformation***

MedImmune files annual, quarterly and current reports,proxy statements and other information with the Securities and ExchangeCommission (“SEC”). You can inspect, read and copy these reports, proxystatements and other information at the SEC’s Public Reference Room at 100F Street, NE, Washington, D.C. 20549.

You can also obtain copies of these materials atprescribed rates by writing to the Public Reference Section of the SEC at100 F Street, NE, Washington, D.C. 20549. You can obtain information on theoperation of the public reference facilities by calling the SEC at 1-800-SEC-0330.The SEC also maintains a web site *(www.sec.gov)*that makes available reports, proxy statements and other informationregarding issuers that file electronically with it.

MedImmune makes availablefree of charge on or through its internet website its annual reports on Form 10-K,quarterly reports on Form 10-Q, current reports on Form 8-Kand all amendments to those reports as soon as reasonable practicable aftersuch material is electronically filed with or furnished to the SEC. MedImmune’sinternet address is *www.medimmune.com.*The information on MedImmune’s website is not incorporated by reference intothis report.

**ITEM 1A.**        *RISK FACTORS*

Our business faces manyrisks. The risks described below may not be the only risks we face. Additionalrisks we do not yet know of or we currently believe are immaterial may alsoimpair our business operations. If any of the events or circumstances describedin the following risks actually occur, our business, financial condition orresults of operations could suffer, and the trading price of our common stockcould decline. You should consider the following risks, together with all ofthe other information in this Annual Report on Form 10-K, beforemaking an investment decision with respect to our securities.

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**Our revenues arelargely dependent on sales of Synagis.**

Sales of Synagis accounted for approximately 87% ofour total product sales in 2006 and our revenues will continue to be largelydependent on sales of Synagis for the foreseeable future. Any perceived oractual event or series of events that have a negative effect on sales ofSynagis will have a detrimental effect on our financial condition and resultsof operations. Events which would affect sales of Synagis include, but are notlimited to, any product liability claims (whether supported or not), anymanufacturing or supply delays, any sudden loss of inventory, any inability tosatisfy product demand, any unsuccessful sales, marketing or distributionstrategies, any changes in the authorization, policies, or reimbursement ratesfor Synagis by private or public insurance carriers or programs, or any changein the recommendations or guidelines regarding the usage, dosage oradministration of Synagis issued to the health care and patient communities bycertain organizations, such as the American Academy of Pediatrics.

In addition, Synagis is a biological product regulatedand approved for marketing in the U.S. by the FDA and any adverse change in themarketing approval or label for Synagis required by the FDA will have adetrimental affect on our business.

Outside of the U.S.,Abbott International, or AI, is responsible for the distribution andcommercialization of Synagis as well as obtaining and maintaining regulatoryapproval for commercialization. Accordingly, sales of Synagis outside of theU.S. are not within our direct control and any negative effect on AI’s sales ofSynagis could affect our revenues related to those sales. In addition, actionsof AI related to the regulatory approval or commercialization of Synagisoutside of the U.S. could negatively affect our sales of Synagis in the U.S.

**The seasonal nature of a significant portion of ourbusiness causes significant fluctuations in our quarterly operating results.**

Sales of two of ourproducts, Synagis and FluMist, are seasonal in nature. Synagis sales occurprimarily in the first and fourth quarters of the calendar year and FluMistsales occur primarily in the second half of the calendar year. This highconcentration of product sales in a portion of the year causesquarter-to-quarter operating results to vary widely and can exaggerate the consequencesto our revenues of any manufacturing or supply delays, any sudden loss ofinventory, any inability to satisfy product demand, the inability to estimatethe effect of returns and rebates, normal or unusual fluctuations in customerbuying patterns, or of any unsuccessful sales or marketing strategies duringthe applicable sales season. Furthermore, our current product base limits ourability to offset in the second and third quarters any lower-than-expectedsales of Synagis during the first and fourth quarters or FluMist during thesecond half of the year.

**The successful commercialization of the refrigeratedformulation of FluMist is critical to the future of our influenza vaccinebusiness.**

FluMist, in its frozenformulation, was not commercially successful. We do not expect our influenzavaccine business to contribute meaningfully to our revenues, income or earningsuntil our refrigerated formulation of FluMist, that was recently approved inthe U.S., is successfully commercialized. We are also seeking approval from theFDA to use the refrigerated formulation of FluMist for broader age groups andindications. The timing and outcome of obtaining such approval is uncertain andthere can be no assurance that the FDA will grant such approval without theneed for additional costly and time-intensive measures; without restrictions asto its marketability; on a timely basis consistent with our expectations; or atall.

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**The commercial success of our influenza vaccinebusiness is uncertain and we may not be able to recover the value of ourinvestment.**

The market for influenza vaccines is competitive andcomplex. The commercial success of our products will be limited if we cannotsuccessfully manufacture, distribute and sell these products in jurisdictionsin which the products are approved. The marketplace may view our influenzavaccines as competing against the injectable vaccine. FluMist likely has ahigher cost of manufacturing at its historic and current volumes relative tothe higher volumes of injectable vaccines. There can be no assurance thatdemand for our vaccines will support a volume and price that will achieve aprofit in accordance with our expectations, or that our revenues for these productswill exceed our cost of goods.

The manufacturing process for FluMist is complex andproduct supply will be adversely affected if we are unable to perform theannual update of the formulations for new influenza strains, if we encountercontamination or other problems or difficulties in the process, if we areunable to obtain eggs or other materials necessary for their manufacture, ifthe regulatory authorities do not approve the products for release, if there isa sudden loss of inventory or for other reasons.

Our distribution experience relates primarily to salesto wholesalers and specialty pharmaceutical distributors. We have limitedexperience in distributing and selling products like influenza vaccines thatare generally sold in greater volume and smaller order quantities, so there canbe no assurance that our distribution and sales systems have been optimallydesigned to yield the greatest return.

We have made significantinvestments in the development and commercialization of live, attenuated intranasalinfluenza vaccines. In addition to our internal research, development andcommercialization activities, these investments also include the research anddevelopment conducted by Aviron before our acquisition of that company; thecost of our acquisition of Aviron; the cost of the activities conducted byWyeth, our former collaboration partner for development, promotion anddistribution of these vaccines; the cost of dissolving the collaboration andreacquiring Wyeth’s rights to this franchise; and losses incurred inmanufacturing and selling FluMist after the launch of the frozen formulation ofthe product. Our results of operations would be negatively affected byimpairment charges for the write-down of manufacturing and intangible assetsrelated to FluMist. For various reasons, primarily those set forth above, therecan be no assurance that we will be able to recover the value of our investmentin the influenza vaccine business.

**Loss of our litigation against Sun PharmaceuticalIndustries Limited would be detrimental to our Ethyol sales.**

Sun PharmaceuticalIndustries Limited has submitted an abbreviated new drug application to the FDAfor a generic version of Ethyol (amifostine). We have sued Sun for patentinfringement and are defending our patents vigorously, but if we lose thislitigation, it is probable that Sun will be able to secure approval for ageneric version of Ethyol.  If a genericversion of Ethyol is approved, it is probable that its manufacturer will set aprice for that product significantly lower than the current price of Ethyoland, as a result, our market share and sales of Ethyol would declinesignificantly. There can be no assurance that any actions we might take tomitigate the impact of the introduction of such a generic product would besuccessful. Likewise, there can be no assurance that the introduction of such ageneric product would not adversely affect our manufacturing and/or commercialoperations.

**Governmentinvolvement may limit the commercial success of our influenza vaccine business.**

If an influenza outbreak occurs and is classified as apandemic or large epidemic by public health authorities, it is possible thatone or more government entities may take actions that directly or indirectlyhave the effect of abrogating some of our rights or opportunities. We have notmanufactured a pandemic vaccine to date, but even if we were to do so, theeconomic value of such a vaccine to us could be limited. 

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Our primary manufacturingfacility for influenza vaccines is in the U.K. and, in an influenza pandemic,the U.K. government may limit our ability to export product outside the UnitedKingdom.

Various government entities, including the U.S.government, are offering incentives, grants and contracts to encourageadditional investment by commercial organizations into preventative andtherapeutic agents against influenza, which may have the effect of increasingthe number of competitors and/or providing advantages to known competitors.Accordingly, there can be no assurance that we will be able to successfullyestablish competitive market share for our influenza vaccines.

In addition, currentinfluenza vaccines are trivalent (contain three strains) and are derived fromor analogous to two circulating influenza A viral strains and one circulatinginfluenza B viral strain. If the World Health Organization, the U.S. Centersfor Disease Control and Prevention or other similar agencies require orrecommend changes in influenza vaccines, for example for a monovalent orquadravalent vaccine or for use of a strain that is not currently circulatingin the human population, it is uncertain whether we will be able to manufacturesuch a product at commercially reasonable rates.

**We may not be ableto bring our product candidates to market.**

Research and developmentactivities are costly and may not be successful, and there can be no assurancethat any of our product candidates, even if they are in or approved to enterPhase 3 or other large clinical trials, will be approved for marketing by theFDA or the equivalent regulatory agency of any other country. A significantportion of our annual operating budget is spent on research, development andclinical activities. Currently, numerous products are being developed that maynever reach clinical trials, achieve success in the clinic, be submitted to theappropriate regulatory authorities for approval, or be approved for marketingor manufacturing by the appropriate regulatory authorities. There can also beno assurance that we will be able to generate additional product candidates forour pipeline, either through internal research and development, or through thein-licensing or acquisition of products or technology. Even if a productcandidate is approved for marketing by the applicable regulatory agency, therecan be no assurance that we will be able to successfully manufacture theproduct on a commercial scale or effectively commercialize the product.

**A significantportion of our business is dependent on third parties.**

We license a significantportion of the technology necessary for our business from third parties andrely on third parties for a significant portion of the clinical development,supply of components, manufacturing, distribution, and promotion of ourproducts. The actions of these third parties are outside of our control and thefailure of these third parties to act in accordance with their obligations tous would have a material adverse effect on our business. Even if we are legallyentitled to damages for a failure of a third party to fulfill its obligationsto us, there can be no assurance that such damages will adequately compensateus for indirect or consequential losses such as the damage to a product brandor our reputation. If a third party does not fulfill its obligations to us, wemay have to incur substantial additional costs, which could have a materialadverse effect on our business. For example, we derived revenue in 2006 fromroyalties and milestone payments from licensing arrangements for intellectualproperty relating to vaccines against the human papillomavirus (HPV) to preventcervical cancer under development or marketed by GSK and Merck. The inabilityor failure of either GSK or Merck to develop and sell the products subject toour licenses due to competition, manufacturing difficulties or other factorsthat are outside our control could decrease their sales of the HPV vaccine andwould in turn have an adverse effect on our revenue and financial condition.

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**As a U.S. government contractor, we are required tocomply with a number of rules and regulations and may be exposed to uniquerisks.**

In 2006, we were awarded a contract from the U.S.Department of Health and Human Services (HHS) to develop cell-based seasonaland pandemic vaccines. We have not been a government contractor in the past andcompliance with necessary requirements is complex. Accordingly, there can be noassurance that we will be able to comply with all requirements and failure tocomply could result in penalties imposed on us, including but not limited totermination of the contract.

As a governmentcontractor, we have become subject to a number of requirements that generallydo not apply to agreements between private parties. These requirements includeadherence to the provisions of the Federal Acquisition Regulations thatregulate the formation, administration and performance of government contracts.Government contracts contain provisions permitting modification, curtailment,or termination, in whole or in part, without prior notice at the government’sconvenience upon the payment of compensation only for work already done.Government contracts are also subject to oversight audits by governmentrepresentatives. If any audit uncovers improper or illegal activities, we maybe subject to civil and criminal penalties and administrative sanctions,including termination of contracts, forfeiture of profits, suspension ofpayments, fines and suspension or prohibition from doing business with the U.S.government. As a government contractor, we may also be subject toinvestigations and inquiries into our business practices that would not beapplicable between private commercial parties. We can provide no assurance thatany such investigation or inquiry would not result in a material adverse effecton our results of operations and financial condition.

**Defending product liability claims could be costly anddivert focus from our business operations and product recalls may be necessary.**

Our products containbiologically active agents that can alter the physiology of the person usingthe product. Accordingly, as a developer, tester, manufacturer, marketer andseller of biological products, we may be subject to product liability claimsthat may be costly to defend, regardless of whether the claims have merit, andmay require removal of an approved product from the market. If a claim were tobe successful, there is no guarantee that the amount of the claim would notexceed the limit of our insurance coverage and available cash or cash equivalents.Further, a successful claim could reduce revenues related to the product,result in the FDA taking regulatory action (including suspension of productsales for an indefinite period) or result in significant negative publicity forus or damage to our product brand. Any of these occurrences could have amaterial adverse effect on our business and could result in a clinical trialinterruption or cancellation. Additionally, product recalls may be necessaryeither in connection with product liability claims or for other reasons. Anysuch recall would adversely affect sales of that product and could affect ourreputation.

**We may not be ableto meet the market demand for our products.**

We generally do not haveor contract for redundant supply, production, packaging or other resources tomanufacture our products. As a result, we are at risk for business interruptionif there is any disruption in the manufacturing chain. Difficulties or delaysin our or our contractors’ manufacturing of existing or new products couldincrease our costs, cause us to lose revenue or market share and damage ourreputation. In addition, because our various manufacturing processes and thoseof our contractors are highly complex and are subject to a lengthy FDA approvalprocess, alternative qualified production capacity may not be available on atimely basis or at all. In particular, the supply of our products is affectedby several manufacturing variables, including the number of production runs,production success rate, product yield and the outcome of quality testing. Ifwe are unable to provide an uninterrupted supply of our products to patientsour reputation may be negatively affected, which could have a material andadverse effect on our results of operations.

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**We may lose product due to contamination of our rawmaterials and other difficulties in the manufacturing process.**

The manufacture of ourproducts requires raw materials obtained from a variety of sources includingbut not limited to animal products or by-products. If these raw materialscontain contaminants that are not removed by our approved purificationprocesses, the manufacture of our products will be negatively affected for anindefinite period of time, that could result in a material adverse effect onour product sales, financial condition and results of operations. In addition,our manufacturing operations expose us to a variety of significant risks,including: product defects; product loss; environmental problems resulting fromour production process; sudden loss of inventory and the inability tomanufacture products at a cost that is competitive with third partymanufacturing operations. Furthermore, we collaborate and have arrangementswith other companies related to the manufacture of our products and,accordingly, certain aspects of the manufacturing process are not within ourdirect control. We have not produced FluMist for commercial use at highervolumes and may encounter additional unforeseeable risks as we developadditional commercial manufacturing experience with this product.

**Certain developments in the United Kingdom could havean adverse effect on our ability to manufacture our products.**

Our operations in the U.K.expose us to additional business risks, and failure to manage those risks couldhave a material adverse effect on our ability to manufacture influenzavaccines. In particular, in the event of a regional or global influenzapandemic, our facilities in the U.K. may be subject to governmentnationalization. In addition, the facilities are unionized and manufacturingmay therefore be interrupted due to labor action.

**Reimbursement bygovernment and third-party payors is critical for the success of our products.**

The cost to individualconsumers for purchase of our products, particularly Synagis and Ethyol, can besignificant. Accordingly, sales of these products are dependent to a largeextent on the insurance reimbursement available for them. Actions by governmentand third-party payers to contain or reduce the costs of health care bylimiting reimbursement, changing reimbursement calculation methodologies,increasing procedural hurdles to obtain reimbursement or by other means mayhave a material adverse effect on sales of these products. For example, therehave been numerous cost containment initiatives in the U.S., both at the stateand federal level, as well as in other countries, aimed at reducing health careexpenditures that would affect the reimbursement of pharmaceutical products likeours and could have a material adverse effect on our product sales, results ofoperations and financial condition.

We accrue for and fund rebates due to governmententities subject to reimbursement, primarily Medicaid payments to stategovernments. State governments have the ability to collect rebates for priorperiods’ activity without restriction by statute and, accordingly, we may besubject to future rebate claims by such entities for product use in the pastfor which reimbursement was not sought. For example, a number of pharmaceuticaland biotechnology companies, including us, are currently in the process ofdetermining our exposure and liabilities to various states who may make claimsunder Medicaid for payments arising from the sales of products that were notproperly reported and billed by the states in the past. Our estimate of ourexposure to such claims and any reserves we may post for such may not besufficient to cover our liabilities to the states and the enforcement of suchclaims beyond our reserves could have an adverse effect on our results ofoperations and financial position.

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**Our reliance upon a limited number of pharmaceuticalwholesalers and distributors could affect the ability to sell our products.**

We rely largely upon pharmaceuticaldistributors and wholesalers to deliver our currently marketed products to theend users, including physicians, hospitals, and pharmacies. There can be noassurance that these distributors and wholesalers will adequately fulfill themarket demand for our products, nor can there be any guarantee that theseservice providers will remain solvent. Given the high concentration of sales tocertain pharmaceutical distributors and wholesalers, we could experience asignificant loss if one or more of our larger customers were to declarebankruptcy or otherwise become unable to fulfill its obligations to us.

**Obtaining and maintaining regulatory approvals todevelop, manufacture and market our products is costly and time consuming.**

The development, manufacturing and marketing of all ofour products are subject to regulatory approval by the FDA in the U.S., as wellas similar authorities in other countries. The approval process for eachproduct is lengthy and potentially subject to numerous delays, which generallywould not be in our control. There can be no assurance that any productcandidate will be approved for marketing and, even if approved, such approvalmay be limited in scope in such a manner that would harm the product’spotential for market success. Even after a product is approved for marketing,it is still subject to continuing regulation and our failure to comply with ourpost-marketing commitments could expose us to risks of forfeiture of ourlicense to market a product. Furthermore, if new adverse event informationabout a product becomes available from broader use in the market or fromadditional testing, we may be required by applicable authorities to recall theproduct or notify health care providers of additional risks associated with useof the product. In addition, our product labeling and marketing activities maybe found to be inconsistent with applicable laws and regulations.

Even if we havesubstantially complied with all applicable laws and regulations, the applicableregulatory authorities have the authority to and may revoke or limit approvalsor licenses without consulting or obtaining our consent. If we fail to complywith applicable requirements, we may be subject to: fines; seizure or removalof products from the market; total or partial suspension of production; refusalby the applicable authority to approve product license applications;restrictions on our ability to enter into supply contracts; and criminalprosecution. If we are unable to obtain approvals on a timely basis or at all,if the scope of approval is more limited than expected by us or if we areunable to maintain approvals, our ability to successfully market products andto generate revenues will be impaired and such could have a material adverseeffect on our business, results of operations and financial condition.

**Patent protectionfor our products may be inadequate or costly to enforce.**

We may not be able toobtain effective patent protection for our products in development. There areextensive patent filings in the biotechnology industry and the patent positionof biotechnology companies generally is highly uncertain and involves complexlegal and factual questions. There can be no assurance that our patentapplications will result in patents being issued or that, if issued, suchpatents will afford protection against competitors with similar technology.Litigation may be necessary to enforce our intellectual property rights. Anysuch litigation will involve substantial cost and significant diversion of ourattention and resources and there can be no assurance that any of ourlitigation matters will result in an outcome that is beneficial to us. We arealso aware that regulatory authorities, including the FDA, are consideringwhether an abbreviated approval process for so-called “generic” or “follow-on”biological products is appropriate. We are uncertain as to when, or if, anysuch process may be adopted or how such a process would relate to ourintellectual property rights, but any such process could have a material effecton the prospects of our products.

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**If we fail to obtain and maintain any requiredintellectual property licenses from third parties, our product development andmarketing efforts will be limited.**

Patents have been and willbe issued to third parties, and patent applications have been filed by thirdparties, that claim one or more inventions used in the development, manufactureor use of our products or product candidates. These patents (including anypatents issuing from pending patent applications), if valid and enforceable,would preclude our ability to manufacture, use or sell these products unless weobtain a license from the applicable third party. These third parties are notgenerally required to provide us with a license and, as such, obtaining anysuch licenses may not be possible or could be costly and impose significantongoing financial burdens on us. There can be no assurance that a license willbe available on terms acceptable to us or at all, which could have a materialadverse effect on our business. In addition, there can be no assurance that wewill be able to obtain an exclusive license to any such patent, and as aresult, the third parties or their sublicencees may be able to produce productsthat compete with ours. Litigation may be necessary to challenge theintellectual property rights of third parties and would involve significantcost and significant diversion of management’s time and resources. There can beno assurance that any such litigation will result in an outcome that isbeneficial to us.

**Technologicaldevelopments by competitors may render our products obsolete.**

If competitors were todevelop superior or competitive products or technologies, our products ortechnologies could be rendered noncompetitive or obsolete. Developments in thebiotechnology and pharmaceutical industries are expected to continue at a rapidpace. Success depends upon achieving and maintaining a competitive position inthe development of products and technologies. Competition from otherbiotechnology and pharmaceutical companies can be intense. Many competitorshave substantially greater research and development capabilities, marketing,financial and managerial resources and experience in the industry. If acompetitor develops a better product or technology, our products ortechnologies, even if protected by patents, could be rendered obsolete,resulting in decreased product sales and a material adverse effect to ourbusiness. Even if a competitor creates a product that is not technologicallysuperior, our products may not be able to compete with such products,decreasing our sales.

**We are subject to numerous complex laws andregulations and compliance with these laws and regulations is costly and timeconsuming.**

U.S. federal governmententities, most significantly the FDA, the U.S. Securities and ExchangeCommission, the Internal Revenue Service, the Occupational Safety and HealthAdministration, the Environmental Protection Agency, the Centers for Medicareand Medicaid Services and the U.S. Department of Veteran’s Affairs, as well asregulatory authorities in other states and countries, have each been empoweredto administer certain laws and regulations applicable to us. Many of the lawsand regulations administered by these agencies are complex and compliancerequires substantial time and effort by our officers and employees andextensive consultations with our outside advisors. Because of this complexity,there can be no assurance that our efforts will be sufficient to ensurecompliance or to ensure that we are in technical compliance with all such lawsand regulations at any given time. In addition, we are subject to audit,investigation and litigation by each of these entities to ensure compliance,each of which can also be time consuming, costly, divert the attention ofsenior management and have a significant effect on our business, even if we arefound to have been in compliance or the extent of our non-compliance is deemedimmaterial. If we are found to not be in compliance with any of these laws andregulations, we and, in some cases, our officers may be subject to fines,penalties, criminal sanctions and other liability, any of which could have amaterial adverse effect on our business.

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**We cannot controlthe use of our products.**

The product labeling foreach of our products is approved by the FDA and other similar regulatoryauthorities in other countries and marketed only for certain medicalindications, but treating health care practitioners, particularly in theoncology field, are not generally required to restrict prescriptions to theapproved label. These practices make it likely that our products are being usedfor unapproved uses and may subject us to regulatory scrutiny, sanctions orproduct liability, any of which could have a material adverse effect on ourbusiness.

**We may not be ableto hire or retain highly qualified personnel or maintain key relationships.**

The success of ourbusiness depends, in large part, on our continued ability to attract and retainhighly qualified scientific, manufacturing and sales and marketing personnel,as well as senior management such as Mr. David M. Mott, our ChiefExecutive Officer, President and Vice Chairman, and Dr. James F. Young,our President, Research and Development. In addition, we rely on our ability todevelop and maintain important relationships with leading research institutionsand key distributors. Competition for these types of personnel andrelationships is intense among pharmaceutical, biopharmaceutical andbiotechnology companies, and any obstacles hindering our ability to attract orretain such employees and relationships could have a material effect on ourbusiness. We do not maintain or intend to purchase “key man” life insurance onany of our personnel and, accordingly, our business may be subject todisruption upon the sudden or unexpected loss of a key employee.

**If we fail tomanage our growth properly, the business will suffer.**

We have expandedsignificantly in recent years due to both acquisition and internal growth. Toaccommodate our rapid growth and compete effectively, we will need to continueto improve our management, operational and financial information systems andcontrols, generate more revenue to cover a higher level of operating expenses,continue to attract and retain new employees, accurately anticipate demand forproducts manufactured and expand our manufacturing capacity. This rapid growthand increased scope of operations present risks not previously encountered andcould result in substantial unanticipated costs and time delays in productmanufacture and development, which could materially and adversely affect thebusiness.

**Fluctuations in ourcommon stock price over time could cause stockholders to lose investment value.**

The market price of ourcommon stock has fluctuated significantly over time, and it is likely that theprice will fluctuate in the future. During the fiscal year ended December 31,2006, the daily closing price of our common stock on the NASDAQ National Marketranged from a high of $37.38 to a low of $25.28. Investors and analysts havebeen, and will continue to be, interested in our reported earnings, as well ashow we perform compared to our expectations. Announcements by us or othersregarding operating results, existing and future collaborations, results ofclinical trials, scientific discoveries, commercial products, patents orproprietary rights or regulatory actions may have a significant effect on themarket price of our common stock. In addition, the stock market has experiencedprice and volume fluctuations that have affected the market price for manybiotechnology companies and that have often been unrelated to the operatingperformance of these companies. These broad market fluctuations may adverselyaffect the market price of our common stock.

**Changes in foreigncurrency exchange rates or interest rates could result in losses.**

We have entered into asupplemental manufacturing contract denominated in Euros. Fluctuations in theEuro-U.S. Dollar exchange rate would lead to changes in the U.S. Dollar cost ofmanufacturing. To reduce the risk of unpredictable changes in these costs, wemay, from time to time, enter into forward 

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foreignexchange contracts. However, due to the variability of timing and amount ofpayments under this contract, the forward foreign exchange contracts may notmitigate the potential adverse effect on our financial results. In addition,expenditures relating to our manufacturing operations in the U.K. and theNetherlands are paid in local currency. We have not hedged our expendituresrelating to these manufacturing operations, and therefore foreign currencyexchange rate fluctuations may result in increases or decreases in the amountof expenditures recorded. Additionally, certain of our distribution agreementsoutside the U.S. provide for us to be paid based upon sales in local currency.As a result, changes in foreign currency exchange rates could adversely affectthe amount we expect to collect under these agreements. A substantial portionof our current assets is invested in marketable securities, particularly bondsand other fixed income securities, which are subject to fluctuations in valuebased on interest rates and other factors.

**ITEM 1B.**       *UNRESOLVED STAFF COMMENTS*

As of December 31,2006, there are no unresolved comments from the staff of the Securities andExchange Commission.

**ITEM 2.**                *PROPERTIES*

Our principal executive and administrative offices andresearch and development facilities are located in Gaithersburg, Maryland. Ourheadquarters facility, an owned complex, totals 361,000 square feet consistingof a research and development facility and administrative offices onapproximately 23 acres of land. This complex also serves as the site for ourpilot lab, which totals 90,000 square feet, including 23,000 square feet ofadministrative space and 67,000 square feet of laboratory space. The laboratoryspace in the pilot lab is expected to be validated and operational in the thirdquarter of 2007. We continue to occupy additional leased facilities inGaithersburg consisting of approximately 148,000 square feet, of which approximately34,000 square feet is leased until the end of March 2007, 20,000 squarefeet through November 2008, 32,000 square feet is leased through September 2009,10,000 square feet is leased until the end of 2009 and 52,000 square feet isleased through September 2016.

We also own a 91,000 square foot biologics facilityand 56,000 square feet of administrative and warehouse space and in Frederick,Maryland. The biologics facility includes a cell culture production area usedto manufacture Synagis and development-stage projects. In July 2006, wecommenced construction of a new facility adjacent to the current site inFrederick, Maryland. The first phase of this expansion, currently expected toinclude approximately 493,000 square feet of office, laboratory and manufacturingspace, is expected to be licensed in early 2010. In Frederick, Maryland we alsooccupy approximately 13,000 square feet of office and warehouse space leaseduntil December 2011. In addition, in Nijmegen, the Netherlands, we own a21,000 square foot manufacturing facility on 36,000 square feet of land andlease approximately 12,600 square feet of warehouse space. This lease runsthrough December 2010.

We operate a number of facilities related to researchand development and manufacture of FluMist, including: 104,000 square feet ofoffice and laboratory space in Mountain View, California, which is leasedthrough October 2008 with two options to extend for successive three-yearperiods; approximately 55,000 square feet of space in Philadelphia,Pennsylvania, pursuant to a lease agreement through December 2007, with anoption to extend for two terms of three years; approximately 64,000 square feetof office, laboratory and warehouse space in Bensalem, Pennsylvania, pursuantto a lease agreement through June 2008; approximately 72,000 square feetof office, laboratory and manufacturing space in Santa Clara, California,pursuant to a lease agreement through January 2019, with an option torenew for seven years; and 61,000 square feet of manufacturing and laboratoryspace on approximately eight acres of land in Speke pursuant to a leaseagreement through 2024.

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We own a 86,000 square foot distribution facility inLouisville, Kentucky on 19 acres. This facility is used for the warehouse and distributionof our marketed products.

We believe that ourcurrent facilities and anticipated additions are adequate to meet our researchand development, commercial production, and administrative needs for the nearterm.

**ITEM 3.**                *LEGAL PROCEEDINGS*

Information with respectto legal proceedings is included in Note 20 of Item 8 Consolidated FinancialStatements and Supplementary Data and is incorporated herein by reference.

**ITEM 4.**                *SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS*

None.

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**PART II**

**ITEM 5.**                *MARKET FOR MEDIMMUNE’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES*

Our common stock trades on the Nasdaq National Marketunder the symbol “MEDI.” As of February 21, 2007, we had 1,796 commonstockholders of record. This figure does not represent the actual number ofbeneficial owners of common stock because shares are generally held in “streetname” by securities dealers and others for the benefit of individual owners whomay vote the shares.

Thefollowing table shows the range of high and low prices and year-end closingprices for the common stock for the two most recent fiscal years.

| ** **     | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------|------------|----------|------------|----------|------------|
| ** **     | ** ** | **High** | ** ** | **Low**  | ** ** | **High** | ** ** | **Low** | ** ** |
| First Quarter  |       | $        | 37.45      |     | $          | 31.81 |   | $ | 27.45 |   | $ | 23.20 |   |
| Second Quarter |       | 36.85    |       | 26.27    |       | 27.55 |   | 23.60 |   |
| Third Quarter  |       | 30.00    |       | 24.87    |       | 33.83 |   | 26.48 |   |
| Fourth Quarter |       | 33.76    |       | 28.46    |       | 37.58 |   | 31.82 |   |
| Year End Close |       | $        | 32.37      |     |       |   | $ | 35.02 |   |   |   |
|                |            |          |            |          |            |  |  |  |  |  |  |  |  |

 

We have never declared orpaid any cash dividends on our common stock and do not anticipate declaring orpaying any cash dividends in the foreseeable future. We currently intend toretain any earnings to fund future growth, product development, investments,collaborations and operations.

**Issuer purchases of equity securities(1)**

| **Period**                                            | ** ** | ** ** | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of  Shares Purchased  as Part of Publicly  Announced Plans  or Programs** | ** ** | **Approximate Dollar  Value that May Yet  Be Purchased  Under the Plans  or Programs** | ** ** |
|-------------------------------------------------------|------------|------------|------------|----------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------|------------|
| October 1,  2006 through October 31, 2006   |       | —     |       |                                         | $          | —                                       |       |                                                                                                                             |       | —                                                                                                                         |       |   |   | $ | 344,621,245 |   |   |
| November 1,  2006 through November 30, 2006 |       | —     |       |                                         | $          | —                                       |       |                                                                                                                             |       | —                                                                                                                         |       |   |   | $ | 344,621,245 |   |   |
| December 1, 2006  through December 31, 2006 |       | 1,200,000  |       |                                         | $          | 32.42                                        |       |                                                                                                                             |       | 1,200,000                                                                                                                      |       |   |   | $ | 305,717,818 |   |   |

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(1)          InMay 2006, the Board of Directors authorized a new stock repurchase programfor up to $500.0 million of the Company’s common stock on the open market or inprivately negotiated transactions during the period from May 2006 through June 2009.

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**Performance Graph**

The chart set forth belowshows the cumulative return on an investment of $100 on December 31, 2001,in each of MedImmune’s common stock, the Standard & Poor’s 500Composite Stock Index (the “S&P 500”), and the Nasdaq Pharmaceutical StocksTotal Return Index (the “Nasdaq Pharmaceutical Index”). All values assumereinvestment of the pre-tax value of dividends paid by companies included inthese indices and are calculated as of December 31 of each year. TheS&P 500, in which we are members, is one of the most widely used benchmarksof U.S. equity performance and consists of 500 stocks chosen for market size,liquidity, and industry group representation. It is a market value weightedindex (stock price times number of shares outstanding), with each stock’sweight in the index proportionate to its market value. We have selected theNasdaq Pharmaceutical Index, which is calculated and supplied by NASDAQ, as theappropriate published industry index for this comparison. The NasdaqPharmaceutical Index, which is comprised of approximately 300 companies,includes MedImmune among many other biotechnology companies. The stock priceperformance on the graph below is not necessarily indicative of future priceperformance.

**COMPARISON OF 5YEAR CUMULATIVE TOTAL RETURN***

*$100invested on 12/31/2001 in stock or index including reinvestment of dividends,if any. Fiscal year ending December 31,

| **Date** | ** ** | ** ** | ** ** | **MedImmune** | ** ** | **S&P 500** | ** ** | **Nasdaq Pharmaceutical Index** | ** ** |
|----------|------------|------------|------------|---------------|------------|----------------------|------------|-------------------------------------------|------------|
| 2001     |       |       | $          | 100.00        |       |                 | $          | 100.00                                    |       |   | $ | 100.00 |   |   |
| 2002     |       |       | 58.62      |          |       | 77.90                |       |                                      | 64.40      |   |   |
| 2003     |       |       | 54.76      |          |       | 100.24               |       |                                      | 92.31      |   |   |
| 2004     |       |       | 58.49      |          |       | 111.15               |       |                                      | 100.78     |   |   |
| 2005     |       |       | 75.56      |          |       | 116.61               |       |                                      | 113.36     |   |   |
| 2006     |       |       | 69.84      |          |       | 135.03               |       |                                      | 115.84     |   |   |
|          |            |            |            |               |            |                      |            |                                           |            |  |  |  |  |  |  |  |

 

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**ITEM6.**                *SELECTED CONSOLIDATED FINANCIAL DATA*

| ** **                                 | ** ** | **2006(1)**                                                       | ** ** | **2005(2)(3)** | ** ** | **2004(3)** | ** ** | **2003**   | ** ** | **2002(4)(5)** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------------------|------------|----------------|------------|-------------|------------|------------|------------|----------------|------------|
| ** **                                 | ** ** | **(in millions, except per share data)** | ** ** |
| **RESULTS FOR THE YEAR**    | ** ** | ** **                                                        | ** ** |           | ** ** | ** **  |       | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Total revenues                             |       | $                                                                 | 1,276.8    |           |       | $           | 1,243.9    |       |       | $              | 1,141.1    |   | $ | 1,054.4 |   | $ | 852.7 |   |
| Gross profit                               |       | 893.5                                                             |       |           | 884.3      |        |       | 757.6      |       | 702.8          |       | 589.1 |   |
| Net earnings  (loss)                       |       | 48.7                                                              |       |           | (16.6      | )           |       | (3.8       | )          | 183.2          |       | (1,098.0 | ) |
| Basic earnings  (loss) per share           |       | 0.20                                                              |       |           | (0.07      | )           |       | (0.02      | )          | 0.73           |       | (4.40 | ) |
| Diluted earnings  (loss) per share         |       | 0.20                                                              |       |           | (0.07      | )           |       | (0.02      | )          | 0.72           |       | (4.40 | ) |
| **YEAR  END POSITION**                     | ** ** | ** **                                                        | ** ** |           | ** ** | ** **  |       | ** ** | ** ** | ** **     | ** ** | ** ** | ** ** |
| Cash and  marketable securities            |       | $                                                                 | 1,505.2    |           |       | $           | 1,471.9    |       |       | $              | 1,706.1    |   | $ | 1,900.1 |   | $ | 1,423.1 |   |
| Total assets                               |       | 2,953.2                                                           |       |           | 2,780.0    |        |       | 2,564.4    |       | 2,794.6        |       | 2,188.3 |   |
| Long-term debt,  including current portion |       | 1,165.5                                                           |       |           | 506.2      |        |       | 507.1      |       | 682.1          |       | 218.4 |   |
| Shareholders’ equity                  |       | 1,377.2                                                           |       |           | 1,570.5    |        |       | 1,674.6    |       | 1,699.2        |       | 1,677.2 |   |

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(1)          Includes share-basedcompensation expense in accordance with Statement of Financial AccountingStandard No. 123R, which we adopted on January 1, 2006.

(2)          Includes charges foracquired in-process research and development (IPR&D) in connection with ouracquisition of Cellective on October 14, 2005.

(3)          Includes charges relatedto the dissolution of the collaboration with Wyeth and reacquisition of fullrights to the influenza vaccines franchise.

(4)          Includes a charge foracquired IPR&D in connection with our acquisition of Aviron on January 10,2002.

(5)          Certainprior year amounts have been reclassified to conform to the current yearpresentation.

**QUARTERLY FINANCIALDATA (UNAUDITED)**

**2006 Quarter Ended**

| ** **                      | ** ** | **Dec. 31**                                                  | ** ** | **Sept. 30** | ** ** | **June 30** | ** ** | **Mar. 31** | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **(in millions, except per share data)** | ** ** |
| Net product sales               |       | $                                                                 | 504.8      |              | $          | 158.6            |       |             | $          | 66.2 |   |   | $ | 491.6 |   |
| Gross profit                    |       | 367.7                                                             |       | 105.1             |       |             | 52.2       |             |       | 368.5 |   |
| Net earnings  (loss)            |       | 120.7                                                             |       | (55.8             | )          |             | (63.2      | )                |       | 47.0 |   |
| Net earnings (loss) per  share: |       |                                                              |       |              |       |             |       |             |       |   |   |
| Basic                           |       | $                                                                 | 0.50       |              | $          | (0.23            | )          |             | $          | (0.26 | ) |   | $ | 0.19 |   |
| Diluted                         |       | $                                                                 | 0.50       |              | $          | (0.23            | )          |             | $          | (0.26 | ) |   | $ | 0.18 |   |

 

**2005 Quarter Ended**

| ** **                      | ** ** | **Dec. 31**                                                  | ** ** | **Sept. 30** | ** ** | **June 30** | ** ** | **Mar. 31** | ** ** |
|---------------------------------|------------|-------------------------------------------------------------------|------------|-------------------|------------|------------------|------------|------------------|------------|
| ** **                      | ** ** | **(in millions, except per share data)** | ** ** |
| Net product sales               |       | $                                                                 | 481.6      |              | $          | 146.0            |       |             | $          | 84.7 |   |   | $ | 508.7 |   |
| Gross profit                    |       | 341.4                                                             |       | 97.3              |       |             | 56.7       |             |       | 388.9 |   |
| Net earnings  (loss)            |       | (22.4                                                             | )          | (64.1             | )          |             | (44.2      | )                |       | 114.1 |   |
| Net earnings (loss) per  share: |       |                                                              |       |              |       |             |       |             |       |   |   |
| Basic                           |       | $                                                                 | (0.09      | )                 | $          | (0.26            | )          |             | $          | (0.18 | ) |   | $ | 0.46 |   |
| Diluted                         |       | $                                                                 | (0.09      | )                 | $          | (0.26            | )          |             | $          | (0.18 | ) |   | $ | 0.45 |   |

 

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**ITEM 7.**                *MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS*

*This Management’s Discussion and Analysis of FinancialCondition and Results of Operations contains forward-looking statementsregarding future events and our future results that are based on currentexpectations, estimates, forecasts, and the beliefs, assumptions and judgmentsof our management. Readers are cautioned that these forward-looking statementsare only predictions and are subject to risks and uncertainties that aredifficult to predict. Readers are referred to the “Forward-Looking Statements”and “Risk Factors” sections in Part I, Item 1 and Part I, Item 1A,respectively, of this document.*

**INTRODUCTION**

MedImmune is committed toadvancing science to develop better medicines that help people live healthier,longer and more satisfying lives. We currently focus our efforts on usingbiotechnology to produce innovative products for prevention and treatment inthe therapeutic areas of infectious disease, cancer and inflammatory disease. Weprimarily develop monoclonal antibodies and vaccines. We market three products,Synagis, FluMist, and Ethyol and have a diverse pipeline of development-stageproducts. In 2006, we made the strategic decision to sell our CytoGam businessand redeploy the proceeds from the sale into our core areas of focus.

**OVERVIEW**

During 2006, we continued to invest in our commercialorganization, operations and our pipeline, to position the Company forsubstantial future growth. As an established leader in pediatric respiratorydiseases, we derive significant revenue from our flagship product, Synagis, andare preparing to execute successful product launches of refrigerated FluMistand Numax, assuming approval by the FDA. We also expect royalties from ourhuman papillomavirus vaccine technology to drive substantial revenue growthover the next several years. Finally, we have made significant progress inmanaging the development of our product pipeline.

Key highlights from 2006 are as follows:

Earnings—We reported net income for 2006 of $49million, or $0.20 per diluted share, compared to a net loss of $17 million, or $0.07per share, in 2005.

RSV Franchise—We are the industry leader in thedevelopment of innovative pediatric products targeting RSV, with Synagiscurrently marketed and the potential future market introduction of Numax andseveral other RSV-targeted products in development. We made a number of changesand enhancements to our U.S. sales and marketing organization during 2006focused on improving effectiveness and efficiency. In July, we assumed fullresponsibility for promotion of Synagis in the U.S. from Abbott. In advance ofthis transition, we expanded our pediatric sales and marketing organization byapproximately 125 professionals to replace Abbott’s co-promotion efforts. Theelimination of the co-promotion commissions will be accretive to our earningsin 2007 and beyond, and with full promotion rights, we have strategic andoperational advantages as our specialized sales force prepares for thecontinued growth of the pediatric infectious disease component of our business,with the anticipated future launches of the refrigerated formulation of FluMistand Numax. Our distribution partner for Synagis outside the U.S., AbbottInternational, continues to make progress in building the worldwide Synagisbrand.

Influenza Franchise—We are actively preparing for ourlaunch of the refrigerated formulation of FluMist and anticipate the FDA willapprove an expanded label in children between the ages of one and five for the2007/2008 influenza season in time for inclusion in this launch. We receivedFDA approval in January 2007 for the refrigerated formulation of FluMistand are waiting for the FDA to complete its 

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review of our supplementalbiologics license application for use of refrigerated formulation of FluMist inpreventing influenza in children down to one year of age who do not have ahistory of wheezing or asthma. Our immediate goal is to help reduce the seriousburden of influenza disease among school-aged children with a well-tolerated andeffective vaccine that does not involve the injection pain of the traditionalshot. Beyond that, we see future growth opportunities for FluMist and ourinfluenza vaccine franchise through additional label and geographicalexpansion, the implementation of cell-culture manufacturing, pandemic vaccineproduction and the out-licensing of intellectual property to other vaccinemanufacturers around the use of reverse genetics technologies. During 2006, wewere awarded a $170.0 million, five-year contract from the U.S. Department ofHealth and Human Services to develop cell-based seasonal and pandemic vaccinesusing our proprietary live, attenuated, intranasal influenza vaccinetechnology, and in November we filed an investigational new drugapplication with the FDA to begin human clinical testing of a cell-basedseasonal influenza vaccine.

Pipeline—We are managing the largest pipeline in ourhistory, with about 45 programs at various stages of development andcommercialization in three key areas of therapeutic focus:  infectious disease, cancer and inflammatorydisease. Key components of our approach include integrating translationalscience methods, evolving governance practices, and instituting scalableprocesses and infrastructure to support and sustain the Company’s growth. During2006, we in-licensed four new targets for our portfolio, including two that arein clinical development.

Manufacturing and Process Development—We are anindustry leader in protein engineering, cell-culture production, vaccine manufacturingand technological enhancements, such as the virus-like particle technology thathelped lead to the development of vaccines to prevent cervical cancer caused byhuman papillomavirus. We are in position to use our expertise in cell cultureprocess development to support development of cell-based influenza vaccines,and are preparing for broad-scale increases in commercial production byexpanding our cell-culture manufacturing facilities in Frederick, Maryland, insupport of our maturing pipeline. During 2006, we received FDA approval for ourreverse genetics technology, which is a more timely, reliable, and saferprocess for producing seasonal and pandemic influenza vaccines.

Other Corporate Highlights—DuringJune 2006, we issued $1.15 billion in convertible senior notes and enteredinto related hedge and stock repurchase transactions for net proceeds ofapproximately $841.6 million. The net proceeds were used in part to retire$489.6 million of convertible senior notes. The remaining proceeds were used torepurchase additional shares of our common stock, fund the majority of thepayments due to Abbott for the purchase of U.S. co-promotion rights to Synagisand fund capital expenditures. In the aggregate, we repurchased a total of 11.2million of our outstanding common shares for $328.5 million in 2006. We alsorealized net gains on sales of investments of $34.0 million in 2006, net ofimpairment charges of $14.7 million, primarily from our venture capitalsubsidiary, MedImmune Ventures.

**2007 EXPECTATIONS**

We have the following expectations for 2007:

***Total Revenue***—Synagis is expected to continue to comprise amajority of our product sales; accordingly, we believe our revenues andoperating results will reflect the seasonality of that product's use to preventRSV disease, which occurs primarily during the winter months.  We also believe that FluMist sales willincrease as we launch the refrigerated formulation of the product and areexpecting FDA approval of a broader age indication for the product prior tolaunch.  We expect other revenues toincrease reflecting higher expected revenue from our licensing of the technologyrelated to vaccines for cervical cancer caused by human papillomavirus and fromour government contract.

*Gross margins—*We expect that ourgross margins in 2007 will be substantially the same or slightly better than in2006 overall.

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*Research and development expense—*Weexpect that research and development expenses will decline as a percentage ofproduct sales.

***Selling, general andadministrative expense ("SG&A")—***We expect that SG&A expenses as a percentage ofproduct sales will be lower than in 2006 as we continue to realize the benefitsof terminating the co-promotion relationship with the Ross Products Division ofAbbott Laboratories.

*Tax Rate—*Weexpect that our tax rate will increase in 2007 as the tax rate in 2006benefited from the release of valuation allowances.

**LICENSING ANDCOLLABORATIVE AGREEMENTS**

In August 2006, we entered into a collaborativeagreement with Infinity Pharmaceuticals, Inc. to jointly develop andcommercialize novel small molecule cancer drugs targeting Heat Shock Protein 90and the Hedgehog cell-signaling pathway. Under the terms of the agreement, wemade upfront payments to Infinity of $70.0 million, which were recognized asresearch and development expense in the third quarter of 2006 and agreed topotential development and sales-related milestone payments of up to $430.0million.

In December 2006, we entered into a licensing andcollaboration agreement with BioWa, Inc. to develop and commercialize newinflammatory disease therapies targeting the interleukin-5 receptor. Initially,the companies will focus on developing BIW-8405, a monoclonal antibodycurrently in Phase 1 clinical studies in patients with asthma. Under the termsof the agreement, we made an upfront payment and agreed to make milestonepayments and royalties on any future marketed products. BioWa will haveexclusive marketing rights in Japan and certain countries in Asia for potentialproducts developed as a result of the agreement. We will have exclusivemarketing rights to these products for the United States, Europe and all othercountries.

In December 2006, we entered into a licenseagreement with Japan Tobacco, Inc. to develop a monoclonal antibodytargeting pathways within the CD28 receptor family for treatment of certaininflammatory diseases. Our initial efforts will focus on developing the currentlead antibody, which aims to inhibit a receptor believed to play a key role incontrolling adaptive immune responses, called inducible-costimulator, andthereby regulate T-cell dependent activation of B cells. Under the terms of theagreement, we made an upfront payment and agreed to make milestone payments androyalties on any future marketed products. Japan Tobacco retains exclusivedevelopment and marketing rights for the current lead antibody in Japan. Wewill have exclusive development and marketing rights to this antibody for therest of world and certain rights worldwide for other antibodies developed as aresult of the agreement.

We recorded chargestotaling $91.7 million during 2006 and $54.2 million during 2005 associatedwith upfront fees and milestone payments under licensing agreements andresearch collaborations, which are included as a component of research anddevelopment expense in the consolidated statements of operations.

**NEW ACCOUNTINGSTANDARDS**

Issued in December 2004, Statement of FinancialAccounting Standards No.123R (“FAS 123R”) requires public companies torecognize expense associated with share-based compensation arrangements,including employee stock options and stock purchase plans, using a fairvalue-based option pricing model, and eliminates the alternative to use theintrinsic value method of accounting for share-based payments. FAS 123R waseffective for our fiscal year beginning January 1, 2006 and has a materialimpact on our results of operations. We have applied the modified prospectivetransition method; accordingly, compensation expense has been reflected in thefinancial statements beginning January 1, 2006 with no restatement ofprior periods. Compensation expense has been recognized for awards that aregranted, 

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modified, repurchased orcancelled on or after January 1, 2006, as well as for the portion ofawards previously granted that have not vested as of January 1, 2006. Forthe adoption of FAS 123R, we have selected the straight-line expenseattribution method, whereas our previous expense attribution method was thegraded-vesting method, an accelerated method, described by FIN 28, “Accountingfor Stock Appreciation Rights and Other Variable Stock Option or Award Plans”.

The Company’s adoption of FAS 123R using the modifiedprospective application requires the Company to determine the amount ofeligible windfall tax benefits (the pool of windfall tax benefits) that areavailable on the adoption date to offset future shortfalls. The Company haselected to calculate their historical pool of windfall tax benefits (i.e., theamount that would have accumulated as of the adoption date of FAS 123R) usingthe “long-form method,” as provided in paragraph 81 of FAS 123R, and the “taxlaw ordering approach” to determine when the historic tax benefits are realized(tax benefits realized based on provisions in the tax law that identify thesequence in which stock option deductions are utilized for tax purposes). Subsequentto the adoption of FAS 123R, the Company will continue to track the balance ofthe pool of windfall tax benefits based on windfalls or shortfalls incurredafter the adoption date.

Share-based compensation expense recognized in 2006totaled $34.2 million on a pre-tax basis and $26.3 million after tax.Share-based compensation capitalized in inventory was $1.6 million in2006.

In July 2006, theFinancial Accounting Standards Board issued Interpretation Number 48, “Accountingfor Uncertainty in Income Taxes, an interpretation of FAS 109” (“FIN 48”), tocreate a single model to address accounting for uncertainty in tax positions.FIN 48 clarifies the accounting for income tax positions by prescribing aminimum recognition threshold that a tax position is required to meet beforebeing recognized in the financial statements. FIN 48 also provides guidance onderecognition, measurement, classification, interest and penalties, accountingin interim periods, disclosure and transition. FIN 48 is effective for fiscalyears beginning after December 15, 2006. The Company will adopt FIN 48 asof January 1, 2007, as required. The cumulative effect of adopting FIN 48will be recorded in accumulated deficit and other accounts as applicable. Althoughthe Company has not made a final determination of the effect the adoption ofFIN 48 will have on the Company’s financial position and results of operations,it is expected that the cumulative adjustment to accumulated deficit will rangefrom $17 million to $61 million. The adoption of FIN 48 will impact the amountof, and balance sheet classification of, deferred tax assets and liabilities,goodwill and other accounts as applicable, and result in greater volatility inthe effective tax rate.

**CRITICAL ACCOUNTINGESTIMATES**

The preparation of consolidated financial statementsrequires management to make estimates and judgments with respect to theselection and application of accounting policies that affect the reportedamounts of assets, liabilities, revenues and expenses, and the disclosures ofcontingent assets and liabilities. We consider an accounting estimate to becritical if the accounting estimate requires us to make assumptions aboutmatters that were highly uncertain at the time the accounting estimate wasmade, and if changes in the estimate that are reasonably likely to occur fromperiod to period, or use of different estimates that we reasonably could haveused in the current period, would have a material impact on our financialcondition or results of operations. We believe the following criticalaccounting estimates have the greatest impact on the preparation of ourconsolidated financial statements. Management has discussed the development ofand selection of these critical accounting estimates with the Audit Committeeof our Board of Directors. In addition, there are other items within ourfinancial statements that require estimation, but are not deemed critical asdefined above. Changes in estimates used in these and other items could have amaterial impact on our financial statements.

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***Revenue Recognition—******We***recognizerevenue from product sales when there is persuasive evidence that anarrangement exists, delivery has occurred, the price is fixed or determinableand collectibility is reasonably assured.

We receive royalties fromlicensees, based on third-party sales of licensed products or technologies.Royalties are recorded as earned in accordance with the contract terms whenthird-party results can be reliably measured and collectibility is reasonablyassured.

***Sales Allowancesand Other Sales Related Estimates***

We recordallowances for discounts, returns, chargebacks and rebates to commercialentities as well as rebates due to government entities as reductions to grossproduct sales. The timing of actual discounts, returns, and chargebacks taken,and rebates paid can lag the sale of the product by a number of months. Assuch, a significant amount of judgment is required when estimating the impactof sales allowances on gross sales for a reporting period. The assumptions usedin developing our estimates of sales allowances include the following keyfactors:

·       historicaltrends for discounts, returns, rebate claims, or other claims;

·       ourcontracts with customers and discount programs;

·       actualperformance of customers against contractual discounts tied to volume andcompliance targets;

·       proportionof gross sales ultimately used by Medicaid patients;

·       Medicaidprogram policies, reimbursement practices and rebate claim filing capabilities;and

·       accuracyof reporting by our customers of end-user product sales by state.

We update these factors for any material changes infacts or circumstances as soon as the changes are known.

We estimate the amount of rebates due to government entitiesquarterly based on historical experience, along with updates, and based on ourbest estimate of the proportion of sales that will be subject to thisreimbursement, largely comprised of Medicaid payments to state governments. Weare dependent on information from state Medicaid programs as the bases of theseestimates. During the fourth quarter of 2005, we successfully transitioned tothe liquid formulation of Synagis in the U.S. from the lyophilized form. Theliquid formulation is treated as a new product for purposes of Medicaidrebates. Accordingly, the unit rebate amount for liquid Synagis is lower thanthe unit rebate amount for the lyophilized formulation, which has resulted in areduction in allowances for government rebates and an increase in net realizedprice during 2006.

We continuously review changes in legislation that mayaffect our estimates of liability for rebates to states under state Medicaidprograms. The Deficit Reduction Act of 2005 signed into law in 2006 requiredthat state Medicaid agencies improve their reporting functionality for rebateclaims. In connection with this legislative mandate, we undertook acomprehensive review of the allowances for government rebates, focusing inparticular on states where potential rebates had not been previously submittedto us. Based on updated information as to the intent and ability of variousstates to file claims for such rebates, we have reduced the allowance forgovernment rebates by $20.2 million in the fourth quarter of 2006 resulting inan increase to revenue. As of December 31, 2006 and 2005, allowances forgovernment rebates in those states for which reimbursement has not been soughtin the past totaled $6.8 million and $26.1 million, respectively. Estimation ofthe probable amount that will be owed to such states requires considerablejudgment, and it is possible that the amount ultimately paid could differsignificantly from amounts accrued.

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For the years ended December 31, 2006, 2005 and2004, allowances for discounts, returns, chargebacks and rebates due togovernment purchasers resulted in a net reduction to gross product sales ofapproximately 9%, 10%, and 10%, respectively.

Allowances for discounts, returns, and chargebacks,which are netted against accounts receivable, totaled $26.6 million and $20.6million at December 31, 2006 and 2005, respectively. Allowances forgovernment reimbursements were $44.4 million and $52.5 million as of December 31,2006 and 2005, respectively, and are included in accrued expenses in theaccompanying balance sheets.

If our historical trends are not indicative of thefuture, or our actual sales are materially different from the projectedamounts, or if our estimates prove to be materially different than actualoccurrence, our results could be affected. The estimation process fordetermining reserves for sales allowances inherently results in adjustmentseach year. Additionally, because of the varying lags and the seasonal nature ofour largest product, Synagis, our sales discounts, returns, chargebacks andrebates fluctuate throughout the year. If our estimate of the percentage ofgross sales to be recorded for sales allowances for Synagis were to increase by1%, our net product sales for the 2005/2006 Synagis sales season (which runsfrom July 2005 to June 2006) would have been reduced by approximately$11 million. A decrease of 1% in the sales allowances for Synagis during thesame period would have increased our revenues by approximately $11 million.

***Inventory******—We*********may capitalize inventory costsassociated with products prior to regulatory approval and product launch, basedon management’s judgment of probable future commercial use and net realizablevalue. We could be required to permanently write down any previouslycapitalized costs related to pre-approval or pre-launch inventory upon a changein such judgment, due to a denial or delay of approval by regulatory bodies, adelay in commercialization, or other potential factors. Conversely, our grossmargins may be favorably impacted if some or all of the inventory previouslywritten down becomes available and is used for commercial sale. There are noinventory amounts related to pre-approval or pre-launch products as of December 31,2006 and 2005.

We capitalize inventory costs associated with marketedproducts based on management’s judgment of probable future commercial use andnet realizable value. We could be required to permanently write down previouslycapitalized costs related to commercial inventory due to quality issues orother potential factors. Conversely, our gross margins may be favorablyimpacted if some or all of the inventory previously written down was recoveredthrough further processing or receipt of a specification waiver from regulatoryagencies, and becomes available and is used for commercial sale.

We state all inventory at lower of cost or market. Inassessing the ultimate realization of inventories, we are required to makejudgments as to multiple factors affecting our inventories and compare thesewith current or committed inventory levels. In the highly regulated industry inwhich we operate, certain raw materials, work-in-process and finished goodsinventories have expiration dates that must be factored into our judgmentsabout the recoverability of inventory costs. Additionally, if our estimate of aproduct’s demand and pricing as well as sales volumes and production capacityis such that we may not fully recover the cost of inventory, we must considerthat in our judgments as well. In the context of reflecting inventory at the lowerof cost or market, we will record permanent inventory write-downs as soon as aneed for such a write-down is determined. Such write-downs in inventory arepermanent in nature, and will not be reversed in future periods.

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The valuation of FluMist inventories requires asignificant amount of judgment for multiple reasons. Specifically, themanufacturing process is complex, in part due to the required annual update ofthe formulation for recommended influenza strains.

The annual FluMist production cycle begins in October ofthe year prior to the influenza season in which the product will be availablefor consumption. For example, the production cycle for the 2007/2008 seasonbegan in October 2006. Our raw materials have expiration dates (dates bywhich they must be used in the production process) that range from 24 months to60 months. Our semi-processed raw materials and work-in-process inventory havemultiple components, each having different expiration dates that range from nineto 24 months. Raw materials, semi-processed raw materials, work-in-processinventory and semi-finished goods may be carried over to succeeding productionseasons under certain conditions. Each season’s finished FluMist product has alimited approved shelf life, and no finished product for a particular fluseason may be sold in a subsequent season. Therefore, if our actual sales fallbelow our projections, we will be required to write off any remaining finishedgoods inventory balance at the end of the flu season.

For all FluMist inventory components on hand as of December 31,2006, we reviewed the following assumptions to determine the amount of anynecessary reserves: expected production levels and estimated cost per dose;sales volume projections that are subject to variability; the expected price tobe received for the product and anticipated distribution costs; utilization ofsemi-finished goods inventory for the succeeding production season; and currentinformation about the influenza strains recommended by the Centers for DiseaseControl and Prevention for each season’s vaccine. The methodology used tocalculate adjustments required to value our FluMist inventories as of December 31,2006 at net realizable value was consistent with the methodology used forprevious valuations, since product approval in June 2003. Given the FDArecently approved our refrigerated formulation for FluMist, and we areanticipating approval to expand the label to children between 12 months and 59months of age, we increased our planned production levels for the 2007/2008season. Based on our current projections of sales volumes and pricing, themarket value of the inventory for the 2007/2008 season exceeds cost, andtherefore no lower of cost or market inventory reserves were required as of December 31,2006. We do not expect the production cost structure for refrigerated FluMistto be significantly different from that experienced for the frozen FluMistformulation.

After completion of the fourth quarter of 2006, wedetermined that our FluMist sales for the 2006/2007 season would fall short ofour previous projections by approximately 0.9 million doses. As such, werecorded additional reserves of approximately $10.2 million to reflect totalfinished goods inventories for the 2006/2007 season at estimated realizablevalue.

Thetable below summarizes the activity within the components of FluMistinventories (in millions):

| ** **                                            | ** **   | **Gross**     | ** **   | ** **   | ** ** | **Net**       | ** **   |
|-------------------------------------------------------|--------------|---------------|--------------|--------------|------------|---------------|--------------|
| ** **                                            | ** **   | **Inventory** | ** **   | **Reserves** | ** ** | **Inventory** | ** **   |
| ***FluMist  Details***                                | *** *** |          | *** *** | *** *** |       |          | *** *** | *** *** |   |   | *** *** | *** *** |   |
| As of December 31,  2005                         |         |          | $            | 56.4         |       |          |         | $ | (37.8 | ) |   |   | $ | 18.6 |   |   |
| Raw materials,  net                                   |         |          | (4.2         | )            |       |          | 1.2          |   |   |   | (3.0 | ) |   |
| Cost of goods  sold recognized on 2005/2006 inventory |         |          | (1.9         | )            |       |          | 0.6          |   |   |   | (1.3 | ) |   |
| Cost of goods  sold recognized on 2006/2007 inventory |         |          | (35.4        | )            |       |          | 6.4          |   |   |   | (29.0 | ) |   |
| Production, net                                       |         |          | 44.2         |         |       |          | (6.4         | ) |   |   | 37.8 |   |   |
| Disposals and  scrap                                  |         |          | (30.5        | )            |       |          | 20.5         |   |   |   | (10.0 | ) |   |
| As of December 31,  2006                         |         |          | $            | 28.6         |       |          |         | $ | (15.5 | ) |   |   | $ | 13.1 |   |   |

 

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***Intangible Assetsand Goodwill******—We***haverecorded and valued significant acquired intangible assets. As of December 31,2006, the unamortized carrying amount of our intangible assets is $219.4million. We review intangible assets for impairment whenever events or changesin circumstances indicate that the carrying amount may not be recoverable.

In conjunction with the reacquisition of theco-promotion rights for Synagis in the United States, we recorded an intangibleasset of $360.4 million during 2005 which represented the estimated fair valueof the exclusive promotion rights, determined as the aggregate value of theincremental payments to be made to Abbott as a result of the amended terms ofthe agreement in excess of the value of the co-promotion services to berendered, as determined under the previous agreement. Amortization of theintangible asset is computed based on projected future sales of Synagis overthe expected period of active sales and marketing efforts in the United States,which was initially projected to continue through the first half of 2009. Inconjunction with the annual long-range planning process that occurred duringthe fourth quarter of 2006, we updated our estimates of future Synagis sales. Asa result, the estimates of certain of the incremental payments, which arevariable based on actual sales, were reduced by $14.3 million, resulting in acorresponding reduction to the gross carrying amount of the intangible asset. Wealso revised our assumptions for the transition from Synagis to Numax. TheCompany now expects to continue to actively market Synagis for children withcongenital heart disease through the 2009/2010 season. As a result, theamortization period was extended through the first half of 2010.

During 2006, goodwill was decreased by $7.3 millionfor purchase accounting adjustments related to the acquisition of Aviron inJanuary 2002 (the “Acquisition”). As of December 31, 2006, $3.7 million ofgoodwill remains on the consolidated balance sheet. During 2005, we madeadjustments to goodwill totaling $13.8 million, of which $10.0 million resultedfrom the correction to certain prior period purchase accounting adjustmentsrelated to the Acqusition, and $3.8 million resulted from current year purchaseaccounting adjustments, as discussed in the income tax section below and morefully detailed in Note 17, “Income Taxes,” to our consolidated financialstatements. We review goodwill for impairment at least annually (during thefourth quarter) and during interim periods if an event that could result in animpairment occurs; no impairments were recorded in 2006, 2005 or 2004.

***Investments in Debtand Equity Securities******—Our***short-termand long-term investments are subject to adjustment for other-than-temporaryimpairments. Impairment charges are recognized in the consolidated statementsof operations when a decline in the fair value of an investment falls below itscost value and is judged to be other than temporary. We consider variousfactors in determining whether an impairment charge is required, including: thelength of time and extent to which the fair value has been less than the costbasis; the financial condition and near-term prospects of the issuer;fundamental changes to the business prospects of the issuer; share prices ofsubsequent offerings; and our intent and ability to hold the investment for aperiod of time sufficient to allow for any anticipated recovery in market value.During 2006, 2005 and 2004, we recorded impairment losses of $14.7 million,$8.6 million and $13.7 million, respectively, based on the duration andmagnitude of the declines in the estimated fair value of certain of ourinvestments, as well as the financial condition and near-term prospects of theinvestee companies.

***Income Taxes******—We***recordvaluation allowances to reduce our deferred tax assets to the amounts that areanticipated to be realized. We consider future taxable income and ongoing taxplanning strategies in assessing the need for valuation allowances. In general,should we determine that we are able to realize more than the recorded amountsof net deferred tax assets in the future, our net income will increase in theperiod such determination was made. Likewise, should we determine that we wouldnot be able to realize all or part of the net deferred tax asset in the future,our net income would decrease in the period such determination was made.Reversals of valuation allowance related to acquired deferred tax assets,however, would first be applied against goodwill and other intangibles beforeimpacting net income. A tax reserve is recorded when we cannot assert that itis probable that a tax position claimed on a return will be 

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sustained upon challengeby the tax authority. Any change in the balance of a tax reserve during theyear is treated as an adjustment to current year tax expense.

The utilization in 2006 of certain research anddevelopment credits enabled us to release valuation allowances of $9.8 millionof which $3.6 million was applied against goodwill. The remaining $6.2 millionwas a favorable impact to income tax expense in the consolidated statement ofoperations. During 2006, we generated $9.2 million of research and developmentand orphan drug credits. The generation of these credits had a favorable impactto income tax expense in the consolidated statement of operations.

In 2006, we established additional federal taxcontingency reserves of $2.1 million related to limitations on the taxdeductibility of executive compensation. During 2005, we established additionaltax contingency reserves of $1.8 million related to various state mattersresulting in additional tax expense.

During the third and fourth quarters of 2005, we madecorrections to the previous accounting for deferred tax assets, goodwill,paid-in-capital and tax expense. The corrections related to reporting periodsdating back to the Acquisition. The corrections resulted in additional taxexpense of approximately $3.2 million for the full year 2005.

***Valuation ofEmployee Stock Option Awards******—We***use thebinomial lattice model to value stock options granted on or after January 1,2005. The binomial lattice model provides an estimate of the fair value of anoption based on the current fair value of the underlying common stock, thevolatility of the underlying common stock, and the mathematical relationshipbetween the underlying common stock and the option. Use of the binomial latticemodel requires the use of certain subjective assumptions. We believe that thebinomial lattice model provides a better measure of fair value of employeestock options because it incorporates assumptions about patterns of employeeexercises in relation to such considerations as stock price appreciation,post-vesting employment termination behavior, the contractual term of theoption and other factors.

The expected volatility of our common stock is a keyassumption that requires significant judgment. Options have value because theoption holder has unlimited upside potential, while avoiding the downside riskof falling prices. The higher the volatility in a stock, the wider the expectedrange of the stock over time, and therefore the higher the option value. Indeveloping our estimates of expected volatility, we consider historicalmeasures of volatility and the implied volatility determined from the marketprices of traded call options on our common stock. We believe impliedvolatilities generally are better indicators of marketplace participants’expectations about future volatility.

The value of options is highest if they are held aslong as possible. Since our employee stock options cannot be traded, theholders may exercise the options early for a variety of reasons, including togain liquidity, diversify their portfolio, manage taxable income, or takeadvantage of increases in the stock price that may not be expected to continue.The binomial lattice model requires that we estimate the probabilities of allthe possible exercise triggering events, including termination, death anddisability, and voluntary early exercise. We estimate probabilities ofterminations and death and disability using historical and actuarial data. Webase our estimates of the probability of early exercise on historical exercisedata and the statistical relationship between early exercise and increasingintrinsic value.

There will likely be differences between ourassumptions of future volatility and early exercise behavior and actualresults, and those differences may be material. We review our valuationassumptions at each grant date and, as a result, we are likely to change ourvaluation assumptions used to value stock based awards granted in futureperiods.

***In-Process Researchand Development******—When***weenter into agreements to acquire early to late-stage technology or productcandidates, we assign value to acquired in-process technologies by identifyingthose acquired specific in-process research and development projects that willbe continued and for which, as of the acquisition date, technologicalfeasibility has not been established, there is no alternative future use, 

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and the fair value isestimable with reasonable reliability. During 2005, we recorded a charge of$43.7 million for acquired IPR&D in conjunction with the acquisition of theoutstanding equity interests in Cellective Therapeutics, Inc. (“Cellective”).The charge represents the estimated relative fair value, as of the purchase date,of the acquired in-process technologies and certain IPR&D projects. At thetime of the acquisition, Cellective had three preclinical stage programsdeveloping monoclonal antibodies that target the B-cell antigens CD19, CD20 andCD22, which are believed to play important roles in regulating the immunesystem and offer potential treatments for cancer and autoimmune diseases. Wevalued the three preclinical stage programs equally. It was anticipated thatsignificant efforts would be required to complete the projects and thatmaterial cash inflows would not occur until 8 to 10 years from the acquisitiondate, if ever. The nature, timing and projected costs associated with theremaining efforts for completion are not reasonably estimable at this time.

As with all biotechnology products, the probability ofcommercial success for any one research and development project is highlyuncertain. The risks and uncertainties associated with completing developmentwithin the projected completion dates and realization of the anticipated returnon our investment include the inability to obtain and maintain access tointellectual property, failure in clinical trials, the inability to obtainrequired regulatory approvals, and the availability of competitive products. Ifwe fail to successfully advance Cellective’s antibody programs, we may notachieve the currently anticipated return on any investment we have made or willmake.

During 2005 and 2004, we recorded charges of $4.7million and $29.2 million, respectively, for acquired IPR&D in conjunctionwith our reacquisition of influenza vaccine franchise rights from Wyeth in May 2004.The charges represent the estimated relative fair value, as of the purchasedate, of the acquired in-process technologies and certain IPR&D projects,primarily refrigerated FluMist, calculated utilizing the sum ofprobability-adjusted commercial scenarios, or income approach. The valuationwas based upon management’s estimates of the probability of FDA and/or otherregulatory body approval and commercial success, including the estimated impactof the size of the indicated population, price, volume, timing of regulatoryapproval and any potential failure to commercialize the product.

Refrigerated FluMist is not expected to have thelogistical and distribution issues associated with the frozen formulation andis expected to have an expanded label. We did not believe that there will beany alternative future use for the in-process technologies that were expensedas of the reacquisition date. In valuing the purchased in-process technologies,we estimated cash inflows based on extensive market research performed on theU.S. marketplace and cash outflows for product costs, milestones and royaltiesto be paid over a 10-year period assuming approval and U.S. launch in the2007/2008 timeframe using probability-of-success-adjusted scenarios and adiscount rate of 11.3%. Based on our full assessment of all relevant, currentinformation, management believes that the projections underlying the analysisare reasonable; however, the actual cash inflows or outflows cannot bepredicted with certainty.

As with all biotechnologyproducts, the probability of commercial success for any one research anddevelopment project is highly uncertain. If refrigerated FluMist is not approvedby the FDA for our targeted populations, the launch may not be as successful asplanned, resulting in a diminished return on the purchase price and developmentcosts incurred to date. In addition, as of December 31, 2006, refrigeratedFluMist has not been manufactured on a sustained commercial scale. There cannotbe complete assurance that commercial scale production could be achieved orsustained.

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**RESULTS OFOPERATIONS**

**Comparison of 2006to 2005**

***Revenues—Product Sales***

| ** **              | ** ** | **2006**               | ** ** | **2005**   | ** ** | **Change** | ** ** |
|-------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **              | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| **Synagis**             | ** ** | ** **             | ** ** | ** ** | ** ** |       | ** ** | ** ** |   |
| Domestic                |       | $                      | 905.9      |       | $          | 905.2      |       |   | — | % |   |
| International           |       | 159.1                  |       | 157.7      |       |       | 1          | % |   |
|                    |       | 1,065.0                |       | 1,062.9    |       |       | —     | % |   |
| **Ethyol**              | ** ** | ** **             | ** ** | ** ** | ** ** |       | ** ** | ** ** |   |
| Domestic                |       | 85.0                   |       | 89.6       |       |       | (5         | )% |   |
| International           |       | 2.2                    |       | 5.4        |       |       | (60        | )% |   |
|                    |       | 87.2                   |       | 95.0       |       |       | (8         | )% |   |
| **FluMist**             |       | 36.4                   |       | 21.3       |       |       | 71         | % |   |
| **Other  Products**     |       | 32.6                   |       | 41.8       |       |       | (22        | )% |   |
| **Total Product Sales** |       | $                      | 1,221.2    |       | $          | 1,221.0    |       |   | — | % |   |

 

*Synagis—**Synagis*accounted forapproximately 87% of our product sales for both 2006 and 2005. Domestic Synagissales for 2006 and 2005 were comparable. Lower unit volumes were offset by agross price increase of 9.7% (yielding an approximate 6% effective priceincrease after the impact of sales allowances) effective beginning in the thirdquarter of 2006**and a $20.2million favorable impact from the adjustment of allowances for governmentrebates for states from which potential reimbursement has not been sought inthe past.

We record Synagis international product sales based ona portion of AI’s sales price to customers, as defined in our distributionagreement. Our reported international product sales of Synagis were $159.1million for 2006 compared to $157.7 million in 2005.

*Ethyol—**Ethyol*accounted forapproximately 7% and 8% of our product sales for 2006 and 2005, respectively. Domesticsales of Ethyol were $85.0 million in 2006 compared to $89.6 million in2005. The decline was attributable to lower unit volumes offset partially byprice increases totaling 6% during 2006. International sales of Ethyol were$2.2 million in 2006 as compared to $5.4 million in 2005.

*FluMist—**FluMist*accounted forapproximately 3% and 2% of our product sales for 2006 and 2005, respectively.Sales of FluMist grew 71% to $36.4 million in 2006 from $21.3 million in 2005 dueprimarily to an increase in unit sales volumes to 2.5 million doses from 1.6million doses in 2005.

*Other Products—**Sales*of otherproducts, which primarily represented sales of CytoGam and by-products thatresult from its manufacturing process, were $32.6 million in 2006 as comparedto $41.8 million for 2005. The decrease was attributable to lower sales ofCytoGam resulting from supply constraints related to plasma raw material andthe transition to a new third-party manufacturer.

***Revenues—Other Revenues***

| ** **            | ** ** | **2006**               | ** ** | **2005** | ** ** |
|-----------------------|------------|------------------------|------------|----------|------------|
| ** **            | ** ** | **(in millions)** | ** ** |
| HPV related           |       | $                      | 25.6       |     | $          | 2.5 |   |
| RSV franchise         |       | 18.2                   |       | 17.1     |       |
| Government and  other |       | 11.8                   |       | 3.3      |       |
| Total other  revenue  |       | $                      | 55.6       |     | $          | 22.9 |   |

 

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HPV related revenues include royalties and developmentand sales related milestones related to Merck’s and GSK’s HPV vaccines forcervical cancer. Sales royalties related to Merck’s and GSK’s HPV vaccines arebased on graduated royalty rate structures.

Revenuesrelated to our RSV franchise represent incremental revenue recognized under theamended international distribution agreement with AI, which represents amountsreceived in excess of estimated fair value for product sales of Synagis. Suchexcess amounts have been determined using projected reimbursements for theSynagis season, and are recorded in other revenue, as such excess payments aredeemed consideration from AI for the rights to distribute Numax outside of theUnited States.

***Costof Sales***

Costof sales for 2006 decreased 3% to $327.7 million from $336.7 million for 2005.Gross margins on product sales were 73% for 2006, up one percentage point fromgross margins of 72% for 2005. Gross margins for all products, excludingFluMist, were 77% and 76% for 2006 and 2005, respectively. Cost of sales in2006 included $1.4 million of share-based compensation expense. The increase ingross margins on product sales is attributable to the impact of a favorableadjustment to allowances for Medicaid rebates, declining royalty rates forEthyol, and the elimination of lower of cost or market inventory adjustmentsfor FluMist beginning in the fourth quarter of 2006.

***Researchand Development Expenses***

Research and development expenses of $448.9 million in2006 increased 17% from $384.6 million in 2005. The increase is primarily dueto higher costs associated with collaborations and licensing deals, andincludes the $70.0 million upfront fee for the Infinity collaboration. Theincrease also relates to the increased costs associated with the expansion ofinfrastructure to support studies related to various in-licensing agreementsand collaborations executed over the past several years, share-basedcompensation expense of $10.8 million for 2006, offset partly by lower levelsof clinical and preclinical study costs. Research and development expenses in 2006were 37% of product sales versus 31% of product sales in 2005, reflecting thecontinuing investment to bring new products to market as part of our long-rangeplan.

Wehave numerous programs in clinical and pre clinical development.  We are currently awaiting a response from theFDA to our sBLA to expand the label for FluMist (refrigerated) for theprevention of influenza in children down to one year of age, and anticipate adecision during the second quarter of 2007. We recently completed Phase 3 studies for Numax and are evaluating thedata in preparation for submission to the FDA for regulatory approval duringthe second half of 2007.  A summary ofour remaining product candidates and the current status of our research anddevelopment efforts, including the efforts of our collaborators, is included inPart I, Item 1, Business, “Product Candidates,” of this Annual Report on Form10-K.  The nature, timing and projectedcosts associated with the remaining efforts for completion of these programsare not reasonably estimable at this time, given the inherent risks anduncertainties associated with bringing product candidates to market.

***Selling,General and Administrative Expenses***

Selling,general and administrative expenses (“SG&A”) increased 9% to $541.2 millionin 2006 compared to $498.4 million in 2005. The increase is attributable to thefull-year amortization expense of $85.4 million recognized during 2006associated with the intangible asset for U.S. co-promotion rights for Synagisas compared to $41.3 million of partial year amortization expense recognizedduring 2005, as well as the expansion of the marketing and sales managementteam and the pediatric sales organization related to the assumption of fullpromotional responsibility for Synagis in the U.S. effective July 1, 2006,and higher legal and other professional services fees. SG&A expenseincluded co-promotion expense of $95.2 million and $192.2 million in 2006 and2005, respectively. Effective July 1, 2006, normal co-promotion expense toAbbott was discontinued. Amortization costs of the intangible asset associatedwith U.S. co-promotion rights will continue until we cease actively marketingSynagis. The Company now expects to actively market Synagis for children withcongenital heart disease through the 2009/2010 season. SG&A expense in 2006also includes stock-based compensation expense of $22.0 million. As apercentage of 

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product sales, SG&A expense increased to 44% ofproduct sales for 2006 compared to 41% of product sales in 2005.

***Saleof CytoGam***

On December 14, 2006, we sold the worldwiderights to CytoGam and certain related assets to ZLB Behring AG (ZLB). Wereceived aggregate consideration of $57.2 million for the rights andassets, net of broker fees, and we may also receive up to an additional $70.0million in contingent payments upon achievement by ZLB of specified sales milestones,the achievement of which is considered uncertain. In addition, we agreed toprovide transition services related to CytoGam primarily for a period of up to60 days subsequent to the closing date.

We recognized the proceeds received from the sale of theassets on the date of completion of the sale, and will recognize the proceedsreceived from the transition services as earned over the transition serviceperiod. The net pre-tax gain on the sale of assets recognized in the currentquarter was $48.5 million. Any contingent payments related to the salesmilestones will be recognized as additional gain at the time of milestoneachievement. As of December 31, 2006, approximately $0.2 million fortransition services was recognized, which is included in Other Current Assets in the accompanyingconsolidated balance sheet.

Thetransaction was accounted for as a disposal of assets, with the resulting gainincluded as a component of income from continuing operations.

***Gain/Losson Investment Activities***

Werecorded a net gain on investment activities of $34.0 million during 2006,compared to a net loss of $8.6 million during 2005. The 2006 net gain consistsprimarily of the $30.6 million gain from the sale of our equity interests inAvidia, Inc., gains of $17.7 million on sales of common stock of publiclytraded companies held by our venture capital subsidiary, offset by impairmentwrite-downs of $14.7 million due to the decline in fair value of certain of ourminority interest investments below their cost basis that were determined to beother-than-temporary. The 2005 loss consists primarily of other-than-temporaryimpairment write-downs.

***IncomeTaxes***

We recorded income tax expense of $25.9 million for2006, resulting in an effective tax rate of 35% for the period including theimpact of share-based compensation. Share-based compensation expense iscomprised of incentive stock options, non-qualified stock options and thediscount on stock purchased by employees. If incentive stock options areexercised and sold or stock purchased by employees through the employee stockpurchase plan is sold within one year, becoming non-qualifying dispositions, wewill be allowed to recognize tax deductions at that time. Until that time, forfinancial reporting purposes we assume that no tax deduction is allowed. Theeffective tax rate for 2006, excluding the impact of share-based compensation,was 31%. We recorded income tax expense of $24.1 million for 2005, resulting inan effective rate of 321% for the period. Income tax expense in 2005 wasaffected by the non-deductible acquired IPR&D charge of $43.7 millionrelated to the acquisition of Cellective as well as a correction to the prioraccounting for the reversal of approximately $4.8 million of valuationallowances associated with the utilization of certain acquired income taxcarryforwards. Excluding both the acquired IPR&D charge and the effect ofthe correction, the effective tax rate for 2005 was approximately 41%. Thedecrease in the effective rate in 2006 was attributable primarily to therelease of valuation allowances associated with the utilization of tax creditcarryforwards used to offset higher taxable income and higher orphan drugcredits.

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***Net Earnings (Loss)***

We reported net earnings for 2006 of $48.7 million, or$0.20 per diluted share compared to a net loss for 2005 of $16.6 million, or$0.07 per share. Shares used in computing basic and diluted earnings per sharefor 2006 were 243.1 million and 246.3 million, respectively, while shares usedin computing loss per share for 2005 were 246.9 million.

We do not believeinflation had a material effect on our financial statements.

**Comparison of 2005to 2004**

***Revenues—Product Sales***

| ** **              | ** ** | **2005**               | ** ** | **2004**   | ** ** | **Change** | ** ** |
|-------------------------|------------|------------------------|------------|------------|------------|------------|------------|
| ** **              | ** ** | **(in millions)** | ** ** | ** ** | ** ** |
| **Synagis**             | ** ** | ** **             | ** ** | ** ** | ** ** |       | ** ** | ** ** |   |
| Domestic                |       | $                      | 905.2      |       | $          | 833.6      |       |   | 9 | % |   |
| International           |       | 157.7                  |       | 108.7      |       |       | 45         | % |   |
|                    |       | 1,062.9                |       | 942.3      |       |       | 13         | % |   |
| **Ethyol**              | ** ** | ** **             | ** ** | ** ** | ** ** |       | ** ** | ** ** |   |
| Domestic                |       | 89.6                   |       | 88.4       |       |       | 1          | % |   |
| International           |       | 5.4                    |       | 4.0        |       |       | 36         | % |   |
|                    |       | 95.0                   |       | 92.4       |       |       | 3          | % |   |
| **FluMist**             |       | 21.3                   |       | 48.0       |       |       | (56        | ) |   |
| **Other  Products**     |       | 41.8                   |       | 41.3       |       |       | 1          | % |   |
| **Total Product Sales** |       | $                      | 1,221.0    |       | $          | 1,124.0    |       |   | 9 | % |   |

 

*Synagis—**Synagis*accounted forapproximately 87% and 84% of our product sales for 2005 and 2004, respectively.We achieved a 9% increase in domestic Synagis sales to $905.2 million for 2005,up from $833.6 million in 2004. The growth over the prior year period resultedfrom a 5.5% increase in the domestic sales price along with a 4% increase inunit sales volume. While sales of Synagis finished strong for the last half ofthe 2004/2005 RSV season, the 2005/2006 RSV season started slower than expecteddue primarily to changes in payer guidelines that led to delays of when manypatients received their first dose of Synagis, the effects of Hurricanes Katrinaand Rita on certain sales territories, and an early disruption in the product’sdistribution network caused by the departure of a large distributor prior tothe 2005/2006 season. In addition, sales patterns in the fourth quarter of 2005were affected by conversion of the U.S. supply from the lyophilized formulationto the new liquid formulation of Synagis, which primarily occurred during themonth of November.

Our reported international sales of Synagis increasedto $157.7 million in 2005 compared to $108.7 million in 2004, primarily due tocontinued demand growth in several key international markets and the timing ofstocking patterns for the 2005/2006 season, partially offset by the unfavorablecurrency translation impact of a strengthened U.S. dollar. During 2005, thelabel for Synagis was expanded in Japan to include children with congenitalheart disease.

*Ethyol—**Ethyol*accounted forapproximately 8% of our product sales for 2005 and 2004. Worldwide Ethyol salesincreased slightly to $95.0 million in 2005, as compared to $92.4 million in2004, primarily due to an increase in the domestic sales price along withmodest growth in international sales volumes for 2005.

*FluMist—**FluMist*accounted forapproximately 2% and 4% of our product sales for 2005 and 2004, respectively.Sales of FluMist were $21.3 million in 2005, as compared to $48.0 million in2004, a decrease primarily due to lower unit sales volumes and the timing ofrevenue recognition for product shipped during 2003. Our 2005 sales of FluMistare comprised of 0.3 million doses sold during the first quarter of 2005 as 

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the 2004/2005 influenzaseason came to an end and 1.3 million doses sold during the second half of 2005related to the 2005/2006 influenza season. Our 2004 sales of FluMist of $48.0 millionconsisted of product sales for the 2004/2005 flu season of $20.9 million,representing estimated net doses of approximately 1.7 million, as well as $27.1million of transfer price for product shipped to Wyeth during 2003 for the2003/2004 influenza season. At December 31, 2003, the variables associatedwith FluMist product revenues were not determinable, largely due to low salesvolume and the lack of returns history and comparable rebate redemption ratesfor the new product. As a result, product revenues associated with the dosesthat were shipped to Wyeth in 2003 were not recognized until the first quarterof 2004.

*Other Products—**Sales*of otherproducts include sales of CytoGam, NeuTrexin, and by-products that result fromthe CytoGam manufacturing process, as well as sales of RespiGam in 2004, andamounted to $41.8 million in 2005 as compared to $41.3 million for 2004. Theincrease is primarily due to a 3% increase in sales of CytoGam.

***Revenues—OtherRevenues***

Other revenues increasedto $22.9 million for 2005 compared to $17.1 million for 2004. Other revenues in2005 include $17.1 million of revenue related to the amended terms of ourinternational distribution agreement with AI, which represents amounts receivedin excess of the estimated fair value for product sales of Synagis, asexplained in Note 16, “Collaborative Arrangements,” to our consolidatedfinancial statements. Other revenues in 2004 are largely comprised ofcontractual payments received from Wyeth prior to dissolution of ourcollaboration, including royalties related to the 2003/2004 influenza seasonand corporate funding for clinical development and sales and marketingprograms. Other revenues in 2004 also include $7.5 million of milestone revenuerecognized under our international distribution agreement with AI upon theachievement of end-user sales of Synagis outside the U.S. in excess of $150million in a single RSV season.

***Cost of Sales***

Cost of sales for 2005decreased 8% to $336.7 million from $366.4 million for 2004. Gross margins onproduct sales were 72% for 2005, up five percentage points from gross marginsof 67% for 2004. Gross margins for all products, excluding FluMist, improved to76% in 2005 from 75% in 2004, primarily due to manufacturing efficiencies andthe $4.9 million recoupment of past royalty overpayments that was recognized asa reduction to cost of sales during the third quarter of 2005. The impact ofFluMist reduced overall gross margins in 2005 and 2004 by four percentagepoints and eight percentage points, respectively . FluMist exerted less of anegative impact on gross margins for 2005 due primarily to focused efforts togain manufacturing efficiencies and improved net revenue estimates for the2006/2007 influenza season (see further discussion of inventory in the CriticalAccounting Estimates section of this Management’s Discussion and Analysis).

***Research andDevelopment Expenses***

Research and developmentexpenses of $384.6 million in 2005 increased 18% from $327.3 million in 2004.Research and development expenses, as reported in the accompanying statementsof operations, included both our ongoing expenses of drug discovery anddevelopment efforts, as well as costs related to the technology transfer andtransition activities associated with reacquisition of the influenza vaccinesfranchise from Wyeth during 2004. The increase is due largely to direct costsassociated with ongoing and additional clinical and preclinical trials forproduct candidates, increases in headcount and related expenses in support ofincreased research and development activities and upfront licensing fees andmilestone payments related to in-licensing agreements and researchcollaborations. Upfront fees and milestones incurred in connection withresearch collaborations and in-licensing agreements were $54 million in 2005versus $19 million in 2004. Also included in research and development expensesin 2005 

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and 2004are $2.0 million and $27.8 million, respectively, in costs for technologytransfer and transition activities associated with our assumption of researchand development activities related to the influenza vaccines franchise.Research and development expenses in 2005 were 31% of product sales versus 29%of product sales in 2004, reflecting the continuing investment to bring newproducts to market as part of our long-range plan.

***Selling, Generaland Administrative Expenses***

SG&A expensesincreased 25% to $498.4 million in 2005 compared to $400.2 million in 2004. Theincrease is largely attributable to increased co-promotion expense,corresponding to the increase in domestic Synagis sales, and the continuedexpansion of the pediatric commercial organization. Co-promotion expense was$192.2 million in 2005 and $168.3 million in 2004. Also included in SG&Aexpense in 2005 is amortization expense of $41.3 million associated with theintangible asset for U.S. co-promotion rights for Synagis that was acquired andrecorded during the third quarter of 2005. As a percentage of product sales,SG&A expense increased to 41% of product sales for 2005 compared to 36% ofproduct sales in 2004.

***Impairment ofIntangible Asset***

As a result of enteringinto agreements to dissolve the collaboration with Wyeth during April 2004,we recorded a permanent impairment loss of $73.0 million that represented theremaining unamortized cost originally recorded for the collaboration withWyeth.

***Acquired IPR&D***

We recorded charges foracquired IPR&D of $43.7 million in 2005 in conjunction with the acquisitionof the outstanding equity interests in Cellective. The transaction wasaccounted for as a purchase of assets, and the purchase price was allocated tothe assets acquired and liabilities assumed based on their relative fair values,with a portion allocated to the estimated value of acquired IPR&D. During2005 and 2004, we also recorded charges for acquired IPR&D of $4.7 millionand $29.2 million, respectively, in conjunction with our reacquisition of theinfluenza vaccines franchise from Wyeth. The charges represent the estimatedrelative fair value of purchased in-process technologies and research anddevelopment projects, primarily refrigerated FluMist at the acquisition date,including the impact of subsequent milestone payments, calculated utilizing theincome approach. See further discussion of IPR&D in the Critical AccountingEstimates section of this Management’s Discussion and Analysis.

***Loss on InvestmentActivities***

We recorded a net loss oninvestment activities of $8.6 million during 2005, compared to a net loss of$2.7 million during 2004. The 2005 net loss consists primarily of impairmentwrite-downs due to the decline in fair value of certain of our investments inprivate companies below their cost basis that were determined to beother-than-temporary. The 2004 net loss consists of impairment write-downs of$13.7 million which are partially offset by realized gains on sales of commonstock and other investments totaling $11.0 million.

***Income Taxes***

We recorded income tax expenseof $24.1 million for 2005 compared to an income tax benefit of $5.4 million for2004. Income tax expense in 2005 was affected by the non-deductible acquiredIPR&D charge of $43.7 million related to the acquisition of Cellective aswell as by $3.2 million relating to corrections made in the second half of 2005to the prior accounting for income taxes, as more fully discussed in Note 15, “IncomeTaxes,” to our consolidated financial statements. The corrections werecomprised of amounts related to reporting periods dating back to theacquisition of Aviron in January 2002. Excluding both the 

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acquiredIPR&D charge and the effect of the corrections, the effective tax rate for2005 was approximately 41%. Comparatively, the effective tax rate for 2004 was33%, excluding the impact of the termination of the Wyeth agreements, includingapproximately $6.9 million of non-deductible charges for acquired IPR&Dincurred during the second quarter of 2004. The increase in the effective rate,excluding non-deductible charges, in 2005 is attributed to the lower level ofpre-tax book income that amplifies the impact of certain nondeductible items, adecrease in the R&D tax credits available and higher state taxes.

***Net Earnings***

We reported a net loss for 2005 of $16.6 million, or$0.07 per share compared to a net loss for 2004 of $3.8 million, or $0.02 pershare. Shares used in computing losses per share for 2005 and 2004 were 246.9million and 248.6 million, respectively.

We do not believeinflation had a material effect on our financial statements.

**LIQUIDITY ANDCAPITAL RESOURCES**

**Sources and Uses ofCash**

Historically, our capital requirements have beenfunded from cash provided by operations, investments on hand and proceeds fromthe issuance of debt. Our primary source of outside liquidity during 2006 wasthe issuance of $1.15 billion in convertible notes. In April 2006 weentered into a three-year $600.0 million credit facility that provides forcollateralized revolving borrowings and letters of credit. As of December 31,2006, there were no outstanding borrowings under the credit facility. Managementbelieves that internally generated cash flow as well as our existing funds andborrowing capacity under our credit facility will be adequate to service ourexisting debt and other cash requirements.

Cash and marketablesecurities were $1,505.2 million at December 31, 2006 as compared to$1,471.9 million at December 31, 2005. Working capital increased to $794.3million at December 31, 2006 from $(111.2) million as of December 31,2005.

*OperatingActivities*

Net cash used in operatingactivities was $127.6 million in 2006 as compared to cash provided of $110.7million in 2005. Operating cash flows are driven by changes in net income, asadjusted for the impact of non-cash charges and differences in the timing ofcash flows and earnings recognition. The decrease in operating cash flows isattributable to incremental payments to Abbott for the Synagis U.S.co-promotion rights totaling $229.7 million in 2006. Trade receivable balancesas of December 31, 2005 were higher due to the launch of the liquidformulation of Synagis late in the fourth quarter of 2005. Trade receivablebalances as of December 31, 2006 have resumed more normal levels.

*InvestingActivities*

Cash provided by investingactivities during 2006 amounted to $87.5 million, as compared to cash usedof $59.9 million during 2005. Cash provided by investing activities in 2006included net reductions to our investment portfolio of $183.4 million; proceedsfrom dispositions of minority interest investments totaling $41.8 million;and proceeds of $56.9 million from the sale of CytoGam; partially offset bycapital expenditures totaling $142.2 million, primarily for the construction ofour pilot lab and office facility in Gaithersburg, Maryland; and newinvestments by our venture capital subsidiary of $52.4 million.

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*FinancingActivities*

Cash provided by financing activities during 2006amounted to $246.2 million as compared to cash used of $68.8 millionduring 2005. The increase is primarily due to the net proceeds from the June 2006issuance of convertible senior notes and related hedging and stock repurchasetransactions of approximately $841.6 million. The proceeds were used in part toretire $489.6 million of our existing 1% convertible senior notes in July 2006.The remaining proceeds were used to fund payments of $229.7 million to Abbottfor the Synagis U.S. co-promotion rights and to fund additional stockrepurchases as well as capital expenditures. In the aggregate, we made cashpayments of $318.8 million and $105.9 million during 2006 and 2005,respectively, to repurchase shares of our common stock. During 2006, $62.1million was received upon the exercise of employee stock options as compared to$41.9 million received in 2005.

During June 2006, we issued $1.15 billion inconvertible senior notes (the “Notes”) for total proceeds of $1.13 billion, netof debt issuance costs. In connection with the issuance of the Notes, weentered into separate convertible note hedge transactions and separate warranttransactions with respect to our common stock (collectively referred to as the “CallSpread Transactions”). The Call Spread Transactions have the effect of reducingthe potential dilution upon conversion of the Notes. As a result of the CallSpread Transactions, we do not anticipate experiencing dilution from theissuance of the Notes unless the price of our common stock appreciates above$47.67 per share, effectively increasing the conversion premium to $47.67. Wepurchased call options to cover approximately 34.5 million shares of our commonstock at a strike price of $33.37 per share for $316.5 million, and soldwarrants to acquire approximately 34.5 million shares of our common stock at astrike price of $47.67 per share for aggregate proceeds of approximately $177.0million. Concurrently with the sale of the Notes, we used $148.0 million of thenet proceeds to repurchase approximately 5.4 million shares of our common stockin privately negotiated transactions. The Notes were issued in part to redeemour $500.0 million of 1% convertible senior notes that were called by most ofthe bondholders in July 2006. We intend to use the balance of the proceedsfor general corporate purposes, including potential acquisitions, in-licensingand collaboration opportunities, and additional share repurchases. Standard &Poors subsequently reiterated their BBB rating, considered to be investmentgrade, on our outstanding public debt.

During May 2006, ourBoard of Directors authorized management to repurchase up to $500.0 million ofthe Company’s common stock in the open market or in privately negotiatedtransactions in addition to the $500.0 million approved for purchase from2003 through 2006. As of February 21, 2007, approximately $268.1 millionof the $500.0 million newly authorized amounts remained available foradditional repurchases of stock. We are holding repurchased shares as treasuryshares and are using them for general corporate purposes, including but notlimited to acquisition-related transactions and for issuance upon exercise ofoutstanding stock options.

**Cash Requirements**

We expend cash to finance our research and developmentand clinical trial programs; to fund acquisitions; to obtain access to newtechnologies through collaborative research and development agreements withstrategic partners, through our venture capital subsidiary, or through othermeans; to fund capital projects; and to finance the production of inventories.

In 2007, we will continue construction of the new cellculture manufacturing facility located adjacent to our existing biologicsfacility in Frederick, Maryland, which we plan to use as a manufacturing sitefor potential new monoclonal antibody products that emerge from our pipeline,including Numax. We expect our capital expenditures to approximate $200 millionin 2007.

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Thefollowing table summarizes our contractual obligations and commitments as of December 31,2006 that we anticipate will require significant cash outlays in the future (inmillions):

| **Contractual Obligations**    | ** ** | ** ** | ** ** | **Total** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **Beyond** | ** ** |
|-------------------------------------|------------|------------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|------------|------------|
| Long-term debt                      |       | $          | 1,165.5    |      | $          | 1.1      |       | $        | 0.7        |     | $          | 10.8     |       | $        | 0.4        |       | $          | 575.4 |   | $ | 577.1 |   |
| Facilities  operating leases        |       | 81.0       |       | 12.9      |       | 11.0     |       | 9.4      |       | 8.9      |       | 8.1      |       | 30.7     |       |
| Purchase  obligations               |       | 137.0      |       | 34.3      |       | 29.2     |       | 23.1     |       | 16.8     |       | 16.8     |       | 16.8     |       |
| Obligations to  Abbott (1)          |       | 51.1       |       | 51.1      |       | —   |       | —   |       | —   |       | —   |       | —   |       |
| Total contractual obligations       |       | $          | 1,434.6    |      | $          | 99.4     |       | $        | 40.9       |     | $          | 43.3     |       | $        | 26.1       |       | $          | 600.3 |   | $ | 624.6 |   |
| *Other Commercial Commitments*      | * *   | * *   | * *   | * *  | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   | * * | * *   |
| Standby letters  of credit (2)      |       | $          | 4.1        |      | $          | 4.1      |       | $        | —     |     | $          | —   |       | $        | —     |       | $          | — |   | $ | — |   |
| Other contractual  commitments (3)  |       | 56.9       |       | 56.9      |       | —   |       | —   |       | —   |       | —   |       | —   |       |
| Total other  commercial commitments |       | $          | 61.0       |      | $          | 61.0     |       | $        | —     |     | $          | —   |       | $        | —     |       | $          | — |   | $ | — |   |

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(1)          Represents the presentvalue of the probable incremental payments to be made to Abbott as a result ofthe amended terms of the co-promotion agreement in excess of the value of theco-promotion services to be rendered, as determined under the originalagreement. In addition, if Numax is not approved by the FDA before September 1,2008, we would pay Abbott a portion of the proceeds from the sales of Synagisin the U.S. for up to a two-year period beginning at such time; such contingentamounts are not included above.

(2)          We have guaranteedperformance under certain agreements related to our construction projects. Theundiscounted maximum potential amount of future payments that we could berequired to make under such guarantees, in the aggregate, is approximately $4.1million. As of December 31, 2006, there was $4.5 million of restrictedcollateral relating to our outstanding letters of credit under the creditfacility.

(3)          We have entered into anumber of research and development collaborations, in-licensing agreements andother contractual arrangements to gain access to new product candidates andtechnologies, to further develop our products and technology, and to performclinical trials. The amounts indicated as commitments under these agreementsrepresent expected noncancelable funding obligations under these agreements.The amounts exclude cancelable funding commitments, contingent commitments fordevelopment milestone payments as well as sales-related milestone payments androyalties relating to potential future product sales under these agreements.These potential payments have been excluded since the amount, timing andlikelihood of these payments is unknown as they are dependent on the occurrenceof future events that may or may not occur, such as the granting by the FDA ofa license for product marketing in the United States.

*Off-Balance SheetArrangements—**We*have not entered into anytransactions, agreements or other contractual arrangements that meet thedefinition of off-balance sheet arrangements.

**ITEM 7A.**        *QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK*

The following discussion about our risk-managementactivities includes “forward-looking statements” that involve risks anduncertainties. Actual results could differ materially from those projected inthe forward-looking statements.

Our primary market risks as of December 31, 2006are our exposures to loss resulting from changes in interest rates, equityprices and foreign currency exchange rates.

*Marketablesecurities—**As*of December 31, 2006, ourexcess cash balances are primarily invested in marketable debt securities withinvestment grade credit ratings. Substantially all of our cash and cashequivalents and short-term and long-term investments are held in custody bythree major U.S. financial 

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institutions. Depositsheld with banks may exceed the amount of insurance provided on such deposits.Generally, these deposits may be redeemed upon demand and, therefore, bearminimal risk. Our investments consist principally of U.S. government and agencysecurities and corporate notes and bonds. The maturities range from one monthto seven years. Our investment guidelines are intended to limit the amount ofinvestment exposure as to issuer, maturity, and investment type. The fair valueof these investments is sensitive to changes in interest rates. Further,interest income earned on variable rate debt securities is exposed to changesin the general level of interest rates.

Thefollowing table presents principal cash flows and weighted average interestrates by expected maturity dates for each class of debt security with similarcharacteristics (in millions):

| ** **                    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Fair**  | ** ** |
|-------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|-----------|------------|
| ** **                    | ** ** | **2007**   | ** ** | **2008**   | ** ** | **2009**   | ** ** | **2010**   | ** ** | **2011**   | ** ** | **2012**   | ** ** | **2013**   | ** ** | **Total**  | ** ** | **Value** | ** ** |
| U.S. Gov’t and  Agencies |       | $          | 139.3      |       | $          | 26.9       |       | $          | 35.5       |       | $          | 15.0       |       | $          | 30.0       |       | $          | —    |       |   | $ | — |   |   | $ | 246.7 |   | $ | 244.4 |   |
| Interest Rate                 |       | 4.4        | %          | 4.5        | %          | 4.3        | %          | 4.3        | %          | 4.5        | %          | —     | %          |       | —     | %          |       |      |       |   |   |
| Corp. Notes and  Bonds        |       | $          | 268.3      |       | $          | 269.3      |       | 213.1      |       | $          | 42.1       |       | $          | 53.4       |       | $          | 2.0        |      |       | $ | — |   |   | $ | 848.2 |   | $ | 859.3 |   |
| Interest Rate                 |       | 5.5        | %          | 4.0        | %          | 5.5        | %          | 4.4        | %          | 5.1        | %          | 6.6        | %          |       | —     | %          |       |      |       |   |   |
|                               |            |            |            |            |            |            |            |            |            |            |            |            |            |            |            |            |            |           |            |  |  |  |  |  |  |  |  |  |  |  |

 

*Minorityinterest investments—**We*are exposed to equity pricerisks and risk of impairment related to our minority interest investments.MedImmune Ventures, Inc., our wholly-owned venture capital subsidiary,manages our current portfolio of minority interest investments and endeavors tomake investments in public or private biotechnology companies focused ondiscovering and developing human therapeutics. Our Board of Directors hasapproved funding to MedImmune Ventures for up to $300 million in investments,of which $152.2 million has been invested as of February 21, 2007.MedImmune Ventures will invest primarily in areas of strategic interest toMedImmune, including infectious disease, inflammatory disease and cancer. Thecost basis of MedImmune Ventures’ investment holdings, net of divestitures and impairmentwritedowns, was $89.4 million as of December 31, 2006.

Our minority interest investments are subject toadjustment for other-than-temporary impairments. We recognize impairmentcharges in the consolidated statements of operations when a decline in the fairvalue of an investment falls below its cost value and is judged to be otherthan temporary. We consider various factors in determining whether we shouldrecognize an impairment charge, including: the length of time and extent towhich the fair value has been less than our cost basis; the financial conditionand near-term prospects of the issuer; fundamental changes to the businessprospects of the investee; share prices of subsequent offerings; and our intentand ability to hold the investment for a period of time sufficient to allow forany anticipated recovery in market value. During 2006, 2005 and 2004, werecorded impairment losses of $14.7 million, $8.6 million and $13.7 million,respectively, based on the duration and magnitude of the declines in fairvalue, as well as the financial condition and near-term prospects of theinvestee companies. We expect the volatility in the fair value of our minorityinvestments to continue and, therefore, the value assigned to the investmentscould change significantly from period to period.

As of December 31, 2006, MedImmune Ventures’portfolio included approximately 8.5 million shares of common stock of fivepublicly traded companies with a cost basis, net of impairment writedowns, of$28.8 million and fair value of $38.9 million. The remainder of MedImmuneVentures’ portfolio as of December 31, 2006 consists primarily of minorityinterest investments in privately-held biotechnology companies. The investmentsare maintained on the cost or equity method of accounting, according to thefacts and circumstances of the individual investment. For investments carriedon the equity method, we record our proportionate share of the investees’ gainsor losses on a quarterly basis, which was immaterial during 2006, 2005 and2004. As of December 31, 2006, the investments in privately-held companieshad a cost basis of $60.6 million, net of impairment writedowns.

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*Long-termDebt—**Our*outstanding indebtedness of$1,165.5 million at December 31, 2006 is in the form of notes that bearinterest primarily at fixed rates. Maturities for all long-term debt for thenext five years are as follows: 2007, $1.1 million; 2008, $0.7 million; 2009,$10.8 million; 2010, $0.4 million; and 2011, $575.4 million.

In June 2006, we issued $575 million aggregateprincipal amount of convertible senior notes due 2011 (“2011 Notes”) and $575million aggregate principal amount of convertible senior notes due 2013 (“2013Notes”) (collectively referred to as the “Notes”). The 2011 Notes and 2013Notes bear interest at 1.375% per annum and 1.625% per annum, respectively, ineach case payable semi-annually in arrears. The estimated fair value of the2011 Notes and 2013 Notes at December 31, 2006, based on quoted marketprices, was $651.2 million and $662.0 million, respectively.

As of December 31, 2006, $10.4 million aggregateprincipal amount of convertible senior notes issued in July 2003 areoutstanding. These notes, which are due in 2023, bear interest at 1.0% perannum payable semi-annually in arrears. Beginning with the six-month interestperiod commencing July 15, 2006, if the average trading price of thesenotes during specified periods equals or exceeds 120% of the principal amountof such notes, we will pay contingent interest equal to 0.175% per six-monthperiod of the average trading price per $1,000 of the principal amount duringsuch periods. As a result, if the market value of these notes appreciatessignificantly in the future, we could be obligated to pay amounts of contingentinterest.

On April 25, 2006, the Company entered into a$600.0 million credit facility with a three-year term. The credit facilityprovides for revolving borrowings and letters of credit collateralized by theCompany’s marketable securities, which become restricted to the extent thecredit facility is utilized. Borrowings bear interest at a variable rate basedon prime or LIBOR rates, and the Company is obligated for a commitment feeassociated with the unused portion of the credit facility. As of December 31,2006, there were no outstanding borrowings under the credit facility.

*ForeignCurrency—**Expenditures*relating to ourmanufacturing operations in the U.K. and the Netherlands are paid in localcurrency. We have not hedged our expenditures relating to these manufacturingoperations; therefore, foreign currency exchange rate fluctuations may resultin increases or decreases in the amount of expenditures recorded. Additionally,certain of our distribution agreements outside the U.S. provide for us to bepaid based upon sales in local currency. As a result, changes in foreigncurrency exchange rates could affect the amount we expect to collect underthese agreements.

We have entered into a Euro-denominated supplementalmanufacturing contract with Boehringer Ingelheim Pharma GmbH & Co. KG(“BI”) for the supplemental manufacturing of Synagis. Fluctuations in the Euroto U.S. Dollar exchange rate may lead to changes in our U.S. Dollar cost ofmanufacturing. To reduce the risk of unpredictable changes in these costs, wemay, from time to time, enter into forward foreign exchange contracts. As of December 31,2006, we did not have any open foreign exchange forward contracts. Currently,we have firm commitments with BI for planned production and fill/finish through2012 for approximately 80.0 million Euros ($105.6 million as of December 31,2006).

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**ITEM 8.**                *CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA*

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To Board of Directors and Shareholders of MedImmune, Inc.:

We have completed integrated audits of MedImmune Inc’sconsolidated financial statements and of its internal control over financialreporting as of December 31, 2006, in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Our opinions, basedon our audits, are presented below.

*Consolidated financial statements and financial statementschedule*

In our opinion, theconsolidated financial statements listed in the index appearing under Item15(a)(1) present fairly, in all material respects, the financialposition of MedImmune Inc. and its subsidiaries at December 31, 2006 and December 31,2005, and the results of their operations and their cash flows for each of thethree years in the period ended December 31, 2006 in conformity withaccounting principles generally accepted in the United States of America. In addition, in our opinion, the financialstatement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, theinformation set forth therein when read in conjunction with the relatedconsolidated financial statements. These financial statements andfinancial statement schedule are the responsibility of the Company’s management.Our responsibility is to express an opinion on these financial statements andfinancial statement schedule based on our audits. We conducted our audits ofthese statements in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit of financialstatements includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.

As discussed in Note 2 to the consolidated financialstatements, effective January 1, 2006 the Company changed its method ofaccounting for share-based compensation, in accordance with Statement ofFinancial Accounting Standards No. 123 (revised 2004), “Share-based Payment”.

*Internal controlover financial reporting*

Also, in our opinion, management’s assessment,included in Management’s Report on Internal Control over Financial Reportingappearing under Item 9A, that the Company maintained effective internal controlover financial reporting as of December 31, 2006 based on criteriaestablished in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO), is fairly stated, in all material respects, based on those criteria.Furthermore, in our opinion, the Company maintained, in all material respects,effective internal control over financial reporting as of December 31,2006, based on criteria established in *Internal Control—IntegratedFramework* issued by the COSO. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting. Our responsibility is to express opinions on management’s assessmentand on the effectiveness of the Company’s internal control over financialreporting based on our audit. We conducted our audit of internal control overfinancial reporting in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. An audit of internal control over financial reportingincludes obtaining an understanding of internal control over financialreporting, evaluating management’s assessment, testing and evaluating thedesign and operating effectiveness of internal control, and performing suchother 

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procedures as we consider necessary in thecircumstances. We believe that our audit provides a reasonable basis for ouropinions.

A company’s internal control over financial reportingis a process designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. A company’sinternal control over financial reporting includes those policies andprocedures that (i) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (ii) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal controlover financial reporting may not prevent or detect misstatements. Also,projections of any evaluation of effectiveness to future periods are subject tothe risk that controls may become inadequate because of changes in conditions,or that the degree of compliance with the policies or procedures maydeteriorate.

PricewaterhouseCoopers LLPMcLean, VirginiaFebruary 27, 2007

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**MEDIMMUNE, INC.CONSOLIDATED BALANCE SHEETS**

| ** **                                                                                                                             | ** ** | **December 31,**  | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                                                                             | ** ** | **2006**               | ** ** | **2005**              | ** ** |
| ** **                                                                                                                             | ** ** | **(in millions)** | ** ** |
| ASSETS:                                                                                                                                |       |                   |       |                  |       |   |   |   |   |
| Cash and cash equivalents                                                                                                              |       |                   | $          | 359.4                 |       |   |   | $ | 153.4 |   |   |
| Marketable securities                                                                                                                  |       |                   | 468.0      |                  |       |   | 457.1 |   |   |
| Trade receivables, net                                                                                                                 |       |                   | 234.0      |                  |       |   | 281.0 |   |   |
| Inventory, net                                                                                                                         |       |                   | 85.3       |                  |       |   | 69.4 |   |   |
| Deferred tax assets, net                                                                                                               |       |                   | 19.7       |                  |       |   | 58.0 |   |   |
| Other current assets                                                                                                                   |       |                   | 39.1       |                  |       |   | 18.4 |   |   |
| Total Current Assets                                                                                                                   |       |                   | 1,205.5    |                  |       |   | 1,037.3 |   |   |
| Marketable securities                                                                                                                  |       |                   | 677.8      |                  |       |   | 861.4 |   |   |
| Property and equipment, net                                                                                                            |       |                   | 481.6      |                  |       |   | 381.4 |   |   |
| Deferred tax assets, net                                                                                                               |       |                   | 278.4      |                  |       |   | 128.6 |   |   |
| Intangible assets, net                                                                                                                 |       |                   | 219.4      |                  |       |   | 323.5 |   |   |
| Other assets                                                                                                                           |       |                   | 90.5       |                  |       |   | 47.8 |   |   |
| Total Assets                                                                                                                           |       |                   | $          | 2,953.2               |       |   |   | $ | 2,780.0 |   |   |
| LIABILITIES AND  SHAREHOLDERS’ EQUITY:                                                                                            |       |                   |       |                  |       |   |   |   |   |
| Accounts payable                                                                                                                       |       |                   | $          | 45.5                  |       |   |   | $ | 37.0 |   |   |
| Accrued expenses                                                                                                                       |       |                   | 180.4      |                  |       |   | 242.1 |   |   |
| Product royalties payable                                                                                                              |       |                   | 98.0       |                  |       |   | 93.0 |   |   |
| Convertible senior notes                                                                                                               |       |                   | —     |                  |       |   | 500.0 |   |   |
| Other current liabilities                                                                                                              |       |                   | 87.3       |                  |       |   | 276.4 |   |   |
| Total Current Liabilities                                                                                                              |       |                   | 411.2      |                  |       |   | 1,148.5 |   |   |
| Long-term debt                                                                                                                         |       |                   | 1,164.4    |                  |       |   | 5.2 |   |   |
| Other liabilities                                                                                                                      |       |                   | 0.4        |                  |       |   | 55.8 |   |   |
| Total Liabilities                                                                                                                      |       |                   | 1,576.0    |                  |       |   | 1,209.5 |   |   |
| Commitments and  Contingencies                                                                                                         |       |                   |       |                  |       |   |   |   |   |
| SHAREHOLDERS’  EQUITY:                                                                                                            |       |                   |       |                  |       |   |   |   |   |
| Preferred stock, $.01 par value; 5.5 million shares  authorized; none issued or outstanding                                       |       |                   | —     |                  |       |   | — |   |   |
| Common stock, $.01 par value; 420.0 million shares  authorized; 255.5 million shares issued at December 31,  2006 and 2005   |       |                   | 2.6        |                  |       |   | 2.6 |   |   |
| Paid-in capital                                                                                                                        |       |                   | 2,706.5    |                  |       |   | 2,688.5 |   |   |
| Accumulated deficit                                                                                                                    |       |                   | (819.4     | )                     |       |   | (842.5 | ) |   |
| Accumulated other comprehensive loss                                                                                                   |       |                   | (4.7       | )                     |       |   | (11.0 | ) |   |
|                                                                                                                                   |       |                   | 1,885.0    |                  |       |   | 1,837.6 |   |   |
| Less: Treasury stock at cost; 16.9 million shares as  of December 31, 2006 and 8.5 million shares at December 31,  2005 |       |                   | (507.8     | )                     |       |   | (267.1 | ) |   |
| Total Shareholders’ Equity                                                                                                        |       |                   | 1,377.2    |                  |       |   | 1,570.5 |   |   |
| Total Liabilities  and Shareholders’ Equity                                                                                       |       |                   | $          | 2,953.2               |       |   |   | $ | 2,780.0 |   |   |

 

The accompanying notes are an integral part of these financial statements.

55

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**MEDIMMUNE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS**

| ** **                                                       | ** ** | **For the year ended December 31,**      | ** ** |
|------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                                          | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                       | ** ** | **(In millions, except per share data)** | ** ** |
| Revenues:                                                        |       |                                                              |       |   |   |   |   |
| Product sales                                                    |       | $                                                                 | 1,221.2    |   | $ | 1,221.0 |   | $ | 1,124.0 |   |
| Other revenue                                                    |       | 55.6                                                              |       | 22.9 |   | 17.1 |   |
| Total revenues                                                   |       | 1,276.8                                                           |       | 1,243.9 |   | 1,141.1 |   |
| Costs and  expenses:                                             |       |                                                              |       |   |   |   |   |
| Cost of sales                                                    |       | 327.7                                                             |       | 336.7 |   | 366.4 |   |
| Research and development                                         |       | 448.9                                                             |       | 384.6 |   | 327.3 |   |
| Selling, general and administrative                              |       | 541.2                                                             |       | 498.4 |   | 400.2 |   |
| Other operating expenses                                         |       | 16.0                                                              |       | 12.5 |   | 8.6 |   |
| Impairment of intangible asset                                   |       | —                                                            |       | — |   | 73.0 |   |
| Acquired in-process research and development                     |       | —                                                            |       | 48.4 |   | 29.2 |   |
| Gain on sale of assets                                           |       | (48.5                                                             | )          | — |   | — |   |
| Total expenses                                                   |       | 1,285.3                                                           |       | 1,280.6 |   | 1,204.7 |   |
| Operating loss                                                   |       | (8.5                                                              | )          | (36.7 | ) | (63.6 | ) |
| Interest income                                                  |       | 67.1                                                              |       | 62.0 |   | 65.5 |   |
| Interest expense                                                 |       | (18.0                                                             | )          | (9.2 | ) | (8.4 | ) |
| Gain (loss) on investment activities                             |       | 34.0                                                              |       | (8.6 | ) | (2.7 | ) |
| Earnings (loss)  before income taxes                             |       | 74.6                                                              |       | 7.5 |   | (9.2 | ) |
| Income tax  provision (benefit)                                  |       | 25.9                                                              |       | 24.1 |   | (5.4 | ) |
| Net earnings  (loss)                                             |       | $                                                                 | 48.7       |   | $ | (16.6 | ) | $ | (3.8 | ) |
| Basic earnings (loss) per share                                  |       | $                                                                 | 0.20       |   | $ | (0.07 | ) | $ | (0.02 | ) |
| Shares used in  calculation of basic earnings (loss) per share   |       | 243.1                                                             |       | 246.9 |   | 248.6 |   |
| Diluted earnings (loss) per share                                |       | $                                                                 | 0.20       |   | $ | (0.07 | ) | $ | (0.02 | ) |
| Shares used in  calculation of diluted earnings (loss) per share |       | 246.3                                                             |       | 246.9 |   | 248.6 |   |

 

The accompanying notes are an integral part of these financial statements.

56

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**MedImmune, Inc. Consolidated Statements of Cash Flows**

| ** **                                                                                  | ** ** | **For the year ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|---------------------------------------------------------|------------|
| ** **                                                                                  | ** ** | **2006**                                                | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                                  | ** ** | **(In millions)**                                  | ** ** |
| CASH FLOWS FROM OPERATING ACTIVITIES:                                                       |       |                                                    |       |   |   |   |   |
| Net earnings  (loss)                                                                        |       | $                                                       | 48.7       |   | $ | (16.6 | ) | $ | (3.8 | ) |
| Adjustments to reconcile  net earnings (loss) to net cash provided by operating activities: |       |                                                    |       |   |   |   |   |
| Gain on sale of  Cytogam assets                                                             |       | (48.5                                                   | )          | — |   | — |   |
| Share-based  compensation expense                                                           |       | 34.2                                                    |       | — |   | — |   |
| Windfall tax  benefit of share-based compensation expense                                   |       | (3.9                                                    | )          | — |   | — |   |
| Impairment of  intangible asset                                                             |       | —                                                  |       | — |   | 73.0 |   |
| Charges for  acquired in-process research and development                                   |       | —                                                  |       | 48.4 |   | 29.2 |   |
| Deferred taxes                                                                              |       | 15.8                                                    |       | 17.7 |   | 9.6 |   |
| Depreciation and  amortization                                                              |       | 126.8                                                   |       | 78.6 |   | 41.1 |   |
| Advances from  Wyeth                                                                        |       | —                                                  |       | — |   | (51.9 | ) |
| Amortization of  premium on marketable securities                                           |       | 9.8                                                     |       | 14.8 |   | 14.2 |   |
| Amortization of  deferred compensation                                                      |       | —                                                  |       | 0.1 |   | 1.1 |   |
| Realized (gain)  loss on investments, net                                                   |       | (34.0                                                   | )          | 8.6 |   | 2.7 |   |
| Increase  (decrease) in sales allowances                                                    |       | (0.6                                                    | )          | 6.2 |   | 13.5 |   |
| Losses on  write-downs of inventory                                                         |       | 21.9                                                    |       | 41.9 |   | 70.9 |   |
| Other, net                                                                                  |       | 7.5                                                     |       | 4.7 |   | 0.9 |   |
| Increase (decrease) in  cash due to changes in assets and liabilities:                      |       |                                                    |       |   |   |   |   |
| Trade receivables                                                                           |       | 39.7                                                    |       | (84.8 | ) | (45.6 | ) |
| Inventory                                                                                   |       | (43.4                                                   | )          | (44.7 | ) | (43.1 | ) |
| Other assets                                                                                |       | (22.3                                                   | )          | 16.7 |   | (2.9 | ) |
| Accounts payable  and accrued expenses                                                      |       | (51.3                                                   | )          | (1.9 | ) | 33.3 |   |
| Product royalties  payable                                                                  |       | 5.0                                                     |       | 7.2 |   | 4.1 |   |
| Other liabilities                                                                           |       | (233.0                                                  | )          | 13.8 |   | (1.6 | ) |
| Net cash provided  by (used in) operating activities                                        |       | (127.6                                                  | )          | 110.7 |   | 144.7 |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                       |       |                                                    |       |   |   |   |   |
| Investments in  securities available for sale                                               |       | (537.6                                                  | )          | (218.5 | ) | (652.9 | ) |
| Maturities of  securities available for sale                                                |       | 631.3                                                   |       | 160.0 |   | 182.9 |   |
| Proceeds from  sales of securities available for sale                                       |       | 89.7                                                    |       | 223.6 |   | 308.0 |   |
| Capital  expenditures                                                                       |       | (142.2                                                  | )          | (91.5 | ) | (79.8 | ) |
| Proceeds from sale  of Cytogam assets, net                                                  |       | 56.9                                                    |       | — |   | — |   |
| Purchase of assets  from Cellective, net of cash acquired                                   |       | —                                                  |       | (44.0 | ) | — |   |
| Purchase of  promotion rights from Abbott                                                   |       | —                                                  |       | (70.0 | ) | — |   |
| Purchase of assets  from Wyeth                                                              |       | —                                                  |       | (5.0 | ) | (34.8 | ) |
| Minority interest  investments                                                              |       | (52.4                                                   | )          | (14.5 | ) | (24.3 | ) |
| Proceeds from  sales of minority interest investments                                       |       | 41.8                                                    |       | — |   | — |   |
| Net cash provided  by (used in) investing activities                                        |       | 87.5                                                    |       | (59.9 | ) | (300.9 | ) |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                                       |       |                                                    |       |   |   |   |   |
| Proceeds from  issuance of common stock                                                     |       | 62.1                                                    |       | 41.9 |   | 19.5 |   |
| Windfall tax  benefit of share-based compensation expense                                   |       | 3.9                                                     |       | — |   | — |   |
| Share repurchases                                                                           |       | (318.8                                                  | )          | (105.9 | ) | (30.0 | ) |
| Debt prepayments                                                                            |       | (489.6                                                  | )          | — |   | (172.7 | ) |
| Repayments on  long-term obligations                                                        |       | (1.0                                                    | )          | (4.8 | ) | (4.7 | ) |
| Proceeds from  issuance of long-term debt, net of issuance costs                            |       | 1,129.1                                                 |       | — |   | — |   |
| Purchase of call  options on convertible senior notes                                       |       | (316.5                                                  | )          | — |   | — |   |
| Proceeds from  issuance of warrants                                                         |       | 177.0                                                   |       | — |   | — |   |
| Net cash provided  by (used in) financing activities                                        |       | 246.2                                                   |       | (68.8 | ) | (187.9 | ) |
| Effect of exchange  rate changes on cash                                                    |       | (0.1                                                    | )          | 0.1 |   | (0.1 | ) |
| Net increase  (decrease) in cash and cash equivalents                                       |       | 206.0                                                   |       | (17.9 | ) | (344.2 | ) |
| Cash and cash  equivalents at beginning of year                                             |       | 153.4                                                   |       | 171.3 |   | 515.5 |   |
| Cash and cash  equivalents at end of year                                                   |       | $                                                       | 359.4      |   | $ | 153.4 |   | $ | 171.3 |   |
| Supplemental cash flow data:                                                                |       |                                                    |       |   |   |   |   |
| Cash paid during  the year for interest, net of amounts capitalized                         |       | $                                                       | 3.8        |   | $ | 4.2 |   | $ | 9.7 |   |
| Cash paid  (received) during the year for income tax payments (refunds)                     |       | $                                                       | 2.0        |   | $ | (3.5 | ) | $ | 3.1 |   |

 

The accompanying notes are an integral part of these financial statements.

57

----

**MedImmune, Inc. Consolidated Statements of Cash Flows (Continued)**

**Supplementalschedule of noncash investing activities:**

In August 2005, the Company amended itsco-promotion agreement with Abbott Laboratories (“Abbott”) for sales of Synagisin the U.S. to, among other things, assume full selling and marketingresponsibilities for Synagis beginning in July 2006. In connection withthis transaction, the Company recorded an intangible asset of $360.4 millionwhich represented the estimated fair value of the exclusive promotion rights,determined as the aggregate present value of the incremental payments to bemade to Abbott as a result of the amended terms of the agreement in excess ofthe value of the co-promotion services to be rendered, as determined under theprevious agreement. Of the $360.4 million initially recorded as an intangibleasset, $70.0 million represents cash payments made during the third quarter of2005 and the remaining balance of $290.4 million represents the present valueas of the acquisition date of the future incremental payments that the Companydeems probable, which were recorded as liabilities in the consolidated balancesheet.

Certain of the incremental payments, which were variablebased on actual sales, differed from the initial estimates. The resulting impactwas to reduce the carrying amount of the intangible asset and the relatedliability by $14.3 million (see Note 10).

The accompanying notes are an integral part of these financial statements.

58

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**MedImmune, Inc.Consolidated Statements of Shareholders’ Equity**

| ** **                                                                                                | ** ** | ** **             | ** ** | ** **  | ** ** | ** **   | ** ** | ** **       | ** ** | ** **        | ** ** | **Accumulated**         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------|------------|--------------|------------|------------------|------------|-------------------|------------|-------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                                                | ** ** | **Common Stock,** | ** ** | ** **  | ** ** | ** **   | ** ** | **Accumulated**  | ** ** | **Other**         | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                                                | ** ** | **$0.01 par**     | ** ** | **Paid-in** | ** ** | **Deferred** | ** ** | **Earnings**     | ** ** | **Comprehensive** | ** ** | **Treasury Stock** | ** ** | ** ** | ** ** |
| ** **                                                                                                | ** ** | **Shares**             | ** ** | **Amount**  | ** ** | **Capital**  | ** ** | **Compensation** | ** ** | **(Deficit)**     | ** ** | **Income (Loss)**  | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Total**  | ** ** |
| **Balance,  December 31, 2003**                                                                      |       |                   | 254.3      |        |       |         | $          | 2.5              |       |              | $          | 2,673.1                 |       |       | $          | (1.4       | )          |       |       | $ | (772.9 | ) |   |   | $ | 27.7 |   |   |   | (6.2 | ) |   |   | $ | (229.8 | ) |   | $ | 1,699.2 |   |
| Net loss                                                                                                  |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (3.8       | )          |       |   | — |   |   |   | — |   |   |   | — |   |   | (3.8 | ) |
| Change in foreign  currencytranslation  adjustment                                                        |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | 0.5 |   |   |   | — |   |   |   | — |   |   | 0.5 |   |
| Change in  unrealized gain/loss on investments, net of tax of $9.9 million                           |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | (19.2 | ) |   |   | — |   |   |   | — |   |   | (19.2 | ) |
| Change in  unrealized gain/loss on cash flow hedges, net of tax of  $1.4 million |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | 2.1 |   |   |   | — |   |   |   | — |   |   | 2.1 |   |
| Comprehensive loss                                                                                        |       |                   |       |        |       |         |       |             |       |              |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   | (20.4 | ) |
| Common stock  options and warrants exercised                                                              |       |                   | 0.9        |        |       |         | 0.1        |             |       | 7.3               |       |                    | —     |       |       |       | (11.8      | )          |       |   | — |   |   |   | 0.5 |   |   |   | 19.3 |   |   | 14.9 |   |
| Issuance of common  stock under the employee stock purchase plan                                     |       |                   | 0.2        |        |       |         | —     |             |       | 4.6               |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 4.6 |   |
| Repurchases of  common stock                                                                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | (1.2 | ) |   |   | (30.0 | ) |   | (30.0 | ) |
| Tax benefit  associated with the exercise of stock options                                                |       |                   | —     |        |       |         | —     |             |       | 5.2               |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 5.2 |   |
| Amortization of  deferred compensation for the vesting of stock options                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | 1.1        |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 1.1 |   |
| Reversal of  deferred compensation for cancellation of stock options                                 |       |                   | —     |        |       |         | —     |             |       | (0.2              | )          |                    | 0.2        |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | — |   |
| **Balance,  December 31, 2004**                                                                      |       |                   | 255.4      |        |       |         | 2.6        |             |       | 2,690.0           |       |                    | (0.1       | )          |       |       | (788.5     | )          |       |   | 11.1 |   |   |   | (6.9 | ) |   |   | (240.5 | ) |   | 1,674.6 |   |
| Net loss                                                                                                  |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (16.6      | )          |       |   | — |   |   |   | — |   |   |   | — |   |   | (16.6 | ) |
| Change in foreign  currency translation adjustment                                                        |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | (1.0 | ) |   |   | — |   |   |   | — |   |   | (1.0 | ) |
| Change in  unrealized gain/loss on investments, net of tax of $12.0 million                          |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | (21.1 | ) |   |   | — |   |   |   | — |   |   | (21.1 | ) |
| Comprehensive loss                                                                                        |       |                   |       |        |       |         |       |             |       |              |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   | (38.7 | ) |
| Common stock  options and warrants exercised                                                              |       |                   | 0.1        |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (34.6      | )          |       |   | — |   |   |   | 2.1 |   |   |   | 70.9 |   |   | 36.3 |   |
| Issuance of common  stock under the employee stock purchase plan                                          |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (2.8       | )          |       |   | — |   |   |   | 0.3 |   |   |   | 8.4 |   |   | 5.6 |   |
| Repurchases of  common stock                                                                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | (4.0 | ) |   |   | (105.9 | ) |   | (105.9 | ) |
| Tax benefit  associated with the exercise of stock options                                                |       |                   | —     |        |       |         | —     |             |       | 7.6               |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 7.6 |   |
| Amortization of  deferred compensation for the vesting of stock options                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | 0.1        |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 0.1 |   |
| Tax reversal of  paid-in capital related to the expiration of Aviron stock options                        |       |                   | —     |        |       |         | —     |             |       | (9.1              | )          |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | (9.1 | ) |
| **Balance,  December 31, 2005**                                                                      |       |                   | 255.5      |        |       |         | 2.6        |             |       | 2,688.5           |       |                    | —     |       |       |       | (842.5     | )          |       |   | (11.0 | ) |   |   | (8.5 | ) |   |   | (267.1 | ) |   | 1,570.5 |   |
| Net earnings                                                                                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | 48.7       |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 48.7 |   |
| Change in foreign  currency translation adjustment                                                        |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | 0.3 |   |   |   | — |   |   |   | — |   |   | 0.3 |   |
| Change in  unrealized gain/loss on investments, net of tax of $3.7 million                           |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | 6.0 |   |   |   | — |   |   |   | — |   |   | 6.0 |   |
| Comprehensive  income                                                                                     |       |                   |       |        |       |         |       |             |       |              |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   | 55.0 |   |
| Common stock  options exercised                                                                           |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (24.0      | )          |       |   | — |   |   |   | 2.5 |   |   |   | 79.2 |   |   | 55.2 |   |
| Issuance of common  stock under the employee stock purchase plan                                          |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | (1.6       | )          |       |   | — |   |   |   | 0.3 |   |   |   | 8.6 |   |   | 7.0 |   |
| Repurchases of  common stock                                                                              |       |                   | —     |        |       |         | —     |             |       | —            |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | (11.2 | ) |   |   | (328.5 | ) |   | (328.5 | ) |
| Tax benefit  associated with the exercise of stock options                                                |       |                   | —     |        |       |         | —     |             |       | 9.3               |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 9.3 |   |
| Share-based  compensationexpense                                                                          |       |                   | —     |        |       |         | —     |             |       | 35.8              |       |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | 35.8 |   |
| Purchase of call  options on convertible senior notes, net oftax benefit of $112.4 million                |       |                   | —     |        |       |         | —     |             |       | (204.1            | )          |                    | —     |       |       |       | —     |       |       |   | — |   |   |   | — |   |   |   | — |   |   | (204.1 | ) |
| Issuance of  warrants                                                                                     |       |                   |       |        |       |         |       |             |       | 177.0             |       |                    |       |       |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |   |   | 177.0 |   |
| **Balance,  December 31, 2006**                                                                      |       |                   | 255.5      |        |       |         | $          | 2.6              |       |              | $          | 2,706.5                 |       |       | $          | —     |       |       |       | $ | (819.4 | ) |   |   | $ | (4.7 | ) |   |   | (16.9 | ) |   |   | $ | (507.8 | ) |   | $ | 1,377.2 |   |

 

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**MedImmune, Inc.Notes to Consolidated Financial Statements**

**1.   *ORGANIZATION***

MedImmune, Inc., aDelaware corporation (together with its subsidiaries, the “Company”), is abiotechnology company headquartered in Gaithersburg, Maryland. The Company iscommitted to advancing science to develop better medicines that help peoplelive healthier, longer and more satisfying lives. The Company currently focusesits efforts on using biotechnology to produce innovative products forprevention and treatment in the therapeutic areas of infectious disease, cancerand inflammatory disease. The Company primarily develops monoclonal antibodiesand vaccines. The Company markets three products: Synagis, FluMist and Ethyol,and has a diverse pipeline of development-stage products. During December 2006,the Company sold its CytoGam assets.

**2.   *SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES***

Significant accounting policies applied in thepreparation of these financial statements are as follows:

*Basisof Presentation—**The*consolidated financialstatements include the accounts of the Company and its wholly-ownedsubsidiaries. All significant intercompany accounts and transactions have beeneliminated.

*Seasonality—**The*Company’s largestrevenue-generating product, Synagis, is used to prevent respiratory syncytialvirus (“RSV”) disease in high-risk infants. RSV is most prevalent in the wintermonths in the Northern Hemisphere. Because of the seasonal nature of RSV,limited sales, if any, of Synagis are expected during the second and thirdquarters of any calendar year, causing results to vary significantly fromquarter to quarter. Sales of Synagis comprised approximately 87%, 87% and 84%of total product sales for the years ended December 31, 2006, 2005 and2004, respectively.

FluMist is a nasally delivered live, attenuatedvaccine used to help prevent influenza in healthy individuals age 5 to 49,which is most prevalent in the fall and winter months in the NorthernHemisphere. The majority of FluMist sales are expected to occur during thesecond half of any calendar year because of the seasonal nature of influenza,causing results to vary significantly from quarter to quarter.

*Cash,Cash Equivalents and Marketable Securities—**The*Company considersall highly liquid instruments purchased with a maturity of three months or lessat date of purchase to be cash equivalents. The majority of the Company’s cashequivalents consist of money market mutual funds, commercial paper, and U.S.government and agency securities. Investments in marketable securities consistprincipally of U.S. government and agency securities and corporate notes andbonds. Investments with maturities of three to twelve months from the balancesheet date are considered current assets, while those with maturities in excessof one year are considered non-current assets. The securities are held for anunspecified period of time and may be sold to meet liquidity needs and,therefore, are classified as available-for-sale. Accordingly, the Companyrecords these investments at fair value, with unrealized gains and losses oninvestments reported as a component of other comprehensive income, net of tax.

Substantially all of the Company’s cash and cashequivalents, and short-term and long-term investments are held in custody bythree major U.S. financial institutions. Deposits held with banks may exceedthe amount of insurance provided on such deposits. Generally, these depositsmay be redeemed upon demand and, therefore, bear minimal risk. The Company’sshort-term and long-term investments generally consist of marketable securitieswith investment grade credit ratings and deposits with major banks. The Company’sinvestment guidelines are intended to limit the amount of investment exposureas to issuer, maturity, and investment type. Maturities generally range fromone month to seven years. The 

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fair values of theseinvestments are sensitive to changes in interest rates and thecredit-worthiness of the security issuers. Further, interest income earned onvariable rate debt securities is exposed to changes in the general level ofinterest rates.

The Company’s short-term and long-term investments aresubject to adjustment for other-than-temporary impairments. Impairment chargesare recognized in the consolidated statements of operations when a decline inthe fair value of an investment falls below its cost value and is judged to beother than temporary. Various factors are considered in determining whether animpairment charge is required, including: the length of time and extent towhich the fair value has been less than the cost basis; the financial conditionand near-term prospects of the issuer; fundamental changes to the businessprospects of the issuer; share prices of subsequent offerings; and the Company’sintent and ability to hold the investment for a period of time sufficient toallow for any anticipated recovery in market value.

*MinorityInterest Investments—**The*Company’s wholly-owned venturecapital subsidiary, MedImmune Ventures, Inc., manages the Company’sportfolio of minority interest investments and makes investments in public orprivate biotechnology companies focused on discovering and developing humantherapeutics. The Company’s minority interest investments are accounted forunder the risk and rewards model or the voting interest model, depending on thefacts and circumstances of the individual investments. Currently, the Companydoes not have investments that are subject to consolidation under the risks andrewards model.

The Company’s minority interest investments inpublicly traded companies are categorized as available-for-sale securities. Dueto the highly volatile share prices of these investments, the investments aresubject to unrealized holding gains or losses. The Company’s minority interestinvestments in private companies are maintained on the cost or equity method ofaccounting, depending upon the facts and circumstances of the individualinvestments. For investments carried on the equity method, the Company’sproportionate share of the investees’ gains or losses is recorded on aquarterly basis. The Company’s minority interest investments are subject toadjustment for other-than-temporary impairments.

*FairValue of Financial Instruments—**The*carrying amountof financial instruments, including cash and cash equivalents, tradereceivables, contracts receivable, other current assets, accounts payable andaccrued expenses, approximate fair value as of December 31, 2006 and 2005due to the short maturities of these instruments.

*Concentrationof Credit Risk—**The*Company sells its productsprimarily to a limited number of pharmaceutical wholesalers and distributorswithout requiring collateral. The Company periodically assesses the financialstrength of these customers and establishes allowances for anticipated losseswhen necessary. As of December 31, 2006, trade accounts receivableincluded four customers that each accounted for 25%, 23%, 17% and 14% of grosstrade accounts receivable, respectively. As of December 31, 2005, tradeaccounts receivable included four customers that each accounted for 39%, 15%,12% and 10% of gross trade accounts receivable, respectively.

*Inventory—**Inventories*arestated at the lower of cost or market, determined using the first-in, first-outmethod.

The Company currently outsources certain manufacturingactivities for certain of its marketed products for select territories undermanufacturing and supply agreements. The products manufactured under theseagreements are included in inventory when the Company obtains title to theproduct and assumes the risk of loss.

In the lower of cost or market evaluation forinventories available for commercial sale, market value is defined as the lowerof replacement cost or estimated net realizable value, based upon management’sestimates about future demand and market conditions. When the Companydetermines that inventories for commercial sale have expired, exist inexcessive quantities, do not meet required quality standards, or will 

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not generate sufficientrevenues to cover costs of production and distribution, the Company measuresthe amount of the permanent write down as the difference between the historicalcost of the inventory and its estimated market value.

The Company evaluates inventories available forcommercial sale separately from inventories related to product candidates (“pre-approvalinventories”) that have not yet been approved. The Company may capitalizepre-approval inventories if management believes that 1) commercial approval bythe FDA is probable, such as would be evidenced by a favorable recommendationfor approval regarding the safety and efficacy of the product candidate by theFDA or one of its advisory bodies (or other regulatory body with authority togrant marketing approval for drugs and biological products for internationalsale), and 2) it is probable that its manufacturing facilities will be approvedby the FDA (or other regulatory body) for the production of inventory asdetermined by the nature and scope of any unresolved issues and the remediationrequired.

In the lower of cost or market evaluation forpre-approval inventories, market value is defined as the lower of replacementcost or estimated net realizable value, based upon management’s estimates aboutfuture demand and market conditions, including probability of market acceptanceof the product. When the Company determines that pre-approval inventories willnot have a sufficient shelf life to be sold commercially, or if sold, will notgenerate sufficient revenues to cover costs of production and distribution, theCompany measures the amount of permanent write down as the difference betweenthe historical cost and its estimated probable future market value.

As of December 31, 2006 and 2005, the Company didnot have pre-approval inventories on the consolidated balance sheets.

*ProductSales—**The*Company recognizes revenue onproduct sales when persuasive evidence of an arrangement exists, delivery hasoccurred, the sales price is fixed or determinable, and collectibility isprobable. These criteria are generally met upon shipment of product or receiptof product by customers, depending on the contractual terms of the arrangement.

In certain of the Company’s international distributionagreements, a portion of the compensation received by the Company from itspartner is variable based, in part, on the end-user sales price. When all ofthe other revenue criteria have been met, the Company recognizes revenue to theextent that the customer has an obligation to pay, the customer has limited orno control over the end-user sales price and, accordingly, any subsequentadjustments to the recorded revenue are not expected to be significant.

Subsequent adjustments to recorded revenue that resultfrom variances between amounts previously invoiced and the total sales pricereceived are recorded as an adjustment to product sales in the quarter in whichthey become known.

*SalesAllowances—**Product*sales are recorded net ofallowances for estimated chargebacks, returns, discounts, and governmentrebates. Both in the U.S. and elsewhere, sales of pharmaceutical productsdepend in part on the availability of reimbursement to the consumer fromthird-party payers, such as government and private insurance plans. The Companyestimates the portion of its sales that will be covered by government insuranceand records allowances at a level that management believes is sufficient tocover estimated requirements for reimbursements. During the fourth quarter of2006, the allowance for government reimbursements for states where potentialrebates had not been sought previously was reduced by $20.2 million, resultingin an increase to product revenues, to reflect the impact of legislativemandates for increased reporting capabilities and updated information on theintent and ability of various states to determine and file such claims. Allowancesfor discounts, returns, and chargebacks, which are netted against accountsreceivable, totaled $26.6 million and $20.6 million at December 31, 2006and 2005, respectively. Allowances for government reimbursements were $44.4million and $52.5 million as of 

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December 31, 2006 and2005, respectively, and are included in accrued expenses in the accompanyingbalance sheets.

*ContractRevenues—**The*Company uses the milestonepayment method of accounting for contract revenues, recognizing revenue whenall milestones to be received under contractual arrangements are determined tobe substantive, at-risk and the culmination of an earnings process. Substantivemilestones are payments that are conditioned upon an event requiringsubstantive effort, when the amount of the milestone is reasonable relative tothe time, effort and risk involved in achieving the milestone and when themilestones are reasonable relative to each other and the amount of any upfrontpayment. If all of these criteria are not met, then the Company will use thecontingency-adjusted performance model.

*RoyaltyRevenues—**The*Company receives royalties fromlicensees, based on third-party sales of licensed products or technologies.Royalties are recorded as earned in accordance with the contract terms whenthird-party results can be reliably measured and collectibility is reasonablyassured.

*RSVFranchise Revenues—**Incremental*revenue recognizedunder the amended terms of the Company’s international distribution agreementwith Abbott International (“AI”), which represents amounts received in excessof the estimated fair value for product sales of Synagis, are recorded as otherrevenues in the Company’s consolidated statement of operations.

*HPVRelated Revenues—**Royalties*and milestone revenuesrelated to the Company’s licensing of technology associated with HPV vaccinesare recognized when determinable.

*GovernmentContract Revenues—**Revenues*from the Company’s costplus fixed-fee government contract are recognized as the costs are incurred,and fees are recognized on a pro rata basis of costs incurred to date to totalestimated costs. Reimbursement of certain direct and indirect costs is recordedutilizing provisional rates, which are subject to periodic review, audit andadjustment to reflect actual rates.

*RoyaltyExpense—**Product*royalty expense isrecognized as a cost of sales concurrently with the recognition of productrevenue, net of allowances for estimated chargebacks, returns, discounts, andgovernment rebates, based on a contractually stipulated royalty percentage. Anyadjustments to royalty expense that result from adjustments to contractuallydefined net sales are recorded as an adjustment to expense in the quarter theybecome known. During 2005, the Company recouped approximately $12.1 millionfrom licensors related to overpayments under various royalty agreements. TheCompany recognized $4.9 million of this royalty recoupment as a reduction tocost of goods sold during 2005 after determining that related contingencies hadbeen resolved. The remaining amount of $7.2 million has been deferred untilfully realizable and is recorded in Other Current Liabilities at December 31,2006 and 2005.

*Researchand Development Expenses—**Research*anddevelopment expenses include salaries, benefits and other headcount relatedcosts for personnel performing research and development activities, clinicaltrial costs, clinical materials costs, contract and other outside service fees,supplies, facilities and overhead costs.

*In*thenormal course of business, the Company enters into collaborative research anddevelopment and in-licensing agreements to acquire access to technology. Thesecollaborative agreements usually require the Company to pay upfront fees andmilestone payments. Upfront payments and milestones related to early stagetechnology are expensed as incurred. Milestone payments are accrued when it isdeemed probable that the milestone event will be achieved. The agreements mayalso require that the Company provide funding to its partners for researchprograms; such costs are expensed as incurred.

*The*Companyrecognizes costs for clinical trials and preclinical studies as incurred. 

*Co-promotion Expenses—**Co-promotion*expensein connection with the Company’s amended agreement with the Ross ProductsDivision of Abbott to co-promote Synagis in the U.S. has been recognized asselling, general and administrative expense concurrently with the recognitionof product 

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revenueand has been calculated based on a contractual co-promotion percentage.Effective June 30, 2006, co-promotion services from Abbott were terminated.

*Allowances for DoubtfulAccounts—**The*Company recognizes bad debtexpense as a component of selling, general and administrative expense. TheCompany estimates the allowances for doubtful accounts based on specificidentification of estimated uncollectible amounts and a percentage of othergross trade accounts receivable balances outstanding at the end of the period,based upon an assessment of the concentration of credit risk and the financialcondition and environment of its customers. Because of the seasonal nature ofthe Company’s largest product, Synagis, the accounts receivable balancesfluctuate significantly. Accordingly, the allowance for doubtful accounts alsofluctuates. Allowances for doubtful accounts, which are netted against accountsreceivable, totaled $4.4 million and $2.9 million at December 31, 2006 and2005, respectively.

*Advertising Expense—**The*Company expensesproduction costs of advertising as incurred. Advertising costs for televisiontime and space in publications are deferred until the first advertisementoccurs. Advertising expense for the years ended December 31, 2006, 2005and 2004 was $11.0 million, $11.0 million and $8.0 million, respectively.

*Other Operating Expenses—**Other*operatingexpenses include manufacturing start-up costs and other manufacturing relatedcosts associated with pre-approval products, as well as excess capacity chargesassociated with the non-RSV production portion of the Frederick manufacturingcenter.

*Property and Equipment—**Property*andequipment are stated at cost. Interest incurred during the period ofconstruction of facilities is capitalized until the asset is placed in service,after FDA licensure, if required, of the facility is obtained. Depreciation andamortization expense commence when the asset is placed in service for itsintended purpose. Depreciation and amortization is computed using thestraight-line method based upon the following estimated useful lives:

| ** **                                          | ** ** | **Years** | ** ** |
|-----------------------------------------------------|------------|-----------|------------|
| Building and  improvements                          |       | 15-30     |       |
| Manufacturing,  laboratory and facilities equipment |       | 5-15      |       |
| Office furniture and  equipment                     |       | 3-7       |       |

 

Amortization of leasehold improvements is computed onthe straight-line method based on the shorter of the estimated useful life ofthe improvement or the term of the lease. Upon the disposition of assets, thecosts and related accumulated depreciation are removed from the accounts andany resulting gain or loss is included in the statement of operations. Repairsand maintenance costs are expensed as incurred and were $12.4 million, $9.2million and $8.5 million for the years ended December 31, 2006, 2005 and2004, respectively.

FDA and other regulatory validation costs arecapitalized as part of the effort required to acquire and construct long-livedassets, including readying them for their initial intended use, and areamortized over the estimated useful life of the asset.

The Company evaluates property and equipment forimpairment whenever events or changes in circumstances indicate that thecarrying amount may not be recoverable. The Company considers historicalperformance and anticipated future results in its evaluation of the potentialimpairment. Accordingly, when the indicators of impairment are present, theCompany evaluates the carrying value of these assets in relation to theoperating performance of the business and future undiscounted cash flowsexpected to result from the use of these assets. Impairment losses arerecognized when both the fair value and the sum of the expected future cashflows are less than the assets’ carrying value; no impairments were recognizedduring 2006, 2005, or 2004.

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*IntangibleAssets—**The*Company’s intangible assets aredefinite-lived assets stated at amortized cost. Amortization of the intangibleassets reflects the pattern in which the assets’ economic benefits are consumedor otherwise used up, unless such a pattern cannot be reasonably determined, inwhich case the straight-line method of amortization is used. The Companyreviews its intangible assets for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not be recoverableand continually evaluates the reasonableness of the remaining useful lives ofthese assets; no impairments were recognized during 2006, 2005 or 2004.

The intangible asset associated with the reacquisitionof the U.S. co-promotion rights for Synagis is amortized based on total futureprojected domestic sales of Synagis. These projections are evaluated inconjunction with the annual long-range planning process, which typically occursin the fourth quarter (see Note 10).

*Goodwill—**Goodwill*representsthe excess cost of the acquisition of Aviron, a California-based vaccinecompany, which occurred during 2002 (the “Acquisition”), over the net of theamounts assigned to assets acquired and liabilities assumed. Goodwill is notamortized, but is evaluated for impairment annually or whenever events orchanges in circumstances suggest that the carrying amount may not berecoverable. As of December 31, 2006 and 2005, goodwill totaled $3.7million and $11.0 million, respectively, and is included in other long-termassets on the accompanying consolidated balance sheets.

During 2006, goodwill was decreased by $7.3 millionfor purchase accounting adjustments primarily related to pre-acquisition valuationallowances that have been released. During 2005, the Company recorded netadjustments to reduce goodwill by $13.8 million, of which $10.0 millionresulted from the correction to certain prior period purchase accountingadjustments related to the Acquisition (see Note 17).

*DerivativeInstruments—**Derivative*instruments that arerecorded on the balance sheet are reflected at fair value. Changes in fairvalue of derivatives on the balance sheet are recorded each period in currentearnings or other comprehensive income, depending on whether a derivative isdesignated as part of a hedge transaction and, if so, depending on the type ofhedge transaction. For foreign currency cash-flow hedge transactions in whichthe Company is hedging the variability of cash flows related to inventorypurchases, changes in the fair value of the derivative instruments are reportedin other comprehensive income. The gains and losses on these derivatives thatare reported in other comprehensive income are reclassified as earnings orlosses in the periods in which the related inventory is sold. The ineffectiveportion, if any, of all hedges or gains or losses on cash-flow hedges relatedto inventory transactions that subsequently become not probable of occurringare recognized in the current period.

The Company is obligated to make certain payments toforeign suppliers in local currency. To hedge the effect of fluctuating foreigncurrencies in its financial statements, the Company may enter into foreignforward exchange contracts. Gains or losses associated with the forwardcontracts are computed as the difference between the foreign currency contractamount at the spot rate on the balance sheet date and the forward rate on thecontract date. As of December 31, 2006 and December 31, 2005, theCompany had no outstanding forward contracts.

During 2003, the Company made plans to liquidate itsholdings in certain equity securities in its portfolio, over a period ofapproximately one year. To hedge the risk of market fluctuations, the Companyentered into equity derivative contracts which were designated as cash flowhedges. These contracts were settled during 2004, and the Company recognized anet gain of $9.7 million on the sale of the equity securities, which isincluded in gain on investment activities in the accompanying statement ofoperations.

*IncomeTaxes—**The*Company accounts for incometaxes in accordance with the provisions of Statement of Financial AccountingStandards (“FAS”) No. 109, “Accounting for Income Taxes.” Under FASNo. 109, deferred income taxes are recognized for tax attributes and fordifferences between the tax 

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bases of assets andliabilities and their financial reporting amounts at each year-end based onenacted tax laws and statutory tax rates applicable to the periods in which thedifferences are expected to affect taxable income. Valuation allowances areestablished to reduce net deferred tax assets to the amount managementdetermines is more likely than not to be realized. Future reversals ofvaluation allowances related to deferred tax assets established in acquisitionpurchase accounting will first be applied against goodwill and otherintangibles when appropriate before recognition of a benefit in theconsolidated statement of operations. Tax contingency reserves are establishedfor income tax and contingent interest where the potential for loss is probableand reasonably estimable in accordance with FAS No. 5, “Accounting forContingencies.”

Income tax expense includes the taxes payable for theperiod and changes during the period in deferred tax assets and liabilities.Income tax expense excludes the tax effects of (1) the exercise of stockoptions for which benefit is recognized directly as an increase inshareholders’ equity, (2) adjustments related to purchase accounting whichare recorded to goodwill, and (3) adjustments recorded to accumulatedother comprehensive income.

*EarningsPer Share—**Basic*earnings per share iscomputed based on the weighted average number of common shares outstandingduring the period. Diluted earnings per share is computed based on the weightedaverage shares outstanding adjusted for all dilutive potential common shares.The dilutive impact, if any, of common stock equivalents outstanding during theperiod, including outstanding stock options and warrants, is measured by thetreasury stock method. The dilutiveeffect of the $1.15 billion convertible senior notes is measured, whether ornot the contingent requirements have been met for conversion, using thetreasury stock method if the conversion price of $33.37 is less than theaverage market price of the Company’s common stock for the period, because uponconversion, the par value is settled in cash and only the conversion premium issettled in shares of the Company’s common stock. The dilutive impact, ifany, of the Company’s 1% convertible senior notes is measured using theif-converted method, regardless of whether the market price trigger has beenmet. Potential common shares are not included in the computation of dilutedearnings per share if they are anti-dilutive.

*ComprehensiveIncome—**Comprehensive*income is comprisedof net earnings and other comprehensive income, which includes certain changesin equity that are excluded from net earnings, such as translation adjustments,unrealized holding gains and losses on available-for-sale marketablesecurities, and unrealized gains and losses on hedging instruments.Reclassification adjustments occur when the Company realizes gains or losses onsales of investments. During 2006 and 2004, reclassification adjustments forrealized gains on available-for-sale marketable securities, net of tax, were$11.0 million and $6.7 million, respectively. Reclassification adjustmentsduring 2005 were immaterial.

*Stock-basedCompensation—**In*December 2004, theFinancial Accounting Standards Board (“FASB”) issued FAS 123R, a revision ofFAS 123, “Share-based Payments.” FAS 123R requires public companies torecognize expense associated with share-based compensation arrangements,including employee stock options, using a fair value-based option pricingmodel, and eliminates the alternative to use the intrinsic value method ofaccounting for share-based payments under Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees” (“APB 25”). FAS 123R is effectivefor the Company’s fiscal year beginning January 1, 2006. Adoption of theexpense provisions of the statement has had and is expected to continue to havea material impact on the Company’s results of operations. The Company adopted FAS123R using the modified prospective transition method. Under this method,compensation expense has been reflected in the financial statements beginning January 1,2006 with no restatement of prior periods. As such, compensation expense isrecognized for awards that are granted, modified, repurchased or cancelled onor after January 1, 2006 as well as for the portion of awards previouslygranted that had not vested as of January 1, 2006. The Company hasimplemented the straight-line expense attribution method, whereas the Company’sprevious expense attribution method was the graded-vesting 

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method, an acceleratedmethod, described by FASB Interpretation No. 28, “Accounting for StockAppreciation Rights and Other Variable Stock Option or Award Plans” (“FIN 28”).

The Company’s adoption of FAS 123R using the modifiedprospective application requires the Company to determine the amount ofeligible windfall tax benefits (the pool of windfall tax benefits) that areavailable on the adoption date to offset future shortfalls. The Company haselected to calculate the historical pool of windfall tax benefits (i.e., theamount that would have accumulated as of the adoption date of FAS 123R) usingthe “long-form method,” as provided in paragraph 81 of FAS 123R, and the “taxlaw ordering approach” to determine when the historic tax benefits are realized(tax benefits realized based on provisions in the tax law that identify thesequence in which stock option deductions are utilized for tax purposes). Subsequentto the adoption of FAS 123R, the Company will continue to track the balance ofthe pool of windfall tax benefits based on windfalls or shortfalls incurredafter the adoption date.

Thefollowing table illustrates the effect on net earnings and earnings per shareif the Company had applied the fair value recognition provisions to share-basedemployee compensation in 2005 and 2004 (in millions, except per share data):

| ** **                                                                                                                                                                                                                                                                                                                                                                               | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net loss, as  reported                                                                                                                                                                                                                                                                                                                                                                   |       | $        | (16.6      | )        | $          | (3.8 | ) |
| Add: share-based  employee compensation expense included in historical results for the vesting  of stock options assumed in conjunction with the Company’s acquisition of  Aviron in January 2002, calculated in accordance with FIN 44,  “Accounting for Certain Transactions Involving Stock Compensation-an Interpretation  of APB 25,” net of related tax effect |       | 0.1      |       | 0.7      |       |
| Deduct:  share-based employee compensation expense determined under the fair value  based method for all awards, net of related tax effect                                                                                                                                                                                                                                               |       | (43.3    | )          | (55.3    | )          |
| Pro forma net  loss                                                                                                                                                                                                                                                                                                                                                                      |       | $        | (59.8      | )        | $          | (58.4 | ) |
| Basic and diluted loss per share, as reported                                                                                                                                                                                                                                                                                                                                            |       | $        | (0.07      | )        | $          | (0.02 | ) |
| Basic and diluted loss  per share, pro forma                                                                                                                                                                                                                                                                                                                                             |       | $        | (0.24      | )        | $          | (0.24 | ) |

 

*DefinedContribution Plans—**The*Company sponsors a definedcontribution plan under Section 401(k) of the Internal Revenue Codecovering substantially all full-time U.S. employees. Employee contributions arevoluntary and are determined on an individual basis subject to the maximumallowable under federal tax regulations. Participants are always fully vestedin their contributions. The Company also makes employer contributions, whichprimarily vest pro ratably over three years of service. During 2006, 2005 and2004, the Company contributed approximately $4.7 million, $3.9 million and $3.2million, respectively, in cash to the plan. The Company also sponsors variousdefined contribution savings plans covering its full-time non-U.S. employees.

*Useof Estimates—**The*preparation of financialstatements in conformity with accounting principles generally accepted in theUnited States of America (“GAAP”) requires management to make estimates andassumptions that affect the reported amounts of assets and liabilities, anddisclosure of contingent assets and liabilities at the financial statement dateand the reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

*New Accounting Standards—**In*July 2006,the FASB issued Interpretation Number 48, “Accounting for Uncertainty in IncomeTaxes*,*an Interpretation of FASBStatement No. 109” (“FIN 48”), to create a single model to addressaccounting for uncertainty in tax positions. FIN 48 clarifies the accountingfor income tax positions by prescribing a minimum recognition threshold that atax position is required to meet before being recognized in the financialstatements. FIN 48 also provides guidance on derecognition, 

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measurement,classification, interest and penalties, accounting in interim periods,disclosure and transition. FIN 48 is effective for fiscal years beginning afterDecember 15, 2006. The Company will adopt FIN 48 as of January 1,2007, as required. The cumulative effect of adopting FIN 48 will be recorded inaccumulated deficit and other accounts as applicable. Although the Company hasnot made a final determination of the effect the adoption of FIN 48 will haveon the Company’s financial position and results of operations, it is expectedthat the cumulative adjustment to accumulated deficit will range from $17million to $61 million.  The adoption ofFIN 48 will impact the amount of and balance sheet classification of deferredtax assets and liabilities, goodwill and other accounts as applicable, andresult in greater volatility in the effective rate.

**3.   *SALE OF CYTOGAM***

On December 14, 2006, the Company sold theworldwide rights to CytoGam and certain related assets to ZLB Behring AG (ZLB).The Company received aggregate consideration of $57.2 million for the rightsand assets, net of transaction expenses, and may also receive up to anadditional $70.0 million in contingent payments upon achievement by ZLB ofspecified sales milestones, the achievement of which are considered uncertain. Inaddition, the Company agreed to provide transition services related to CytoGamprimarily for a period of up to 60 days subsequent to the closing date. 

The Company recognized the proceeds received from thesale of the assets on the date of completion of the sale, and will recognizethe proceeds received from the transition services as earned over thetransition service period. The net pre-tax gain on the sale of assetsrecognized in the current quarter was $48.5 million.  Any contingent payments related to the salesmilestones will be recognized as additional gain at the time of milestoneachievement. As of December 31, 2006, approximately $0.2 million fortransition services was recognized, and is included in Other Current Assets in the accompanying consolidated balance sheet.

Thefollowing table summarizes the carrying amounts of the major classes of assetsincluded as part of the disposal group related to the divestiture (inmillions):

| Inventory    |   | $   | 7.3    |   |
|--------------|--------|-----|--------|--------|
| Fixed assets |   | 0.6 |   |
| Total        |   | $   | 7.9    |   |

 

The transaction wasaccounted for as a disposal of assets, with the resulting gain included as acomponent of income from continuing operations.

**4.   *ACQUISITION OF CELLECTIVE THERAPEUTICS, INC.***

On October 14, 2005,the Company acquired the outstanding equity interests of CellectiveTherapeutics, Inc. (“Cellective”), a privately-held development-stagebiopharmaceutical company, for approximately $44.0 million in cash, net of cashacquired of approximately $8.9 million. The transaction was accounted for as apurchase of assets with the purchase price allocated to assets acquired andliabilities assumed based on their relative fair values. At the time of theacquisition, Cellective had three preclinical stage programs developingmonoclonal antibodies that target the B-cell antigens CD19, CD20 and CD22.Under the terms of the agreement, the Company also agreed to pay Cellective’sshareholders future contingent payments of up to approximately $105 millionshould the antibody programs achieve certain product development and salesmilestones. The Company’s wholly-owned venture capital subsidiary, MedImmuneVentures, Inc., owned approximately 10% of the outstanding equityinterests of Cellective prior to the acquisition. In connection with thetransaction, the Company recorded a charge for acquired in-process research anddevelopment (“IPR&D”) of approximately $43.7 million during the fourthquarter of 2005. The charge for acquired IPR&D was not deductible for taxpurposes. Significant efforts will be 

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requiredto complete the projects and the Company does not anticipate material cashinflows until 8 to 10 years from the acquisition date, if ever. The nature,timing and projected costs associated with the remaining efforts for completionare not reasonably estimable at this time.

**5.   *GOVERNMENT CONTRACT***

During the second quarterof 2006, the Company was awarded a five-year contract from the U.S. Departmentof Health and Human Services to develop cell-based seasonal and pandemicvaccines using our proprietary live, attenuated, intranasal influenza vaccinetechnology. The contract is cost-reimbursable plus a fixed fee and was initiallyanticipated to generate revenues of approximately $170.0 million.  The Company recognized $10.6 million ofrevenues under the contract during 2006, which is included in other revenue inthe accompanying statements of operations. As of December 31, 2006,approximately $4.7 million is due from the government, which is included inother current assets in the accompanying balance sheet.

**6.   *SEGMENT, GEOGRAPHIC AND PRODUCT INFORMATION***

The Company is organized along functional lines ofresponsibility as opposed to a product, divisional or regional organizationalstructure. The Company’s chief operating decision makers make decisions andassess the Company’s performance on a consolidated level. As such, theoperations of the Company comprise one operating segment.

TheCompany sells its products primarily to pharmaceutical wholesalers,distributors and specialty distributors. The Company has contractual agreementswith Abbott International, an affiliate of Abbott, for distribution of Synagisoutside of the U.S., and with affiliates of Schering Plough Corporation (“Schering”)for international distribution of Ethyol. Customers individually accounting forat least ten percent of the Company’s product sales during the past three yearsare as follows:

| ** **                  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|-----------------------------|------------|----------|------------|----------|------------|----------|------------|
| Amerisource-Bergen  Corp.   |       | 29%      |       | 35%      |       | 25%      |       |
| McKesson  HBOC, Inc.   |       | 18%      |       | 14%      |       | 18%      |       |
| Cardinal  Health, Inc. |       | 15%      |       | 13%      |       | 15%      |       |
| Abbott International        |       | 12%      |       | 12%      |       | 9%       |       |
| Total % of  product sales   |       | 74%      |       | 74%      |       | 67%      |       |

 

Thebreakdown of product sales by geographic region is as follows (in millions):

| ** **           | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
| United States        |       | $        | 1,057.9    |     | $          | 1,055.6  |       | $ | 1,008.7 |   |
| International        |       | 163.3    |       | 165.4    |       | 115.3    |       |
| Total product  sales |       | $        | 1,221.2    |     | $          | 1,221.0  |       | $ | 1,124.0 |   |

 

Thebreakdown of long-lived assets by geographic region is as follows (inmillions):

| ** **               | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------|------------|----------|------------|----------|------------|----------|------------|
| United States            |       | $        | 426.3      |     | $          | 324.3    |       | $ | 253.1 |   |
| Europe                   |       | 55.3     |       | 57.1     |       | 57.8     |       |
| Total long-lived  assets |       | $        | 481.6      |     | $          | 381.4    |       | $ | 310.9 |   |

 

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Thebreakdown of product sales is as follows (in millions):

| ** **           | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------|------------|----------|------------|----------|------------|----------|------------|
| Synagis              |       | $        | 1,065.0    |     | $          | 1,062.9  |       | $ | 942.3 |   |
| Ethyol               |       | 87.2     |       | 95.0     |       | 92.4     |       |
| FluMist (1)          |       | 36.4     |       | 21.3     |       | 48.0     |       |
| Other products       |       | 32.6     |       | 41.8     |       | 41.3     |       |
| Total product  sales |       | $        | 1,221.2    |     | $          | 1,221.0  |       | $ | 1,124.0 |   |

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(1)          2004 amount includesrevenue from sales in 2003 that were deferred due to lack of certaintyassociated with product returns and discounts in the initial launch season.

Thebreakdown of other revenues is as follows (in millions):

| ** **                | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------|------------|----------|------------|----------|------------|----------|------------|
| HPV related (1)           |       | $        | 25.6       |     | $          | 2.5      |       | $ | — |   |
| RSV franchise (2)         |       | 18.2     |       | 17.1     |       | 7.5      |       |
| Government and  other (3) |       | 11.8     |       | 3.3      |       | 9.6      |       |
| Total other  revenue      |       | $        | 55.6       |     | $          | 22.9     |       | $ | 17.1 |   |

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(1)          Represents milestone androyalty revenue earned under the Company’s licensing arrangements fortechnology related to cervical cancer vaccines.

(2)          Represents revenuerecognized under the Company’s international distribution agreement with AbbottInternational (see Note 18).

(3)          Representsrevenue recognized under the government contract (see Note 5) as well as otherlicensing and milestone revenues, corporate funding and contract manufacturingrevenues.

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**7.   *CASH, CASH EQUIVALENTS AND INVESTMENTS IN DEBT AND EQUITY SECURITIES***

Investmentsin cash, cash equivalents and marketable securities are comprised of thefollowing (in millions):

| ** **                            | ** ** | ** **    | ** ** | ** **    | ** ** | ** **     | ** ** | ** **     | ** ** | **Fair Value at Balance Sheet Date** | ** ** |
|---------------------------------------|------------|---------------|------------|---------------|------------|----------------|------------|----------------|------------|---------------------------------------------------------------|------------|
| ** **                            | ** ** | ** **    | ** ** | **Cost/**     | ** ** | **Gross**      | ** ** | **Gross**      | ** ** | **Cash and**                                             | ** ** | **Short-Term** | ** ** | **Long-Term** | ** ** |
| ** **                            | ** ** | **Principal** | ** ** | **Amortized** | ** ** | **Unrealized** | ** ** | **Unrealized** | ** ** | **Cash**                                                      | ** ** | **Marketable** | ** ** | **Marketable** | ** ** |
| ** **                            | ** ** | **Amount**    | ** ** | **Cost**      | ** ** | **Gains**      | ** ** | **Losses**     | ** ** | **Equivalents**                                               | ** ** | **Securities** | ** ** | **Securities** | ** ** |
| *December 31, 2006:*             | * *   | * *      | * *   |          | * *   | * *       |       |           | * *   | * *                                                      |       |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   |
| Cash and Money Market Mutual Funds    |       | $        | 34.5       |          |       | $         | 34.5       | * *       |       |                                                          | $     | — | * * |   |   | $  | — | * * |   |   | $  | 34.5 | * * |   |   | $  | — | * * |   |   | $  | — | * * |   |
| Commercial Paper                      |       | 333.5         |       |          | 332.6      | * *       |       |           | —     | * *                                                      |       |   | — | * * |   |   | 324.9 | * * |   |   | 7.7 | * * |   |   | — | * * |   |
| U.S. Government and Agency Securities |       | 246.7         |       |          | 246.9      | * *       |       |           | —     | * *                                                      |       |   | (2.5 | *)* |   |   | — | * * |   |   | 138.8 | * * |   |   | 105.6 | * * |   |
| Corporate Notes and Bonds (1)         |       | 848.2         |       |          | 874.9      | * *       |       |           | 0.1        | * *                                                      |       |   | (15.7 | *)* |   |   | — | * * |   |   | 282.6 | * * |   |   | 576.7 | * * |   |
| Equity Securities                     |       | n/a           |       |          | 28.8       | * *       |       |           | 11.5       | * *                                                      |       |   | (1.4 | *)* |   |   | — | * * |   |   | 38.9 | * * |   |   | — | * * |   |
| Total                                 |       | $             | 1,462.9    |          |       | $              | 1,517.7    | * *       |       |                                                          | $          | 11.6 | * * |   |   | $ | (19.6 | *)* |   |   | $ | 359.4 | * * |   |   | $ | 468.0 | * * |   |   | $ | 682.3 | * * |   |
| *December 31,  2005:*            | * *   | * *      | * *   |          | * *   | * *       |       |           | * *   | * *                                                      |       |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   |   | * * | * * |   |
| Cash and Money Market Mutual Funds    |       | $        | 42.9       |          |       | $         | 42.9       | * *       |       |                                                          | $     | — | * * |   |   | $  | — | * * |   |   | $  | 42.9 | * * |   |   | $  | — | * * |   |   | $  | — | * * |   |
| Commercial Paper                      |       | 163.2         |       |          | 161.9      | * *       |       |           | —     | * *                                                      |       |   | — | * * |   |   | 110.5 | * * |   |   | 51.4 | * * |   |   | — | * * |   |
| U.S. Government and Agency Securities |       | 304.1         |       |          | 306.3      | * *       |       |           | —     | * *                                                      |       |   | (4.3 | *)* |   |   | — | * * |   |   | 181.0 | * * |   |   | 121.0 | * * |   |
| Corporate Notes and Bonds             |       | 905.1         |       |          | 942.5      | * *       |       |           | 0.7        | * *                                                      |       |   | (20.1 | *)* |   |   | — | * * |   |   | 182.7 | * * |   |   | 740.4 | * * |   |
| Equity Securities                     |       | n/a           |       |          | 36.0       | * *       |       |           | 6.0        | * *                                                      |       |   | — | * * |   |   | — | * * |   |   | 42.0 | * * |   |   | — | * * |   |
| Total                                 |       | $             | 1,415.3    |          |       | $              | 1,489.6    | * *       |       |                                                          | $          | 6.7 | * * |   |   | $ | (24.4 | *)* |   |   | $ | 153.4 | * * |   |   | $ | 457.1 | * * |   |   | $ | 861.4 | * * |   |

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(1)          Includes $4.5 million ofrestricted collateral related to the credit facility (see Note 13), that isclassified within other long-term assets in the accompanying balance sheet.

Theamortized cost and fair market value of the Company’s investments in cash, cashequivalents and marketable securities at December 31, 2006, by contractualmaturities are (in millions):

| ** **                              | ** ** | **Cost/**     | ** ** | ** ** | ** ** |
|-----------------------------------------|------------|---------------|------------|------------|------------|
| ** **                              | ** ** | **Amortized** | ** ** | **Fair**   | ** ** |
| ** **                              | ** ** | **Cost**      | ** ** | **Value**  | ** ** |
| Equity securities                       |       |          | $          | 28.8       |       |   | $ | 38.9 |   |
| Due in one year  or less                |       |          | 790.4      |       |       | 788.5 |   |
| Due after one year  through two years   |       |          | 553.3      |       |       | 540.9 |   |
| Due after two  years through five years |       |          | 145.2      |       |       | 141.4 |   |
| Total                                   |       |          | $          | 1,517.7    |       |   | $ | 1,509.7 |   |

 

The cost basis of the Company’s minority interestinvestments in privately-held companies was $60.6 million and $34.5 million asof December 31, 2006 and 2005, respectively, and is included in otherassets in the accompanying consolidated balance sheets. The fair value of theseinvestments is not readily determinable.

The Company reviews its investments in debt and equitysecurities for potential other-than-temporary impairment. During 2006, 2005 and2004, the Company recorded impairment losses of $14.7 million, $8.6 million and$13.7 million, respectively, on certain of its investments in equity securitiesbased on the duration and magnitude of the declines in fair value, as well asthe financial condition and near-term prospects of the investee companies.

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Thefollowing table shows the gross unrealized losses and fair value of theCompany’s investments in marketable securities with unrealized losses that arenot deemed to be other-than-temporarily impaired, aggregated by investmentcategory and length of time that individual securities have been in acontinuous unrealized loss position, at December 31, 2006 (in millions).Based on the credit worthiness of the issuers and the financial condition andnear-term prospects of investee companies, and the Company’s ability and intentto hold the investments for a period of time sufficient to allow for anyanticipated recovery in market value, the Company determined that theunrealized losses are not other-than-temporary.

| ** **                             | ** ** | **Less Than 12 Months** | ** ** | **12 Months or Greater** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|----------------------------------------|------------|-----------------------------------------|------------|-----------|------------|
| ** **                             | ** ** | **Fair**                               | ** ** | **Unrealized**                          | ** ** | **Fair**  | ** ** | **Unrealized** | ** ** | **Fair** | ** ** | **Unrealized** | ** ** |
| ** **                             | ** ** | **Value**                              | ** ** | **Losses**                              | ** ** | **Value** | ** ** | **Losses** | ** ** | **Value** | ** ** | **Losses** | ** ** |
| U.S. Government  and Agency Securities |       | $                                      | 67.5       |                                    |       | $         | 0.1        |   |   | $ | 112.5 |   |   | $ | 2.4 |   |   | $ | 180.0 |   |   | $ | 2.5 |   |   |
| Corporate Notes and  Bonds             |       | 112.3                                  |       |                                    | 0.2        |      |       | 668.8 |   |   | 15.5 |   |   | 781.1 |   |   | 15.7 |   |   |
| Equity securities                      |       | 10.9                                   |       |                                    | 1.4        |      |       | — |   |   | — |   |   | 10.9 |   |   | 1.4 |   |   |
| Total                                  |       | $                                      | 190.7      |                                    |       | $         | 1.7        |   |   | $ | 781.3 |   |   | $ | 17.9 |   |   | $ | 972.0 |   |   | $ | 19.6 |   |   |

 

Proceeds from sales ofmarketable securities totaled $89.7 million, $223.6 million and $308.0 millionin 2006, 2005 and 2004, respectively. Gross gains recognized on sales ofsecurities in 2006, 2005 and 2004 were $18.1 million, $1.1 million and $11.2million, respectively, as determined by specific identification. Gross lossesrecognized on sales of securities were $0.4 and $1.0 million during 2006 and2005, respectively, and immaterial during 2004, as determined by specificidentification. 

During 2006, theoutstanding equity interests of Avidia, Inc., a privately-heldbiopharmaceutical company in which the Company owned approximately 11%, wereacquired by Amgen Inc. In connection with the transaction, the Company receivedproceeds of $39.8 million and recorded a pre-tax gain of approximately $30.6million, and could recognize future additional gains up to $6 million upon theachievement of certain contingent milestone events.

**8.   *INVENTORY***

Inventory,net of valuation reserves, at December 31, is comprised of the following(in millions):

| ** **      | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------|------------|----------|------------|----------|------------|
| Raw materials   |       | $        | 12.6       |     | $          | 11.1 |   |
| Work in process |       | 24.3     |       | 42.4     |       |
| Finished goods  |       | 48.4     |       | 15.9     |       |
|            |       | $        | 85.3       |     | $          | 69.4 |   |

 

The Company recorded permanent inventory write-downstotaling $9.8 million, $14.3 million and $45.8 million during 2006, 2005 and2004, respectively, to cost of goods sold to reflect total FluMist inventoriesat net realizable value. The Company recorded permanent inventory write-downsfor unsold seasonal FluMist product of $10.2 million, $19.1 million and $4.3million during 2006, 2005, and 2004, respectively.

The Company recorded permanent inventory write-downsof $3.3 million during 2005 for certain Synagis lots that were determined to benonsaleable as they are outside of normal specifications and not recoverable.In connection with the Company’s plans to replace the lyophilized formulationof Synagis with the liquid formulation, the Company recorded a permanentinventory write-down at December 31, 2004 for excess inventories of $5.5million in cost of goods sold. The write-down was based on an analysis ofinventory quantities, including pending future purchase commitments, andprojected sales levels of the lyophilized formulation of Synagis.

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The Company recorded otherpermanent inventory write-downs totaling $1.9 million, $5.2 million and $15.3million in cost of goods sold during 2006, 2005, and 2004, respectively.

**9.   *PROPERTY AND EQUIPMENT***

Propertyand equipment, stated at cost at December 31, is comprised of thefollowing (in millions):

| ** **                                          | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| Land and land  improvements                         |       | $        | 30.4       |     | $          | 30.4 |   |
| Buildings and  building improvements                |       | 177.3    |       | 123.8    |       |
| Leasehold  improvements                             |       | 90.6     |       | 55.7     |       |
| Manufacturing,  laboratory and facilities equipment |       | 104.6    |       | 81.6     |       |
| Office furniture,  computers and equipment          |       | 82.7     |       | 62.2     |       |
| Construction in  progress                           |       | 162.4    |       | 161.6    |       |
|                                                |       | 648.0    |       | 515.3    |       |
| Less accumulated  depreciation and amortization     |       | (166.4   | )          | (133.9   | )          |
|                                                |       | $        | 481.6      |     | $          | 381.4 |   |

 

As of December 31, 2006, construction in progressincludes $82.9 million of engineering, construction and equipment costs andother professional fees related to laboratory space at the pilot plant facilityand $35.7 million related to the expansion of the Company’s biologicsmanufacturing facility located in Frederick, Maryland. As of December 31,2005, construction in progress includes $81.3 million of engineering andconstruction costs and other professional fees related to the pilot plantfacility and administrative offices located in Gaithersburg, Maryland, and$65.7 million of engineering, construction and equipment costs related to theCompany’s manufacturing facilities in Pennsylvania and the United Kingdom.

Depreciation and amortization expense for the yearsended December 31, 2006, 2005 and 2004 was $37.0 million, $30.5 millionand $30.4 million, respectively.

Interest costs capitalizedin connection with the Company’s construction activities totaled $1.7 million,$1.1 million and $1.6 million in 2006, 2005 and 2004, respectively.

**10.   *INTANGIBLE ASSETS***

Intangibleassets are comprised of the following at December 31, (in millions):

| ** **                                  | ** ** | **2006**                | ** ** | **2005**         | ** ** |
|---------------------------------------------|------------|-------------------------|------------|------------------|------------|
| ** **                                  | ** ** | **Gross Carrying** | ** ** | **Accumulated**  | ** ** | **Gross Carrying** | ** ** | **Accumulated** | ** ** |
| ** **                                  | ** ** | **Amount**              | ** ** | **Amortization** | ** ** | **Amount** | ** ** | **Amortization** | ** ** |
| Co-promotion  rights acquired from Abbott   |       |                    | $          | 346.1            |       |   |   | $ | (126.7 | ) |   |   | $ | 360.4 |   |   |   | $ | (41.3 | ) |   |
| Manufacturing  know-how acquired from Evans |       |                    | 39.0       |             |       |   | (39.0 | ) |   |   | 39.0 |   |   |   | (34.6 | ) |   |
| Other intangible  assets                    |       |                    | 0.4        |             |       |   | (0.4 | ) |   |   | 0.4 |   |   |   | (0.4 | ) |   |
|                                        |       |                    | $          | 385.5            |       |   |   | $ | (166.1 | ) |   |   | $ | 399.8 |   |   |   | $ | (76.3 | ) |   |

 

In conjunction with the reacquisition of theco-promotion rights for Synagis in the United States (see Note 18), the Companyrecorded an intangible asset of $360.4 million during 2005, which representedthe estimated fair value of the exclusive co-promotion rights, determined asthe aggregate value of the incremental payments to be made to Abbott as aresult of the amended terms of the agreement in excess of the value of theco-promotion services to be rendered, as determined under the previousagreement. Amortization of the intangible asset is computed based on projectedfuture sales of Synagis over the expected period of active sales and marketingefforts in the United States, which was initially projected to 

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continue through the firsthalf of 2009. Certain of the incremental payments, which were variable based onactual sales, differed from the initial estimates. Accordingly, the obligationto Abbott was reduced by $14.3 million, resulting in a corresponding reductionto the gross carrying amount of the intangible asset. The Company also revisedits assumptions for the transition from Synagis to Numax. The Company nowexpects to continue to actively market Synagis for children with congenitalheart disease through the 2009/2010 season. As a result, the projectedamortization period was extended through the first half of 2010.

Amortizationfor the Company’s intangible assets for the years ended December 31, 2006,2005 and 2004 was $89.8 million, $50.0 million and $10.6 million, respectively.The estimated aggregate amortization for the remaining life of the assets is asfollows (in millions):

| For the year  ended December 31, 2007 |   | $    | 72.7   |   |
|--------------------------------------------|--------|------|--------|--------|
| For the year  ended December 31, 2008 |   | 68.4 |   |
| For the year  ended December 31, 2009 |   | 53.8 |   |
| For the year  ended December 31, 2010 |   | 24.5 |   |
|                                       |   | $    | 219.4  |   |

 

**11.   *ACCRUED EXPENSES***

Accruedexpenses at December 31, are comprised of the following (in millions):

| ** **                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Co-promotion  expenses                |       | $        | —     |     | $          | 90.6 |   |
| Rebates due to  government purchasers |       | 44.4     |       | 52.5     |       |
| Research and  development expenses    |       | 55.7     |       | 12.0     |       |
| Sales and  marketing costs            |       | 14.1     |       | 16.0     |       |
| Bonuses                               |       | 21.0     |       | 17.3     |       |
| Clinical trial  costs                 |       | 9.6      |       | 33.9     |       |
| Other                                 |       | 35.6     |       | 19.8     |       |
|                                  |       | $        | 180.4      |     | $          | 242.1 |   |

 

**12.   *FACILITIES LEASES***

The Company leases manufacturing, warehouse,laboratory and administrative space under numerous operating leases. Under theleases, the Company is obligated to pay basic monthly rents as well asutilities and its proportionate share of taxes, assessments, insurance andmaintenance costs. Rent expense for the years ended December 31, 2006,2005 and 2004 was $10.5 million, $8.8 million and $9.2 million, respectively.

TheCompany’s future minimum lease payments under operating leases are as follows(in millions):

| **Year Ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
| 2007                                        |       | $          | 12.9       |   |
| 2008                                        |       | 11.0       |       |
| 2009                                        |       | 9.4        |       |
| 2010                                        |       | 8.9        |       |
| 2011                                        |       | 8.1        |       |
| Thereafter                                  |       | 30.7       |       |
|                                        |       | $          | 81.0       |   |

 

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**13.   *LONG-TERM DEBT***

Long-termdebt at December 31, is comprised of the following (in millions):

| ** **                                                                                                                                                     | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| 1.375%  Convertible Senior Notes, due 2011                                                                                                                     |       | $        | 575.0      |     | $          | — |   |
| 1.625%  Convertible Senior Notes, due 2013                                                                                                                     |       | 575.0    |       | —   |       |
| 1% Convertible  Senior Notes, due 2023                                                                                                                         |       | 10.4     |       | 500.0    |       |
| 4% notes due to  Maryland Department of Business and Economic Development, due 2016                                                                            |       | 4.1      |       | 4.5      |       |
| 7.53% note due to  Maryland Industrial Development Finance Authority, due 2007 (collectively  with the 4% notes referred to as the “Maryland Notes”) |       | 0.9      |       | 1.5      |       |
| Note due to  Cooperative Rabobank, B.A., due 2009, variable interest rate                                                                                      |       | 0.1      |       | 0.2      |       |
| Credit facility,  variable interest rate                                                                                                                       |       | —   |       | —   |       |
|                                                                                                                                                           |       | 1,165.5  |       | 506.2    |       |
| Less current  portion included in other current liabilities                                                                                                    |       | (1.1     | )          | (501.0   | )          |
|                                                                                                                                                           |       | $        | 1,164.4    |     | $          | 5.2 |   |

 

Maturities of the Company’s long-term debt for thenext five years are as follows: 2007 – $1.1 million; 2008 – $0.7 million; 2009– $10.8 million; 2010 – $0.4 million; 2011 – $575.4 million.

*ConvertibleSenior Notes Due 2011 and 2013**—*During June 2006,the Company issued in a private placement $575 million of convertible seniornotes due 2011 (“2011 Notes”) and $575 million of convertible senior notes due2013 (“2013 Notes”) (collectively referred to as the “Notes”). The 2011 Notesand 2013 Notes bear interest at 1.375% per annum and 1.625% per annum,respectively, in each case payable semi-annually in arrears on January 15and July 15 of each year.

The Notes are senior unsecured obligations of theCompany, and are convertible into cash and, if applicable, shares of our commonstock based on an initial conversion rate, subject to adjustment, of 29.9679shares per $1,000 principal amount of Notes (which represents an initialconversion price of approximately $33.37 per share). Upon conversion, a holderwould receive cash up to the principal amount of the note and the Company’scommon stock in respect of such note’s conversion value in excess of suchprincipal amount. The Notes are convertible only in the followingcircumstances: (1) if the closing sale price of the Company’s common stockexceeds 130% of the conversion price during a period as defined in theindenture; (2) if the average trading price per $1,000 principal amount ofthe Notes is less than or equal to 97% of the average conversion value of theNotes during a period as defined in the indenture; (3) upon the occurrenceof specified corporate transactions; and (4) at any time during the 30 dayperiod immediately preceding the maturity date. Upon a change in control ortermination of trading, holders of the Notes may require the Company torepurchase all or a portion of their Notes for cash at a repurchase price equalto 100% of the principal amount, plus any accrued and unpaid interest. During September 2006,the Company filed a registration statement to cover resales of the Notes. Theestimated fair value of the 2011 Notes and 2013 Notes as of December 31,2006 was $651.2 million and $662.0 million, respectively, based on quotedmarket prices.

In connection with the issuance of the Notes, theCompany entered into separate convertible note hedge transactions and separatewarrant transactions with respect to the Company’s common stock to reduce thepotential dilution upon conversion of the Notes (collectively referred to asthe “Call Spread Transactions”) (see Note 14). The Call Spread Transactions donot affect the rights of noteholders under the Notes. As a result of the CallSpread Transactions, the Company does not anticipate experiencing an increasein the total shares outstanding from the conversion of the Notes unless theprice of its common stock appreciates above $47.67 per share, effectivelyincreasing the conversion premium to the Company to $47.67. The Companypurchased call options to cover approximately 34.5 million shares of theCompany’s 

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common stock (subject toadjustment in certain circumstances), which is the number of shares underlyingthe Notes. In addition, the Company sold warrants permitting the purchasers toacquire up to approximately 34.5 million shares of the Company’s common stock(subject to adjustment in certain circumstances).

*1%Convertible Senior Notes—**During*July 2003,the Company issued $500.0 million of convertible senior notes due 2023 in aprivate placement. These notes bear interest at 1% per annum payablesemi-annually in arrears on January 15 and July 15 of each year.Beginning July 2006, the Company will pay contingent interest on thesenotes during a six-month interest period if the average trading price of thesenotes equals or exceeds 120% of the principal amount of the notes. Undercertain circumstances, these notes will be convertible into the Company’scommon stock at an initial conversion price of approximately $68.18 per share.

As of December 31, 2005, the aggregate principalamount of the 1% convertible senior notes of $500.0 million was reclassified tocurrent liabilities within the consolidated balance sheet as the holders of thenotes could require the Company to redeem the notes during July 2006. On July 10,2006, most of the holders of these notes exercised their put options requiringthe Company to redeem the notes for cash at 100% of the principal amount of thenotes, plus accrued and unpaid interest. On July 17, 2006, the Companypaid $492.1 million to redeem the notes, including $489.6 million in aggregateprincipal amount and $2.5 million in accrued and unpaid interest. The remaining$10.4 million aggregate principal amount was not redeemed and is classified aslong-term debt in the accompanying balance sheet, as holders of the notes arenot able to exercise a put option requiring redemption until July 2009. Oneach of July 15, 2009, July 15, 2013 and July 15, 2019, holdersmay require the Company to purchase all or a portion of their 1% Notes for cashat 100% of the principal amount of the 1% Notes to be purchased, plus anyaccrued and unpaid interest; contingent interest, if any; and liquidateddamages, if any. The estimated fair value of the 1% Notes as of December 31,2005 was $488.9 million based on quoted market prices.

*CollateralizedLoans—**The*Maryland Notes arecollateralized by the land, buildings and building fixtures of the Frederickmanufacturing center. The agreements include a provision for early retirementof the notes by the Company. Pursuant to the terms of the agreements, theCompany is required to meet certain financial and non-financial covenantsincluding maintaining minimum cash balances and net worth ratios. The Companymaintains a $0.4 million compensating balance related to the Maryland Notes,which is included in other assets.

The mortgage loan with Cooperative Rabobank B.A. isheld by the Company’s subsidiary, MedImmune Pharma B.V., and is collateralizedby the land and buildings of its manufacturing facility in Nijmegen, theNetherlands and guaranteed by the Company. Proceeds from the loan were used topartially fund the purchase of additional equipment for the facility. Themortgage loan, for which principal payments began in March 1995, has a 15-yearterm and bears interest at a quarterly variable rate. The interest rate as of December 31,2006 and December 31, 2005 was 5.25% and 4.95%, respectively.

*Credit Facility—**On*April 25,2006, the Company entered into a $600.0 million credit facility with athree-year term. The credit facility provides for revolving borrowings andletters of credit collateralized by the Company’s marketable securities, whichbecome restricted to the extent the credit facility is utilized. Borrowingsbear interest at a variable rate based on prime or LIBOR rates, and the Companyis obligated for a commitment fee associated with the unused portion of thecredit facility. The credit facility contains covenants restricting the abilityof the Company and its subsidiaries to incur indebtedness, grant liens, mergeor liquidate, or make certain investments. As of December 31, 2006, therewere no outstanding borrowings under the credit facility. As of December 31,2006, there was $4.5 million of restricted collateral under the credit facilityrelated to outstanding letters of credit, which is included in other long-termassets in the accompanying balance sheet.

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**14.   *SHAREHOLDERS’ EQUITY***

In connection with the issuance of the Notes (see Note13) in June 2006, the Company entered into the Call Spread Transactions.The Call Spread Transactions have the effect of reducing the potential dilutionupon conversion of the Notes. As a result of the Call Spread Transactions, theCompany does not anticipate experiencing an increase in the number of sharesoutstanding from the conversion of the Notes unless the price of its commonstock appreciates above $47.67 per share, effectively increasing the conversionpremium to the Company to $47.67. The Company purchased call options in privatetransactions to cover approximately 34.5 million shares of the Company’s commonstock at a strike price of $33.37 per share (subject to adjustment in certaincircumstances) for $316.5 million ($204.1 net of tax benefit). The call optionsgenerally allow the Company to receive shares of the Company’s common stockfrom counterparties equal to the number of shares of common stock payable tothe holders of the Notes upon conversion. These call options will terminate theearlier of the maturity dates of the related senior convertible notes or thefirst day all of the related senior convertible notes are no longer outstandingdue to conversion or otherwise. As of December 31, 2006, the estimatedfair value of the call options was $410.2 million. The Company also soldwarrants permitting the purchasers to acquire up to approximately 34.5 millionshares of the Company’s common stock at an exercise price of $47.67 per share(subject to adjustments in certain circumstances) in private transactions for atotal proceeds of approximately $177.0 million. The warrants may be settledover specified periods beginning in July 2011 and July 2013. Thewarrants provide for net share settlement. In no event shall the Company berequired to deliver a number of shares in connection with the transaction inexcess of twice the aggregate number of warrants. As of December 31, 2006,the estimated fair value of the warrants was $248.4 million. The Companyanalyzed the Call Spread Transactions under Emerging Issues Task Force Issue No. 00-19,“Accounting for Derivative Financial Instruments Indexed to, and PotentiallySettled In, a Company’s Own Stock,” and determined that they meet the criteriafor classification as equity transactions. As a result, in the second quarterof 2006 the Company recorded the purchase of the call options as a reduction inadditional paid-in capital; and the proceeds of the warrants as an addition topaid-in capital, and the Company will not recognize subsequent changes in fairvalue of the agreements.

In May 2006, the Board of Directors authorized anew stock repurchase program for up to $500.0 million of the Company’s commonstock in the open market or in privately negotiated transactions. The previousstock repurchase program, which was approved in July 2003 for $500.0million, was fully utilized as of June 2006. During 2006, the Companyrepurchased approximately 11.2 million shares of common stock at a cost of$328.5 million, or an average cost of $29.33 per share. In 2005, the Companyrepurchased approximately 4.0 million shares at a cost of $105.9 million, or anaverage cost of $26.18 per share. In 2004, the Company repurchasedapproximately 1.2 million shares at a cost of $30.0 million, or an average costof $24.33 per share. The Company is holding repurchased shares as treasuryshares and is using them for general corporate purposes, including but notlimited to issuance upon exercise of outstanding stock options. During 2006 and2005, the Company reissued 2.8 million and 2.4 million shares, respectively,from treasury.

Pursuant to the terms ofthe Stockholder Rights Plan adopted by the Company’s Board of Directors, commonstock purchase rights (“Rights”) were distributed as a dividend at the rate ofone Right for each share of common stock of the Company held by stockholders ofrecord as of the close of business on July 21, 1997. The Rights will beexercisable only if a person or group acquires beneficial ownership of 20% ormore of the Company’s common stock or commences a tender or exchange offer uponconsummation of which such a person or group would beneficially own 20% or moreof the Company’s stock. The Rights will expire on July 9, 2007.

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**15.   *EARNINGS PER SHARE***

Thefollowing is a reconciliation of the numerators and denominators of the dilutedEPS computation for the years ended December 31, 2006, 2005 and 2004 (inmillions):

| ** **                                  | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Numerator:                                  |       |     |       |     |       |     |       |
| Net income (loss) for basic and diluted EPS |       | $        | 48.7       |     | $          | (16.6    | )          | $ | (3.8 | ) |
| Denominator:                                |       |     |       |     |       |     |       |
| Weighted average shares for basic EPS       |       | 243.1    |       | 246.9    |       | 248.6    |       |
| Effect of  dilutive securities:             |       |     |       |     |       |     |       |
| Stock options and warrants                  |       | 3.2      |       | —   |       | —   |       |
| Convertible senior notes                    |       | —   |       | —   |       | —   |       |
| Weighted average shares for diluted EPS     |       | 246.3    |       | 246.9    |       | 248.6    |       |
| Basic earnings  (loss) per share            |       | $        | 0.20       |     | $          | (0.07    | )          | $ | (0.02 | ) |
| Diluted earnings (loss)  per share          |       | $        | 0.20       |     | $          | (0.07    | )          | $ | (0.02 | ) |

 

The Company incurred a net loss for 2005 and 2004 and,accordingly, did not assume exercise or conversion of any of the Company’soutstanding stock options, warrants, or convertible notes during the periodsbecause to do so would be anti-dilutive. As a result, options and warrants topurchase 31.1 million and 30.9 million shares of common stock were outstandingat December 31, 2005 and 2004, respectively, but were excluded from thecalculation of diluted earnings per share.

If option or warrant exercise prices are greater thanthe average market price of the Company’s common stock for the periodpresented, the effect of including such options and warrants in the earningsper share calculation is anti-dilutive. Options and warrants to purchase 48.8million shares of common stock at prices ranging from $31.89 to $83.25 pershare were outstanding at December 31, 2006 but were not included in thecomputation of diluted earnings per share because the exercise price of theoptions exceeded the average market price.

The Company’s convertiblesenior notes were anti-dilutive for all periods presented.

**16.   *SHARE-BASED COMPENSATION***

As of December 31,2006, the Company has a number of share-based compensation plans as describedbelow. The pre-tax compensation cost that has been recognized for those plansis as follows (in millions):

| ** **                           | ** ** | **2006** | ** ** |
|--------------------------------------|------------|----------|------------|
| Cost of sales                        |       | $        | 1.4        |   |
| Research and  development            |       | 10.8     |       |
| Selling, general  and administrative |       | 22.0     |       |
|                                 |       | $        | 34.2       |   |
| Capitalized in  inventory            |       | 1.6      |       |
| Share-based compensation  cost       |       | $        | 35.8       |   |

 

The total income tax benefit recognized in thestatements of operations for the deductible portion of share-based compensationwas $7.9 million in 2006.

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The Company grants stockoption incentive awards under certain of the following plans. The 2004 StockIncentive Plan (the “2004 Plan”) is used as the primary plan for employeeawards. During the Company’s annual meeting of stockholders in May 2006,the Company’s stockholders voted to increase the maximum number of shares ofcommon stock reserved for issuance under the 2003 Non-Employee Directors Planby 0.6 million shares.
| Plan                              | ** ** | **Description**                                                                                                                                                                          | ** ** | **Shares  Authorized for  Option Grants** |
|-----------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|
| ** **                        | ** ** | ** **                                                                                                                                                                               | ** ** | **(in millions)**                         |
| 1991 Plan                         |       | Provides option  incentives to employees, consultants and advisors of the Company                                                                                                        |       | 33.0                                      |
| 1999 Plan                         |       | Provides option  incentives to employees, consultants and advisors of the Company                                                                                                        |       | 23.3                                      |
| 2003 Non-Employee  Directors Plan |       | Provides option  incentives to non-employee directors                                                                                                                                    |       | 1.4                                       |
| 2004 Plan                         |       | Provides option, stock  appreciation rights, restricted stock, stock units and/or stock incentive  awards to employees, non-employee directors, consultants and advisors of the  Company |       | 21.0                                      |

 

Thefollowing compensation plans, for which there are options outstanding but nofuture grants are intended to be made, were acquired by the Company inconnection with its acquisitions of U.S. Bioscience, Inc. and Aviron (“AcquiredPlans”):
| Plan                                    | ** ** | **Description**                                                                                                                                                                                     |
|-----------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Non-Executive Plan                      |       | Provided option  incentives to employees who were not officers or directors of U.S.  Bioscience, Inc., consultants and advisors of the company                                                 |
| 1996 Non-Employee  Directors Plan       |       | Provided option  incentives to elected nonemployee directors of U.S. Bioscience, Inc.                                                                                                          |
| 1996 Equity Incentive  Plan             |       | Provided  incentive and nonstatutory stock options to employees and consultants of  Aviron                                                                                                          |
| 1999 Non-Officer Equity  Incentive Plan |       | Provided  nonstatutory stock options, stock bonuses, rights to purchase restricted  stock, and stock appreciation rights to consultants and employees who were  not officers or directors of Aviron |
| 1992 Stock Option Plan                  |       | Provided incentive and  nonstatutory stock options to employees, directors and consultants of Aviron.                                                                                               |

 

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Optionsunder all plans normally vest over a three to five year period and have amaximum term of 10 years. The Company has reserved a total of approximately16.9 million shares of common stock for future issuance under these plans as ofDecember 31, 2006. Related stock option activity is as follows (shares inmillions):

| ** **                       | ** ** | **1991, 1999 and** | ** ** | **Non-Employee**         | ** ** | ** **              | ** ** | ** **         | ** ** |
|----------------------------------|------------|------------------------------|------------|--------------------------|------------|-------------------------|------------|--------------------|------------|
| ** **                       | ** ** | **2004 Plans**          | ** ** | **Directors Plans** | ** ** | **Acquired Plans** | ** ** |
| ** **                       | ** ** | ** **                   | ** ** | **Price per**       | ** ** | ** **              | ** ** | **Price per** | ** ** | ** ** | ** ** | **Price per** | ** ** |
| ** **                       | ** ** | **Shares**                   | ** ** | **share (1)**       | ** ** | **Shares**              | ** ** | **share (1)** | ** ** | **Shares** | ** ** | **share (1)** | ** ** |
| Outstanding,  Dec. 31, 2003 |       |                         | 26.1       |                     |       |                    | $          | 34.00              |       |   |   | 1.0 |   |   |   | $ | 30.52 |   |   |   | 2.6 |   |   |   | $ | 29.82 |   |   |
| Granted                          |       |                         | 4.9        |                     |       |                    | 23.93      |               |       |   | 0.2 |   |   |   | 23.17 |   |   |   | — |   |   |   | — |   |   |
| Exercised                        |       |                         | (1.0       | )                        |       |                    | 9.21       |               |       |   | (0.2 | ) |   |   | 1.31 |   |   |   | (0.2 | ) |   |   | 20.86 |   |   |
| Canceled                         |       |                         | (2.5       | )                        |       |                    | 35.51      |               |       |   | — |   |   |   | — |   |   |   | (0.3 | ) |   |   | 32.63 |   |   |
| Outstanding,  Dec. 31, 2004 |       |                         | 27.5       |                     |       |                    | 33.12      |               |       |   | 1.0 |   |   |   | 33.12 |   |   |   | 2.1 |   |   |   | 30.48 |   |   |
| Granted                          |       |                         | 5.0        |                     |       |                    | 25.78      |               |       |   | 0.2 |   |   |   | 26.71 |   |   |   | — |   |   |   | — |   |   |
| Exercised                        |       |                         | (1.6       | )                        |       |                    | 17.16      |               |       |   | — |   |   |   | — |   |   |   | (0.4 | ) |   |   | 21.32 |   |   |
| Canceled                         |       |                         | (2.4       | )                        |       |                    | 33.31      |               |       |   | — |   |   |   | — |   |   |   | (0.3 | ) |   |   | 36.78 |   |   |
| Outstanding,  Dec. 31, 2005 |       |                         | 28.5       |                     |       |                    | 32.58      |               |       |   | 1.2 |   |   |   | 31.88 |   |   |   | 1.4 |   |   |   | 32.06 |   |   |
| Granted                          |       |                         | 4.4        |                     |       |                    | 35.42      |               |       |   | 0.2 |   |   |   | 27.12 |   |   |   | — |   |   |   | — |   |   |
| Exercised                        |       |                         | (2.2       | )                        |       |                    | 21.81      |               |       |   | (0.1 | ) |   |   | 6.11 |   |   |   | (0.2 | ) |   |   | 24.97 |   |   |
| Canceled                         |       |                         | (3.0       | )                        |       |                    | 40.61      |               |       |   | — |   |   |   | — |   |   |   | (0.1 | ) |   |   | 40.42 |   |   |
| Outstanding,  Dec. 31, 2006 |       |                         | 27.7       |                     |       |                    | $          | 33.04              |       |   |   | 1.3 |   |   |   | $ | 32.60 |   |   |   | 1.1 |   |   |   | $ | 33.29 |   |   |

----

(1)          Price per share is theweighted average price.

 

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The following disclosure provides a description of thesignificant assumptions used during 2006, 2005 and 2004 to estimate the fairvalue of the Company’s employee stock option awards.

2006and 2005 – The fair value of employee stock options granted since January 1,2005 were estimated using a binomial lattice-based valuation model that usesthe weighted-average assumptions shown in the table below. The Company useshistorical data to estimate option exercise and employee termination within thebinomial model; separate groups of employees that have similar historicalexercise behavior are considered separately for valuation purposes. Indeveloping our estimates of expected volatility, we consider historicalmeasures of volatility and the implied volatility determined from the marketprices of traded call options on our common stock.  We believe implied volatilities are betterindicators of marketplace participants’ expectations about future volatility. Theexpected life of an option is derived from the output of the binomial model andrepresents the period of time that options granted are expected to beoutstanding; the range given below results from certain groups of employeesexhibiting different exercise patterns. The risk-free interest rate is based onthe rate currently available for zero-coupon U.S. government issues with a termequal to the contractual life of the option.

| ** **                                      | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|
| Option pricing  model                           |       | Binomial   |       | Binomial   |       |
| Expected stock  price volatility                |       | 31         | %          | 32         | %          |
| Expected dividend  yield                        |       | 0          | %          | 0          | %          |
| Expected life of  option-years                  |       | 4.3 to 5.4 |       | 4.3 to 5.4 |       |
| Risk-free  interest rate                        |       | 4.7        | %          | 4.3        | %          |
| Weighted average fair  value of options granted |       | $12.01     |       | $8.94      |       |

 

2004 –The fair value of employee stock options granted during 2004 was estimatedusing a Black-Scholes model that used the weighted-average assumptions shown inthe table below. The expected life of an option was derived from historicalstock option exercise experience. The risk-free interest rate was based on therate then currently available for zero-coupon U.S. government issues with aterm equal to the expected life of the option.

| ** **                                      | ** ** | **2004**      | ** ** |
|-------------------------------------------------|------------|---------------|------------|
| Option pricing  model                           |       | Black-Scholes |       |
| Expected stock  price volatility                |       | 49            | %          |
| Expected dividend  yield                        |       | 0             | %          |
| Expected life of  option-years                  |       | 5.0           |       |
| Risk-free  interest rate                        |       | 3.4           | %          |
| Weighted average fair  value of options granted |       | $11.20        |       |

 

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Additionalinformation related to the plans as of December 31, 2006 is as follows(shares in millions):

| ** **                                  | ** ** | **Options Outstanding** | ** ** | **Options Exercisable** | ** ** |
|---------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                  | ** ** | ** **                   | ** ** | **Wtd. Avg.**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                  | ** ** | ** **                   | ** ** | **Remaining**                | ** ** | **Wtd. Avg.** | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** |
| ** **                                  | ** ** | **Options**                  | ** ** | **Contractual**              | ** ** | **Exercise** | ** ** | **Options** | ** ** | **Exercise** | ** ** |
| **Range of exercise prices** | ** ** | ** **                   | ** ** | **Outstanding**              | ** ** | **Life (yrs)** | ** ** | **Price** | ** ** | **Exercisable** | ** ** | **Price** | ** ** |
| $0.01 – $10.00                         |       |                         | 1.3        |                         |       |   | 1.0 |   |   |   | $ | 7.09 |   |   |   | 1.3 |   |   |   | $ | 7.09 |   |   |
| $10.01 – $20.00                        |       |                         | 1.6        |                         |       |   | 2.3 |   |   |   | 18.25 |   |   |   | 1.6 |   |   |   | 18.25 |   |   |
| $20.01 – $30.00                        |       |                         | 12.6       |                         |       |   | 6.8 |   |   |   | 25.67 |   |   |   | 8.5 |   |   |   | 26.00 |   |   |
| $30.01 – $40.00                        |       |                         | 8.3        |                         |       |   | 7.1 |   |   |   | 36.08 |   |   |   | 4.4 |   |   |   | 36.62 |   |   |
| $40.01 – $50.00                        |       |                         | 2.9        |                         |       |   | 4.8 |   |   |   | 42.51 |   |   |   | 2.9 |   |   |   | 42.51 |   |   |
| $50.01 – $60.00                        |       |                         | 0.4        |                         |       |   | 3.1 |   |   |   | 56.81 |   |   |   | 0.4 |   |   |   | 56.81 |   |   |
| $60.01 – $70.00                        |       |                         | 2.7        |                         |       |   | 3.2 |   |   |   | 60.93 |   |   |   | 2.7 |   |   |   | 60.93 |   |   |
| $70.01 – $80.00                        |       |                         | 0.3        |                         |       |   | 3.7 |   |   |   | 72.26 |   |   |   | 0.3 |   |   |   | 72.26 |   |   |
|                                        |       |                         | 30.1       |                         |       |   | 5.8 |   |   |   | $ | 33.03 |   |   |   | 22.1 |   |   |   | $ | 34.08 |   |   |
|                                             |            |                              |            |                              |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The total intrinsic value of options exercised during2006, 2005 and 2004 was $31.5 million, $24.5 million and $15.5 million,respectively. The total intrinsic value of options outstanding and optionsexercisable at December 31, 2006 was $140.4 million and $109.2 million,respectively. The weighted average remaining contractual life of optionsexercisable at December 31, 2006 was 4.9 years.

Asummary of the status of the Company’s nonvested shares as of December 31,2006 is presented below (shares in millions):

| ** **                         | ** ** | **1991, 1999 and** | ** ** | **Non-Employee**         | ** ** |
|------------------------------------|------------|------------------------------|------------|--------------------------|------------|
| ** **                         | ** ** | **2004 Plans**          | ** ** | **Directors Plans** | ** ** |
| ** **                         | ** ** | ** **                   | ** ** | **Wtd. Avg.**       | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** |
| ** **                         | ** ** | ** **                   | ** ** | **Grant-Date**           | ** ** | ** ** | ** ** | **Grant-Date** | ** ** |
| **Nonvested Shares**          | ** ** | ** **                   | ** ** | **Shares**               | ** ** | **Fair Value** | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Nonvested,  December 31, 2005 |       |                         | 8.1        |                     |       |   | $ | 10.99 |   |   |   | 0.5 |   |   |   | $ | 11.91 |   |   |
| Granted                            |       |                         | 4.4        |                     |       |   | 12.07 |   |   |   | 0.2 |   |   |   | 10.35 |   |   |
| Vested                             |       |                         | (4.1       | )                        |       |   | 12.01 |   |   |   | (0.2 | ) |   |   | 13.15 |   |   |
| Forfeited                          |       |                         | (0.9       | )                        |       |   | 11.17 |   |   |   | — |   |   |   | — |   |   |
| Nonvested,  December 31, 2006 |       |                         | 7.5        |                     |       |   | $11.05 |   |   |   | 0.5 |   |   |   | $10.86 |   |   |
|                                    |            |                              |            |                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

The total fair value of shares vested during 2006 and2005 was $51.3 million and $70.1 million, respectively.

As of December 31, 2006, there was approximately$48.2 million of total unrecognized compensation related to nonvested employeestock option awards, which is expected to be recognized over a weighted averageperiod of 1.6 years.

Asummary of the stock options vested and expected to vest as of December 31,2006 is presented below (shares and intrinsic value in millions):

| ** **                    | ** ** | ** ** | ** ** | ** **         | ** ** | **Wtd. Avg.**  | ** ** | ** **    | ** ** |
|-------------------------------|------------|------------|------------|--------------------|------------|---------------------|------------|---------------|------------|
| ** **                    | ** ** | ** ** | ** ** | ** **         | ** ** | **remaining**       | ** ** | **Aggregate** | ** ** |
| ** **                    | ** ** | ** ** | ** ** | **Wtd. Avg.** | ** ** | **contractual**     | ** ** | **Intrinsic** | ** ** |
| ** **                    | ** ** | **Shares** | ** ** | **Ex. Price** | ** ** | **life (yrs)** | ** ** | **Value**     | ** ** |
| 1991, 1999 and  2004 Plans    |       |       | 26.2       |               |       |                | $          | 33.19         |       |   |   | 5.7 |   |   |   | $ | 123.3 |   |   |
| Non-Employee  Directors Plans |       |       | 1.3        |               |       |                | 32.60      |          |       |   | 6.3 |   |   |   | 6.7 |   |   |
| Acquired Plans                |       |       | 1.1        |               |       |                | $          | 33.29         |       |   |   | 3.4 |   |   |   | $ | 4.4 |   |   |

 

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In June 2001, theCompany introduced an employee stock purchase plan under which 3.0 millionshares of common stock were reserved for issuance. Eligible employees couldpurchase a limited number of shares of the Company’s common stock at 85% of themarket value at plan-defined dates. Employees purchased 0.3 million shares, 0.3million shares and 0.2 million shares, for $7.0 million, $5.6 million and $4.6million, during 2006, 2005 and 2004, respectively, under the plan. Expenserecognized during 2006, determined using the Black-Scholes model, was $1.9million. During December 2006, the Company terminated this plan.

**17.   *INCOME TAXES***

Thecomponents of the provision for income taxes are as follows (in millions):

| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| Current:                        |       |                                       |       |   |   |   |   |
| Federal                         |       | $                                          | 4.2        |   | $ | (1.7 | ) | $ | (10.9 | ) |
| State                           |       | 4.8                                        |       | 8.0 |   | (4.3 | ) |
| Foreign                         |       | 1.0                                        |       | 0.1 |   | 0.2 |   |
| Total current expense (benefit) |       | 10.0                                       |       | 6.4 |   | (15.0 | ) |
| Deferred:                       |       |                                       |       |   |   |   |   |
| Federal                         |       | 14.2                                       |       | 5.0 |   | 4.8 |   |
| State                           |       | 0.4                                        |       | 9.8 |   | 4.8 |   |
| Foreign                         |       | 1.3                                        |       | 2.9 |   | — |   |
| Total deferred expense          |       | 15.9                                       |       | 17.7 |   | 9.6 |   |
| Total tax expense  (benefit)    |       | $                                          | 25.9       |   | $ | 24.1 |   | $ | (5.4 | ) |

 

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Significantcomponents of the Company’s deferred tax assets and liabilities at December 31,are as follows (in millions):

| ** **                                                | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:                                      |       |     |       |     |       |
| State net operating loss carryforwards                    |       | $        | 27.2       |     | $          | 63.3 |   |
| U.K. net operating loss carryforwards                     |       | —   |       | 1.8      |       |
| U.S. general business credit carryforwards, net           |       | 47.1     |       | 49.6     |       |
| Alternative minimum tax credit carryforwards              |       | 8.2      |       | 8.0      |       |
| Call options (Bond Hedge)                                 |       | 112.4    |       | —   |       |
| Accrued co-promotional expenses not currently  deductible |       | —   |       | 19.2     |       |
| Fixed assets and intangibles                              |       | 50.0     |       | 35.4     |       |
| Collaborative agreements                                  |       | 61.3     |       | —   |       |
| Accounts receivable allowances and reserves               |       | 11.3     |       | 17.1     |       |
| Allowance for government rebates                          |       | 9.7      |       | 11.4     |       |
| State research and development credits                    |       | 16.1     |       | 14.1     |       |
| Investment impairment                                     |       | 12.5     |       | 10.3     |       |
| Other                                                     |       | 20.2     |       | 20.9     |       |
| Total deferred tax assets                                 |       | 376.0    |       | 251.1    |       |
| Deferred tax  liabilities:                                |       |     |       |     |       |
| Collaborative agreements                                  |       | (24.4    | )          | —   |       |
| Other reserves                                            |       | (11.2    | )          | —   |       |
| Unrealized gains on investments                           |       | (0.1     | )          | —   |       |
| Contingent interest                                       |       | (0.3     | )          | (14.0    | )          |
| Total deferred tax liabilities                            |       | (36.0    | )          | (14.0    | )          |
| U.S. valuation allowance                                  |       | (41.9    | )          | (50.2    | )          |
| U.K. valuation  allowance                                 |       | —   |       | (0.3     | )          |
| Total valuation allowance                                 |       | (41.9    | )          | (50.5    | )          |
| Net deferred tax assets                                   |       | $        | 298.1      |     | $          | 186.6 |   |

 

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Theprovision (benefit) for income taxes varies from the income taxes providedbased on the federal statutory rate (35%) as follows:

| ** **                                                                             | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                             | ** ** | **2006**                                   | ** ** | **2005** | ** ** | **2004** | ** ** |
| ** **                                                                             | ** ** | **Amount**                                 | ** ** | **Tax Rate** | ** ** | **Amount** | ** ** | **Tax Rate** | ** ** | **Amount** | ** ** | **Tax Rate** | ** ** |
| ** **                                                                             | ** ** | **(In Millions)**                     | ** ** |
| U.S.                                                                                   |       |                                       | $          | 69.5 |   |   |   |   |   |   |   | $ | (4.2 | ) |   |   |   |   |   |   | $ | (17.7 | ) |   |   |   |   |   |
| International                                                                          |       |                                       | 5.1        |   |   |   |   |   |   |   | 11.7 |   |   |   |   |   |   |   | 8.5 |   |   |   |   |   |   |
| Earnings (loss) before  taxes on income:                                               |       |                                       | $          | 74.6 |   |   |   |   |   |   |   | $ | 7.5 |   |   |   |   |   |   |   | $ | (9.2 | ) |   |   |   |   |   |
| Tax at U.S.  federal statutory income tax rate                                         |       |                                       | $          | 26.1 |   |   |   | 35.0 | % |   |   | $ | 2.6 |   |   |   | 35.0 | % |   |   | $ | (3.2 | ) |   |   | (35.0 | )% |   |
| State taxes, net  of federal tax benefit                                               |       |                                       | 3.7        |   |   |   | 4.8 | % |   |   | (2.8 | ) |   |   | (37.4 | )% |   |   | (2.3 | ) |   |   | (25.5 | )% |   |
| State research  and development credits                                                |       |                                       | (2.1       | ) |   |   | (2.8 | )% |   |   | (0.9 | ) |   |   | (12.1 | )% |   |   | (10.8 | ) |   |   | (117.5 | )% |   |
| Changes in  federal valuation allowance                                                |       |                                       | (6.2       | ) |   |   | (8.2 | )% |   |   | — |   |   |   | — | % |   |   | 0.8 |   |   |   | 8.6 | % |   |
| Changes in  federal reserves                                                           |       |                                       | 2.1        |   |   |   | 2.7 | % |   |   | — |   |   |   | — | % |   |   | — |   |   |   | — | % |   |
| Change in state  valuation allowance related to state research and development credits |       |                                       | 1.4        |   |   |   | 1.7 | % |   |   | 0.7 |   |   |   | 9.9 | % |   |   | 9.5 |   |   |   | 103.1 | % |   |
| Other changes in  state valuation allowance                                            |       |                                       | 0.1        |   |   |   | 0.2 | % |   |   | 5.0 |   |   |   | 66.8 | % |   |   | 4.0 |   |   |   | 43.4 | % |   |
| Changes in  foreign valuation allowance                                                |       |                                       | (0.1       | ) |   |   | (0.2 | )% |   |   | (4.3 | ) |   |   | (57.6 | )% |   |   | (2.4 | ) |   |   | (25.6 | )% |   |
| Change in state  income tax contingency reserve                                        |       |                                       | 0.3        |   |   |   | 0.3 | % |   |   | 1.8 |   |   |   | 24.6 | % |   |   | (1.5 | ) |   |   | (15.8 | )% |   |
| Nondeductible  IPR&D expense                                                       |       |                                       | —     |   |   |   | — | % |   |   | 15.3 |   |   |   | 203.4 | % |   |   | 2.4 |   |   |   | 26.4 | % |   |
| U.S. general  business credits generated                                               |       |                                       | (9.6       | ) |   |   | (12.8 | )% |   |   | (0.8 | ) |   |   | (11.0 | )% |   |   | (3.6 | ) |   |   | (38.7 | )% |   |
| Effect of foreign  rates                                                               |       |                                       | 1.2        |   |   |   | 1.6 | % |   |   | (0.6 | ) |   |   | (7.5 | )% |   |   | (0.4 | ) |   |   | (4.3 | )% |   |
| Meals and  entertainment                                                               |       |                                       | 1.3        |   |   |   | 1.8 | % |   |   | 1.1 |   |   |   | 14.1 | % |   |   | 0.8 |   |   |   | 8.7 | % |   |
| Nondeductible  costs associated withorphan drug credit                                 |       |                                       | 2.3        |   |   |   | 3.0 | % |   |   | 0.3 |   |   |   | 3.6 | % |   |   | 0.4 |   |   |   | 4.7 | % |   |
| Incentive stock option  compensation                                                   |       |                                       | 4.3        |   |   |   | 5.9 | % |   |   | — |   |   |   | — | % |   |   | — |   |   |   | — | % |   |
| Record goodwill  for prior periodpurchase accounting adjustments                       |       |                                       | —     |   |   |   | — | % |   |   | 1.8 |   |   |   | 23.6 | % |   |   | — |   |   |   | — | % |   |
| True-up of  unearned compensation                                                      |       |                                       | 0.1        |   |   |   | 0.2 | % |   |   | (1.9 | ) |   |   | (25.0 | )% |   |   | 0.5 |   |   |   | 5.1 | % |   |
| True-up of  permanent differences in prior year U.K. tax returns                       |       |                                       | 0.1        |   |   |   | 0.2 | % |   |   | 3.1 |   |   |   | 41.6 | % |   |   | — |   |   |   | — | % |   |
| True-up of prior  period tax provisions                                                |       |                                       | —     |   |   |   | — | % |   |   | 2.8 |   |   |   | 37.3 | % |   |   | — |   |   |   | — | % |   |
| Other                                                                                  |       |                                       | 0.9        |   |   |   | 1.3 | % |   |   | 0.9 |   |   |   | 11.8 | % |   |   | 0.4 |   |   |   | 3.8 | % |   |
| Total                                                                                  |       |                                       | $          | 25.9 |   |   |   | 34.7 | % |   |   | $ | 24.1 |   |   |   | 321.1 | % |   |   | $ | (5.4 | ) |   |   | (58.6 | )% |   |

 

The effective income tax rate on earnings fromcontinuing operations was 34.7% in 2006 as compared to 321.1% in 2005. Thedecrease in the effective rate in 2006 was attributable primarily to therelease of valuation allowances associated with the utilization of tax creditcarryforwards used to offset higher taxable income, increase in orphan drug creditsand higher pre-tax income. The higher effective tax rate in 2005 isattributable primarily to the Cellective acquisition which resulted innon-deductible acquired IPR&D expense of $43.7 million. Excluding theimpact of Cellective, the effective tax rate for 2005 was approximately 41%.

During 2005, the prior accounting for the reversal ofapproximately $4.8 million of valuation allowances associated with theutilization of certain acquired income tax carryforwards was corrected. Thecorrection was comprised of relatively small amounts related to reportingperiods dating back to the 

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acquisition of Aviron in January 2002and resulted in additional income tax expense of approximately $4.8 millionduring the third quarter of 2005 and a corresponding reduction to goodwill onthe consolidated balance sheet.

During the fourth quarterof 2005, the Company made a number of additional corrections related to thereporting periods dating back to the acquisition of Aviron relatingpredominantly to unearned compensation, income tax carryforwards, valuationallowances and income tax contingency reserves, as well as for the prioraccounting for foreign exchange gains on intercompany borrowings and provisionto return adjustments for the Company’s U.K. subsidiary. The aggregate impactof these fourth quarter 2005 corrections was to reduce goodwill by $4.0 millionand reduce income tax expense by $1.6 million bringing the cumulative third andfourth quarter corrections to $3.2 million. The $11.2 million true-up adjustmentrecorded in the fourth quarter of 2004 related to the final resolution anddetermination of beginning deferred tax assets related to the fixed assets ofAviron was also corrected during the fourth quarter of 2005 by reducinggoodwill and increasing deferred income taxes by $5.0 million.

*Tax Attributes*

At December 31, 2006the Company utilized all of its U.S. consolidated net operating losses. TheCompany has U.S. general business credit carryforwards comprised of federalresearch and experimentation and orphan drug credit carryforwards ofapproximately $66.0 million at December 31, 2006, expiring through 2026.

*Items Charged to Equity and Other Comprehensive Incomeor Goodwill*

During 2006 and 2005, the Company recognized certaintax benefits related to stock option plans in the amount of $9.3 million and$7.6 million, respectively.

During 2005, the Company recognized a decrease in itsunearned compensation deferred tax asset resulting in a charge to additionalpaid-in capital of $1.9 million. The unearned compensation deferred tax assetwas established for the tax effect of future deductions related to the unvestedshares of the legacy Aviron employees at the time of the Acquisition. Thedecrease in the deferred tax asset relates to terminations of certain of thoseemployees.

During 2006 and 2005, the Company released valuationallowances due to utilization of the related deferred tax assets resulting in a$6.9 million and $3.2 million decrease to goodwill, respectively. As thesevaluation allowances were established in the purchase accounting for theAcquisition, the release of the valuation allowances were appropriatelyaccounted for through goodwill.

During 2006 and 2005, theCompany recognized a deferred tax asset related to unrealized (gains)/losses oninvestments in the amount of $(3.7) million and $11.9 million, respectively.The deferred tax assets were recorded properly as a increase/decrease inaccumulated other comprehensive income.

In connection with thepurchase of the call options to cover 34.5 million shares of the Company’scommon stock for $316.5 million, the company recognized a deferred asset of $112.4million, which was recorded as an increase to additional paid-in capital.

*Valuation Allowance*

At December 31, 2006, the Company had a totalvaluation allowance of $41.9 million against its deferred tax assets. Of thetotal, $10.9 million of the valuation allowance relates to acquired deferredtax assets for which subsequently recognized tax benefits will be allocated toreduce goodwill or other noncurrent intangible assets. The change in thevaluation allowance was a net decrease of $8.6 million and an increase of $4.3million during 2006 and 2005, respectively; $9.8 million of the 2006 change wasdue to 

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the release of theresearch and experimentation credits, most of which were utilized and $2.7million of the 2005 change was due to reclassification of income taxcontingency reserves out of valuation allowance.

The state valuation allowance related to research anddevelopment credits increased by $1.4 million. The balance of the statevaluation allowance, which predominantly relates to current year generated netoperating losses, increased in total by $0.1 million. The increase in state valuationallowances related to research and development credits and net operating losscarryforwards relates to current year generated credits and losses for whichmanagement has not determined that it is more likely than not that the Companywill have sufficient future earnings in that jurisdiction to utilize thecredits and losses.

Uncertainty existsregarding the realization of the tax benefit associated with a portion of thedeferred tax assets attributable to the state net operating losses and state generalbusiness credits, which were generated by U.S. Bioscience and Aviron prior totheir acquisition by the Company. Accordingly, a valuation allowance remainsfor some of these deferred tax assets at December 31, 2006 and 2005.

*Income Tax Contingency Reserves*

The Company hasestablished contingency reserves related to income taxes in accordance with FASNo. 5. These reserves predominantly relate to research and experimentationcredits, transaction costs, employee renumeration and various state matters. Thereserves related to research and experimentation credits and transaction costsand employee renumeration were appropriately recorded against correlatingdeferred tax assets, and the state income tax reserves were appropriatelyrecorded in current taxes payable. In 2006, the Company recorded a $2.1 millionreserve related to prior year employee renumeration relating to the period 1999– 2005.

**18.   *SIGNIFICANT AGREEMENTS AND COLLABORATIONS***

*GlaxoSmithKline(GSK)—**The*Company and GSK collaborated todevelop a vaccine against human papillomavirus (“HPV”) to prevent cervicalcancer. GSK is responsible for the final development of the product, as well asregulatory, manufacturing, and marketing activities. In exchange for exclusiveworldwide rights to the Company’s HPV technology, GSK provided the Company withan upfront payment, equity investment and research funding (received andrecognized prior to 2002), and agreed to pay developmental and sales milestonesand royalties on any product sales.

In February 2005, the Company amended itsagreement with GSK for the development of HPV vaccines. The terms of theamended agreement provided for the Company to also receive certain milestonepayments and royalties on future development and sales of an investigationalHPV vaccine that was being developed by Merck & Co., Inc (“Merck”). Inthe aggregate, the Company could receive up to approximately $45.0 million inmilestone payments from GSK and Merck in connection with the development of theHPV vaccines.

During 2006, Merck received approval for its HPVvaccine in the U.S. and in the European Union, and GSK submitted its cervicalcancer vaccine for marketing approval to the European regulatory agency. TheCompany earned and recorded $25.6 million of revenue during 2006 as a result ofthe achievement of these milestones as well as for royalties related to salesof Merck’s HPV vaccine and the achievement of certain sales-related goals.Sales royalties related to Merck’s and GSK’s HPV vaccines are based ongraduated royalty rate structures.

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In 2000, the Company granted a worldwide, exclusivelicense to its *Streptococcus pneumoniae*vaccinetechnology to GSK in exchange for an upfront payment of $10 million and futuremilestones totaling more than $20 million, plus royalties on any productsales. Under the terms of the agreement, GSK is responsible for all clinicaldevelopment, manufacturing and sales and marketing activities for the *S. pneumoniae*vaccine.

The Company has rights to a vaccine against certainsubunits of Epstein-Barr virus (“EBV”), a herpes virus that is the leadingcause of infectious mononucleosis. The vaccine is being developed by GSK undera worldwide collaborative agreement, excluding North Korea and South Korea.Under the agreement, the Company would receive future milestone payments, androyalties from GSK based on any net product sales.

*AbbottLaboratories—**The*Company had a co-promotionagreement with Abbott for promotion of Synagis in the United States. Under theterms of the co-promotion agreement, the Company paid Abbott a percentage ofnet domestic sales based on achieving certain sales thresholds over the annualcontract year. Under the terms of an August 2005 amendment, Abbottprovided promotional activities with respect to Synagis until June 30,2006, at which time the Company took full responsibility for sales andmarketing in the United States. The Company continued to pay Abbott for theirco-promotion services during the 2005/2006 RSV season and agreed to makecertain incremental payments over and above the previous co-promotion agreementto Abbott, including milestone-based payments and increased incentive paymentscontingent upon the achievement of certain sales thresholds during 2005 and2006. In addition, if Numax, the Company’s second-generation anti-RSVmonoclonal antibody that is currently in Phase 3 development, is not approvedby the FDA before September 1, 2008, the Company would pay Abbott aportion of the proceeds from the sales of Synagis in the U.S. for up to atwo-year period beginning at such time. In connection with this transaction,the Company recorded an intangible asset (see Note 10). The Company has aliability of $51.1 million as of December 31, 2006 representing theremaining incremental payments under the contract that are deemed probable,which are included in Other Current Liabilities in the consolidated balancesheet.

The Company has a distribution agreement with AI, anaffiliate of Abbott, to distribute Synagis outside of the United States. Underthe terms of the distribution agreement, the Company manufactures and sellsSynagis to AI at a price based on end-user sales. In February 2005, theCompany and AI amended the international distribution agreement to include theexclusive distribution of Numax, if and to the extent approved for marketing byregulatory authorities outside of the United States. Under the terms of theamended agreement, AI will be working to secure regulatory approval of Numaxoutside of the U.S. and, upon receipt of such approval, will distribute andmarket Numax outside of the United States. The amended agreement requires AI topay the Company additional compensation as compared to the previous agreement,and such amounts in excess of estimated fair value for product sales of Synagisare recognized as other revenue in the consolidated statement of operations.During 2006 and 2005, $18.2 million and $17.1 million, respectively, ofincremental revenue was recognized as other revenue. During 2004, the Companyrecognized $7.5 million in other revenues upon the achievement of certain salesgoals under the distribution agreement.

*Schering-PloughCorporation—**The*Company has an agreement withaffiliates of Schering, for distribution of Ethyol in countries comprising theEuropean Union, the European Free Trade Association and other countries outsideof the United States, which expires in 2007.

The Company also has licensing agreements for Ethyolwith affiliates of Schering for several territories outside the United States.The licensees are required to pay the Company compensation based on their netsales of Ethyol, and the Company sells the product to the licensees at anagreed upon price.

*Wyeth—**In*April 2004,the Company entered into agreements to dissolve the collaboration with Wyethfor FluMist and to reacquire rights to an investigational second-generationliquid formulation, refrigerated 

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FluMist, and all relatedtechnology. As a result of the dissolution and in exchange for an upfront feeand future development milestones and sales-related royalties, MedImmunereacquired the influenza vaccines franchise, and has assumed fullresponsibility for the manufacturing, marketing, and sale of FluMist and anysubsequent related products. During a transition period that was substantiallycompleted as of December 31, 2004, Wyeth provided bulk manufacturingmaterials and transferred clinical trial data, as well as providedmanufacturing support services.

During 2004, the Company made cash payments totaling$79.9 million under the terms of the agreement. The transaction was accountedfor as a purchase of assets, and the purchase price was allocated to componentsbased on their relative fair values as determined by an independent valuation.

In connection with thetransaction, the Company recorded acquired IPR&D charges of $4.7 millionand $29.2 million during 2005 and 2004, respectively, as well as a permanentimpairment charge of $73.0 million during 2004 to write off the remainingunamortized cost of the Wyeth intangible asset originally recorded for thecollaboration.

*InfinityPharmaceuticals—*In August 2006, the Company entered into acollaborative agreement with Infinity Pharmaceuticals, Inc. to jointly developand commercialize novel small molecule cancer drugs targeting Heat ShockProtein 90 and the Hedgehog cell-signaling pathway. Under the terms of theagreement, the Company made upfront payments to Infinity of $70.0 million,which were recognized as research and development expense in the third quarterof 2006 and agreed to potential development and sales-related milestonepayments of up to $430.0 million.

**19.**   COMMITMENTSAND CONTINGENCIES

*Manufacturing, Supply and Purchase Agreements*

*Synagis—**In*December 1997,the Company entered into a Euro-denominated agreement with Boehringer IngelheimPharma GmbH & Co. KG (“BI”) to provide supplemental manufacturing ofSynagis. The Company has firm commitments with BI for planned production andfill/finish through 2012 for approximately 80.0 million Euros ($105.6 millionas of December 31, 2006). The Company paid $15.7 million in 2006, $29.4million in 2005 and $30.3 million in 2004 related to production and scale-up ofproduction as part of an additional agreement. Should BI be unable to supplySynagis to the Company for any reason, there can be no assurance that theCompany will be able to secure an alternate manufacturer in a timely basis orwithout increased cost.

In 2005, Sicor Pharmaceuticals, Inc. (“Sicor”), anaffiliate of Teva Pharmaceuticals USA, Inc., began to provide fillingservices for Synagis product manufactured at the Frederick manufacturing centerfacility under a multi-year agreement. The Company has a firm commitment withSicor for approximately $8.0 million through 2008. The Company paid Sicor $6.2million in 2006 and $3.3 million in 2005 for commercial fills. In September 2005,Cardinal Health PTS, LLC began to label and package Synagis filled by Sicorunder a multi-year agreement. The Company has a firm commitment with Cardinalfor approximately $0.4 million in 2007. The Company paid Cardinal $2.5 millionin 2006 and $0.8 million in 2005 for labeling and packaging services.

*FluMist—**The*Company has aproduction agreement with Cardinal Health 406, Inc. to perform secondaryproduction (i.e., assembly, labeling and packaging) of FluMist. As part of thisagreement, the Company is obligated to pay annual non-refundable minimumpayments for each contract year, if the price for units invoiced to the Companyduring a production year totals less than the minimum payment. Future minimumpayments totaling $1.5 million are committed through December 31, 2007.Payments of $1.6 million, $1.6 million and $1.1 million were made for 2006,2005 and 2004, respectively. Should the actual level of future productionexceed the contract minimum, then actual payments will be correspondinglyhigher.

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The Company has a worldwide multi-year supplyagreement with Becton Dickinson for the supply of its AccuSpray non-invasivenasal spray delivery system for administration of FluMist. The Company has firmcommitments to Becton Dickinson of approximately $21.5 million through 2009.The Company paid Becton Dickinson $1.1 million, $1.8 million and $6.0 millionin 2006, 2005 and 2004, respectively.

*Lettersof Credit—**The*Company has guaranteedperformance under certain agreements related to its construction projects. Theundiscounted maximum potential amount of future payments that the Company couldbe required to make under such guarantees, in the aggregate, is approximately$4.1 million.

*Research and Development,Licensing and Other Agreements—**The*Company hasentered into research and development collaborations, licensing and otheragreements with various federal and academic laboratories and otherinstitutions to gain access to new product candidates and technologies, tofurther develop its products and technology, and to perform clinical trials. TheCompany’s expected, noncancelable funding obligations under these agreementstotals approximately $56.9 million in 2007. In addition, the Company is alsocontingently committed for development milestone payments as well assales-related milestone payments and royalties relating to potential futureproduct sales under these agreements. The amount, timing and likelihood ofthese payments is unknown as they are dependent on the occurrence of futureevents that may or may not occur, such as the granting by the FDA of a licensefor product marketing in the United States.

**20.   *LEGAL PROCEEDINGS***

*Various Patent Litigation Matters*

In April 2003, the Company filed a suit againstGenentech, Celltech R&D Limited (“Celltech”) and City of Hope NationalMedical Center in the United States District Court for the Central District ofCalifornia. The Company currently pays Genentech a royalty for sales of Synagismade or sold in the U.S. pursuant to a patent license agreement between theparties covering U.S. Patent No. 6,331,415B1 (the “Cabilly Patent”). Inthe complaint, the Company alleged that the Cabilly Patent was obtained as aresult of a collusive agreement between Genentech and Celltech that violatesfederal and California antitrust laws as well as California’s unfair businesspractices act. Additionally, the Company alleged that the Cabilly Patent isinvalid and unenforceable under federal patent law and is not infringed bySynagis. In December 2003, the court granted Celltech’s and Genentech’smotions to dismiss the antitrust claims, and in January 2004, the courtdenied the Company’s motion to amend the complaint. In March 2004, theCompany appealed from the dismissal of the antitrust claims to the UnitedStates Court of Appeals for the Federal Circuit. In April 2004, thedistrict court dismissed the remaining claims in the case for lack of subjectmatter jurisdiction. The Company filed a second appeal of that dismissal to theUnited States Court of Appeals for the Federal Circuit, which was consolidatedwith the first appeal. Briefing in both appeals was completed, and oralargument was held in February 2005. The court issued a decision in October 2005,affirming the District Court decision which had dismissed all claims. MedImmunefiled a Petition for Certiorari with the United States Supreme Court as to thesubject matter jurisdiction issue and the Supreme Court granted the petition inFebruary 2006. The Supreme Court heard oral arguments with respect to thismatter on October 4, 2006. On January 9, 2007, the Supreme Courtgranted the Company’s appeal and reversed the United States Court of Appealsfor the Federal Circuit finding that the lower court erroneously affirmed thedismissal of the Company’s lawsuit against Genentech. The Supreme Courtdecision clarifies that the trial court has subject matter jurisdiction to hearthe Company’s lawsuit. The case is now returned to the lower courts and theCompany will vigorously pursue its complaint regarding the non-infringement,invalidity and unenforceability of the Cabilly Patent.

In April 2002, theCompany filed a suit against Centocor, Inc. (“Centocor”) in the UnitedStates District Court for the District of Maryland. That action was amended in January 2003to add the Trustees of Columbia University in the City of New York (“Columbia”)and the Board of Trustees of the Leland 

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StanfordJunior University (“Stanford” and together with Columbia, the “Universities”)as the owners of the patent. The Company currently pays Centocor a royalty forsales of Synagis made or sold in the U.S. pursuant to a patent SublicenseAgreement between MedImmune and Centocor (the “Sublicense Agreement”). In thelitigation, the Company has been seeking a declaratory judgment that it has noobligation to continue paying royalties to Centocor on the basis that thepatent is invalid, unenforceable and does not cover Synagis. In March 2004,Centocor and the Universities moved to dismiss this suit for lack of subjectmatter jurisdiction and the District Court granted Centocor and theUniversities’ motion in June 2004. The Company filed an appeal and theUnited States Court of Appeals for the Federal Circuit issued a decision on June 1,2005, affirming the District Court decision which had dismissed all claims. TheCompany filed a Petition for Rehearing en banc which was denied on August 25,2005. MedImmune filed a Petition for Certiorari with the United States SupremeCourt. On January 16, 2007, the Supreme Court granted MedImmune’s petitionfor review and at the same time vacated the decision of the United States Courtof Appeals for the Federal Circuit and ordered that court to consider MedImmune’scase in light of the Supreme Court’s decision in the Genentech case describedabove. This means that the dismissal of the Company’s case for lack of subjectmatter jurisdiction was in error and the trial court can hear the Company’slawsuit against Centocor. The Company will vigorously pursue its complaintregarding the invalidity and unenforceability of the patent licensed pursuantto the Sublicense Agreement.

*Litigation Regarding Generic Version of Ethyol*

In April 2004, Sun Pharmaceutical IndustriesLimited (“Sun”) submitted an abbreviated new drug application (“ANDA”) to theU.S. Food and Drug Administration for a generic version of Ethyol(amifostine) and notified the Company of such submission in June 2004.In the notice, Sun notified the Company that as part of its ANDA it had filedcertification of the type described in Section 505(j)(2)(A)(vii)(IV) ofthe Federal Food, Drug and Cosmetic Act, 21 U.S.C. § 335(j)(2)(A)(vii)(IV),with respect to certain patents owned by the Company. In August 2004, theCompany filed an action in the United States District Court for the District ofMaryland for patent infringement against Sun, arising out of the filing by Sunof the ANDA with the FDA seeking approval to manufacture and sell the genericversion of Ethyol prior to the expiration of various U.S. patents. Discovery iscurrently ongoing.

In August 2006, Sunfiled a motion seeking summary judgment and a hearing was held with respect tothis motion on October 24, 2006. On January 9, 2007, the UnitedStates District Court for the District of Maryland denied Sun’s motion forsummary judgment of non-infringement of the Company’s U.S. Patent No. 5,191,731(the “731 Patent”) while granting Sun’s motion for summary judgment ofnon-infringement relating to the Company’s U.S. Patent No. 5,424,471 (the “471Patent”). In denying the motion for summary judgment relating to the 731Patent, the court ordered that the Company’s lawsuit shall proceed pursuant tothe existing trial schedule. The Company intends to vigorously enforce its 731Patent against Sun at trial.

*Average Wholesale Price Cases*

In January 2003, a lawsuit was filed by theCounty of Suffolk, New York (“Suffolk”) in the United States District Court,Eastern District of New York, naming MedImmune, along with approximately 25other pharmaceutical and biotechnology companies, as defendants. In August 2003,the County of Westchester, New York (“Westchester”) filed and served a similarsuit against MedImmune and approximately 25 other pharmaceutical andbiotechnology companies. Likewise, in September 2003, the County ofRockland, New York (“Rockland”) also filed and served a similar suit against MedImmuneand approximately 25 other pharmaceutical and biotechnology companies. In August 2004,the City of New York (“New York City”) also filed and served a similar suitagainst MedImmune and approximately 60 other pharmaceutical and biotechnologycompanies. The federal cases brought against the Company by 

91

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Suffolk, Westchester andRockland (collectively, the “Counties”) and New York City have beenconsolidated for pre-trial purposes under the caption *In re*Pharmaceutical Industry AverageWholesale Price Litigation, MDL No. 1456, Civ. Action No. 01-CV-12257-PBS,before the United States District Court in the United States District Court forthe District of Massachusetts (AWP Multidistrict litigation).

In June 2005, an amended and consolidatedcomplaint (“Consolidated Complaint”) was filed on behalf of thirty New YorkCounties and the City of New York—all of which are represented by one law firm.This lawsuit joins all previous county actions, with the exception of SuffolkCounty and Nassau County. (A lawsuit was also filed by Erie County, whichremains pending, but that action was filed in New York state court.) Similarly,nine additional counties, all represented by this same law firm, are havingtheir cases transferred to the AWP Multidistrict litigation in order to jointhe Consolidated Complaint or have expressed an interest in joining theconsolidated complaint. Nassau County’s complaint was transferred to the AWPMultidistrict litigation in April 2005. Separate counsel representsNassau. The Erie County suit remains pending in New York State Supreme Court.In three separate opinions, Judge Saris dismissed all of Suffolk County’sclaims against MedImmune; Suffolk County did not join the ConsolidatedComplaint as to any of the defendants that were dismissed, including MedImmune.

The Counties and New York City allege that thedefendants, including MedImmune, manipulated the “average wholesale price” (“AWP”),a price listed by price reporting agencies and used as a Medicaid reimbursementbenchmark, causing the Counties and New York City to pay artificially inflatedprices for covered drugs. In addition (with the exception of Erie County whichhas sued us in state court and alleges only improper AWP reporting), theCounties and New York City argue that the defendants, including MedImmune, didnot accurately report “best price,” a statutorily defined term that must bereported by manufacturers in order to qualify for Medicaid reimbursement. Theplaintiffs seek declaratory and injunctive relief, disgorgement of profits, andtreble and punitive damages suffered as a result of the defendants’ allegedunlawful practices related to prescription medication paid for by Medicaid.Nassau County’s complaint makes substantially the same allegations as theConsolidated Complaint but also includes RICO counts. With respect to theConsolidated Complaint, it asserts similar claims to those raised in theoriginal complaint as well as new claims directed to RespiGam and CytoGam andnew allegations related to the alleged improper reporting of the WholesalerAcquisition Cost of various products, including Synagis, Ethyol, RespiGam andCytoGam, and how this alleged improper reporting affects the AWP for theseproducts.

Similarly, in January 2005, a complaint was filedby the State of Alabama against more than 70 companies, including MedImmune,accusing all defendants of improper AWP and average manufacturer price (AMP)reporting and further alleging fraudulent misrepresentation, unjust enrichmentand wantonness. Likewise, in October 2005, a lawsuit was filed by theState of Mississippi naming approximately 50 defendants, including MedImmune.The complaint alleges causes of action for state Medicaid fraud, deceptivetrade practices, false advertising, crimes against the sovereignty, mail fraud,restraint of trade, common law fraud, and unjust enrichment.

The status of the variouslawsuits by various states and counties alleging manipulation of averagewholesale price by several defendants, including the Company, did not changematerially during the fiscal year ended December 31, 2006. As of December 31,2006, the Company estimates the range of possible pre-tax loss from the Alabamaaction, the Mississippi action, the New York City action and the New York StateCounty actions (both consolidated and unconsolidated) to range from $0 to$20 million, exclusive of alleged treble damages, best price relatedclaims and other asserted state law causes of action. The Company intends tovigorously defend against the claims asserted in these complaints.

92

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*Contract-Related Case*

On August 26, 2005,the Company entered into a License Agreement with an affiliate of GSK, pursuantto which the Company would develop monoclonal antibodies for infections anddiseases caused by staphylococcal bacteria. GSK itself licenses certaintechnology from Biosynexus, Inc. and, in the License Agreement,sublicensed the portion of such technology related to monoclonal antibodies tothe Company on an exclusive basis as well as exclusively licensing to MedImmunecertain related technology developed internally by GSK. On December 28,2005, Biosynexus sued GSK and MedImmune in a New York state court alleging thatGSK had improperly assigned its contract with Biosynexus to MedImmune therebybreaching GSK’s obligations to Biosynexus and that MedImmune had tortiouslyinduced that breach. Biosynexus sought a preliminary injunction to halt theflow of information and materials from GSK to the Company and damages due tothe transfer of confidential information that has occurred to date. The NewYork state court hearing the matter issued a ruling granting the preliminaryinjunction. As a result, the Company is no longer continuing to operate underthe License Agreement with an affiliate of GSK. Discovery is largely completedin this case and the Company expects a decision on its motion for summaryjudgment, which it filed in February 2007, or alternatively a trial toproceed sometime in the middle of 2007. The Company has concurrently appealedthe preliminary injunction ruling to the New York state appellate court and isawaiting a decision from that court. The Company believes that the Biosynexusclaims against the Company are without merit and intends to vigorously defendagainst the claims asserted in the complaints. The Company does not believethat the injunction will have a material adverse financial impact on theCompany, but it may affect the progress of its anti-*staphylococcal*program.

*Other Matters*

The Company is also involved in other legalproceedings arising in the ordinary course of its business. After consultationwith its legal counsel, the Company believes it has meritorious defenses to theclaims against it referred to above and is determined to defend its positionsvigorously. While it is impossible to predict with certainty the eventualoutcome of these proceedings, the Company believes they are unlikely to have amaterial adverse effect on its financial position, but could possibly have amaterial adverse effect on its results of operations for a particular period.There can be no assurance that the Company will be successful in any of thelitigations to which it is a party. In the ordinary course of business, theCompany has provided indemnification to various parties for certain productliability claims and claims that its products were not manufactured inaccordance with applicable federal standards. While the Company is not aware ofany current claims under these provisions, there can be no assurance that suchclaims will not arise in the future or that the effect of such claims will notbe material to the Company.

93

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**Item9.**                        *CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING ANDFINANCIAL DISCLOSURE*

None.

**Item9A.**                *CONTROLS AND PROCEDURES*

***Conclusion Regarding the Effectiveness of DisclosureControls and Procedures***

Under the supervision andwith the participation of our management, including our principal executiveofficer and principal financial officer, we conducted an evaluation of ourdisclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgatedunder the Securities Exchange Act of 1934, as amended (the Exchange Act). Basedon this evaluation, our principal executive officer and our principal financialofficer concluded that our disclosure controls and procedures were effective asof the end of the period covered by this annual report.

***Management’s Report on Internal Control over FinancialReporting***

Our management is responsible for establishing andmaintaining adequate internal control over financial reporting, as such term isdefined in Exchange Act Rule 13a-15(f). Under the supervision andwith the participation of our management, including our principal executiveofficer and principal financial officer, we conducted an evaluation of theeffectiveness of our internal control over financial reporting based on theframework in Internal Control—Integrated Framework issued by the Committee ofSponsoring Organizations of the Treadway Commission. Based on our evaluationunder the framework in Internal Control—Integrated Framework, our managementconcluded that our internal control over financial reporting was effective asof December 31, 2006.

There has been no change in our internal control overfinancial reporting during our quarter ended December 31, 2006 that hasmaterially affected, or is reasonably likely to materially affect, our internalcontrol over financial reporting.

Our management’sassessment of the effectiveness of our internal control over financialreporting as of December 31, 2006 has been audited byPricewaterhouseCoopers LLP, an independent registered public accounting firm,as stated in their report which is included herein.

**Item9B.**               *OTHER INFORMATION*

None.

94

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**PART III**

**Item 10.**                 *DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE*

Information with respect to directors is included inour Proxy Statement for our 2007 Annual Meeting of Stockholders to be filedpursuant to Regulation 14A (the “Proxy Statement”) under the caption “Electionof Directors,” and such information is incorporated herein by reference. Setforth in Part I, Item 1, are the names and ages as of December 31,2006, the positions and offices held by, and a brief account of the businessexperience during the past five years, of each executive officer. All directorshold office until election and qualification of their successors, typicallyfollowing elections at the next annual meeting of stockholders. Executiveofficers and key employees are elected to serve, subject to the discretion ofthe Board of Directors, until their successors are appointed. Information withrespect to corporate governance is included in the Proxy Statement under thecaptions entitled “Global Standards of Business Conduct and Ethics,” “Section 16(a) BeneficialOwnership Reporting Compliance,” “Board Size, Committees and Meetings” and “Reportof the Corporate Governance and Nominating Committee” and such information isincorporated herein by reference.

**Item 11.**                 *EXECUTIVE COMPENSATION*

Information pertaining to executive compensation isincluded in the Proxy Statement under the captions entitled “Report of theCompensation and Stock Committee,” “Compensation Discussion and Analysis” and “CompensationCommittee Interlocks and Insider Participation” and such information isincorporated herein by reference.

**Item 12.**                 *SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ANDRELATED STOCKHOLDER MATTERS*

The information in the section entitled “PrincipalStockholders” of the Proxy Statement is incorporated herein by reference.

**Item 13.**                 *CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE*

The sections entitled “Certain Relationships andRelated Party Transactions,” “Review and Approval of Related Party Transactionsand “Election of Directors” of the Proxy Statement are incorporated herein byreference.

**Item 14.**                 *PRINCIPAL ACCOUNTANT FEES AND SERVICES*

The information required by this item is incorporatedby reference to the applicable information in the Proxy Statement under thecaption “Appointment of Independent Registered Public Accounting Firm.”

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**PART IV**

**Item 15.**                 *EXHIBITS AND FINANCIAL STATEMENT SCHEDULE*

The following documents or the portions thereofindicated are filed as a part of this report.

a)               Documents filed aspart of the Report

1.      FinancialStatements and Supplemental Data

a.                  Reportof Independent Registered Public Accounting Firm

b.                 ConsolidatedBalance Sheets at December 31, 2006 and 2005

c.                  ConsolidatedStatements of Operations for the years ended December 31, 2006, 2005 and2004

d.                 ConsolidatedStatements of Cash Flows for the years ended December 31, 2006, 2005 and2004

e.                  ConsolidatedStatements of Shareholders’ Equity for the years ended December 31, 2006,2005 and 2004

f.                    Notes toConsolidated Financial Statements

g.                  Management’sReport on Internal Control over Financial Reporting

2.                 SupplementalFinancial Statement Schedule

a.                  ScheduleII—Valuation and Qualifying Accounts, Page S-1

b)              EXHIBITS

Those exhibits required to be filed by Item 601 ofRegulation S-K are listed in the Exhibit Index beginning on page E-1and such listing is incorporated by reference.

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**SIGNATURES**

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized.
|                               |   | MEDIMMUNE,  INC.                                      |
|-------------------------------|--------|-------------------------------------------------------|
| Date:  February 27, 2007 |   |                                                  |
|                          |   | /s/ DAVID  M. MOTT                                    |
|                          |   | David  M. Mott                                        |
|                          |   | Chief  Executive Officer, President and Vice Chairman |
|                          |   | Principal  Executive Officer                          |
| Date:  February 27, 2007 |   |                                                  |
|                          |   | /s/ LOTA  S. ZOTH                                     |
|                          |   | Lota  S. Zoth                                         |
|                          |   | Senior  Vice President and Chief Financial Officer    |
|                          |   | Principal  Financial Officer                          |
| Date:  February 27, 2007 |   |                                                  |
|                          |   | /s/ MARK  E. SPRING                                   |
|                          |   | Mark  E. Spring                                       |
|                          |   | Vice  President, Finance and Controller               |
|                          |   | Principal  Accounting Officer                         |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons in the capacities and on the datesindicated.
| Date: February 27, 2007  |   |                                 |
|-------------------------------|--------|--------------------------------------|
|                          |   | /s/ WAYNE T.  HOCKMEYER              |
|                          |   | Wayne  T. Hockmeyer, Chairman        |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ DAVID  BALTIMORE                 |
|                          |   | David  Baltimore, Director           |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ M. JAMES  BARRETT                |
|                          |   | M.  James Barrett, Director          |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ JAMES H.  CAVANAUGH              |
|                          |   | James  H. Cavanaugh, Director        |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ BARBARA  HACKMAN FRANKLIN        |
|                          |   | Barbara  Hackman Franklin, Director  |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ GEORGE  M. MILNE, JR.            |
|                          |   | George  M. Milne, Jr., Director |
| Date:  February 27, 2007 |   |                                 |
|                          |   | /s/ ELIZABETH  WYATT                 |
|                          |   | Elizabeth  Wyatt, Director           |

 

97

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**SCHEDULE II**

**MedImmune, Inc.Valuation and Qualifying Accounts**

| ** **                                 | ** ** | ** **            | ** ** | **Additions**       | ** ** | **Additions**     | ** ** | ** **      | ** ** | ** **      | ** ** |
|--------------------------------------------|------------|-----------------------|------------|---------------------|------------|-------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                 | ** ** | **Balance at**   | ** ** | **charged to** | ** ** | **charged**       | ** ** | ** **      | ** ** | **Balance**     | ** ** |
| ** **                                 | ** ** | **beginning of** | ** ** | **costs and**  | ** ** | **to asset** | ** ** | ** **      | ** ** | **at end** | ** ** |
| **Description**                            | ** ** | ** **            | ** ** | **period**          | ** ** | **expenses**      | ** ** | **accounts(1)** | ** ** | **Deductions**  | ** ** | **of  period** | ** ** |
| For the year ended  December 31, 2006 |       |                  |       |                |       |              |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |
| Sales Allowances                           |       |                  | $          | 20.6                |       |              |       | $               | 79.9       |            |       |   | $ | — |   |   |   | $ | (73.9 | ) |   |   | $ | 26.6 |   |   |   |
| Allowance for  Doubtful Accounts           |       |                  | 2.9        |                |       |              | 5.5        |            |       |            | —     |   |   |   | (4.0 | ) |   |   | 4.4 |   |   |   |
| Inventory Reserve                          |       |                  | 46.0       |                |       |              | 21.9       |            |       |            | —     |   |   |   | (50.5 | ) |   |   | 17.4 |   |   |   |
| Physical Asset  Reserve                    |       |                  | 0.3        |                |       |              | —     |            |       |            | —     |   |   |   | — |   |   |   | 0.3 |   |   |   |
| Tax Valuation  Allowance (2)               |       |                  | 50.5       |                |       |              | —     |            |       |            | 1.5        |   |   |   | (10.1 | ) |   |   | 41.9 |   |   |   |
|                                       |       |                  | $          | 120.3               |       |              |       | $               | 107.3      |            |       |   | $ | 1.5 |   |   |   | $ | (138.5 | ) |   |   | $ | 90.6 |   |   |   |
| For the year ended  December 31, 2005 |       |                  |       |                |       |              |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |
| Sales Allowances                           |       |                  | $          | 14.5                |       |              |       | $               | 76.3       |            |       |   | $ | — |   |   |   | $ | (70.2 | ) |   |   | 20.6 |   |   |   |
| Allowance for  Doubtful Accounts           |       |                  | 1.8        |                |       |              | 4.1        |            |       |            | —     |   |   |   | (3.0 | ) |   |   | 2.9 |   |   |   |
| Inventory Reserve                          |       |                  | 49.3       |                |       |              | 41.9       |            |       |            | —     |   |   |   | (45.2 | ) |   |   | 46.0 |   |   |   |
| Physical Asset  Reserve                    |       |                  | 0.3        |                |       |              | —     |            |       |            | —     |   |   |   | — |   |   |   | 0.3 |   |   |   |
| Tax Valuation  Allowance (2)               |       |                  | 54.8       |                |       |              | —     |            |       |            | 5.6        |   |   |   | (9.9 | ) |   |   | 50.5 |   |   |   |
|                                       |       |                  | $          | 120.7               |       |              |       | $               | 122.3      |            |       |   | $ | 5.6 |   |   |   | $ | (128.3 | ) |   |   | $ | 120.3 |   |   |   |
| For the year ended  December 31, 2004 |       |                  |       |                |       |              |       |            |       |            |       |   |   |   |   |   |   |   |   |   |   |   |
| Sales Allowances                           |       |                  | $          | 9.0                 |       |              |       | $               | 64.4       |            |       |   | $ | — |   |   |   | $ | (58.9 | ) |   |   | 14.5 |   |   |   |
| Allowance for  Doubtful Accounts           |       |                  | 3.8        |                |       |              | 6.1        |            |       |            | —     |   |   |   | (8.1 | ) |   |   | 1.8 |   |   |   |
| Inventory Reserve                          |       |                  | 88.1       |                |       |              | 70.9       |            |       |            | —     |   |   |   | (109.7 | ) |   |   | 49.3 |   |   |   |
| Physical Asset  Reserve                    |       |                  | 0.3        |                |       |              | —     |            |       |            | —     |   |   |   | — |   |   |   | 0.3 |   |   |   |
| Tax Valuation  Allowance (2)               |       |                  | 42.9       |                |       |              | —     |            |       |            | 14.3       |   |   |   | (2.4 | ) |   |   | 54.8 |   |   |   |
|                                       |       |                  | $          | 144.1               |       |              |       | $               | 141.4      |            |       |   | $ | 14.3 |   |   |   | $ | (179.1 | ) |   |   | $ | 120.7 |   |   |   |
|                                            |            |                       |            |                     |            |                   |            |                 |            |                 |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

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(1)          Include amounts chargedto deferred tax assets and amounts charged to goodwill in connection with theAcquisition.

(2)          A portion of the Company’sdeferred tax assets recognized relate to state and foreign net operating lossand credit carryforwards. Because the Company operates in multiple state andforeign jurisdictions, it considers the need for a valuation allowance on astate-by-state and country-by- country basis. Management believes that theCompany may not be able to utilize the loss carryforwards in the future becausethe Company has a history of pre-tax losses in that jurisdiction or the lossesmay expire in the near future.

S-1

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**EXHIBITINDEX**
| Exhibit                     | ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                    | **Description** | ** ** |
|-----------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|------------|
| 3.1     |       | Restated Certificate of  Incorporation, as restated as of February 25, 2004, incorporated by  reference to Exhibit 3.1 to our Annual Report on Form 10-K  for the year ended December 31, 2003.                                                                                                                                                           |
| 3.2     |       | By Laws, as  amended and restated as of May 19, 2005, incorporated by reference to  Exhibit 3.1 to our Quarterly Report on Form 10-Q for the  quarter ended June 30, 2005.                                                                                                                                                                                |
| 4.1     |       | Amended and  Restated Rights Agreement, dated as of October 31, 1998, by and between  MedImmune and American Stock Transfer and Trust Company, as Rights Agent,  incorporated by reference to Exhibit 99.2 to our Registration Statement  on Form 8-A/A, filed on December 1, 1998.                                                                       |
| 4.2     |       | Certificate of  Designations of Series B Junior Preferred Stock, incorporated by  reference to Exhibit 4.2 to our Annual Report on Form 10-K  for the year ended December 31, 2001.                                                                                                                                                                       |
| 4.3     |       | Indenture, dated  June 28, 2006, by and between MedImmune and The Bank of New York, as  trustee, and Form of 1.375% Convertible Senior Note due 2011 attached  thereto as Exhibit A, incorporated by reference to Exhibit 4.1 to  our Current Report on Form 8-K, filed on July 5, 2006  (relating the Convertible Senior Notes, due 2011).     |
| 4.4     |       | Indenture, dated  June 28, 2006, by and between MedImmune and The Bank of New York, as  trustee, and Form of 1.625% Convertible Senior Note due 2013 attached  thereto as Exhibit A, incorporated by reference to Exhibit 4.2 to  our Current Report on Form 8-K, filed on July 5, 2006  (relating to the Convertible Senior Notes, due 2013).  |
| 4.5     |       | Registration  Rights Agreement, dated as of June 28, 2006, by and among MedImmune, UBS  Securities LLC and Merrill Lynch, Pierce Fenner & Smith  Incorporated, incorporated by reference to Exhibit 4.3 to our Current  Report on Form 8-K, filed on July 5, 2006.                                                                               |
| 10.1(1)                     |       | Patent License  Agreement, dated July 17, 1997, by and between Protein Design Labs and  MedImmune, incorporated by reference to Exhibit 10.73 to our Quarterly  Report on Form 10-Q for the quarter ended September 30, 1997.                                                                                                                             |
| 10.2(1)                     |       | License  Agreement, dated June 4, 1997, by and between Genentech, Inc. and  MedImmune, incorporated by reference to Exhibit 10.180 to our Annual  Report on Form 10-K for the year ended December 31, 2002.                                                                                                                                          |
| 10.3(1)                     |       | License for  Winter Patent, dated August 13, 1997, by and between Medical Research  Council and MedImmune, incorporated by reference to Exhibit 10.181 to  our Annual Report on Form 10-K for the year ended  December 31, 2002.                                                                                                                          |
| 10.4(1)                     |       | License  Agreement, dated as of December 1, 1997, by and between the University  of Iowa Research Foundation and MedImmune, incorporated by reference to  Exhibit 10.183 to our Annual Report on Form 10-K for the year  ended December 31, 2002.                                                                                                         |
| 10.5(1)                     |       | Sublicense Agreement,  dated as of September 15, 2000, by and between Centocor, Inc. and  MedImmune, incorporated by reference to Exhibit 10.174 to our Quarterly  Report on Form 10-Q for the quarter ended September 30, 2002.                                                                                                                     |
| 10.6(1)                     |       | Patent License  Agreement (Adair Patent Rights) (MedI-493), dated as of  January 19, 1998, as amended by the Variation Agreement, dated  June 24, 2005, by and between Celltech R&D Limited, UCB S.A. and  MedImmune, incorporated by reference to Exhibits 10.1 and 10.2 to our  Quarterly Report on Form 10-Q for the quarter ended June 30,  2005. |

E-1

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| 10.7(1)                       |   | Amended and  Restated Distribution Agreement, dated as of February 23, 2005, by and  between MedImmune and Abbott International LLC, incorporated by reference to  Exhibit 10.6 to our Annual Report on Form 10-K for the year  ended December 31, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.8(1)                       |   | Manufacturing  Agreement, dated November 27, 1997, between MedImmune and Boehringer  Ingelheim Pharma GmbH & Co. KG (successor-in-interest to  Dr. Karl Thomae GmbH), incorporated by reference to Exhibit 10.78  to our Annual Report on Form 10-K for the year ended  December 31, 1997.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| 10.9      |   | Amended and  Restated License Agreement, effective as of May 1, 1993, by and between  MedImmune Oncology, Inc., our wholly owned subsidiary formerly known as  U.S. Bioscience, Inc. (“USB”), and Southern Research Institute,  incorporated by reference to Exhibit 10.8 to the USB Annual Report on  Form 10-K for the year ended December 31, 1993.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10.10(1)                      |   | Amifostine  Manufacturing and Supply Agreement, dated as of January 1, 2001, by and  between MedImmune Oncology, Inc. and PPG Industries, Inc.,  incorporated by reference to Exhibit 10.20 to our Annual Report on  Form 10-K/A for the year ended December 31, 2003, filed on  December 21, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.11(1)                      |   | Terms and  Conditions for the Manufacture of Products by Ben Venue  Laboratories, Inc., dated as of October 17, 2003, incorporated by  reference to Exhibit 10.21 to our Annual Report on Form 10-K/A  for the year ended December 31, 2003, filed on December 21, 2004.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.12(1)                      |   | Materials  Transfer and Intellectual Property Agreement, dated February 24, 1995,  by and between MedImmune Vaccines, Inc. (“MedImmune Vaccines”), our  wholly owned subsidiary, formerly known as Aviron (“Aviron”), and the Regents  of the University of Michigan, incorporated by reference to Exhibit 10.3  to Aviron’s Registration Statement on Form S-1 (File No. 333-05209),  filed on June 5, 1996, as amended by the Letter Amendment, dated as of  February 24, 1999, incorporated by reference to Exhibit 10.24 to  Aviron’s Quarterly Report on Form 10-Q for the quarter ended  March 31, 1999, as further amended by the letter dated March 4,  1996 exercising MedImmune Vaccines’ option to include Japan as part of the  Territory (as defined in the agreement), incorporated by reference to Exhibit 10.11  to our Annual Report on Form 10-K for the year ended  December 31, 2004. |
| 10.13(1)                      |   | Underlease of  Plot 6 Boulevard Industry Park Halewood Merseyside, dated February 17,  2000, by and between MPEC Boulevard Limited (as Landlord), Medeva Pharma  Limited (as Tenant) and Medeva PLC (as Guarantor), as subsequently assigned  to MedImmune Vaccines, incorporated by reference to Exhibit 10.43 to  Aviron’s Annual Report on Form 10-K for the year ended  December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| 10.14     |   | Confirmation of  Warrant Transaction, dated June 22, 2006, between MedImmune and UBS AG,  London Branch for warrants expiring in 2011, incorporated by reference to  Exhibit 10.1 to our Quarterly Report on Form 10-Q for the  quarter ended June 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.15     |   | Confirmation of  Warrant Transaction, dated June 22, 2006, between MedImmune and UBS AG,  London Branch for warrants expiring in 2013, incorporated by reference to  Exhibit 10.2 to our Quarterly Report on Form 10-Q for the  quarter ended June 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| 10.16     |   | Confirmation of  Warrant Transaction, dated June 22, 2006, between MedImmune and Lehman  Brothers OTC Derivatives, Inc. for warrants expiring in 2011,  incorporated by reference to Exhibit 10.3 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |

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| 10.17     |   | Confirmation of  Warrant Transaction, dated June 22, 2006, between MedImmune and Lehman  Brothers OTC Derivatives, Inc. for warrants expiring in 2013,  incorporated by reference to Exhibit 10.4 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006.         |
|-------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.18     |   | Confirmation of  Amended Warrant Transaction, dated June 26, 2006, between MedImmune and  UBS AG, London Branch for warrants expiring in 2011, incorporated by  reference to Exhibit 10.5 to our Quarterly Report on Form 10-Q  for the quarter ended June 30, 2006.                      |
| 10.19     |   | Confirmation of  Amended Warrant Transaction, dated June 26, 2006, between MedImmune and  UBS AG, London Branch for warrants expiring in 2013, incorporated by  reference to Exhibit 10.6 to our Quarterly Report on Form 10-Q  for the quarter ended June 30, 2006.                      |
| 10.20     |   | Confirmation of  Amended Warrant Transaction, dated June 26, 2006, between MedImmune and  Lehman Brothers OTC Derivatives, Inc. for warrants expiring in 2011,  incorporated by reference to Exhibit 10.7 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006. |
| 10.21     |   | Confirmation of  Amended Warrant Transaction, dated June 26, 2006, between MedImmune and  Lehman Brothers OTC Derivatives, Inc. for warrants expiring in 2013,  incorporated by reference to Exhibit 10.8 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006. |
| 10.22     |   | Confirmation of  Convertible Bond Hedge Transaction related to 2011 Notes, dated June 22,  2006, between MedImmune and UBS AG, London Branch, incorporated by reference  to Exhibit 10.9 to our Quarterly Report on Form 10-Q for the  quarter ended June 30, 2006.                       |
| 10.23     |   | Confirmation of  Convertible Bond Hedge Transaction related to 2013 Notes, dated June 22,  2006, between MedImmune and UBS AG, London Branch, incorporated by reference  to Exhibit 10.10 to our Quarterly Report on Form 10-Q for the  quarter ended June 30, 2006.                      |
| 10.24     |   | Confirmation of  Convertible Bond Hedge Transaction related to 2011 Notes, dated June 22,  2006, between MedImmune and Lehman Brothers OTC Derivatives, Inc.,  incorporated by reference to Exhibit 10.11 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006. |
| 10.25     |   | Confirmation of  Convertible Bond Hedge Transaction related to 2013 Notes, dated June 22,  2006, between MedImmune and Lehman Brothers OTC Derivatives, Inc.,  incorporated by reference to Exhibit 10.12 to our Quarterly Report on  Form 10-Q for the quarter ended June 30, 2006. |
| 10.26(2)                      |   | Collaboration  Agreement, dated August 25, 2006, by and between MedImmune and Infinity  Pharmaceuticals, Inc., incorporated by reference to Exhibit 10.1 to  our Quarterly Report on Form 10-Q for the quarter ended  September 30, 2006.                                            |
| 10.27(2)                      |   | Asset Purchase  Agreement, dated November 8, 2006, by and between MedImmune and ZLB  Behring AG.*                                                                                                                                                                                                        |
| 10.28†    |   | Form of  Employment Agreement entered into by and between MedImmune and each of David  M. Mott and James F. Young, incorporated by reference to Exhibit 99.1 to  our Current Report on Form 8-K filed on December 15, 2005.                                                               |

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| 10.29†    |   | Form of Employment  Agreement entered into by and between MedImmune and each of our other named  executive officers (other than Dr. Hockmeyer, Mr. Mott and  Dr. Young), incorporated by reference to Exhibit 99.2 to our  Current Report on Form 8-K filed on December 15, 2005.                                                  |
|-------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.30†    |   | Employment  Agreement entered into by and between MedImmune and Wayne T. Hockmeyer,  Ph.D., dated as of March 1, 2006 incorporated by reference to  Exhibit 99.1 to our Current Report on Form 8-K filed  March 1, 2006.                                                                                                                          |
| 10.31†    |   | 2004 Stock Incentive  Plan, incorporated by reference to Exhibit A to our Definitive Proxy  Statement filed on April 4, 2004, as amended on May 19, 2005.                                                                                                                                                                                                   |
| 10.32†    |   | Form of  Stock Option Agreement generally used for stock option grants to  Mr. Mott, Dr. Hockmeyer or Dr. Young under the 2004 Stock  Incentive Plan, incorporated by reference to Exhibit 10.23 to our Annual  Report on Form 10-K for the year ended December 31, 2004.                                                          |
| 10.33†    |   | Form of  Stock Option Agreement generally used for stock option grants to executive  officers (other than Mr. Mott, Dr. Hockmeyer or Dr. Young)  under the 2004 Stock Incentive Plan, incorporated by reference to  Exhibit 10.24 to our Annual Report on Form 10-K for the year  ended December 31, 2004.                         |
| 10.34†    |   | 2003 Non-Employee  Directors Stock Option Plan, incorporated by reference to Exhibit A to  our Definitive Proxy Statement, filed on April 17, 2003, as amended on  May 25, 2006.                                                                                                                                                                            |
| 10.35†    |   | Form of  Stock Option Agreement generally used for grants to directors under the 2003  Non-Employee Directors Stock Option Plan, incorporated by reference to  Exhibit 10.26 to our Annual Report on Form 10-K for the year  ended December 31, 2004.                                                                                             |
| 10.36†    |   | 1999 Stock Option  Plan, incorporated by reference to Exhibit 4.1 to our Registration  Statement on Form S-8 (File No. 333-79241), filed on  May 25, 1999, as amended to increase the number of shares subject to  such plan as described in our Registration Statement on Form S-8  (File No. 333-105578), filed on May 27, 2003. |
| 10.37^                   |   | Aviron 1999  Non-Officer Equity Incentive Plan, as amended as of September 24, 2001,  incorporated by reference to Exhibit 4.1 to Aviron’s Registration  Statement on Form S-8 (File No. 333-72120), filed on  October 23, 2001.                                                                                                        |
| 10.38^                   |   | USB Non-Executive  Stock Option Plan, as amended as of April 24, 1997, incorporated by  reference to Exhibit 4.2 to USB’s Registration Statement on Form S-8  (File No. 333-26735), filed on May 9, 1997.                                                                                                                               |
| 10.39†    |   | 1993 Non-Employee  Director Stock Option Plan, incorporated by reference to Exhibit 4.3 to  our Registration Statement on Form S-8 (File No. 333-28481),  filed on June 4, 1997.                                                                                                                                                                  |
| 10.40†    |   | 1991 Stock Option  Plan, as amended as of May 16, 1997, incorporated by reference to  Exhibit 4.2 to our Registration Statement on Form S-8 (File  No. 333-28527), filed on June 4, 1997.                                                                                                                                                    |
| 10.41†    |   | 2001 Employee  Stock Purchase Plan, incorporated by reference to Exhibit 4.1 to our  Registration Statement on Form S-8 (File No. 333-59272),  filed on April 20, 2001.                                                                                                                                                                           |
| 10.42†    |   | Summary of  Non-Employee Director Compensation, incorporated by reference to  Exhibit 10.33 to our Annual Report on Form 10-K for the year  ended December 31, 2004.                                                                                                                                                                                   |
| 21.1      |   | Subsidiaries of  MedImmune, Inc.*                                                                                                                                                                                                                                                                                                                                |

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| 23.1     |   | Consent of  PricewaterhouseCoopers LLP*                                                                                    |
|------------------------------|--------|----------------------------------------------------------------------------------------------------------------------------|
| 31.1     |   | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934* |
| 31.2     |   | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a) under the  Securities Exchange Act of 1934* |
| 32.1     |   | Section 1350  Certifications*                                                                                         |
| 99.1     |   | Patent Table*                                                                                                              |

 

*Notes:*

*                    Filedherewith.

†                    Managementcontract or compensatory plan or arrangement.

^              Compensatory planadopted without approval of stockholders assumed by MedImmune in connectionwith an acquisition. We do not intend to make any new grants under such plans.

(1)          Confidential treatmenthas been granted by the SEC for certain portions of the agreement. The copyfiled as an exhibit omits the information subject to the confidentiality order.

(2)          Confidential treatmenthas been requested for certain portions of the agreement. The copy filed as anexhibit omits the information subject to the confidentiality request.

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